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TECHNOLOGY

Home TECHNOLOGY Page 5

by EOS Intelligence EOS Intelligence No Comments

Moving Towards 5G – Slowly but Surely

5G technology started to become a buzzword around 2017, when it was still in a nascent stage of development, to say the least. Over the past two years, 5G has evolved from pilot testing phase to small-scale implementation. However, 5G full-scale deployment is yet to be seen and there are still many challenges to overcome. 5G is here, but it is still a long way before it becomes mainstream.

Developing 5G infrastructure is a costly affair

5G uses high frequencies and short wavelength to deliver faster speed and lower latency. Short wavelength requires shorter distance between the tower and the device, since the signal cannot penetrate buildings, trees, or other such obstacles. Therefore, telecom operators need to build 5G small-cell towers very close to the end-users, which is time consuming and expensive.

The high cost of investment is seen as a major pain point by majority of the telecom operators. A report released by a UK-based capital finance firm Greensill in February 2019 indicated that the investment in global 5G telecom infrastructure will reach US$1 trillion by 2020.

Network sharing is increasingly seen as a rational approach to reduce the individual cost of investment. In February 2018, McKinsey estimated that if three players share the 5G network, the individual costs can be reduced by 50%. However, setting up a collaboration with other telecom operators to share networks is a complex and time-consuming process. On an average, it takes about six to nine months to finalize a network sharing agreement. Each telecom operator will need to ink many such network sharing contracts to achieve wide-spread coverage of their services.

Despite the hype, demand for 5G is currently rather moderate

Despite all the promises of high-speed and uninterrupted internet connectivity, 5G is not seen as an immediate necessity. This is because the existing technology, 4G LTE, is able to fulfill most of the current consumer needs. The average 4G LTE data speed globally is estimated at around 17Mbps. Thus, 4G LTE provides sufficient speed for some of the most common mobile applications such as music streaming (~1Mbps), 1080p HD video (~5Mbps), and even online games such as Fortnite (~3Mbps).

As per a study conducted by PWC in September 2018, only about a third of 1,000 home and mobile internet users surveyed in the USA were willing to pay a premium for 5G, provided 5G delivers speed and low latency as claimed by the telecom operators. Moreover, survey finds that, for 5G internet service, home internet users were willing to pay a marginal amount of US$5.06 on average as monthly premium in addition to their current spending on 4G. Mobile internet users were willing to spend even less, a monthly premium of US$4.40 on average. To compare, a US-based telecom operator Verizon offers unlimited 4G data and calls for US$65 per month.

Moreover, most of the 4G devices do not support 5G networks, thus require consumers to spend additionally on 5G-compatible devices. This additional cost factor is also expected to act as a deterrent for mass adoption of 5G in the near term. Another survey (conducted by PWC in May 2019) of 800 internet users in the USA found that if a new device was required to access 5G, 70% of the respondents would not be willing to buy a new 5G-compatible device as soon as it was available, rather wait until they were eligible for an upgrade.

Thus, the marketing hype created around 5G have got consumers intrigued about the technology, however, they are not open to spending generously on the 5G experience.

Net neutrality law dampens motivation to invest in 5G

5G would enable network slicing allowing telecom operators to dedicate a portion or slice of their 5G network with certain functionality such as connectivity, speed, or capacity. In other words, network slicing creates various networks that share the same physical infrastructure without impacting other network functionalities.

For instance, in automated cars, one slice could be used for watching Netflix and other could be used for exchanging reliable information with other cars to avoid any road accidents. Network slicing is a real opportunity for telecom operators to optimize their 5G networks to address different needs of specific application areas.

Furthermore, differentiated services provided with each network slice using the same physical infrastructure are likely to increase revenue potential for telecom operators. A research study conducted by Ericsson in 2018 concluded that telecom operators can generate up to 35% more in revenue using network slicing (the study assumed a 5G mobile broadband had 25 million subscribers with 40 unique services launched per year over the period of five years).

However, the net neutrality regulation adopted by many countries across the world does not permit the use of network slicing technique. Net neutrality laws are in effect in the EU since 2016. In North America, Canada has net neutrality regulation in place, but in the USA the status of the law is under review. Most countries in South America have national laws to protect net neutrality. In Asia, Japan, South Korea, and India are among the few countries with net neutrality regulation. Africa, in particular, is lagging behind other regions in developing concrete framework to protect net neutrality.

The net neutrality law dictates telecom operators to treat all internet communications equally and prohibits them to charge differently for different internet services. Net neutrality law does not allow the telecom operators to use network slicing technique to create distinguished service offerings by blocking any part of bandwidth for a particular application or user group.

Telecom operators argue that this impacts the roll out of mission-critical and emergency services such as remote surgery which needs to be given priority over other applications. With net neutrality in the picture, telecom operators would not be able to benefit from the key feature of 5G technology, network slicing. This may hinder the overall 5G development.

As telecom operators voice their concerns, regulators across the world are reviewing net neutrality laws. EU opened consultations with industry stakeholders as telecom operators in the region propose 5G to be classified as a specialized service which is exempted from net neutrality laws.

In the USA, the status of net neutrality law (introduced in 2015) remains unclear. In June 2018, the Federal Communications Commission (FCC) repealed net neutrality regulation, however the decision was opposed by 22 states. State legislators have challenged the FCC decision in the US Court of Appeals and proposed to authorize the state-level legislations to re-instate net neutrality laws. In the 2019 legislative session, 29 states introduced laws to protect net neutrality at state level.

5G to multiply data privacy and security risks

5G does not drastically change the risk factors similar to those in the existing communication technologies (i.e. 2G, 3G, and 4G), however, it is going to dramatically increase the potential points of cyberattacks. This is due to the fact that the advent of 5G is expected to result in exponential increase in the number of connected devices and associated network data traffic, which will significantly expand the number and scale of cyber vulnerabilities.

A study (released in May 2019 by Business Performance Innovation (BPI) Network, a professional networking organization) based on a global survey of 145 telecom industry professionals, indicated that 94% of respondents believed that 5G will increase security and reliability concerns.

Another survey conducted in June 2019 by Cradlepoint, a cloud-based networking solutions provider, indicated that 73% of the 200 respondents (working with telecom operators) acknowledged that security concerns might delay the 5G adoption.

Explore our other Perspectives on 5G

Industry is turning to standardization and regulatory bodies for guidance on minimizing security threats associated with 5G. But existing standards do not fully address the data privacy and security concerns.

For instance, the existing 5G standard employs Authentication and Key Agreement (AKA) protocol which is a mutually authenticating system between the user device and 5G network. However, in late 2018, it was discovered that the 5G AKA has at least two vulnerabilities that could compromise users’ data privacy and security. Firstly, it allows interception of the communication between two users, enabling cyber spies to steal personal information or corrupt data. Further, the vulnerability in 5G AKA protocol could allow cyber criminals to bill the phone call or other charges to legitimate users.

5G standards are still under development and will take some time to come into effect. Since 5G is a new technology, many data privacy and security threats still remain unidentified. In anticipation of potential security flaws, telecom operators may adopt a wait-and-see approach before moving to wide-scale commercial deployment of 5G.

5G draws criticism over possible health concerns

It is believed that prolonged exposure to electromagnetic radiation from 5G networks can be harmful to human health. In 2011, cellular radiation was classified as a possible carcinogen by World Health Organization. 5G radiation is also claimed to be linked to premature aging, disruption of cell metabolism, as well as neurological disorders. However, there is little evidence to understand the actual extent of the harm caused, and therefore many countries are not giving this issue due attention.

However, rising health concerns are not going unnoticed. In September 2017, 180 medical professionals and scientists from 36 countries recommended the European Commission to postpone the deployment of the 5G network until the potential risks for human health and environment are thoroughly investigated and proven. In response, the European Commission indicated that the member states are responsible for protecting their citizens from harmful effect of electromagnetic radiation and they can introduce choice of measures based on the demographics. This means that, in the future, if the presumed adverse effect of 5G radiation on human health is proven to be true, countries can impose protectionary measures which would limit the development of 5G.

Some countries have already taken a cautious approach to 5G deployment in view of potential health risks. An example of this could be Belgium stopping a 5G test in Brussels in April 2019 due to difficulty in measuring electromagnetic radiation emissions. Around the same time, Swiss government also announced plans to introduce radiation monitoring systems to continually assess health risks posed by 5G radiation. Earlier in September 2018, Mill Valley, a city in San Francisco, USA, banned deployment of small-cell 5G towers in the city’s residential areas.

Thus, growing concerns over impact of 5G on human health is expected to further delay the 5G development and adoption.

Moving Towards 5G – Slowly but Surely nu EOS Intelligence

1) According to McKinsey estimates (February 2018) based on the assumption that three players share the 5G network
2) Based on survey of 1,000 home and mobile internet users in the USA conducted in September 2018 by PWC
3) Based on survey of 800 home and mobile internet users in the USA conducted in May 2019 by PWC
4) As per Ericsson 2018 study, assuming a 5G mobile broadband having 25 million subscribers with 40 unique services launched per year over the period of five years
5) According to May 2019 study by Business Performance Innovation (BPI) Network
6) Based on a survey conducted by Cradlepoint in June 2019

EOS Perspective

While the 5G technology era has arrived, wide-scale commercial deployment is moving slowly amidst challenges it is facing. Cradlepoint study indicated that 46% of the 200 telecom industry professionals surveyed in June 2019 had made little or no preparations for 5G deployment.

4G (introduced in 2009) accounted for 43% of the total mobile subscriptions globally by the end of 2018. Even after a decade, there are still many regions where people do not have access to 4G.

Transitioning from existing communication technologies to 5G is more complex, costly, and time-consuming. Hence, 5G is years away from full-scale commercial deployment. GSMA, an industry association with over 750 telecom operators as members, predicts that while 4G will continue to grow to reach 60% of the global mobile subscriptions in 2025, 5G will account for just 15% of the market by then.

5G has been in the news for some time now and it is marketed as the future of communication and internet technology. 5G has gone through many upgrades and is deemed ready for commercial deployment, at least on a small scale. Many leading telecom operators today are preparing for the rollout of 5G networks while uncovering new challenges in the process.

The road to 5G might be longer than expected, given the challenges on the way. TBR, a technology research firm, expects that only few trailblazers would have attempted to deploy 5G by the end of 2019. Majority of telecom operators will deploy 5G between 2020 and 2026. Laggards will follow them and continue with 5G deployment till 2030.

by EOS Intelligence EOS Intelligence No Comments

Media Players Push the Envelope to Sway in on Streaming Arena

The emergence of online entertainment has led to consumers transitioning from a fixed time-based entertainment on TV to on-demand watching across a wide array of devices. Continuously shifting viewing preferences will further expand digital mode of entertainment thus intensifying the competition between online streaming services and other entertainment providers. This will likely set the tone of how traditional entertainment players refurbish their business objectives and modify their operational models to acquire and retain consumers in the times ahead.

Online video streaming soars, both in subscribers and revenue

In early 2000’s if one wished to watch a movie at home, it meant day(s) of wait before the DVD arrived at the doorstep via mail. However, in 2007, when Netflix launched its online video streaming service, it started a new wave in the entertainment world – the ability to enjoy your favorite movie at the click of a button without having to wait for it to be delivered. This marriage of content and digital technology gave consumers an exciting experience of viewing content in a new way. Since then, video streaming has come a long way and now is a multi-billion dollar industry. In 2018, the video streaming industry was valued at US$ 36.64 billion and is expected to grow at a CAGR of 19.6% between 2019 and 2025, reaching a value of US$ 124.57 billion by 2025.

A surge in the number of devices supporting digital media, increasing internet speed, and the ease to access content (be it information, entertainment, or social) anytime, anywhere is driving the growth of online content.

As the demand for digital on-demand content is growing, consumers are spending more on subscription video on demand (SVOD) such as Netflix and Amazon Prime, making it the most commonly used video service in the over-the-top (OTT) content (content delivered via internet) market – in 2018, of the total global OTT revenue of US$ 67.8 billion, SVOD generated nearly 53% of the revenue standing at US$ 36 billion. SVOD revenue is estimated to reach US$ 87 billion by 2024.

According to global information provider, IHS Markit, the number of global subscribers to online video services such as Netflix and Amazon Prime increased by 27% in 2018 and reached 613.3 million subscribers, an increase of 131.2 million in comparison to 2017. The top three online streaming players account for 45% of this share – Netflix with 155 million subscribers (148 million paid users, with another 7 million using trial accounts), Amazon Prime with 100 million subscribers, and Hulu with 28 million subscribers (26.8 million paid users, with an additional 1.3 million using promotional accounts), totaling to 283 million subscribers.

Media Players Push the Envelope to Sway in on Streaming Arena by EOS Intelligence

Cable TV bearing the brunt

Online video subscriptions (613.3 million) surpassed cable subscriptions (that stood at 556 million, a 2% decrease from 567 million in 2017) for the first time in 2018. However, the online subscription video platforms generated nearly three times less revenue than cable TV, mainly due to low subscription rates. These affordable rates coupled with the flexibility to watch any program at any convenient time has resulted in a drop in the viewership of the television network.

Cable and satellite providers, to some extent, are taking a beating from online streaming as consumers are abandoning traditional cable for streaming services. In the USA, consumers spend US$ 23.3 billion annually on home entertainment, of this 75% (US$ 17.5 billion) is spent on digital entertainment, which depicts the fact that people are spending more on online subscriptions than on the cable TV. This implies that consumers prefer viewing content online than on cable TV, which is further reinforced by the low subscription rates for online services. As a consequence, in 2018, two of the largest direct broadcast satellite service providers in the USA, AT&T-owned DirecTV and Dish Network Corporation’s DishTV, reported losing 1.24 million and 1.13 million subscribers, respectively.

Consumers prefer viewing content online than on cable TV, which is further reinforced by the low subscription rates for online services.

While both players lost a huge number of viewers of the cable television services, during the same year, they were also the largest aggregators through their streaming cable services, namely, DirectTV Now (owned by AT&T) and Sling TV (owned by Dish), which added 436,000 and 205,000 new subscribers each. This shift denotes a change in the way people consume content, choosing a plan that is cable-like but shifting to streaming services at low price point making budgetary cuts while still enjoying favorite programs.

For providers that offer both pay-tv and online subscription as part of their service portfolio, staying afloat in this competitive arena is easier since consumers can shift from one package to another (according to changes in their financial capabilities) and the company does not end up losing customers.

However, for traditional cable companies, the situation is more difficult than expected. In 2018, the top six cable companies in the USA (Comcast, Charter, Cox, Altice, Mediacom, and Cable One) lost a combined 910,000 TV subscribers in comparison to 660,000 subscribers lost in 2017 (38% more in a year). Large cable telecommunications companies such as Comcast and Charter are still in a better position to deal with the situation owing to various business verticals and strong financial records. It is the small players operating in limited territories who are in a muddle – they need to look for alternative ways (other than offering cable TV services, subscribers for which are drastically reducing) to keep their businesses afloat.

Other than losing customers, they are also challenged by the increasing negotiations with programmers (for distributing content via cable) who now have the alternative to broadcast their content via online partners, eliminating the need of cable middleman.

However, unlike in the USA, where the online streaming market is pretty much advanced, in other less developed parts of the world, the development of online streaming platforms is still in its infancy. In the immediate future, it is expected that the streaming services will not be able to cause major impact on traditional video platforms in these geographies, as the adoption of video streaming will be restricted mainly by slow internet connectivity, unlike in the USA, where 5G services are on the brink of being launched.

Constantly evolving entertainment landscape, not without challenges

Online streaming is disrupting the traditional mode of video entertainment challenging the domination of TV as the main entertainment hub. Ascent of digital media players such as Netflix, Amazon, or YouTube, is posing major challenges for other players such as content production studios, cable companies, and media networks thus compelling them to develop new business models and adapt to compete with online streaming players.

To catch up with the changing dynamics of the industry, players from all verticals (including media houses, internet providers, telecom companies, distributors, etc.) in the entertainment industry are revising their business choices and strategically launching new product and services.

Media companies are reformulating their business models by including exclusive streaming services into their overall product and service portfolio. For instance, Disney, US-based mass media and entertainment company, is planning to launch its suite of direct-to-consumer (DTC) services in 2019 starting with Disney+ (to be launched in the USA in November, 2019, followed by launch in Asia and Europe in 2020 and 2021, respectively) focusing on delivering original productions, with all content available for offline viewing. It is estimated that Disney+ is likely to attract up to 90 million subscribers by 2024, nearly more than two times of what Netflix accomplished in five years.

In another example, Comcast-owned mass media house, NBCUniversal, announced the launch of its ad-supported streaming service in April 2020. The service will be free if viewers watch TV through a paid provider with NBCU access (including Comcast and Sky) but one can opt for subscription service to eliminate ads. To start with, the service will focus on licensed content with some original programming.

Recently acquired Time Warner, now named WarnerMedia (acquired by AT&T), also plans to launch its streaming service by the end of 2019 with three tiers of options – an entry-level package focused on movies, premium service with original programming and blockbuster movies, and third option that offers content from the first two packages plus an extensive library of WarnerMedia and licensed content.

With more and more players venturing into the streaming territory and offering new and fresh content, the competition is only going to get harder for Netflix and the likes of it. Players who lack in offering content volume-wise, even though successful in launching their streaming services, will find it difficult to survive, in the medium term, especially when offering premium subscriptions.

Players who lack in offering content volume-wise, even though successful in launching their streaming services, will find it difficult to survive, especially when offering premium subscriptions.

Other than media companies, pure-play cable operators are also feeling the heat of the ever-changing entertainment landscape. As the majority of viewers receiving at-home-video services through means other than traditional cable subscription increases, cable TV players are left with no choice but to look for alternative ways to engage with the market. Increasing demand for broadband services is a saving grace for cable operators in this situation. For example, cable provider, Comcast, is becoming more broadband-centric than cable-centric and shifting its focus to high-speed internet services since customers have started dumping high-priced TV services for cheaper streaming services. The company, in March 2019, launched a streaming platform, Xfinity Flex, targeted at broadband internet services customers (who do not use the company’s cable services). The service offers customers set-top streaming box that includes Netflix, Prime Video, HBO, and other apps, and voice control to manage all of the connected devices in their homes.

However, for cable operators, the situation will only worsen in the future. High-speed internet access market, currently dominated by cable operators, will soon be challenged by the rollout of 5G wireless technology by telecom companies such as Verizon, AT&T, T-Mobile, and Sprint, among others. The implementation of 5G services will be a whole new ballgame, highly likely to transform the online viewing experience, and it will be interesting to see how exactly this space will be changed.

New entrants challenging the players

If the TV content and service providers were already not in deep waters due to the rise of online streaming, entry of retail and media players into the entertainment sector has not made the situation any better. Though these entrants are most likely going to be a direct competition for the video streaming players rather than the traditional ones, it cannot be denied that this may be a potential threat to the entire entertainment industry.

In May 2019, retail chain, Walmart, that bought Vudu, content delivery and media technology company in 2010, launched a video service offering more than 8,000 movies and TV shows for viewers to watch for free (with ads), as well as a library of more than 150,000 movies and TV titles that people can purchase or rent. The company dropped its initial plans to launch Vudu as a streaming service (competing with Netflix) citing huge investment requirement and lack of experience in producing original content as the reasons. However, the idea was not off the table for too long, as the company announced a list of original content programs including reviving an old movie to be delivered in 11-minute installments, a travel show, an entertainment series, and a crime thriller. Vudu is currently focused on developing content that costs much less than other top video streaming service providers spend on original content, which costs them billions of dollars; the future vision takes the path of reaching the front of the pack slowly and steadily.

In another example from 2018, Snapchat, a multimedia messaging app, launched Snap Originals, offering premium content (with episodes lasting for about five minutes) created exclusively for Snapchat’s users to be viewed on their mobiles. The content includes a range of genres including drama, comedy, documentary, etc., and is developed in partnership with film and television writers and producers.

EOS Perspective

The amount of money viewers spent globally on entertainment reached US$ 55.7 million in 2018, an increase of approximately 16% in comparison to 2017 (US$ 48.1 million). Between 2014 and 2018, consumers’ entertainment spending increased nearly 1.5 times driven by increased expenditure on digital entertainment (including electronic sell-through, video-on-demand, and paid subscriptions). The digital entertainment spending in 2018 was US$ 42.6 million in comparison to US$ 15.7 million in 2014, an increase of 171%, exhibiting a giant move towards digital viewing.

There has been a plethora of cases where TV players have either launched new ideas and concepts or joined hands with other players (in the same realm or similar playfield) to have a foothold in the otherwise challenging entertainment industry. With more and more options congesting the already tight, but diverse streaming video topography, it is most likely going to present increasing competition for traditional television. This, topped with dropping numbers of television viewers globally, only adds to the inevitable nostalgic observation that television may become obsolete, if not dead, in the next five to six decades.

Developing content and building own platforms for streaming videos does not come cheap – players will have to invest billions of dollars in developing content whilst losing revenue by not selling distribution rights to third-party networks and distributors. This stands true for content creators such as Disney and WarnerMedia, who are likely to gradually withdraw their content from online streaming platforms to be broadcasted on their own networks. For instance, Disney will bear an estimated loss of US$ 300 million in annual revenues it currently gets from Netflix for pay-tv rights to its theatrical releases. Thus, it is clear that shifting to a newer streaming business model will not only be costlier but also riskier since it would be difficult to ascertain beforehand how well the content will be accepted by the viewers. Nonetheless, in the current scenario, where there is always demand for more content, players hardly have any other alternative to explore.

The outlook for video entertainment, in the short to medium term, looks promising with coalition among various operators’ in reshaping the video media scene. It can be expected that potential partnerships, particularly among content creators and service (internet and mobile network) providers, if done right, could be a tough nut to crack for pure-play online streaming operators.

Potential partnerships, particularly among content creators and service (internet and mobile network) providers, if done right, could be a tough nut to crack for pure-play online streaming operators.

Nevertheless, given the low-price point and round the clock content availability, it can be anticipated that online streaming business will continue to see significant growth in the years to come. For other players, it is important to understand that while their direct audience is shifting, it is not vanishing – just that viewers are watching the content via different modes. Thus, in the long haul, it will be necessary for players to offer a combination of traditional TV packages along with online streaming plans and become a one-stop-shop for content to retain old customers and signing up new subscribers. However, for the businesses, the challenge lies in knowing what offerings to create and whom to partner with, all while retaining customers and generating revenue in the constantly evolving entertainment topography.

Looking at the current scenario, it is apparent that digital platform players will further continue to disrupt (and redefine) the TV and video market in the future. To survive, industry-wide alliances in the form of joint production, partnerships, and mergers are an obvious choice to make. However, in their desperate attempt to stay ahead, it can be expected that companies will try to come up with innovative solutions, something that is neither exactly a cable TV offering nor a video that can be streamed online, but an experience that enthralls the viewers and keeps them hooked to the device of their choice.

by EOS Intelligence EOS Intelligence No Comments

Social Commerce Reshaping How Brands Sell and Customers Buy

402views

Today, social media is at the core of many brands’ marketing strategies. The growing value that customers (especially the younger demographic) place on social media content and the increasing use of social media to gain information about a product or brand have made social media an essential part of a customer’s purchase decision and experience. However, till recently, the use of social media was limited to being an advertising tool or referral channel for retailers, who used these channels to drive traffic to their e-commerce sites. This is expected to change in the future. With social media giants, such as Facebook, Instagram, and Pinterest offering direct sales options, it is quite likely that these apps will move from being mere marketing tools to becoming the final destination for sales, creating a new retail category – social commerce.

It is no secret that visual content social media apps, such as Instagram and Pinterest, offer a more engaging shopping experience for customers, who now look at these apps as an integral part of their purchase experience. Visual content on social media is known to significantly improve discoverability for brands, deepen brand trust and value, and increase sales conversion.

Retailers, both large and small, have been using social media extensively as a part of their marketing campaigns and are investing huge dollars in the platforms. Retailers are increasingly offering quick access to their e-commerce websites via social media apps, through which they aim to drive traffic to their sites and in turn convert it into sales.

Visual content on social media is known to significantly improve discoverability for brands, deepen brand trust and value, and increase sales conversion. Retailers, both large and small, have been using social media extensively as a part of their marketing campaigns and are investing huge dollars in the platforms.

This has paid off well for retailers, with reports stating that in 2017, the top 500 retailers globally earned about US$6.5 billion through sales that were a direct result of social media presence/marketing. This has increased by about 24% when compared with sales resulting from social media for the same set of retailers in 2016. This clearly demonstrates social media’s increasing influence in a shopper’s purchasing decision.

While it has become critical for retailers to have presence on social media, it is expected that social media will play an even bigger role in the consumer shopping experience in the future. Several social media platforms have been experimenting with direct selling options, wherein users do not have to leave the social media platform to make a purchase. While platforms such as Facebook and Pinterest have been offering direct selling options for a few years now, Instagram has recently joined the bandwagon.

As per a study by Bazaarvoice in 2019, the number of users who wish to discover and purchase directly through social media platforms has risen by 38% in 2018 over the previous year. Due to this, several social media platforms are forging their way into the e-commerce space, creating a new category, known as social commerce.

Facebook

Facebook was one of the first social media pages to move to direct selling, having introduced in December 2015. Facebook has a huge active user base (about 1.6 billion daily users) who visit the platform to engage with friends as well as brands.

The main premise behind introducing direct selling by Facebook was to streamline the purchase journey by reducing the number of clicks/page redirects a user needs to do to purchase a product. It helps facilitate impulse buys, which sometimes are abandoned in cases where multiple page redirects are required. Moreover, it provides an overall integrated shopping experience for users, who can rate, review, and comment on the products that they have purchased. This in turn increases overall engagement for the retailer, which in response may facilitate better visibility and credibility for them.

The main premise behind introducing direct selling by Facebook was to streamline the purchase journey by reducing the number of clicks/page redirects a user needs to do to purchase a product. It helps facilitate impulse buys, which sometimes are abandoned in cases where multiple page redirects are required.

Facebook store (its direct selling feature) is free to set up for retailers, however, most retailers setup their Facebook store with e-commerce website builders such as Shopify, Ecwid, and BigCommerce for ease of checkout and payment options.

While Facebook has been undertaking direct selling for a couple of years now, the response has been slightly underwhelming. This is due to several shortcomings. Firstly, the ticket size of products sold on Facebook is on the lower end, primarily due to encompassing mostly impulse or low consideration products. The average order value of referrals by Facebook is US$55, suggesting that the value of products ordered directly through Facebook would not be much higher than that. Moreover, the interface for a Facebook store is standard for all retailers, with no room for customization at their end. This also limits their opportunity to upsell/cross-sell other products. Lastly, the rights for ads shown on a retailer’s Facebook store remains with Facebook. Thus it is very likely that a competitor is advertising its products on the retailer’s page.

Thus, while Facebook store may be ideal for small and medium businesses with limited presence and scale, it may not be used by large retailers who sell high-value products and wish to provide an engaging and enriching shopping experience to their customers.

To further strengthen its hold on the social commerce aspect, Facebook launched Facebook Marketplace in 2018, which provides a destination for users to discover, buy, and sell items. However, the Marketplace differs from the Facebook Store and is more similar to eBay and Craigslist, wherein users can list products and conduct transactions through the platform. While it started as a peer to peer shopping marketplace, it has expanded to include merchant selling. As of October 2018, about 800 million people globally used Marketplace monthly to browse, buy, and sell items. This presents a unique opportunity to retailers who can drive sales of products at a platform where customers are already shopping.

While Facebook may not be the one-point solution for retail sales, it is definitely not to be ignored, especially for small to medium businesses. As per Ecwid, one of the largest e-commerce platforms, merchants who sell through this platform drive 15% of their sales from Facebook (as of 2017). Moreover, with people becoming more open to shopping through social media apps (as per a 2016 survey by BigCommerce, one of the largest e-commerce platforms in the USA, about 30% consumers are willing to make purchases directly from social media pages) and an increase in mobile shoppers, direct selling through Facebook presents a great number of benefits to retailers.

However, in 2018, Facebook announced a big change to its News Feed algorithm, which will now prioritize content shared by one’s friends and family instead of content shared by businesses and media outlets. This may further impact direct sales on Facebook, since going forward, business-related posts will feature less on the News Feed.

Social Commerce Reshaping How Brands Sell and Customers Buy

Pinterest

In June 2015, Pinterest also entered the social commerce space by introducing ‘Buyable Pins’, which are Pins that allow customers to buy products without leaving Pinterest. Since Pinterest is widely used by close to 250 million users, who visit the platform to discover new products, designs, and ideas, an option to buy pinned products seems like a natural extension for the social media player.

Buyable Pins help retailers streamline the e-commerce experience and improve conversion rates. As per a research by Shopify (another leading e-commerce platform) in 2014, Pins with prices get 36% more engagement compared with those without. Moreover, according to a 2016 survey by BigCommerce along with research firm, Kelton Global, 26% of the GenXers and Millennials surveyed claimed that they are more likely to purchase a product directly from Pinterest if given an option.

While Pinterest does not take any commission from retailers for sales through their platform, it makes money through advertisements as retailers promote their ‘Buyable Pins’ to users. Moreover, Pinterest lets the retailers handle the order processing, which includes processing payments, shipping, and customer service. This further helps retailers obtain and retain the customer’s information, which can be used in the future for sending follow-up mails, sharing promotions, and making future sales to the customer (unlike on Amazon and eBay).

‘Buyable Pins’ are currently only available in the USA and to few selected merchants. They are also available to merchants who use a listed range of e-commerce platforms, which include (but are not limited to) Shopify, BigCommerce, and Salesforce Commerce Cloud. However, the platform has been expanding, and over time will include a greater number of merchants.

Post the introduction of ‘Buyable Pins’, Pinterest also introduced a shopping cart option which is integrated across the mobile and desktop platforms, and which helps users to purchase multiple ‘Buyable Pins’ at a time.

Several retailers, especially small and medium size enterprises, have achieved significant success with ‘Buyable Pins’. FlyAway BlueJay, an online retailer selling artisanal products such as beauty products and small jewelry, attained tremendous success by using ‘Buyable Pins’ during the holiday season in 2015. All of their ‘Buyable Pins’ sales came from new customers, with ‘Buyable Pins’ driving 20% of their overall sales in the last quarter of 2015. In the beginning of 2016, Pinterest drove about 28% of their overall website traffic. Thus, it helped the company reach new customers and reduce their customer acquisition rate. Another small-scale retailer, Modern Citizen (a San-Francisco based women’s fashion and home goods retailer), introduced Buyable Pins shortly after they were launched by Pinterest and witnessed a 73% increase in their sales from Pinterest by using ‘Buyable Pins’.

Direct selling on Pinterest appears to be a must consideration for small to medium businesses that are selling unique and new products. With women making up 85% of Pinterest’s user base, brands selling to female audiences are expected to achieve higher success rate when compared with male-centric products sellers.

Instagram

Owing to its visual and interactive content, Instagram is one of the most widely used social media apps for discovering new products and inspiring purchase decisions. As per statistics shared by Instagram in June 2018, it had 500 million daily users. Moreover, as per an Instagram user survey (November 2015), 60% of its users claim that they leverage Instagram as a product discovery platform and 75% of these users have taken an action based on the products they discovered via Instagram (such as visit the website, purchase the products, or tell a friend). This puts the platform in a strong position to leverage its role (in the purchase process) and further extend brands’ offerings to include direct shopping from Instagram’s app.

While Instagram had not entered the direct selling market up till very recently, in 2017, it launched ‘shoppable posts’ (in a testing phase), wherein brands tagged their products on their organic posts. When a user clicked on a tagged product, they could see the pricing and a streamlined path to purchase it.

‘Shoppable posts’ received significant success on Instagram and the company launched them across the platform in 2018. In addition, it also launched ‘shoppable stories’ (stories offering the same tagging features as shoppable posts) and ‘shoppable collection’ (which allowed users to bookmark ‘shoppable posts’ to in turn create a shopping folder for the user).

Several companies that were part of the testing phase of ‘shoppable posts’ achieved significant increase in sales and Instagram-driven traffic to their websites. During the beta testing phase, participating brand, Natori (a US-based upscale woman’s fashion brand) posted 61 ‘shoppable posts’ and achieved a 1,416% week-over-week increase in traffic from Instagram and a 100% week-over-week increase in revenue from Instagram. After the testing phase, BigCommerce merchants using shopping features on Instagram witnessed a 50% increase in their Instagram referral traffic to their website.

In March 2019, Instagram launched a testing phase for a checkout option on the platform to tap on the potential of direct selling. Under this feature, Instagram allows users to buy directly (without leaving the app). Instagram aims to monetize this by charging a small fee from the retailers who look to offer this service to their Instagram followers/customers. Instagram will process the payment and store payment information for future purchases, enabling a more streamlined and frictionless purchasing experience for the user.

Instagram will share a small fee from the retailers looking to sell directly on Instagram and in turn offer an option to the user to purchase and checkout through Instagram without leaving the app. Instagram will process the payment for the user and store payment information for all future purchases, enabling a more streamlined and frictionless purchasing experience for the user.

This is likely to facilitate impulse buys and convert abandoned shopping carts into actual sales, since customers will not need to fill in their details again and again (as is case of shopping directly at different retailers with shoppable posts and signing in/logging in separately for each retailer/purchase).

This is expected to provide the perfect blend of social media experience and frictionless e-commerce experience (such as Amazon). However, unlike Pinterest, where social media platform is only the facilitator and the transaction in terms of payment and service is completed by the retailer, Instagram will be handling the payments itself and only sharing the basic details necessary to fulfill the order with the retailer (i.e., contact information and shipping address). This is expected to be a slight downside of selling on Instagram vis-à-vis on one’s own website as the retailer will receive less data and may not be able to build a relation with the customer.

Instagram is currently running a testing phase of this feature with a few brands across the USA, including Adidas, Anastasia Beverly Hills, Balmain, Burberry, ColourPop, Dior, Huda Beauty, H&M, KKW Beauty, Kylie Cosmetics, MAC Cosmetics, Michael Kors, NARS, Nike, NYX Cosmetics, Oscar de la Renta, Outdoor Voices, Ouai Hair, Prada, Revolve, Uniqlo, Warby Parker, and Zara. Payments will be processed through PayPal and customers can pay through PayPal, Visa, MasterCard, American Express, and Discover. The retail merchants can also integrate their e-commerce tools and partners, such as Shopify and BigCommerce, with the checkout feature.

While it is currently in its testing phase, the company is bullish on the success of this new feature. Although checkout option is currently only available for organic posts, Instagram will look to roll it out for ad-based posts as well in the future. It is expected that Instagram is likely to make US$10 billion in shopping revenues by 2021.

Instagram has been one of the most successful social media platforms with regards to consumer purchase decisions and unlike other social media apps that are apt for small to medium businesses, it also has a huge market for high-end and upscale products.

Challenges ahead

While social commerce seems to have a major role to play in the retail landscape in the future, it still has a long way to go. Social media pages have already showcased their worth as product discovery platforms, but exhibiting their potential of converting discovery into sales is a different ball game altogether and may also require a different strategy. Users will need to be organically cajoled to complete sales on these platforms and social media platforms must constantly work towards improving their buy-button experience, otherwise success is not guaranteed for them.

Twitter introduced a direct selling option in 2014 but retracted it by 2017 due to poor reception. Facebook’s initiative has also been met with moderate success with regards to direct selling, which lead the platform to change the direct selling features and strategies over the years to engage both retailers and customers.

Moreover, retailers who focus on selling on Instagram and other social media apps run the risk of alienating followers/users with constant promotions of their retail and shoppable posts, instead of their current subtle engagement posts that are working and preferred by users.

EOS Perspective

Social commerce is often being pegged as the future of online sales. While this may be true, there is a long road ahead for this to happen. Currently, the social media giants are applying different strategies to enter the space of direct selling, however, for most of them the focus is not on revenues from commerce but from ads. Therefore, till the time direct sales do not become a key revenue stream for social media apps, their focus on the apps will also remain limited.

That being said, the emergence of social commerce cannot be ignored by retailers, both large and small. Customers have taken to social media apps and use them extensively to learn about new products. Retailers are in a unique position to leverage this space and work towards reaching a new customer base, converting impulse sales that are otherwise being missed.

However, the social commerce experience needs a lot of shaping. Today, customers greatly rely on user-created content on social media (which includes content by influencers as well as other users’ reviews and product ratings) for their purchase decisions. Social media features must include direct selling not just from a retail’s social media page but also from influencers’ and bloggers’ pages. Till the time direct selling on social media apps is not a fully integrated solution, it will not reap results for users, retailers, nor for the social media platforms.

In the end, it is safe to say that social commerce is currently in a very nascent stage of development but nonetheless, it is here to stay. With the consumer’s attention span constantly reducing and people spending great amount of time on social media, social commerce undoubtedly offers great potential.

by EOS Intelligence EOS Intelligence No Comments

Blockchain Likely to Make a Safe Landing in Aviation Sector

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Blockchain technology has captured the interest of several industries and aviation is no exception. Its decentralized, secure, and immutable nature makes blockchain technology ideal for many operational aspects and verticals within the aviation industry. In fact, most of the blockchain-based solutions in the aviation sector extend beyond basic financial transactions and range across security and identity management, ticketing, maintenance, baggage management, and loyalty programs. Various stakeholders in the aviation industry, including airlines, airports, aircraft manufacturers and maintenance providers, and airspace technology providers, etc., are partnering together to explore and develop blockchain-based capabilities across the industry’s value chain.

Blockchain technology is fast emerging as the revolutionary technology in the aviation industry with most airline and airport CIOs investing huge resources and effort in exploring this space. As per Air Transport IT Insights 2018 report by SITA, one of the world’s leading air transport communications and information technology company, about 60% airlines have invested in blockchain-based pilot projects or research programs for implementation by 2021. This shows an increase from 2017, when only 42% airlines invested in blockchain-based research programs. Moreover, airports are also exploring this technology, with 34% airports planning blockchain-based R&D projects by 2021.

Owing to its decentralized, scalable, transparent, and secure nature, blockchain technology’s capabilities align well with the needs of the aviation sector, especially in the fields of ticketing, maintenance, luggage tracking, loyalty programs, and identity management.

Blockchain to streamline security and identity management

Passenger identity management is one of the most sought-after uses of blockchain in aviation. As per the SITA study, about 40% airlines and 36% airports claim passenger identity management to be one of the most prominent areas of application and benefit of blockchain technology.

Blockchain technology has the ability to streamline the identity management of passengers through the combined use of blockchain, biometrics, and mobile (or wearable devices). Currently, a passenger needs to pass several checkpoints where different parties (airport staff, airlines, control authorities, etc.) verify their physical IDs. This process is cumbersome, time consuming, and also vulnerable to human errors. Moreover, it results in a great amount of duplication of data as each stakeholder stores and verifies passenger information at their own level.

Blockchain, owing to its immutable, decentralized, and secure nature, helps solve these issues by validating identities using biometrics. Blockchain with security wrappers ensures that the information stored in the system is protected and helps share it with all the stakeholders through the use of authorized access protocols. Thus, blockchain and biometric-based ID management help eliminate the need for paper documentation (such as passport and visa) across the entire journey. This will facilitate a smoother and quicker travel experience for the passenger, as compared with the current verification and multiple checkpoints. Moreover, it will reduce security lapses as the need for paper documents (that can be forged) and human intervention is low.

Blockchain start-up Sho Card, which provides digital identification cards through blockchain, has partnered with SITA to develop a digital identity card as a proof of concept, wherein the traveler obtains a single travel token for his journey.

Under this concept, the traveler undergoes an initial check at the travel counter, where he is positively identified using biometrics and issued a travel token. A photo of the traveler is also taken for verification. This information (biometric ID information, travel token, photo) is stored on the travelers mobile or wearable device and replaces the requirement of any physical/paper identification. When the traveler approaches any gate or checkpoint, he presents the travel token via a QR code on the SITA traveler app. The agent at the checkpoint scans the QR code and validates the travel token and the individual matches to that in the photo. The traveler is allowed to pass if the information matches. This significantly reduces costs and time taken at several checkpoints for document validation. Moreover it reduces the human liability around documents check.

Other blockchain players, such as UK-based ObjectTech and VChain Technology, have also entered into agreements with Dubai’s Immigration and Visa Department and International Airlines Group (AIG), respectively, to provide blockchain-based solutions to streamline passenger data management for the aviation sector.

Blockchain and biometric-based ID management help eliminate the need for paper documentation (such as passport and visa) across the entire journey. This will facilitate a smoother and quicker travel experience for the passenger, as compared with the current verification and multiple checkpoints.

Smart contracts to ease out ticketing

Airlines currently sell paper-based or electronic tickets through their centralized ticketing system. For each booking, there are multiple touchpoints, which include airlines, travel agencies (online and offline), banks and card providers, and government agencies. Upon the sale of a ticket, each party stores passenger data at their individual level, which makes the process complex and vulnerable to errors. In addition, ticketing information being currently stored in a centralized database by airlines and airports makes it vulnerable to hacks and glitches, which in turn can result in reputation and revenue loss for the airlines or airport. This was seen in case of Southwest Airlines in July 2016, when the centralized ticketing database failed, resulting in the cancellation of about 2,000 flights and a revenue loss of US$82 million.

The use of blockchain-based smart contracts helps eliminate the need for paper tickets and e-tickets can be tokenized. Tokenized tickets can have their own set of embedded business logic and terms and conditions associated with how they are sold and used including pricing and timings for the flights. Moreover, further stipulations can be added to the ticket such as the class of the ticket, lounge access, etc. The decentralized nature of blockchain insulates it from hacking and system failures and also mitigates data sharing errors. Furthermore, it allows for the sale of tickets in real-time from different partners across the globe. It also improves customer experience and cost effectiveness of service by automating time consuming tasks, streamlining payment process, and reducing settlement times.

The use of blockchain-based smart contracts helps eliminate the need for paper tickets and e-tickets can be tokenized. Tokenized tickets can have their own set of business logic and terms and conditions associated with how they are sold and used including pricing and timings for the flights.

In July 2018, Russia’s second largest airline, S7 Airlines partnered with Russian commercial Bank, Alfa Bank, to build and sell its airline tickets over an ethereum-based private blockchain platform. The use of blockchain enabled the airlines to securely connect its online booking system with the bank’s payment processing systems, thereby speeding the payment processing time (from about two weeks to less than a minute) and reducing manual paperwork. In July 2019, the airline’s blockchain-based ticketing platform witnessed sales of US$1 million, indicating the success of the venture.

Blockchain to enable luggage tracking

One of the areas where airlines are constantly working on improving customer service and reducing costs is cargo and passenger baggage management. A passenger’s baggage passes through several automated and manual processes before being handed back to them and data about the cargo/luggage’s journey is usually stored in a non-standardized form on an individual level by multiple players that handle the cargo/luggage, including airlines personnel, transportation companies, airports, and local authorities.

This process results in passenger luggage being often lost or misdirected, a fact that impacts the airlines both in terms of reputation and cost. As per SITA’s Baggage Report 2018, this translated into additional costs of about US$2.3 billion for airlines in 2017.

Blockchain, which functions as an online record-keeping system maintained on a peer-to-peer network rather than a central agency or authority, can help airlines tackle the issues of lost luggage. Using blockchain, customers (and airlines) can track the luggage throughout its transfer process, which provides full transparency to the process. Thus if a bag is misplaced, the airlines can track back the entire journey of the lost luggage to identify the point where it went missing and why.

Blockchain Likely to Make a Safe Landing in Aviation Sector by EOS Intelligence

In November 2017, Air New Zealand partnered with Swiss-based start-up Winding Tree (which is a blockchain-based distribution platform for the travel industry), to explore applications based on blockchain technology that could help the carrier improve the efficiency and security of booking and baggage tracking services. The potential applications that Air New Zealand is looking to explore include cargo and baggage tracking, retail distribution, and loyalty program opportunities.

Another use of blockchain in baggage management is in determining lost baggage compensation. Through the use of smart contracts, airlines could automate insurance claims for lost baggage and instantaneously compensate customers. Rega, a blockchain insurance platform, has been deploying blockchain to create a “crowd-insurance” platform in which the risk of lost luggage is shared across the community. This works primarily as a peer-to-peer insurance that uses smart contracts and smart tokens to insure baggage for a group of passengers without the need for any insurance companies, agents, or intermediaries. Through this method, it has managed to reduce lost baggage premium to about US$12 annually for a coverage of up to US$5,000.

Blockchain to better manage maintenance history and spare parts sourcing

Flight maintenance is one of the largest cost-heads for an airline. As per IATA, in 2017, airlines globally spent US$76 billion on MRO (maintenance, repair, and overhaul), representing about 11% of total operational costs.

Currently, the MRO process is extremely complex, with the value chain encompassing multiple players such as manufacturers, component traders, airlines, service providers, and regulatory authorities. Moreover, each of these bodies store information in separate databases or physical ledgers. This makes obtaining information about components and maintenance extremely challenging and time consuming. Moreover, it can lead to data discrepancy (as it is stored at individual levels by the various parties), which in turn questions the reliability of this data and the safety of the component. In these cases, the worthiness of the component is established through an expensive and time consuming investigation, testing, and recertification process.

Blockchain’s decentralized, immutable, and transparent nature, makes it ideal for managing MRO records for airlines. Blockchain digitally logs and stores data regarding aircraft spare parts and maintenance, from the time the part is manufactured, to when it is installed, to every time maintenance or repair occurs. This decentralized, transparent, and real-time storage of data ensures that the information is available to all authorized parties (from airlines to MRO service providers) in a prompt and accurate manner, thereby saving on time and costs while achieving better safety and maintenance standards.

Blockchain’s decentralized, immutable, and transparent nature, makes it ideal for managing MRO records for airlines. 

In addition, the use of blockchain enables airlines to engage in more predictive maintenance, by enabling technicians to review the complete configuration and history of the various components in the aircraft on a blockchain-based ledger. This helps them tackle issues in a preventive manner rather than taking action after a problem has occurred. Similarly, MRO providers can also use blockchain to offer predictive maintenance services to airlines, saving money for both themselves and the airlines.

Blockchain also helps in sourcing spare parts and removing middle men in the sourcing process. Currently, aircraft components are sourced from vendors or traders in a marketplace, who then further scout for the component with manufacturers or sometimes other traders/resellers. This process is expensive (due to multiple mark-ups) and time consuming and most of all, lacks transparency. To tackle this, various manufacturers, airlines, and MROs can create a blockchain-powered aerospace marketplace, where the buyers can share the serial number of the product needed, which in turn can be matched to the real-time ownership and location of the seller currently holding the product. This would eliminate the need for middle men in the industry and also save time and reduce costs especially in case of scarce parts.

In October 2017, Air France-KLM announced its plans to evaluate and develop a blockchain-based system to manage replacement parts on in-service airplanes and improve aircraft maintenance procedures and record keeping. Similarly, in August 2018, Russian airlines, S7, in association with Russian energy player, Gazprom Neft, announced the successful development and implementation of a blockchain-based system to refuel aircraft using smart contracts. The smart contracts will remove the need for pre-payment, bank guarantees, and will further insulate the parties from any unforeseen financial risks involved in the refueling process. This is expected to help reduce cost and also save time both for the airlines as well as their energy partner.

Blockchain to add value to airlines loyalty programs

Flyer loyalty programs, better known as frequent flyer miles, are an integral part of an airline’s customer engagement program. All airlines run a loyalty program, whether individually or as an alliance. However, in traditional loyalty programs travelers need to wait to accrue a certain amount of points to utilize them, with limitations on where and when they can use them. Loyalty programs for alliances have an even more complex structure when compared with stand-alone loyalty programs. This results in limited incentive for travelers to remain loyal to a certain airline(s), thereby defeating the purpose of frequent flyer programs.

Blockchain has the ability to streamline the frequent flyer programs, especially for alliances. By tokenizing loyalty points on the blockchain, travelers can obtain instant value for the points by redeeming them in real-time and across a great number of partnering merchants. Thus with points being accepted as a form of “currency” across a pool of merchants, travelers can use these points in a faster and more efficient manner, thereby remaining motivated to maintain loyalty with a particular airline(s).

In July 2018, Singapore Airlines was the first airline globally to launch a blockchain-based loyalty program for frequent flyers. Under this program, Singapore Airline members can convert their miles into units of payments which are stored in a digital wallet, called KrisPay. This digital wallet was developed by Singapore Airlines in partnership with KPMG and Microsoft. The airline has partnered with 18 merchants across Singapore (including eateries, gas stations, beauty parlors, etc.) where customers can use KrisPay units.

Blockchain initiatives

Considering the various applications of blockchain across the aviation sector, a great number of airlines and airspace technology providers are investing heavily to explore this space and develop blockchain-based solutions for various verticals.

In July 2018, Lufthansa airlines partnered with SAP to launch a global Aviation Blockchain Challenge in order to support blockchain R&D in the sector. Through this venture, the two companies are seeking ideas from entrepreneurs and blockchain start-ups with regards to enhancing passenger experience, improving airline operations, processes, and maintenance, and streamlining the aviation supply chain.

Similarly in July 2018, SITA, which is the air transport industry’s largest technology provider and is jointly owned by a large number of airlines, launched the Aviation Blockchain Sandbox project. Through the Sandbox project, the technology provider aims to achieve intra-industry collaboration to understand and explore the applications of blockchain in the aviation space and undertake cross-industry initiatives. This platform gives access to smart contracts known as FlightChain, which will help improve flight status data problem for airlines and airports by storing all flight information on the blockchain to provide consistent data across the network.

EOS Perspective

Blockchain technology has taken several industries by storm, and shows great potential in several others (read our previous publications: Blockchain Technology – Next Frontier in Healthcare?, Blockchain Paving Its Way into Retail Industry, and Blockchain: A Potential Disruptor in Car Rental and Leasing Industry to find out more). Aviation seems to be no exception. Although application of blockchain in the aviation industry still seems to be largely at the exploration stage (with most companies running proof of concepts and investing in testing phases), it definitely holds the potential to transform the way air travel is currently done.

Explore our other Perspectives on blockchain

That being said, blockchain cannot be seen as a universal remedy for all the issues faced by the aviation sector. To ensure that blockchain is used in the most efficient and cost effective manner, it is critical for players to have a solution-oriented approach when exploring blockchain-based applications, i.e. starting with a specific problem and working towards developing solutions, rather than making blockchain a solution and looking for problems to solve with it. With blockchain becoming the buzz word across the board, it is very common for companies to get carried away with the technology trying to fit in places, where its needs or costs are not justified. Considering that the technology is relatively new and has limited scalability at the moment, a lot of blockchain-solutions that may work well in theory may not be practical in today’s day and may need to wait for the blockchain technology to evolve further.

Moreover, for blockchain to be successfully applied across the industry, it is very important for the stakeholders to collaborate to develop blockchain solutions with regards to sharing data, technology, and costs related to R&D. This is also somewhat of a challenge as adoption of blockchain requires transparency and most companies are wary of sharing their data and information with external players.

Despite these challenges, the adoption of blockchain technology by the aviation sector seems more like a matter of “when”, rather than “if”. Most players in the aviation sector have been operating through traditional business practices for several decades now and may take time to embrace blockchain in mainstream operations. However, several players such as Lufthansa and Air France-KLM have started leading the way. With promises of cost savings and better services, it is to be seen if blockchain can enjoy a smooth landing in the aviation sector.

by EOS Intelligence EOS Intelligence No Comments

Monetizing 5G: The Road Ahead for Telecom Operators

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A new era of mobile communication and data services is set to begin as telecom operators across the world are priming for roll out of 5G. As per the estimates by Hadden Telecoms, a UK-based consultancy firm, as of August 2019, 287 telecom operators have invested in 5G deployment across 105 countries. Investments span across various facets of 5G technology including ongoing 5G base-station deployment and other infrastructure development, commercial service launches, future commitments or contracts to deploy 5G networks, pilot testing and trials, and research studies. As 5G seems to be an inevitable leap to the future of internet technology, the pressing question for telecom operators is how they can monetize the 5G opportunities.

5G mobile broadband is expected to become the key driver of revenue growth in consumer segment

Telecom operators will be primarily banking on 5G-enabled high-speed mobile broadband which is a natural progression from 4G mobile broadband internet services. An annual industry survey (2018), conducted by Telecom.com Intelligence – an information source for global telecom industry, indicated that 45% of the respondents (i.e. 1,500 telecom industry professionals across the world) recognized mobile broadband as the 5G service with greatest commercial potential. Based on 35,000 online interviews conducted with people across 22 countries in May 2019, Ericsson estimated that, with 5G, the average monthly mobile data consumption will increase 10 -14 times. Rising demand for data-intensive applications offering high quality video viewing and immersive gaming experience will be the key impetus for 5G mobile broadband.

5G to make dream of high-quality video streaming come true

Video accounts for the lion’s share of telecom operator’s network traffic today and it is likely to become the key driver of 5G mobile broadband service. Based on survey of 30 telecom operators across the world, Openwave Mobility (a mobile data traffic management solution provider) indicated that video on mobile broadband has registered average growth of 50%-60% year-on-year during 2014-2018. In many developing countries, this growth was over 100%. As per Ericsson’s estimates, video’s share in global mobile data traffic is forecasted to rise from 60% in 2018 to 74% in 2024, witnessing a 35% growth annually.

The growth in mobile video from 2010 to 2015 was attributed mainly to increased watch times. Interestingly, since 2015, growth in mobile video was mainly driven by consumer’s move towards high definition (HD) content. Further, video is expected to evolve from HD to higher display resolution such as 2k, 4K, and even 8K in the future. HD video consumes about 0.9GB per hour, while 2k and 4k would consume about 3GB and 7GB, respectively, thereby demanding higher bandwidth capacity and speed – which only 5G will be able to fulfil. This is because 5G is expected to be 100 times faster and have 1,000 times more capacity than 4G, thus enabling smooth streaming of 4k or 8k video without any buffering or lag. 5G will also become backbone for emerging technologies such as 360-degree video, virtual reality, and augmented reality.

5G will push for convergence of communications and media, opening up new avenues for telecom operators by integration of video content and media into their offerings. For instance, in May 2019, US-based telecom operator Verizon hinted that partnerships with content providers such as NFL, The New York Times, and YouTube TV, are part of the company’s 5G video strategy.

Anytime, anywhere gaming gets closer to reality with 5G

Just as 4G enabled video streaming services to go mainstream, 5G is expected to do the same for game streaming (also known as cloud gaming, meaning the game runs on a cloud platform instead of consumer’s devices). As per estimates of Newzoo, a gaming research company, the global gaming market is expected to reach US$152.1 billion in 2019, out of which 45% i.e. US$68.5 billion will be generated from mobile gaming (games on smartphones and tablets). This indicates that smartphones and tablets have already become most commonly used devices for gaming. 5G is expected to push mobile gaming to a next level by enabling game streaming. This is because 5G’s low latency (i.e. time taken to upload data from consumer’s device to target network) will allow consumers to stream games with virtually no lag. Currently, with 4G technology, the average latency is about 50 milliseconds (ms) because of which the response time between player-cloud server-player is too long. But latency could be reduced to 1ms with 5G, thus providing uninterrupted gaming experience to the players.

With advent of 5G, majority of the leading game developers, including Nvidia, Sony, Microsoft, EA, and Google, have already launched or plan to include game streaming as a part of their service offerings. The game streaming market is expected to grow at CAGR of 41.9% during 2019-2025, to reach US$740 million in 2025 from US$45 million in 2018. Telecom operators could tap into this growing demand for game streaming by partnering with game developers. For instance, in March 2019, Nvidia’s CEO indicated that the company will cash in on delivering game streaming service via telecom operators’ 5G offering and in return, telecom operators will get to keep more than half of the gaming subscription fee collected from the players (i.e. consumers). Such partnerships are already seen to be materializing; for instance, in September 2019, SK Telecom (South Korea’s largest telecom operator) paired up with Microsoft to deliver xCloud (Microsoft’s game streaming service) in South Korea over its 5G network.

5G Fixed Wireless Access (FWA) provides telecom operators with scope of market expansion

While 5G mobile broadband provides internet connectivity to smartphones, 5G FWA offers wireless broadband to homes and businesses through 5G networks. 5G FWA is expected to be a better alternative to fixed wired broadband including DSL (Digital Subscriber Line – internet delivered through existing copper telephone lines), cable (internet provided by cable operators through coaxial cables), and FTTH (Fibre-to-the-Home – the latest broadband technology using fibre optic cables). In January 2019, CEO of a US-based telecom operator AT&T emphasized that 5G FWA will evolve as a replacement product for existing fixed broadband over next three to five years.

5G FWA will be able to compete head on with fixed broadband. 5G FWA can provide faster speed and higher bandwidth, while also remaining more cost-effective compared to fixed wired broadband. To be specific, an article published in October 2018 on Inside Tower, an information source for wireless infrastructure industry, indicated that total capex per subscriber to deploy FTTH was about US$2,000-US$2,500, while 5G FWA capex could be estimated at US$1,000-US$1,500 per subscriber (representing nearly 50%-60% cost reduction over FTTH). Earlier, in August 2017, a Dubai-based research firm SNS Telecom estimated that 5G FWA can reduce the initial cost of installing last-mile connectivity by 40% when compared to FTTH.

Explore our other Perspectives on 5G

5G FWA is expected to become one of the first commercial use cases of 5G technology. SNS Telecom estimates 5G FWA revenues to reach US$1 billion globally by the end of 2019, and the market is forecast to grow at a CAGR of over 84% between 2019 and 2025, to reach US$40 billion in 2025. Another research firm MarketsandMarkets predicts that the global 5G FWA market will grow from US$396 million in 2019 to US$46,366 million by 2026, at a CAGR of 97.5% between 2019 and 2026.

Push for industry digitization by leveraging 5G-IoT technology opens up new market opportunities for telecom operators in business-to-business (B2B) segment

Digital transformation driven by 5G-enabled IoT applications is the key focus for most industries including automotive, healthcare, media and entertainment, retail, energy and utilities, manufacturing, agriculture, public transport, public safety, and financial services. Based on analysis of 400 digitization use cases from ten industries (mentioned above), Ericsson in association with Arthur D. Little (a management consultancy firm) released a report in October 2017 suggesting that the connectivity and infrastructure provisioning to enable industry digitization is expected to generate US$230 billion in 2026. Telecom operators, in their traditional role of operating network infrastructure, have the potential to address 89% of connectivity and infrastructure provisioning opportunity, representing US$204 billion in revenues. As per the Ericsson report, the telecom operators’ potential business from connectivity and infrastructure provisioning is anticipated from number of use cases including real-time automation, enhanced video services, monitoring and tracking, connected vehicle, hazard and maintenance sensing, smart surveillance, autonomous robotics, remote operations, and augmented reality, among others.

Further, many telecom operators are expected to evolve from being network developers to service enablers providing digital platforms catering to industry-specific digitization requirements. Service enablement to address industry digitization is forecast to generate US$646 in revenues in 2026, of which telecom-operator-addressable share is estimated at 52%, translating to US$337 billion.

Moreover, telecom operators also have the opportunity to take on the role of a service creator by developing new digital service and setting up new digital value systems. In this role, telecom operators have the potential to earn US$79 billion in 2026 (representing 18% of the total revenue generated through application and service provisioning).

Thus, if telecom operators partake in every step of industry digitization value chain by adapting the role of a network developer, service enabler, as well as service creator, the total addressable revenue opportunity from industry digitization could reach US$619 billion in 2026.

Monetizing 5G - The Road Ahead for Telecom Operators by EOS Intelligence

EOS Perspective

Traditionally, telecom operators’ business model revolved mainly around providing voice and data services to consumers. Advent of 5G will not only allow telecom operators to unlock new revenue streams in consumer side of business but also expand the addressable market to B2B space.

The onset of 5G will enable telecom operators to explore new use cases and develop corresponding service offerings. For this, telecom operators will need support and cooperation from different players across the ecosystem.

Telecom operators will need to collaborate with application developers, device manufacturers, as well as third-party technology solution providers to co-create services as per the requirement of specific industries. Ericsson research report (based on survey of 50 executives working with 37 telecom operators globally), released in 2017, pointed out that 77% of the respondents believed that third-party collaboration would be vital in monetizing 5G. Realizing the importance of industry collaboration to cultivate commercially viable 5G use cases, most of the leading telecom operators have started building their partnership network. For instance, Japanese telecom operator NTT Docomo indicated that total number of partners in its 5G Open Partner Program (launched in 2018) reached 2,700 by June 2019.

Further, telecom operators will need to modify and tailor their offerings to address the evolving consumer demands and expectations. To be successful, telecom operators will need to strive to develop and offer a complete solution to the consumers. For instance, 74% of the 35,000 respondents (that participated in Ericsson survey in May 2019), indicated that they find the idea of moving away from cable TV and shifting to 5G FWA bundled with 5G TV services very appealing. In view of this, most telecom operators are experimenting with bundling strategy, starting with inclusion of streaming services as a part of their package. Ovum estimates that streaming services (including, video, live sports, music, and game) billed through 5G network bundles offered by telecom operators will grow from US$6 million in 2019 to US$4.87 billion in 2024.

Moreover, telecom operators will need to develop completely new revenue models for enterprises. Telecom operators may adopt a business model widely used by consultants, wherein they can collaborate with enterprises for specific projects and receive a one-time fixed fee or share of project-associated profits or cost savings. Or, like application developers, telecom operators can develop standard solutions for specific industries and adapt licensing model permitting enterprises to integrate the solution into their end-product or subscription-based model allowing the enterprises to use the solution for a specific period of time.

5G’s functionalities and characteristics entice telecom operators to develop new use cases and capitalize on corresponding revenue opportunities. However, the use cases, particularly in enterprise segment, still need to stand the test of practicality and commercial viability. Though 5G offers plethora of opportunities for the telecom operators, it is advisable to focus on a few business cases that best fit to their capabilities and develop the ecosystem (including application developers, device manufacturers, and third-party solution providers) required to take the final solution to prospective consumers.

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Decoding the USA-China 5G War

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The USA perceives Huawei, world’s largest telecom network equipment supplier and second largest smartphone manufacturer, as a potential threat capable of using its telecom products for hacking and cyber attacks. The US government suspects that China could exploit Huawei for cyber espionage against the USA and other countries. Amidst national security concerns, the US government has called for global boycott of Huawei, including of its 5G product range. The USA’s efforts to clamp down Huawei have rippling effect across the 5G ecosystem.

The USA and China have been trading rivals since 2012, particularly on the technology grounds. This resulted in a ban on China-based telecom equipment provider Huawei preventing it from trading with the US firms, over the accusation of espionage of critical information to the Chinese government. As a result, Huawei was barred from selling any type of equipment to be used in the US communication networks. This ban pertained to the 5G network equipment as well, and thus, Huawei’s 5G network equipment was ruled out from deployment in all parts of the USA. Few other countries, which agreed with the USA’s accusations on Huawei, also imposed a ban on the company’s 5G network equipment. The move severely affected Huawei’s exposure to some of the potential 5G markets, but it came as sigh of relief for its global competitors wary of Huawei’s growing dominance in 5G space.

Further, on May 16, 2019, the US government decided to put Huawei on the Security Entity List which restricted the company from buying any US-based technology (key hardware and software) for their 5G network equipment without approval and license from the US government, thus aggravating the 5G war. This not only brought new set of challenges for Huawei, but also created a rough path for the USA’s own technology firms involved in supplying components to Huawei. Considering impact on the US technology firms having Huawei as a key customer, on June 29, 2019, the US government announced relaxation on the Huawei ban, thereby allowing these US firms to continue their supply to Huawei for a 90-day period which got over in mid-August. The relaxation period was further extended till November 18, 2019, giving temporary relief to Huawei and its US-based business partners.

Huawei bears the brunt of USA-China 5G clash

The USA has initiated a global campaign to block Huawei from next-generation wireless communication technology over security concerns and it is pressuring other countries to keep out Huawei from 5G rollout. This invited quite a few repercussions for the company. One of the major and obvious consequences involved a major loss of potential market opportunity in the US territory as well as in other countries which are under strong influence of the USA.

After prolonged persuasion by the US government, in July 2018, Australia banned Huawei from 5G rollout in its territory. Japan also joined the league in December 2018 by imposing a ban on Huawei’s network equipment for 5G deployment, amid the security concerns to avoid hacks and intelligence leaks. Further, New Zealand and Taiwan also followed the suit in shutting out Huawei from 5G deployment.

In June 2019, the founder and CEO of Huawei, Ren Zhengfei, indicated that the company is likely to experience a drop in its revenue by US$30 billion over the next two years, which can be seen as a knock-on effect of growing US sanctions on Huawei. Also, Huawei expects its smartphone shipments to decline by 40% to 60% by the end of 2019 as compared to the total shipments in the previous year.

Despite repeated warnings from the USA, some countries have come out in support of Huawei by rejecting the USA’s claims. The regulatory bodies of countries such as Russia, Germany, Brazil, South Korea, Finland, and Switzerland have taken their decisions in favor of Huawei and allowed the company to deploy its 5G network equipment in their territories, affirming that they do not see any technical grounds to ban the company from their telecom networks.

Moreover, the US government has been persistently urging many European countries, especially the UK, to join its decision of barring 5G trade with Huawei. In March 2019, the EU recommended its member countries not to impose outright ban on Huawei, but instead assess and evaluate the risks involved in using the company’s 5G network equipment. Already earlier, in February 2019, the UK government concluded that any risks from the use of Huawei equipment in its 5G network can be mitigated through certain improvements and checks which the company will be asked to make and hence the decision of completely banning the company’s equipment from UK’s 5G network was not taken.

Among Asian countries, India, the second-largest telecom market in the region, has not decided whether to allow Huawei to sell its 5G network equipment in the country. China has warned the Indian government that the repercussions of banning Huawei equipment would include challenges in catering to the demand for low-priced 5G devices, thus causing a hindrance in rapid development of India’s telecom sector. In June 2019, the Department of Technology of India indicated that, since the matter of Huawei concerns the security of the country, they will scrutinize the company’s 5G equipment for presence of any spyware components. India will see how other countries are dealing with the potential security risks before giving a green light to the company.

The USA’s allegations against Huawei have made all the countries cautious over dealing with the company. Despite having proven technological supremacy in 5G network equipment market, Huawei has come under strong scrutiny for its 5G network equipment across the globe.

Huawei ban: Boon for some, bane for others

Huawei’s troubles are turning into major opportunity for its competitors in the 5G network equipment and smartphones market space. However, suppliers to Huawei, particularly US-based companies providing hardware and software for 5G devices and network equipment, took a hard hit as they lost one of their key customers because of the trade ban.

Huawei ban presents increased opportunities for its global competitors in 5G network equipment market

Major competitors of Huawei in 5G network equipment manufacturing business – Samsung (South Korea), Nokia (Finland), and Ericsson (Sweden) – are positioned to get the inadvertent benefit of expanded market opportunities with one competitor less. With Huawei losing potential market in countries where it is facing backlash, its competitors managed to grab a few contracts.

For instance, in March 2019, Denmark’s leading telecom operator TDC, which had worked with Huawei since 2013, chose Ericsson for the 5G rollout. Further, in May 2019, Softbank Group Corp’s Japanese telecom unit, which had partnered with Huawei for 4G networks deployment in the past, replaced Huawei with Nokia for its end-to-end 5G solutions including 5G RAN (i.e. radio access network equipment including base stations and antennas which establish connection between individual smart devices and other parts of the network). In the USA, Samsung is gaining significant traction as it has started supplying 5G network equipment to some of the leading US telecom operators including AT&T, Verizon, and Sprint.

A report released in May 2019 by Dell’Oro (a market research firm specializing in telecom) indicated that Samsung surpassed Huawei for the first time by acquiring 37% of the share of total 5G RAN revenue in the first quarter of 2019. In the same period, Huawei stood second with 28% share, followed by Ericsson and Nokia with 27% and 8% share, respectively. Earlier, Huawei led the 5G RAN market in 2018, accounting for 31% share of total 5G RAN revenue that year. Huawei was followed by Ericsson, Nokia, ZTE (China), and Samsung with 29.2%, 23.3%, 7.4%, and 6.6% share, respectively. Due to widespread skepticism about Huawei over espionage accusations, a shift in 5G network equipment market can be expected by the end of 2019, since competitors are likely to gain more growth momentum over Huawei.

Demand for Samsung smartphones gets a boost as Google blocks Android support to Huawei

In the smartphones sector, Samsung, which is the world’s largest smartphones manufacturer, may turn out to be the winner in the Huawei ban situation. Huawei, through its low-priced Android smartphones with features similar to Samsung’s smartphones, is emerging as the largest rival of Samsung in the smartphone market.

As per IDC data, Samsung’s market share (by total smartphone shipments volume) declined from 21.7% in 2017 to 20.8% in 2018, whereas Huawei recorded 33.6% year-on-year growth as market share increased from 10.5% in 2017 to 14.7% in 2018. But since Huawei was placed on US trade blacklist, Samsung is likely to benefit from the situation because of the broken deal between Google and Huawei which led Huawei to lose access to Google’s Android operating system (OS) for its next-generation 5G smartphones.

While Google managed to get a temporary license to continue to provide update and support for existing Huawei smartphones, it prevented Google from providing Android support for Huawei’s new products including soon to be released 5G smartphones. Huawei indicated that its latest 5G smartphones Mate 30 series, which will be launched on September 19, 2019, will run on open-source version of Android 10 and it will not have any of the flagship Google apps such as Google Maps, Google Drive, Google Assistant, etc.

Huawei unveiled its own operating system named HarmonyOS on August 9, 2019, but it still seeks support of Google’s Android OS for its upcoming 5G smartphones along with access to widely popular apps such as Facebook and WhatsApp which all belong to American firms. Android OS, controlling over three-fourths of the mobile OS market as of August 2019, is widely adopted by both the app developers as well as the users. As of second quarter of 2019, Android allowed its users to choose from 2.46 million apps. Encouraging app developers to rewrite their apps as per platform-specific requirements of a new OS with low user base is challenging. Conversely, consumers prefer OS which allows them to use all the apps they like. If HarmanyOS needs to be used as Android replacement, Huawei will need considerable time and financial resources to work with app developers to add similar apps to Huawei’s HarmonyOS.

Explore our other Perspectives on 5G

The future scenario for global 5G smartphones market will depend on the pending decision of the US government over allowing US technology firms to trade with Huawei. If the US government allows the trade, Huawei will have high chances of leading in the 5G smartphones sector owing to its competitive pricing and innovative solutions. On the other hand, if the ban still persists in future, the market of Huawei’s global competitors, Samsung in particular, is likely to swell, owing to their trusted brand name and reliability along with the support of Android OS.

US-based hardware suppliers for telecom devices face revenue loss as they lose their key customer, Huawei

The US government’s executive order issued in May 2019 blocking US exports to Huawei led to adverse effect on the revenue of the US-based companies that used to supply key hardware to Huawei for its 5G network equipment and devices.

For example, Qualcomm which was one of the largest sellers of modem chips, mobile processors, and licenses for 3G, 4G, as well as 5G technology in the Chinese market, has experienced a decline in revenue by 13% year-on-year in the third quarter of 2019 along with decline of approximately 36% in shipments of chipsets and processors. Similarly, Broadcom, which supplies switching chips used in network equipment, is also facing challenges with loss of its highest revenue-generating customer, Huawei, accounting for US$900 million of company’s revenue in 2018. Considering the Huawei blacklisting’s impact on financial results in the first two quarters of 2019, Broadcom has even cut its revenue outlook of the fiscal year 2019 from US$24.5 billion to US$22.5 billion.

In view of financial implications of Huawei blacklisting on the businesses of US-based technology firms, the US government, in June 2019, reprieved the trade ban on Huawei till November 18, 2019. Post the relaxation period, the US government may again ban Huawei from doing business with US technology firms. In case the US government puts the ban in effect owing to the security concerns, the repercussions are likely to deepen further for the US firms over losing considerable revenue coming from China’s telecom hardware industry.

Ban on Huawei means telecom operators will have to pay a higher price for 5G network equipment

Huawei ban is also seen to be impacting the US telecom operators as they face a particular challenge of increasing outlay to build the 5G networks. This is because the 5G network equipment provided by Nokia and Ericsson is more expensive than Huawei’s. In March 2019, Huawei claimed that allowing the company to compete in the telecom market in North America would reduce the total cost of wireless communication infrastructure development in the region by 15%-40% and provide an opportunity for telecom operators to save US$20 billion over the next four years.

The cost factor has also made some European countries sway their decision in favor of Huawei. In June 2019, GSMA, an industry association with over 750 telecom operators as members, indicated that shunning Chinese equipment from 5G network deployment in Europe would add EUR 55 billion (~US$61 billion) to the costs of telecom operators and will also cause the delay of about 18 months in 5G network deployment. In fact, to avoid such repercussions, many European countries have already decided to continue buying telecom equipment (including 5G network equipment) from Huawei and other Chinese firms, Greece being the latest one to join the group of countries including Switzerland, Finland, Sweden, and few more.

India, which is a huge market for low-priced smartphones and telecom network equipment, still remains undecided on the proposed ban on Huawei. The 5G network equipment supplied by Nokia and Ericsson in India is expected to be 10%-15% more expensive as compared to Huawei’s. Also, Huawei claims that imposing a ban on the company will push back 5G deployment in India by two to three years. Moreover, the prolonged decision-taking has also affected the 5G network deployment timeline of the country and thus slowing down the overall development of its telecom industry. Dilemma whether to work with Huawei is seen to have wide-reaching implications on overall development of 5G technology in some countries.

Decoding USA-China 5G War - EOS Intelligence

EOS Perspective

The USA-China 5G war has taken many unpredictable turns over the last year, resulting in adverse implications for Huawei and its US-based business partners. The current status of the 5G war indicates a relaxation over the Huawei ban till November 18, 2019. This allows the US companies to continue supply of their technology products including key software and hardware required by Huawei for 5G equipment manufacturing. However, the relaxation of the ban is not intended to remove Huawei from the US Department of Commerce’s Entity List and the US companies still have to apply for temporary license for exporting products to Huawei.

The USA has been targeting Huawei since 2012, and there seems to be no stopping. Considering the implications of the US sanctions, Huawei has been making notable efforts to end the ongoing discord with the US government. Huawei has always denied all the accusations and maintained that the company is willing to work with the US government to alleviate their concerns over cybersecurity. In May 2019, Huawei proposed implementation of risk mitigation programs to address potential security threats. To further appease the US government, on September 10, 2019, Huawei proposed selling its 5G technology (including licenses, codes, technical blueprints, patents, as well as production know-how) to an American firm. This is seen as one of the boldest peace-offering deals by Huawei to win back the trust of the US government. Huawei claimed that the buyer will be allowed to alter the software code and thereby eliminate any potential security threats.

Currently, there is no US company manufacturing 5G network equipment. Acceptance of Huawei’s proposal would enable the USA to gain footing in the 5G network equipment market and mitigate the fears over rising dominance of Huawei in global 5G space. While the move risks to create a competitor for Huawei in the 5G network equipment market, the company could also use this as an opportunity to evolve from core manufacturing business to providing technical expertise to other companies for manufacturing 5G equipment. The proposal is still subject to approval from the USA and Chinese governments.

While Huawei is ramping up its efforts to break the deadlock with the US government, at the same time, the company is also devising a parallel strategy presuming the worst possible outcome of USA-China trade tensions over 5G, i.e. the USA eventually cutting off ties with Huawei. The company is working towards a contingency plan with an ambition to take control of its supply chain and reduce its dependency on the US technologies and supplies.

One of the major actions of its plan B includes developing its own operating system HarmonyOS as a substitute to Google’s Android OS. While Huawei wants to continue with Android OS for its future 5G smartphones, in case the US government blocks Huawei’s access to Google’s services, Huawei will have to switch to own HarmonyOS.

China, Huawei’s home market, is more receptive to the company’s products, and switching to own operating system is expected to work in favor of the company. In July 2019, Canalys, a Singapore-based technology market research firm, estimated that China would account for over one-third of 5G smartphones globally by 2023. Huawei could use this opportunity to develop its proprietary OS based on the learnings in China before expanding globally to compete with more established and mature OS such as Android OS and iOS (which respectively controlled 76.23% and 22.17% of the smartphone OS market as of August 2019).

On the other hand, in anticipation of loss of partnerships with key suppliers such as Qualcomm and Broadcom, Huawei had stockpiled critical components between May 2018 and May 2019, according to a research report by Canalys. This move was aimed at ensuring the continuity of production of 5G products that rely on core technology from US-based firms for three to twelve months.

Further, Huawei has been developing proprietary chipsets for its 5G smartphones and networking products, which are being considered as alternatives for products offered by Qualcomm and Broadcom. On September 6, 2019, Huawei launched Kirin 990, a new 5G processor for smart devices, which will power Huawei’s upcoming 5G smartphone including Mate 30 series. Further, in January 2019, Huawei launched a 5G multi-mode chipset, Balong 5000 that supports a broad range of 5G products including smartphones, home broadband devices, vehicle-mounted devices, and 5G modules. The company claims this chipset to be the first to perform to industry benchmark for peak 5G download speeds.

Seeing such developments at the Huawei’s end, it is clear that the company is striving hard to remain on the top of 5G network equipment and device manufacturing sector. The USA’s efforts to derail Huawei from its path to dominance in 5G are certainly going to impact the overall growth of the company in short term, but, with its plan B, things are expected to smooth out for Huawei in future. Even if Huawei is not be able to retain its current global leading position in 5G network equipment and device manufacturing, it will certainly remain one of the strong contenders. The US sanctions are further encouraging Huawei to evolve as an all-round player in the 5G ecosystem.

On the contrary, the USA’s aggression against Huawei is expected to hit its own technology industry in the long term. For instance, the blacklisting of Huawei will not only cost the US technology firms to lose one of its largest customers, but will also result in intensified competition as Huawei ramps up its in-house capabilities to fulfill the demand of the entire 5G ecosystem. An example of this could be Huawei’s announcement in April 2019 that the company was open to selling the 5G chips to rival smartphone companies, including Apple. Moreover, if Huawei’s HarmonyOS is able to succeed in gaining significant user base, it would challenge the dominance of Android and iOS. Hence, it would be in best interest of the USA and its technology industry, if the country could take a different approach and try to control and minimize security risks related to Huawei’s engagements, rather than placing an outright ban on the company. Similar to what Germany did in December 2018, the USA could encourage telecom operators to establish verification centers and hire third-party experts to identify and resolve vulnerabilities in Huawei’s 5G network equipment and devices.

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Blockchain: A Potential Disruptor in Car Rental and Leasing Industry

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Blockchain, with its ability to offer significantly more transparent and decentralized way of conducting operations, has the potential to come to the forefront of technologies which are disrupting the way most industries work today. While the application of blockchain is still currently focused largely on cryptocurrencies, the technology is slowly finding its way to a range of industries, including the car rental and leasing industry.

Car rental and leasing sectors are growing worldwide, driven by rising technological advancements in transportation and increased need for ease of mobility. A shift in demand from car ownership to car sharing (not to be confused with ride-sharing services such as Uber or Lyft) is driving the growth in car rental and leasing industries.

The process of renting a car is highly centralized, where the car rental company being the main point of contact for the driver to rent cars. Car rental companies need to maintain a fleet of cars, as well as car stations and staff to efficiently run their operations, which makes up for bulk of their operating costs. Car rental companies cover these costs from (high) rental rates charged to their customers.

In the peer-to-peer (P2P) care rental (or car sharing) model, there is no need to maintain any infrastructure or staff required to perform the task of renting, a fact that reduces the overhead costs. Lower costs offered by P2P car rental have resulted in the model gaining prominence. P2P car sharing has significant potential, highlighted by recent investments in car sharing services such as Turo and Getaround. In July 2019, US-based Turo raised US$250 million from IAC, an internet media company, taking its overall valuation to US$1 billion. Getaround, a US-based car sharing company established in 2011, raised US$300 million funding from SoftBank in 2018.

However, the P2P car sharing model is inherently prone to fraud and other illicit activities, causing lack of user trust, which in turn acts as a barrier to scaling of rental business, despite the growing demand for car sharing.

The issue can be aided by the emergence of blockchain, which is acting as the market disruptor. The use of a distributed ledger for car rental and leasing is likely to revolutionize the industry, especially P2P car sharing.

Blockchain to enable peer-to-peer car rental gain further prominence

There is a shift in paradigm from car ownership to car sharing, via car rental or leasing. The fact that vehicles are under-utilized and parked (and inactive) most of the time, while the vehicle owners incur ongoing fixed costs such insurance, tax, maintenance, and parking, is further driving this shift.

Emergence of use of blockchain in car rental offers a safe (from frauds) and reliable car-sharing platform, a fact that is likely to further promote P2P car sharing. Inherent unalterable properties of the blockchain offer a secure platform for both car owners (to list their cars) and the customers.

The concept of blockchain in car rental industry works similarly to any other blockchain transaction. Service providers (or car owners) and end clients registered on the blockchain can sign digital smart contracts which execute contract terms based on pre-agreed rules in place, similar to a regular rental model.

The smart contract also contains the necessary information, such as details of the renter (driving license proof, insurance, and credit card details) and data such as car registration number, rate, mileage, length of rental, and credentials of the car owner. All financial transactions (rental payment) can be done either through a card, or using associated cryptocurrencies and tokens purchased to get registered on the blockchain.

 

Blockchain - A Potential Disruptor in Car Rental and Leasing Industry - EOS Intelligence

The process is fully decentralized and digital without any intermediary required which is the key advantage of car rentals being executed over blockchain. Transparency of transactions made over a distributed ledger also adds to the credibility, thus lowering the risk of any fraudulent activity to a great extent.

Lower fee offered due to elimination of intermediaries is another major advantage of using the blockchain technology in car rental industry. For example, HireGo, a UK-based blockchain-based car rental start-up, claims to offer transaction fee up to 35% lower compared with traditional car rental charges under the existing B2C model. Moreover, use of smart contracts has made the system direct and reliable, as information on the contract is unalterable.

Blockchain technology is designed to encourage a sharing economy platform so that businesses such as P2P car rentals and leasing can become integrated and cost-effective, through collaboration among participants in a common, transparent, and “trustless” (or distributed trust) environment, which are the primary attributes of blockchain.

Blockchain in car leasing to improve visibility

When it comes to leasing, blockchain has even more potential. Tracking a car right from the OEM, transfer of ownership, tracking of repairs, mileage, fuel, and maintenance over a single distributed ledger can help bring visibility across the leasing journey. This in turn can help customers avert mileage fraud, while also eliminating any disputes at the end of the lease term.

With all necessary and unnecessary repairs being visible to all parties involved, calculation of charges and violation penalties is likely to become much easier.

The use of a distributed ledger also eliminates the need of undertaking time-consuming paperwork at each node (or stakeholder) of the leasing value chain, thereby improving the overall efficiency of the process, while also cutting costs, making it much more cost-effective to lease a vehicle.

Similarly to its function in car rentals, a distributed ledger also eliminates high costs charged by car leasing companies, resulting in increased popularity P2P leasing of vehicles through smart contracts. Blockchain can also be used as an open maintenance log, as well as for the provision of other value added services such as insurance and toll payments.

Blockchain - A Potential Disruptor in Car Rental and Leasing Industry - EOS Intelligence

Transparency across the lease to help minimize customer disputes

The benefits of blockchain are most prominent at the end of the lease term, when a customer returns a leased vehicle. The use of an open distributed ledger eliminates any disputes that may occur between the service provider and end client, with regards to end-of-lease charges. Transparency across the lease lifecycle, including open logs of vehicle usage, mileage, fuel, maintenance, tire changes, and insurance, make it easier to calculate any end-of-lease charges, based on the pre-defined terms of the smart contract. These charges can also be automatically paid in the form of cryptocurrencies or tokens, as per the provisions in the smart contract.

Blockchain entries can also help leasing companies estimate the approximate value of the vehicle at the end of the lease term, making it easier to decide whether to remarket (re-lease) or dispose of the vehicle, as well as reducing the overall time and resources required in the remarketing process.

Newer blockchain-based platforms expected to drive growth

The global automotive blockchain market is likely to witness growth of 31.1% CAGR between 2020 and 2030, with Asia witnessing the fastest growth. Majority of this growth is attributed to proliferation of car rental and leasing in countries such as India and China, where people are seeking easier means of mobility and are making cautious effort of reducing traffic in metro cities.

Several companies in the region started investing in building platforms using blockchain. In 2017, Mumbai-based Drivezy, an Indian car sharing company, successfully developed a car rental and leasing platform using blockchain, in which users can rent cars and make payments using cryptocurrencies and tokens. In 2018, the company raised US$20 million in a Series B funding through an initial coin offering (ICO). Such investment is encouraging further start-ups looking to utilize blockchain for car rental and leasing.

Darenta ICO, a Russian car rental start-up, developed a platform for existing car owners to rent out their cars using a digital solution that employs geolocation, smart contracts, and other blockchain technology. Launched in 2018, the company has already expanded its presence in 20 countries, and plans to enter the USA and Canada, followed by other European and Asian markets (including China) by 2020.

Several major companies have also invested in developing other technology platforms using blockchain technology, which could have applications in the rental and leasing businesses. In 2017, Ernst and Young, for example, launched a blockchain-based platform called “Tesseract” to support an integrated and autonomous mobility. Through this platform companies and individuals can share cars, while payment and insurance are handled through blockchain. In 2017, Renault also launched a prototype blockchain platform to track information about a car’s maintenance history, including repair shops and dealerships at one place, through a digital maintenance log prototype.

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Lack of acceptance of cryptocurrencies likely to pose challenges

While blockchain has plenty of benefits, broad scale deployment of the technology faces certain challenges as well – one of the most crucial ones being recognition of cryptocurrencies in key emerging markets in Asia, including India and China. Most blockchain-based solutions are looking at ICO to generate funds, issuing their own cryptocurrencies (mostly based on Ethereum tokens), which also act as a mode of transactions and payments for the service. Lack of regulation of cryptocurrencies is currently limiting the adoption of blockchain technology in the rental and leasing space.

Also, for the blockchain technology broad scale implementation, there is a need for high performance computers (or supercomputers) along with highly skilled workforce to handle the blockchain. Such challenges can cause delay in widespread adoption of blockchain technology for car rentals and leasing system at a larger scale.

EOS Perspective

Currently, blockchain is considered synonymous to cryptocurrencies such as bitcoin, which is still very unstable and is commonly seen as an investment rather than a mode of transaction. Such a perception is likely to continue to prevail in the short term. Once the paradigm shifts from cryptocurrencies being looked at as a mere investment tool, to being considered as a mode of transaction or a trustless platform, which utilizes inherent properties of blockchain, the overall acceptance of blockchain is also expected to increase. This shift is also likely to bring more stability in cryptocurrency prices, which in turn is also expected to generate a more positive regulatory outlook in favor of cryptocurrency and blockchain technology.

Once blockchain gains prominence, we are likely to witness a lot more start-ups promoting peer-to-peer car sharing (rental or leasing), driving a change in the way people look at their cars. Idle vehicles will increasingly be considered as assets which can generate a source of additional income via car sharing model, resulting in better overall utilization of cars.

ICOs are likely to remain the most common mechanism to generate funds. While the technology has several potential uses, which are expected to disrupt the car rental and leasing market in the near future, the state of blockchain acceptance currently remains highly speculative, primarily due to its close association with cryptocurrencies.

Fuel cell technology
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China Accelerates on the Fuel Cell Technology Front

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For the past decade, China has been on the forefront of the New Energy Vehicles (NEVs) revolution. Although most of its focus has been on battery-powered electric vehicles (BEVs), the government has recently also begun to put its financial might behind hydrogen fuel cells for vehicles. Unlike battery-powered vehicles that need regular and long-periods of charging (therefore are more suitable for personal-use vehicles), hydrogen fueled vehicles do not need frequent refueling and their refueling is quick. This makes them ideal for long-distance buses, taxis, and long-haul transport. However, the existing infrastructure to support fuel cell-powered cars is limited. Thus, despite having inherent benefits over electric vehicles (especially in case of commercial vehicles), fuel cell vehicles fight an uphill battle to build a market for themselves in China, owing to the challenges in acceptability, infrastructure availability, and sheer economies of scale.

Over the last decade, the Chinese government heavily backed the production and sale of electric vehicles through substantial subsidies, investment in infrastructure, and favorable policies. This resulted in the sector picking up rapidly and reaching 1.2 million vehicles sold in 2018. However, the government has begun to reduce the subsidies provided to the sector and the focus is slowly shifting to fuel cell vehicles.

How do fuel cell vehicles work?

Fuel cell vehicles use hydrogen gas to power their electric motor. Fuel cells are considered somewhat a crossover between battery and conventional engines in their working. Similar to conventional engines, fuel cells generate power by using fuel (i.e. pressurized hydrogen gas) from a fuel tank.

However, unlike traditional internal-combustion engines, a fuel cell does not burn the hydrogen, but instead it is chemically fused with oxygen from the air to make water. This process, which is in turn similar to what happens in a battery, creates electricity, which is used to power the electric motor.

Thus, while fuel cell vehicles are electric vehicles (since they are solely powered by electricity), they are similar to conventional vehicles with regards to their range, refueling process, and needs. This makes them ideal for long-haul commercial vehicles.

Chinese government bets big on fuel cell vehicles

Under China’s 13th Five-Year Plan, the government has laid out a Fuel Cell Technology Roadmap, in which it aims to operate over 1,000 hydrogen refueling stations by 2030, with at least 50% of all hydrogen production to be obtained from renewable resources. In addition, it has set a target for the sale of 1 million fuel cell vehicles by 2030.

To achieve these ambitious targets, the Chinese government plans to roll-out a program similar to its 2009 program – Ten Cities, Thousand Vehicles, which promoted the development and sale of battery electric vehicles and hybrid vehicles. It currently plans to promote fuel cell vehicles in Beijing, Shanghai, and Chengdu. Considering the vast success garnered by this program, it is likely that the government will also be successful in achieving similar targets for fuel cells.

Moreover, while the government is phasing out subsidies for BEVs, it is continuing them for fuel cells. As per the government guidelines issued in June 2018, US$32,000 purchase subsidy is available for fuel cell passenger vehicles, while US$48,000-US$70,000 purchase subsidies are available for fuel cell buses and trucks. However, for the buses to receive subsidy, they are required to drive a minimum of 200,000 km in a year.

While the government is phasing out subsidies for BEVs, it is continuing them for fuel cells. As per the government guidelines issued in June 2018, US$32,000 purchase subsidy is available for fuel cell passenger vehicles, while US$48,000-US$70,000 purchase subsidies are available for fuel cell buses and trucks.

Moreover, the government also provides subsidy for the development of hydrogen refueling stations. A funding of US$0.62 million is available for hydrogen refueling stations having a minimum of 200kg capacity.

In addition to these national subsidies, state-wise subsidies are also available for several regions such as Guangdong, Wuhan, Hainan, Shandong, Tianjin, Henan, Foshan, and Dalian. Local subsidies differ from region to region and are given as a ratio of the national subsidy. For instance, it equals 1:1 in Wuhan, while it is 1:0.3 in Henan province. On the other hand, local or state subsidies are cancelled for BEVs (except buses).

Apart from subsidies given to fuel cell infrastructure and vehicle manufacturers, the price of hydrogen is also heavily subsidized, making it cheaper than diesel in many cases.

China’s fuel cell vehicle market picks up steam

The government’s backing and subsidies have stirred interest of several international players towards China’s fuel cell vehicle market. Considering its success and dominance of the BEV market, these players are placing their bets on China achieving similar volumes and success in the fuel cell sphere.

Chinese companies have also begun to invest heavily in fuel cell technology companies globally. In May, 2018, Weichai Power, a Chinese leading automobile and equipment manufacturer, purchased a 20% stake in UK-based solid oxide fuel cell producer, Ceres Power. Similarly, in August 2018, Weichai Power entered into a strategic partnership with Canada-based fuel cell and clean energy solutions provider, Ballard Power Systems. As part of the strategic partnership, the company purchased 19.9% stake in Ballard Power Systems for US$163.3 million. In addition, they entered into a JV to support China’s Fuel Cell Electric Vehicle market, in which Ballard holds 49% ownership. Through this partnership, Weichai aims to build and supply about 2,000 fuel cell modules for commercial vehicles (that use Ballard’s technology) by 2021.

China Accelerates on the Fuel Cell Technology Front - EOS Intelligence

Global leader in industrial gases, Air Liquide, has also partnered with companies in China to be a part of the fuel cell movement. In November 2018, the company entered into an agreement with Sichuan Houpu Excellent Hydrogen Energy Technology, a wholly-owned affiliate of Chengdu Huaqi Houpu Holding (HOUPU), to develop, manufacture, and commercialize hydrogen stations for fuel cell vehicles in China. In January 2019, the company also partnered with Yankuang Group, a Chinese state-owned energy company, to develop hydrogen energy infrastructure in China’s Shandong province to support fuel cell vehicles in that region.

Another global player, Nuvera Fuel Cells (US-based fuel cell power solutions provider) has also engaged with local companies to foster growth in China’s fuel cell vehicle market. In August 2018, the company entered into an agreement with Zhejiang Runfeng Hydrogen Engine Ltd. (ZHRE), a subsidiary of Zhejiang Runfeng Energy Group based in Hangzhou. Under the agreement, Nuvera will provide a product license to ZHRE to manufacture the company’s 45kW fuel cell engines for sale in China. While the fuel cells will be initially manufactured in Massachusetts, it is expected that they will be locally manufactured by 2020.

In December 2018, the company signed another agreement with the government of Fuyang, a district in Hangzhou (in Zhejiang province), to start manufacturing fuel cell stacks locally in 2019. The agreement also includes an investment by Nuvera to establish a production facility in Fuyang region. These fuel cell stacks will be used to power zero-emissions heavy duty vehicles (such as delivery vans and transit buses), which comprise 10% of on-road vehicle fleet, but account for 50% fuel consumption.

In addition to the fuel cell energy producers, global car manufactures have also shifted their attention to fuel cell vehicles market in China. In October 2018, Korean car manufacturer, Hyundai, entered into a MoU with Beijing-Tsinghua Industrial R&D Institute (BTIRDI) to jointly establish a ‘Hydrogen Energy Fund’. The fund aims to raise US$100 million from leading venture capital firms across the globe to spur investments in the hydrogen-powered vehicle value chain. This agreement will help the Korean automobile manufacturer identify and act upon new hydrogen-related business opportunities in China and will eventually help pave the way for Hyundai Motors to make a foray into the Chinese fuel cell vehicle market in the future.

A bumpy road ahead for fuel cell vehicles

While the industry players are working along with the government to meet the ambitious targets set by the latter, fuel cell vehicles must overcome several challenges for them to be a realistic alternative to conventional and electric vehicles.

Currently, the infrastructure for fuel cell vehicles is by far insufficient. More so, it is extremely costly to develop, costing about US$2 million to build a refueling station with a capacity of about 1,000 kg/day. While the government is investing heavily in developing hydrogen refueling stations (for instance, China Energy, China’s largest power company, has been building one of China’s largest hydrogen refueling stations in Rugao City, Jiangsu Province), it requires long term partnerships and investments from private and global players to meet its own targets. Until an adequate number of refueling stations is constructed, especially on highway routes (facilitating truck and bus transportation), fuel cell vehicles will remain in a sphere of concept rather than commercial and mass use.

Another challenge faced by the industry is that hydrogen, the main fuel, is also considered to be highly hazardous, and storing and transporting it is currently difficult. Moreover, it is difficult to convince customers to purchase hydrogen-powered vehicles because of this perceived notion of hydrogen being unsafe. In addition to providing subsidies and incentives for building fuel cell vehicles, the government must also invest in marketing campaigns and enact policies that raise awareness about hydrogen in fuel cell vehicles as a safe and green energy.

In addition to providing subsidies and incentives for building fuel cell vehicles, the government must also invest in marketing campaigns and enact policies that raise awareness about hydrogen in fuel cell vehicles as a safe and green energy.

A lot of new technologies are also being explored to further make transporting and storing hydrogen safer. A German company, Hydrogenious Technologies, has developed a carrier oil that can carry hydrogen in a safe manner. This oil is non-toxic and non-explosive and thus makes transporting, storing, and refueling hydrogen safe. Moreover, using hydrogen mixed with this carrier oil to refuel fuel cell cars follows a similar refueling process as that of a conventional car, with one cubic meter of the oil carrying about 57kg hydrogen, which in turn is expected to give a car a driving range of 5,700km. However, the carrier oil is still in its nascent stage of development and would take time and resources to gain commercial applicability.

However, one of the largest challenges that fuel cell vehicles face is direct competition from battery electric vehicles. BEVs have a 10-year head start over fuel cell vehicles whether it comes to government support, technological development, infrastructure, or acceptability. Moreover, BEVs are cheaper both in terms of cars price and cost of running, which is an important factor for consumers. In addition, BEV players are constantly working towards reducing charging time and increasing driving range. Since both are green technologies, it is likely that the consumer prefers the one which has now proven to be a successful alternative to conventional vehicles in terms of pricing and supporting infrastructure. Although higher subsidies for fuel cell vehicles may help bridge the gap, it is yet to be seen if fuel cell cars will be able to give stiff competition to their green counterparts.

EOS Perspective

There is no doubt that the Chinese government intends to throw its weight behind the fuel cell technology for automobiles. In 2018 alone, the central and local governments spent a total of US$12.4 billion in supporting fuel cell vehicles. This has helped attract the attention of several local and international companies that want a share of this growing market.

It also helps that hydrogen as a fuel has several benefits when compared with battery power, the key advantages being short refueling time and long driving range. Moreover, some consider hydrogen to be a cleaner fuel when compared with battery power as the electricity required to create hydrogen (which is created by pumping electricity into water to split it into hydrogen and oxygen) can be derived from renewable sources from China’s northern region, which are currently going to waste.

Despite these inherent benefits, it will be difficult for fuel cell vehicles to catch up with battery-powered vehicles as the latter have significantly advanced over the past decade (leaving fuel cell vehicles behind).

Moreover, China’s model of promoting green energy is yet to pass its ultimate test, i.e., to sustain and flourish without government support. Since the government has now begun to phase out its support to BEVs, it is to be seen if the large group of domestic electric vehicle makers can survive in the long run or the market will face significant consolidation along with slower growth. Thus it becomes extremely critical for the Chinese government and companies in this sector to understand the feasibility of the market post the subsidy phase. Fuel cell vehicle market should take advantage of learning from the experience of battery powered vehicles sector, which was the pioneer of alternatives to conventional combustion vehicles.

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