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Major Trends of the Russian Mobile Content Market (2006-2007)

Russian VAS market in 2006-2007

In parallel with the world of the Web, the Russian mobile world is emerging rapidly. In 2006, the Russian value-added services (VAS) market developed steadily, and continued to grow in 1Q 2007, reaching 615 million USD, a growth of 34% year-on-year, reported ComNews Research. The three main players of the VAS market, operators, content providers (CPs) and aggregators, as well as its subscribers are growing with it. Major Russian mobile operators have launched aggressive and innovative policies in the VAS scene, launching new WAP portals and services and drastically reducing the number of content partners. The share of VAS in the total revenue structure of operators reached 14% in 1Q 2007. With the launch of the first 3G networks in 2007-2008, Russian operators will only increase their content offerings. Consolidation and stricter policy by operators reduced the number of basic content providers to 80-100 companies. Last year CPs developed their skills in providing IVR and RBT services, pushing more for video content, mobile games and community services.

Major CPs are pushing to offer better quality content, introduce new products and expand the global market. Today, the successful formula of the Russian VAS market is to ensure the quality of content and the diversity of products and services. IVR, SMS-based TV lotteries, RBT and mobile games play in the most popular and successful content services segment. IVR services took the “Lady Luck” of revenues in 2006. In addition, the continued growth of WAP penetration, mobile community services and user-generated content all promise that this year will be positive.

However, the otherwise resurgent market is salty. Piracy is on the rise, while low content quality and SMS-spam remained a significant obstacle to the rapid development of the market. Finally, high WAP traffic rates and high revenue share of operators serve as an additional burden to market development.

What is the name of the game?

“We have changed the rules of the game,” noted Pavel Roitberg, Head of Products and Services, MTS, at the last Mobile Content Forum held in Moscow in June 2007. While before MTS, the largest Russian mobile operator, had 250-300 content partners, the analysis showed that 70% of all revenues came from 15 main partners, 20% from 20 CPs and 10% from 35 partners. As a result, MTS terminated contracts with ineffective partners, thus reducing the number of its total partners to about 100 companies. And this is almost the same situation for its competitors, VimpelCom and MegaFon.

The decline in content quality, as well as the proliferation of fraudulent offers, reduced subscriber confidence in CP and caused content sales to decline in 2005. Learning from that negative experience, major operators and content providers rushed to improve the quality of mobile content. For example, MTS created a content quality control program that holds its partners directly accountable for content quality. At the same time, major Russian CPs formed an association to control mobile content offerings.

Sales of “heavy” and expensive content grew even more in 2006, as subscribers became more familiar with videos, games, software applications and full mp3 tracks. The purchasing power of subscribers has increased in large urban areas, and they are willing to pay more for “heavy” content. A notable trend in 2006 is the resurgence of operator activity in the VAS space. Many Russian mobile operators have created and developed their own portals. , and participated in joint promotions with some of the biggest content providers. In addition, operators introduced new billing methods, such as WAP-tariff: MT-charge and WAP-click.

WAP Networks Keep Growing

iKS-Consulting estimated the monthly WAP audience in Russia at 14 million users. The average user is male (65%) in the 17-23 age group (60%), says WAPStart research. The highest growth rates for new subscribers are in the suburbs. 71% of subscribers browse WAP with pre-installed mobile browsers. As of April 2006, there were over 80,000 WAP sites in Cyrillic. However, only about 20 WAP sites have a large daily audience.

Below are the TOP-5 WAP searches in May 2007:

1. Porn – 42.00%

2. Free Stuff — 29.49%

3. Software (ICQ, jimm, Opera, AV Programs) – 7.23%

4. Gay – 2.75%

5. Mail.ru – 2.65%

Source: poisk.wapstart.ru

MTS is among the most active mobile operators promoting VAS competition. It launched a new well-designed WAP portal and facilitated its cooperation with content providers, facilitating the content collection market. MTS’s direct competitor and Russia’s No. 2 operator, VimpelCom (“BeeLine”), launched successful voice-CPA and WAP-CPA programs.

In 2006, large mobile content providers diversified their services and expanded into the neighboring CIS market, as well as throughout the world, such as INFON (Belarus), InformMobil (Tajikistan, Georgia and Kazakhstan), i-Free ( Brazil and India) and PlayFon (South Africa, Germany, Latvia, Lithuania, Estonia). Other content providers, such as A1 and Interactivi, have honed their skills in mobile marketing and intellectual branding services. For example, A1 actively increased the main FMCG brands in Russia and launched its new Java-based mobile community services “Ogloblya”. Similarly, Interactivi reported that in 2006 the company worked with about 1 million subscribers in Russia and organized more than 60 successful promotional activities.

There have also been changes in promotional strategies. Many CPs agreed that the efficiency of TV advertising is decreasing, while the prices for placing the ad are increasing. As a result, many CPs have shifted their advertising budgets to the WAP area and developing B2B partnerships. However, some CPs still rely on TV advertising, for example, Nikita Mobile was ranked 13th in the list of TOP-100 major advertisers in 2006.

Bumpy road

Despite the continuous growth of the mobile content market, many problems have not been solved. One of the most common was the lack of creative content and services. Overall, low content quality and lack of education among subscribers significantly reduced market uptake. For example, low-quality TV competitions undermined the trust of subscribers: in many cases, subscribers received a large number of SMS-spams. In addition, many market analysts have pointed out that the revenue of mobile operators is too high, and this has led to an increase in the price of content. In addition, the high costs of WAP traffic added to the burden of increasingly expensive “heavy” content for mobile subscribers.

All About XXX: Selling Mobile Games to the Developing World

About 15 million copies of mobile games were sold in 2006, Playmobile estimated. Mobile games are considered by many market analysts and gamers to be among the giants of the future. Adult games and brands generated the most revenue, and will remain popular in 2007, DDM said in its mobile gaming study. Erotic games generate almost 50% of revenue, while branded games account for 20%-40% of revenue and are considered second only to casual games. Other potentially interesting products include multiplayer games, advertising games and PC title games.

TOP-3 mobile game developers:

QPlaze-RME

Games Shamrock

Herocraft

TOP-3 publishers of Russian mobile games:

QPlaze-RME

Mobile Content Factory

Herocraft

TOP-5 Russian mobile game distributors:

PlayFon

Info

Iricom

Nikita

Playmobile

Mobile games – key sectors:

Casual games

Brand games

Adult games

Source: DDM, #1 2007

Dynamic Quarter VAS

In the first quarter of 2007 the market continued its dynamic growth. According to ComNews Research, during this period the Russian VAS market totaled 615 million dollars, which is a 3% increase compared to 4Q 2006, and a year-on-year growth of 34%. The share of VAS in the total revenue structure of operators reached 14%.

ComNews research focused on the popularity of WAP services, as well as the constant growth of prices for end users. Both parties blamed each other for the price increase: the operators think the problem lies in the inability of the CPs to produce meaningful and quality content, while the CPs believe that the operators’ share of the revenue is too large.

20% of operators’ revenues came from the VAS segment. The overall structure of VAS revenues (intermediate) was as follows:

Basic services – 6% (36 million USD)

Content – 20% (124 million USD)

M-Internet – 20% (123 million USD)

Messaging – 54% (332 million USD)

Source: ComNews Research

In 1Q 2007, mobile Internet brought some 123 million USD to operators, almost as much as mobile content revenues (124 million USD). The main trends of 1Q 2007 are practically similar to those of 1Q 2006. Revenues from customization services are declining, while IVR and RBT remain on demand. Other new departments are community services and m-commerce. Thus, i-Free announced the successful launch of Jamango, a mobile community portal, in a number of global markets, such as India and Singapore. Other trends include the customization of mobile phones at the production stage and the popularity of SMS-based bidding technology.

However, content operators can no longer ignore the new trend: the active development of their operator portals. Their sales increased significantly by almost 35%.

The average revenue sharing structure between CP and operator in 1Q 2007 was 61% and 39% respectively, said ComNews Research.

Mobile content revenue structure:

Customization – 34%

M-Commerce – 3%

Games – 14%

Infotainment – 16%

Chat/Community – 9%

M-Marketing – 6%

Media Projects – 18%

Off-portal sales outperformed on-portal sales with 65% and 35% market share, respectively.

What does the future look like? According to Playmobile, the growth of sales of erotic games and brands will continue in 2007. The company estimated that 25 million copies will be sold this year. Multiplayer games and PC title games will increase. However, ComNews Research predicts that in 2007 the mobile content market will grow by only 16% to reach USD 520 million. To maintain their revenues, CPs have to consider diversifying their business, moving into corporate business areas.

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