FT SPECIAL REPORT The Connected Business Monday March 2 2015 www.ft.com/reports | @ftreports Inside Developers see future Telcos seek on smaller screens Consoles are losing out to mobile devices in the fight for gamers’ hearts to redefine Page 2 Venture capitalists bet on start-ups High valuations of companies have their role in attracted investors Page 3 Music industry hails new ‘white knight’ Streaming overtakes digital era downloads, but income will be slower Competition from the likes of Google and Apple to disrupts traditional models, writes Daniel Thomas follow behind Page 4 elecoms is fast becoming a ing to the challenge, helped in regions dirty word for companies such as Europe by regulators encourag- that want to become much ing industrial growth through consoli- more than providers of dation. This, alongside better economic T basic connections in a conditions, is leading to higher profits digital world in which technology is andrisingshareprices. Artifical intelligence underminingtraditionalrevenues. Now companies have the breathing Companies in the sector are still at spacetoinvestintheirfuture—andvar- and the fridge riskofbeingleftbehindorbeingpushed ious strategies are emerging among Why milk-buying robots tothemarginsassimpleprovidersofthe managements keen not to be left could mark the end of pipework that technology groups use to behind. Illustration: Oivind Hovland maketheirfortunes. Hans Vestberg, chief executive of the world as we know it And even the latter holds dangers if Ericsson, the Swedish telecoms equip- of options — some will go into TV and content such as TV and music. Page 6 the telecoms groups cannot keep up ment maker, says the biggest risk is not media,othersintocloudservices,others In this market, the distinction with ever increasing demands from making the right decisions on strategy, the connected car and home. Some will between mobile or fixed-line access to customers for instant videos and giventhatthemarketismovingsofast. ‘You need to move now dothemall.” the internet becomes immaterial. On FT.com entertainment by investing heavily in “You need to move now to where you At the heart of most strategies Instead, the consumer gets to choose next generation networks capable of want to play in future,” he says. “Ten to where you want to remains the desire to become the whichscreenstowatch,playorworkon, Video: rise of the mobile carryingvastquantitiesofdata. years ago, they all did the same things. play in future’ gatekeeper of the internet — and with from a smartphone to a tablet or TV. on-demand economy Thesignsarethatmostgroupsareris- But now carriers have suddenly got a lot it, the provider of services and Continuedonpage4 www.ft.com/appeconomy Year of substantial progress instoreforpayment systems Mobile wallets institutions that issue credit, however, the rise of smartphone-enabled paymentshasrisks. Apple Pay is shaking up the Banks profit when consumers use market, but others are vying theircards,butasconsumersstoremul- for attention in the same tipleaccountsontheirphonesitispossi- ble that the brand identity associated space, reports Sarah Mishkin witheachbankcouldweaken. As networks such as Apple Pay cap- turemoreofthemarket,theycouldalso Foryears,thestoryhasbeenthatmobile raise the portion of the profit on each isfinallyabouttotakeflightandfulfilall transaction they take, or otherwise stop its potential — in the process bringing using banks or existing parts of the wealth to a new set of entrepreneurs, chain of companies that currently inventorsandinvestors. handlecardpayments. Mobile payments, for example, have Doug Brown, who works on ebanking long been hailed as the next big thing, and mobile at FIS, a banking and but this year retail and payment indus- payments technology company, says: try leaders say that — finally — 2015 is “Thisisthedefiningmomentfor[finan- goingtobedifferent. cial services groups], for their brand “Every year since about 2009 has identityandrelevance. been the tipping point year for mobile “If all the value is managed by an payments,” says David Hodgkinson, a oligopoly, whether that’s Apple, Sam- consultant at KPMG in London, but he sung, or a payment network, and at the adds: “If I’m really honest, the quanti- end of the day everything accrues value fiedmarketprojectionsvarywildly,and to only a few entities, then for the thou- they’refairlymeaningless.” Adding it up: Apple’s mobile payment sands of financial institutions that we Yet he and others say developments system at work — Eric Risberg/AP workwith,thatwouldbeafail.” indicate that 2015 will be — if not a Thereisstillabestcase,hesays.Some breakthroughyear—thenatleastayear banks, as well as many big retailers and banksareworkingtointegratepayment of substantial progress. The factors app makers, thereby ensuring that the capabilities into their own apps, so behind this are the launch of Apple Pay, vastmajorityofiPhone6usersintheUS consumerscouldusethosetopayrather the efforts by ecommerce companies to canstoretheircardswithApplePayand than Apple’s app. To make their apps give consumers better ways to buy regularlyfindplacesthattakethem. more useful, some banks are also goods with mobile devices, and the real- Apple’s push into payments has installing systems on ATMs that allow isationbybanksthattheywillloseoutif helped drive the development of secure customers to use their smartphone to theydonotfocusonthetechnology. technology to store cards on phones. withdrawcashwithoutacard. The key event, says nearly everyone Visa, MasterCard and others use the Even if Apple Pay leads the market, in the industry,was the launch last year technology and say it is highly secure others will still have a chance, analysts of Apple Pay. This feature allows users against theft and fraud, although its say. Speciality wallets could still serve a to store their credit or debit card infor- defences have yet to be tested. Few card niche, such as ones that store bitcoins, mation on their iPhone and then either detailswillbehandledbytheretailerso, or credits for video games or ones that tap the phone on a special receiver to as it is bugs in retailers’ in-house soft- are linked to and give rewards at a pay for goods in a shop or buy online particular store such as Starbucks, with one click while shopping on an app which already has one of the more suc- thatusestheservice. cessfulmobilepaymentapps. Apple is not the first to make a so- Apple’s push into payments Regulators in the US and Europe are calledmobilewallet.UStelecomstrieda has helped drive the also likely to ensure that Apple keeps its similar wallet named Isis, later platform open so that other mobile rebranded as Softcard. Google had secure technology needed wallets can operate on its iOS mobile Google Wallet. Square, a start-up led by to store cards on phones operating system, says Mark Thomp- Jack Dorsey,a founder of Twitter,which son,apartneratlawfirmSidleyAustin. makes credit card readers and small ware that often allow hackers to steal “My expectation is Apple cannot just business software, also tried a similar card data, this represents an improve- say ‘we’ll only allow this payment app product. None were popular. The inter- mentforconsumers. onourphone’,theywilleventuallyallow facescouldbeclunky,andtoofewretail- For in-store payments, the require- other wallets [to use the platform],” ers accepted the wallets to get consum- ment of a fingerprint will also cut down saysMrThompson. ersusingthemregularly. on“friendlyfire”fraud—whencustom- However, he adds, just because Apple But Apple is Apple. The design of ers fraudulently report their cards have cannot be anti-competitive and keep Apple Pay has been widely hailed and been stolen and someone else has used others from using its phones, this does well reviewed. More crucially, Apple them to purchase goods, says one not mean those competitors will be partnered with nearly all the leading US person in the industry.For the financial successful. 2 ★ FINANCIALTIMES Monday 2 March 2015 The Connected Business Developers see the future of games on much smaller screens Entertainment Consoles are being supplanted by mobile devices, reports Tim Bradshaw hen King Digital Enter- sophistication, growing numbers of Soda Saga to the top of Apple and Activision’s chief executive, said there King, for example, adjusts the Party poppers: tainment launched playersspendmanyhours—anddollars Google’s app download charts globally was nothing that had driven any sizea- difficulty of Soda Saga’s levels every few actress Molly its eagerly awaited — on addictive titles such as Clash of for November. In its earnings report, bleamountofoperatingprofitinmobile weeks. The first “cohort” of players was Sims at the follow-uptothepopular Clans, Minecraft and GameofWar:Fire Kingsaiditsetanewquarterlyrecordof gaming. But in its recent earnings call, looking for something more difficult launch of King’s W mobile game Candy Age. 1.5bn average daily game plays in the Activision’s chiefs admitted mobile and than the original Candy Crush, Mr Zac- Candy Crush Crush Saga, it looked far beyond Apple’s “The first wave of mobile games was threemonthstoDecember. tablet gaming had “moved up on our coni says, while newer players want Soda Saga on AppStoretopromoteit. simplistic—thegameplaywastherebut But King has an advantage other priority list” after finding success with a somethingeasier. Broadway last Videos heralding the arrival of the the polish wasn’t,” says Julian Farrior, games makers do not. As well as the Warcraftspin-off,Hearthstone. Despite the different