mobile business application outlook

WIRELESS ENTERPRISE STRATEGIES

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Industry Report Mobile Business Application Outlook 2006 January 2006 of 34

2006 Strategy Analytics All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of Strategy Analytics.

Mobile Business Application Outlook 2006

Following on substantial momentum built in 2005, 2006 will see continued robust enterprise wireless ecosystem development in terms of vendor R&D, supplier

alliances, user promotion and awareness, competitive pricing and ultimately the adoption of wirelessly-enabled mobile business applications. Growing over 20% in

2006 to a market worth over US$ 22 billion in N. America, W. Europe and Asia/Pac, Strategy Analytics predicts that business utilization of wireless data will solidly step into the early mainstream market in 2006. While casual business use of SMS will continue to dominate users and revenues, email will govern enterprise-sanctioned

wireless data adoption. The race to supply email beyond the corner office will viciously pit email specialists against industry heavyweights from both the IT and mobility

worlds who have thrown their hats into the mobile email ring in 2005. Enterprise-grade mobile email users in these regions are expected to double in 2006 to nearly 12

million users. Lastly, recurring end-user expenditures on mobilized e-business applications including Sales Force Automation and Field Force/Service Automation will

grow nearly 16% in these regions in 2006 to over US$ 2 billion.

January 2006

Industry Report





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Copyright © Strategy Analytics 2006





Contents

1 INTRODUCTION 5

2 KEY-POINT CONCLUSIONS 6

3 2005 WIRELESS ENTERPRISE MARKET HEALTH CHECK 6

3.1 KEY EVENTS: INDUSTRY STRUCTURE & PRODUCT LAUNCH 9 3.1.1 OPERATORS 9 3.1.2 DEVICES 10 3.1.3 EMAIL SOLUTIONS 13 3.1.4 THE FALLEN 14

4 2006 OUTLOOK 15

4.1 MARKET SIZING 15 4.2 PRODUCT & TECHNOLOGY DEVELOPMENTS 21

4.2.1 WIRELESS EMAIL WILL ROAR IN 2006 22 4.2.2 THE OPERATOR WIRELESS EMAIL BATTLEFIELD 24 4.2.3 MIDDLEWARE LANDSCAPE EVOLUTION 25

4.3 OPERATOR & VENDOR POSITIONING & VALUE CHAIN OUTLOOK 29 4.3.1 SEGMENTATION: AN IMPERATIVE FOR DEVICE VENDORS & OPERATORS 29 4.3.2 PRICING: HOW TO GET BEYOND INELASTIC EARLY ADOPTERS 32

4.4 2006 RISKS/UPSIDE 32

5 APPENDICES 34

5.1 APPENDIX I: RELATED RESEARCH 34 5.2 APPENDIX II: ANALYST CONTACTS 34





List of Exhibits Exhibit 4.1: Combined Voice & Data Business User ARPU by Region (2005-2006) 15 Exhibit 4.2: Enterprise Wireless Data Revenues in N. America, W. Europe & Asia/Pac 16 Exhibit 4.3: Enterprise Wireless Data Revenues in NA, WE & AP 17 Exhibit 4.4: Enterprise Wireless Data Revenues in NA, WE, APAC by Application 18 Exhibit 4.5: 2006 Enterprise Wireless Data Revenue Pie by Application 19 Exhibit 4.6: The Hottest Verticals for Cellular M2M Solutions 21 Exhibit 4.7: Enterprise Grade Wireless Email Installed Base in NA, WE & APAC 23 Exhibit 4.8: Enterprise Grade Wireless Email Revenues in NA, WE & APAC 23 Exhibit 4.9: Estimated Wireless Email Market Share in 2005 26 Exhibit 4.10: Estimated Wireless Email Market Share in 2006 26 Exhibit 4.11: Mobile Email Vendor Retrenchment 28 Exhibit 4.12: Segment Contribution to W. European Enterprise Wireless Data Revenues 30 Exhibit 4.13: Segment Mapping – Need for Attachment Viewing 31





1 Introduction

What does 2006 hold for the wireless industry globally? As we embark on the year, Strategy Analytics’ Global Wireless Practice takes stock of where we have been in 2005 and looks outward to scale the market’s expansion over the next 12 months and identify the major issues that will impact the industry.

What services and applications will experience the most growth this year, and which promise the most handsome returns for device vendors, solutions providers and mobile operators? What environmental factors will drive or inhibit the success of each vendor community in the value chain? What are the critical success factors for each?

This report series surveys the current industry structure landscape, predicts how its contours will be reshaped in the coming year, and calls out the key factors that will drive our view of total revenues and profits in 2006.





2 Key-Point Conclusions

Driven by messaging, estimated enterprise wireless data revenues in N. America, W. Europe and Asia/Pac in 2005 grew a healthy 22% to US$ 18.4 billion.

• Despite low single digit penetration, the industry’s attention continues to be focused on the application no one argues has the greatest growth potential, wireless email. Email will pave the way in 2006 for a broader range of mobilized personal productivity tools and e-business applications.

• Text messaging use among business users was up marginally in saturated W. European and Asia/Pacific markets in 2005 (approaching 8-in-10 and 7-in-10, respectively). N. America witnessed a sharper increase from 34% to 43% of business cellular users - with plenty of room still left for growth.

Wireless enterprise devices finally caught up with our imaginations in 2005.

• From the Treo 700w to the Blackberry 8700c to the Moto Q – an array of exciting converged devices were introduced that finally succeed in blending voice and data.

3G networks ‘grew up’ in 2005 and started to hit their stride in many markets.

• Real 3G competition emerged with tariffs that are finally starting to look palatable beyond the earliest price-inelastic ‘Connectivity Junkie’ adopters.

Industry structure shifts and revenue model maturation in 2005 primed the pump for 2006 and beyond.

• Industry consolidation among solution providers (lead by Nokia/ Intellisync and Sybase/ Extended Systems) will inject a degree of serious marketing clout and sense of staying power to providers beyond RIM and Microsoft.

In 2006, access to critical decision-making information regardless of time, location or access device and the ability to efficiently filter it, find it, prioritize it and share it is defining enterprise IT. Wireless technology in 2006 will start to be recognized as the glue that bonds all of this together.

• The installed base of enterprise wireless data users in N. America, W. Europe and Asia/Pac will 11% in 2006 to 270 million users (SMS inclusive)

• Wireless enterprise data revenues in N. America, W. Europe and Asia/Pac will grow nearly 21% to just over US$ 22 billion by the end of 2006 (SMS inclusive)





• As a latecomer to the wireless data party, N. America is poised to experience the greatest boom in enterprise wireless data expenditures in 2006 with growth of nearly 42%

Exhibit 2.1: Enterprise Wireless Data Revenues in NA, WE & AP

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• SMS and email will dominate, though line-of-business applications will see continued slow-and-steady growth in 2006 at 16% from 2005. Eclipsing US$ 2 billion in recurring OPEX expenditures in W. Europe, N. America and Asia/Pac in 2006, process-driven wireless data applications will continue to represent significantly less than 10% of end-user revenues.





Exhibit 2.2: Enterprise Wireless Data Revenues in NA, WE, APAC by Application

Enterprise Wireless Data Revenues(N. America, W. Europe & Asia/Pac US$ B's)

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SMS MMS Secure EmailInternet Email IM SFAFFA SCM ERP/Ops

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The secure enterprise email market value is expected to jump from US$ 2 billion to US$ 3.4 billion in OPEX revenues in 2006.

• RIM, the uncontested leader, has reached significant market dominance and economies of scale in 2005 with approximately 4.5 million wireless email subscribers at the end of 2005. With an estimated 64% market share in the corporate mobile email arena, RIM can also usher in 2006 with grounds for great optimism.

• Strategy Analytics predicts that RIM will easily retain their market domination, though will see their market share drop from nearly two-thirds of the market in 2005 to slightly over half of the market in 2006 as competitors aggressively take aim at growing market and RIM deflects criticism on the legal front, which will unfavorably affect new implementations.





3 2005 Wireless Enterprise Market Health Check

Estimated enterprise wireless data revenues in N. America, W. Europe and Asia/Pac in 2005 grew a healthy 22% to US$ 18.4 billion.

• Lead by messaging, the diffusion of enterprise wireless data into the business world continued to grow robustly in 2005. The use of text messaging in 2005 bumped up marginally in saturated Western European and Asia/Pacific markets where it roughly stayed at levels approaching 8-in-10 and 7-in-10 business cellular users, respectively. North America, however, witnessed a sharper increase from 34% to 43% of business cellular users - with plenty of room still left for growth.

• Most of the industry’s attention continues to be focused on the highest growth application - wireless email. Wireless email will continue to pave the way in 2006 for a broader range of mobilized personal productivity tools and e-business applications alike.

Wireless enterprise devices finally caught up with our imaginations.

• From the Treo 700w to the Blackberry 8700c to the Moto Q, an array of exciting converged devices (that for the first time succeed in blending voice and data capabilities) were launched or announced in 2005.

3G networks grew up and started to hit their stride in many markets.

• Real 3G competition emerged with tariffs that are starting to look palatable beyond the earliest ‘Connectivity Junkie’ adopters.

Industry structure shifts and revenue model maturation in 2005 primed the pump for 2006 and beyond.

• Industry consolidation, particularly in the solutions arena lead by Nokia/ Intellisync and Sybase/ Extended Systems, will inject a degree of serious marketing clout and sense of staying power to providers beyond RIM and Microsoft.

3.1 Key Events: Industry Structure & Product Launch

3.1.1 Operators

2005 saw a number of important consolidation events in the mobile operator arena which will provide impetus for wireless enterprise solutions sales going into 2006.





The assimilation of AT&T Wireless into Cingular was largely completed in 2005. This allowed the number one US operator to revamp its enterprise division to compete more effectively with archrival Verizon Wireless, and leapfrog into 3G with an initial HSPDA commercial launch late in the year – also upping the competitive ante for Verizon Wireless.

Long popular with business users, it was announced in Q4 2005 that UK’s O2 would be acquired up by Spain’s Telefonica for US$ 31 billion. When consummated, this will bring a strong contingent of UK and German business users under Telefonica’s wing and bring in the kind of industry leading enterprise expertise that Telefonica has been starving for. Most importantly, this will pressurize Vodafone and T-Mobile to compete like never before and put an end to a comfy duopoly of top tier players with global scale.

3.1.2 Devices

2005 had no shortage of new products, though several key products and services that broke onto the scene last year warrant special mention.

Treo 700w: The Treo has a deserved reputation for uniquely balancing data and voice capabilities and has offered up exciting additions to the RIM alternative camp. In fact, the Treo has arguably set the standard for a messaging orientated handheld with a convenient QWERTY keyboard and large square display that, critically, does not fail as a phone. The added value of full blown Windows Mobile 5.0 (complete with support for stylus-navigation and easily handled by Intel’s 312 MHz XScale processor) will also make the new Treo appeal to the PDA-fan community as well as "Forms Navigators" who need to navigate more complex SFA and FFA applications with drop-down menus (in contrast to the jog-wheel approach).

Despite significant success from the Treo product line (1.1 million units sold in fiscal 2005) Palm was losing ground with its converged Smartphone/ Wireless-PDA device portfolio. With the market share of its sole OS provider PalmSource tumbling from 30% in 2001 to 5% in 2004, Palm was feeling the sting of increasingly fierce competition from RIM in the US, and Symbian's stalwart brands such as Nokia and Sony-Ericsson in Europe. Furthermore, Palm had been struggling to penetrate the integration-focused IT space in any meaningful way outside of the US despite for years despite significant investments in vertical business solutions and the ISV community. The announcement by Palm, Microsoft and Verizon heralding in the EVDO connected Treo 700w running Windows Mobile 5.0 represented a smart though risky move for Palm. Palm hopes to ride the recent wave of Microsoft traction in the business user segment and regain much-needed enterprise market luster where RIM and Nokia already hold strong roots.

Palm's move is also another success for the Microsoft Mobile division as the market reality of the need to support multiple OS's on a single platform to drive overall adoption of messaging devices becomes clearer. Windows Mobile is surging in the





highly lucrative converged device OS space (from 4% market share in 2001 up to 18% in 2005) by paving a path of least resistance for IT managers and offering mobile professionals with a seamless PC look and feel on their mobile devices.

Palm is emerging as a very capable hardware producer of a device portfolio that spans not only GSM and CDMA, but now multiple OS platforms as well. This flexibility will pay dividends for Palm down the road.

Moto Q/ “RAZRberry”: This device has high hopes riding on it to fill a gap where Motorola has been notably weak in the high end high-data-function enterprise smartphones class.

The runaway success of the RAZR opens new doors for Motorola, particularly as prestige, style and design are starting to become key selling points and significant differentiators in the realm of the business user.

What does the new ultra-slim Windows Mobile 5.0-powered Moto Q portend for Motorola? When the Q becomes available it will have to prove its worth on basics like ruggedness and battery life, and very interesting questions remain as to the viability of alternate OS's and email clients for the device (i.e. Linux, Blackberry Connect, etc.). Nevertheless, we believe Motorola can use the Q as an entrée to meaningful market share in the $14 billion converged device space.

To do this, it must leverage the fashionable Q's new industrial-design-trump-card for all its worth and waste no time in folding the Q's successor into its Seamless Mobility offering (read: add WiFi). In order to hit the mark in the enterprise space and give current frontrunners a run for their money, Motorola must not only bet on the coolness of the Q design but also fold the future of the device's roadmap into its leading-edge Seamless Mobility vision.

RIM launched a number of devices as the next evolution of its successful portfolio. While we may never see RIM add a camera to its devices, 2005’s handsets such as the 8700c (marketed by Cingular) were clearly designed to remain QWERTY but be more prosumer-friendly and decidedly more phone-centric with dedicated SEND/END buttons and dramatically brighter and clearer screens.

While the classic 71xx series devices could probably survive being substituted for the hockey puck in a Stanley Cup playoff game, initial SA testing of the 8700c (intended to pick up where the 7000 series leaves off) was brilliant in every respect except ruggedness (the microphone failed after being dropped from waist level). Even more phone-centric, the 6000 series (with SureType, no QWERTY) has built a solid following in 2005. The 6130e, marketed by Verizon, is an exciting EV-DO powered unit in this category that emerged in 2005 (more exciting is the





price point of the bundling package accompanying it – US$ 15 unlimited tethered notebook connectivity with the right bundle).

Nokia threw its hat into the ring as well with the E Series late in the year. RF is the keyword with the E Series and the E60, E70 and E61 all feature embedded WLAN. With the 9300i, Nokia also added another WLAN capable converged device to the Communicator series.

While the E60’s candy bar design is fine (if not unremarkable), the E70 is the next iteration of the popular folding 6800 design. The E61 is a block design clearly aimed at the RIM crowd for email and is a stark departure from the Communicator series lengthwise folding form factor. Amazingly, it offers quad-band GSM (GSM 800/900/1800/1900) and 3G at 2100 MHz. We expect Nokia to optimize a premium email experience with this device and its own Intellisync and Nokia Business Center solutions in 2006 or 2007.

Other converged devices launched in 2005 that are worth mentioning include the Samsung I-830 (with Universal Plug & Play capabilities allowing content to be presented on Televisions and other displays), as well as the expanding iMATE lineup of devices which have made a splash in Western Europe and particularly the Middle East.

The biggest news on the device vendor M&A front in 2005 was Taiwanese BenQ taking the reigns of Siemens struggling devices unit – and getting paid US$ 301 million by Siemens for the favor.

Slightly reminiscent of the Ericsson-Sony tie up, this acquisition tapped into Asian consumer electronics know how to bring both operational efficiency and product sizzle into an ailing product portfolio. While no slouch in the converged device category with the existing P50 Windows Mobile powered “PDA phone”, the new BenQ-Siemens entity has to date only launched consumer/ prosumer grade devices (the EF81, S88 and S68). While UMTS, MP3, FM and megapixels are the stated buzzwords for BenQ so far this year, SA has high hopes for BenQ in the enterprise moving forward. Success here will be linked to the ability to coalesce their roadmap around BenQ’s consumer electronics savvy (potentially linking in with its strong electronic displays portfolio) and, critically, to tap into the IT business that Siemens is known for the world over in order to drive thought leadership and innovation in their products (something that the company has historically fallen well short of the mark on).

Any discussion of M&A activity affecting the wireless enterprise space is incomplete without mentioning China’s PC giant Lenovo acquiring IBM’s PC business for US$ 1.25 billion.





Though announced late in 2004 (and first negotiated in 2003), this was for the most an event whose impact was felt in 2005 and marked the exit of IBM from an industry it invented. This brings Lenovo into the realm of the top-3 global PC makers and it only makes sense for the company to delve into the mobile device as well given the Chinese vendors advantageous cost structure, product portfolio breadth and newfound sales channel opportunities to exploit.

3.1.3 Email Solutions

2005 was a watershed year for consolidation in the mobile email space.

In Q2 2005, white label wireless email player SEVEN (whose roster of clients includes Vodafone, Cingular, DoCoMo and O2) snapped up Finnish email provider Smartner for an undisclosed sum (Smartner had previously joined forced with another email player, Commtag in 2003). At a price point about two thirds that of Blackberry and prime placement on Treo’s out of the box, SEVEN had witnessed impressive growth in the US. Still, SEVEN recognized that global reach as a strategic imperative in the mobile email arena and moved to acquire Smartner, whose operator deals and strong ties with Nokia made it a good choice. Nokia, however, was not without its own wireless email agenda.

In Q2 2005 Nokia continued to bet big on enterprise data in 2005 with its acquisition of Intellisync standing as a testament to the strategic and long term financial appeal of a secure enterprise mobile email.

The US$ 430 million move makes good on Nokia's promise of OS indifference and strengthens their hand in terms of device management (including notebooks and PDA's). Intellisync also affords Nokia ready-made IT credibility and a channel presence that spans IT departments, potential technology partners and even CDMA operators.

Extended Systems was also acquired in 2005 by respected IT firm Sybase for US$ 71.3 million. With excellent IT credentials, strong IT alliances and a track record in mobile data dating back to 1984, Extended Systems offered obvious synergies to Sybase, whose mobile iANYWHERE and AvantGo businesses were looking comparatively strong. Extended’s global client base of 2,500 OneBridge mobile groupware customers and strong capabilities in SDK’s and database software were a natural compliment to Sybase.

We believe all of these moves in 2005 were driven by the acquired’s need for global reach (not to mention handsome multiples on their equity) and the acquirers need for better mobile email capabilities, a ready made channel presence and in a number of cases fills a critical gap in mobile device management functionality. This also accelerated the need for additional consolidation in a lucrative mobile email solution space that will ultimately be ruled by heavyweights such as RIM, Microsoft and Nokia who possess staying power, broad solution scope and global reach. Smaller niche players that have met moderate success to date will





feel added pressure to differentiate their offerings in order to maximize their value proposition and/or increase their chances of being vacuumed up by a larger player.

3.1.4 The Fallen

As in any year, 2005 had its share of wireless enterprise players closing their doors, mostly on the WLAN side of the enterprise wireless data fence.

Other acquisitions signaled a shift so profound that it can only be considered to be a farewell. Access’s acquisition of PalmSource was once such example in our view. After the industry’s wholly underwhelming reception of PalmSource’s Cobalt OS, this deal marked the beginning of the end for Palm OS as a serious contender in the wireless enterprise space in our view. The new Linux direction and low-end device orientation (already underway, and crystallized by the Access deal) has effectively sealed the OS’s fate.

Meanwhile, PalmOne branched out in 2005 and shed its long standing affinity with the Palm OS.





4 2006 Outlook

Standing on the precipice of the latter half of the decade it is increasingly clear that information equals power in the business world. The so-called information economy has become a reality.

Access to critical decision-making information regardless of time, location or access device and the ability to efficiently filter it, find it, prioritize it and share it is defining the IT world. Wireless technology in 2006 will start to be recognized as the glue that bonds all of this together.

Strategy Analytics is bullish on the growth prospects for enterprise wireless data in 2006

4.1 Market Sizing

The number of business cellular users (voice inclusive) in N. America, W. Europe and Asia/Pacific will grow from 312 million to 341 million. Total combined voice and data revenues from these users in 2005 was US$ 192 billion. This will grow an addition US$ 10 billion in 2006 to close the year at US$ 202 billion.

Monthly combined ARPU’s differ significantly in these regions, and are not necessarily all poised to increase in 2006 as Exhibit 4.1 illustrates below.

Exhibit 4.1: Combined Voice & Data Business User ARPU by Region (2005-2006)

$32.80

$29.50

$106.50

$108.20

$78.30

$79.90

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W. Europe

N. America

Voice & Data Business User ARPU by Region

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$32.80

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$106.50

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Voice & Data Business User ARPU by Region

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Revenues in the relatively unsaturated Asia/Pacific region will decrease an average of US$ 3.30 from US$ 32.80 to US$ 29.50 in 2006 as droves of low-end voice users come on board. W. Europe and N. America levels are expected to increase marginally in 2006 as plans with cheaper minutes and text messaging are slightly offset by increased levels of usage1.

The installed base of enterprise wireless data users in N. America, W. Europe and Asia/Pac will grow at a rate of 11% in 2006 to 270 million users (SMS inclusive).

Exhibit 4.2: Enterprise Wireless Data Revenues in N. America, W. Europe & Asia/Pac

26 31 43 45

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Enterprise Wireless Data Users (M ‘s) *Includes SMS

Asia/Pacific will have far and away the most data users (194 million) though on average these users will be worth approximately one quarter of the value of the US$ 10 - 11 ARPU’s that will be found in North America and Western Europe in 2006.

Wireless enterprise data revenues in North America, Western Europe and Asia/Pacific will grow at a rate of nearly 21% to just over US$ 22 billion by the end of 2006.

1 For additional detail on these overall trends driven by the mobile voice market, see the Wireless Network Strategies service latest forecast datamodel titled “Worldwide Cellular User Forecasts, 2005-2010”.





Exhibit 4.3: Enterprise Wireless Data Revenues in NA, WE & AP

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These three regions are driving the global market for enterprise wireless data, yet the dynamics at play in each area vary significantly. As Exhibit 4.4 below denotes, person-to-person text messaging will continue to be the dominant revenue generator (true in all regions).





Exhibit 4.4: Enterprise Wireless Data Revenues in NA, WE, APAC by Application


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SMS in North America, however, accounts for less than half of all revenues as compared to roughly two thirds of enterprise wireless data revenues in Western Europe and Asia/Pacific.

Wireless email accounts for about one third of enterprise wireless data revenues in North America but comprises slightly less than a quarter of revenues in the Western European and Asia/Pacific theaters.

Additionally, unlike developed markets in the West were secure enterprise push email solutions garner the lion’s share of wireless email revenues, enterprise email revenues in the Asia/Pacific region will remain outpaced in 2006 by lower grade/ lower ARPU prosumer-grade webmail and email redirector solutions by a factor of nearly 3-to-1.

As a latecomer to the wireless data party, North America is poised to experience the greatest boom in enterprise wireless data expenditures in 2006.

On top of a steady growth trajectory for mobile email and awareness of text messaging and instant messaging being at an all time high, real price competition emerging in the 3G-connected laptop arena is expected to make 2006 a banner year in the region.





Forecasted revenues approaching US$ 5.6 billion in North America in 2006 would equate to growth of nearly 42%.

Line-of-business applications will see continued slow-and-steady growth in 2006 at 16% from 2005. Eclipsing US$ 2 billion in recurring OPEX expenditures in W. Europe, N. America and Asia/Pac in 2006, process-driven wireless data applications will continue to represent significantly less than 10% of end-user revenues (shown with red labels in Exhibit 4.5 below).

Exhibit 4.5: 2006 Enterprise Wireless Data Revenue Pie by Application

ProsumerGradeemail10%

SMS64%

EnterpriseGrade email24%

SCM0.2%

FFA3%

SFA3%

IM1%MMS

2%

ERP/Ops0%

Other2%

Source: Strategy Analytics

Line-of-business applications are low in terms of penetration and are almost without exception characterized by high ARPU’s. Strategy Analytics estimates that Wireless SFA across N. America, W. Europe and Asia/Pac will be a US$ 757 million dollar industry in 2006, with integration-intensive wireless FFA weighing in at US$ 671 million.





Outside of the working quantitative model used in this particular market sizing analysis, fro a total ecosystem perspective these applications are also subject to high ongoing maintenance costs and exorbitant (CAPEX-intensive) additional up-front consulting and integration costs2.

The promise of M2M often causes a lot of excitement when it comes to the potential to wirelessly activate over 50 billion machines around the world. Futuristic visions range from pure business-oriented solutions to consumer solutions, or both, from heavy industry field (such as Utility or business process automation) to safety-driven healthcare segment.

A lack of industry cooperation and commitment combined with high solution costs that are far from industry expectations, are collectively turning such futuristic visions into a distant dream.

Despite the large number of verticals potentially interested in cellular M2M, value chain players should focus their efforts on five main verticals where we believe cellular M2M technologies demonstrate the best payback:

– Utility

– Retail

– Transport/logistics

– Property Management (Office Equipment)

– Healthcare

The M2M solution mapping shown in Exhibit 4.6 below provides an additional level of detail.

2 Additional quantitative and qualitative detail on the SFA and FFA markets is available within previous WES reports and datamodels published in 2005. See “The Promise and Pitfalls of Wireless Field Force Automation” (April 2005), and “Wireless Enterprise User-Level Market Forecast (2004 -2009)” (February 2005).





Exhibit 4.6: The Hottest Verticals for Cellular M2M Solutions

Realistically, Strategy Analytics estimates that strong work is still required to make cellular M2M pervasive and widespread.

By 2010, 120 to 140 million machines could use a cellular connection if cellular M2M players well combine sensor network technologies and more attractive pricing plan and remove technical barriers.

4.2 Product & Technology Developments

Email's role next to the telephone as a basic business communications tool is now rock solid, and its evolution to wireless equally inevitable. The reality is that for certain pockets of mobile users email has actually topped voice telephony in terms of being a vital communications tool that is absolutely essential to conduct business.

Increased competition and market maturity are still needed to catalyze progress in lowering TCO, enabling flexible delivery models, easing security/ IT manageability





concerns and providing inexpensive devices delivering high levels of usability in both voice and email.

4.2.1 Wireless Email Will Roar in 2006

2005 was a year of impressive mobile email growth of more than 80% (generally in line with the most optimistic of scenarios). Strategy Analytics estimates that the total market for corporate mobile email (defined as secure enterprise email in SA Forecast) reached nearly 6 million users at the end of 2005 in Western Europe, North America and Asia/Pacific.

Combined with more than 43 million more casual business users of ‘prosumer’ grade solutions in these three regions, the aggregate global wireless email market for both enterprise and prosumer-grade mobile email has already surpassed an estimated US$ 3.5 billion in value. Beyond the rise of email as a basic business necessity, mobility is also a key driver of mobile email.

In 2006 we estimate the number of mobile professionals (defined as spending at least 20% of their time away from the desk or primary work area) will grow to roughly two thirds of workers.

Indeed, workers will average nearly 40% of their time away from the desk – a factor that will massively play into mobilizing millions of corporate inboxes this year.

Still, relatively speaking wireless email will be just starting to scratch the surface. We expect that 12 million, or scarcely 3% of the 431 million business email users that exist today in Western Europe, North America and Asia/Pacific, will be using a secure wireless email solution at the end of 2006.

The secure enterprise email market value is expected to jump from US$ 2 billion to US$ 3.4 billion in OPEX revenues in 2006.

Exhibits 4.7 and 4.8 below illustrate the expected growth of secure enterprise-grade wireless email in 2006.





Exhibit 4.7: Enterprise Grade Wireless Email Installed Base in NA, WE & APAC

11.5.7

1.9

3

1

4.7

5.4

1.9

0

2

4

6

8

10

12

14

2004 2005 2006W.Europe N.America Asia-Pac

Sou

rce:

Stra

tegy

Ana

lytic

s

Enterprise-Grade Wireless Email Users (W. Europe, N. America & Asia/Pac in Millions)

Exhibit 4.8: Enterprise Grade Wireless Email Revenues in NA, WE & APAC

$1.1

$1.2$2.0

$1.7

$3.5

$2.2

$0

$2

$4

$6

2004 2005 2006

Secure Enterprise Email Prosumer-Grade Email

Sou

rce:

Stra

tegy

Ana

lytic

s

Wireless Email Revenues (W. Europe, N. America & Asia/Pac US$ Bn’s)





4.2.2 The Operator Wireless Email Battlefield

In 2005 a typical operator had one secure behind-the-firewall solution (quite often Blackberry) to serve the most security and IT-centric corporations. This was typically augmented by one or two lower-level solutions to appeal to more cost-conscious businesses.

Cingular stands as the early winner in the US market where we now estimate they serve well over 1 million Blackberry users.

Cingular also offers one of the widest email portfolios (including Goodlink’s and SEVEN’s solutions as well) to fill the needs of many diverse business segments (server-based enterprise, hosted-based network and internet-based personal users).

In Europe, Vodafone has assumed a clear lead over its rivals driven by a well-crafted and comprehensive strategy that is enforced across all its subsidiaries.

With a limited but consistent portfolio (Blackberry, Microsoft and Visto) Vodafone is able to effectively serve most of its corporate customers, whether large, medium or small, with an option that is right for them. At the end of 2005, Strategy Analytics estimates that Vodafone owns approximately 400k Blackberry users in Europe3.

Enterprises already have demanding wireless enterprise needs that span financial (lower upfront investment and ongoing OPEX per seat), functional (specific tasks and ease-of-use) as well as administrative (device management, support a broad base of employee-sourced devices).

In 2006 it is critical that wireless carriers pay more attention to segmentation schemes and refine their wireless enterprise user segments around the specific task-orientations and pain points that relate to wireless email.

A key base of competition for mobile operators moving forward will be to devise winning device and application combinations that resonate with distinct sub-segments of demand and especially SMEs. This includes:

• A broad portfolio of solutions offering various security/ cost trade-offs (behind-the-firewall, web client-based & ‘redirector’)

3 For more information scoring mobile operators and their wireless data solution portfolios, refer to the WES report “Benchmarking Enterprise Solutions in W. Europe: Wireline Roots Give Incumbents IT Edge, Vodafone Most Consistent Across the Board” (September 2005)





• Adjusted delivery models from in-house implementation support to full managed email services leveraging hosting, integration and support skills of IT titans (like HP) or specialized companies (such as Mailstreet in the US or Movalys in France).

• Various ranges of functionality from basic email to push-email to richer PIM functions and on to near real-time collaborative groupware and presence-based services.

4.2.3 Middleware Landscape Evolution

The first 10 millions email users may belong to RIM, but in our view the next 100 million are very much up for grabs. 2006 will provide valuable early insights as to who will lead the race for mobilization of corporate inboxes but also of future mission-critical applications that extend the reach of wireless into all major corporate business processes.

RIM, the uncontested leader, has reached significant market dominance and economies of scale in 2005 with approximately 4.5 million wireless email subscribers at the end of 2005. With an estimated 64% market share in the corporate mobile email arena, RIM can also usher in 2006 with grounds for great optimism.

Exhibits 4.9 and 4.10 below provide Strategy Analytics detailed 2005 estimates and 2006 projections of market share of secure enterprise wireless email solutions.

Strategy Analytics predicts that RIM will easily retain their market domination, though will see their market share drop from nearly two-thirds of the market in 2005 to slightly over half of the market in 2006 as competitors aggressively take aim at growing market and RIM deflects criticism on the legal front, which will unfavorably affect new implementations.





Exhibit 4.9: Estimated Wireless Email Market Share in 2005

Secure Enterprise Wireless Email Market Share 2005

RIM64%

Seven4%

Visto2%

Good9%

iAnywhere/ Extended

6%

Nokia/ Intellisync

10%

Microsoft3% Others

2%

Exhibit 4.10: Estimated Wireless Email Market Share in 2006

Secure Enterprise Wireless Email Market Share 2006

RIM51%

Seven3%

Visto2% Good

9%

iAnywhere/ Extended

6%

Nokia/ Intellisync

17%

Microsoft11%

Others1%





As RIM paved the way for much-awaited ‘killer’ services in the wireless enterprise arena, a large crowd of IT and telecom giants and wireless specialists have spent most of 2005 strengthening their strategies to tackle this growing opportunity. As such, the market is very much RIM’s to build on, or lose.

• Microsoft has pushed its Mobile Information Server solution to offer full wireless push email support with Exchange 2003, enhanced by the Messaging and Security Pack.

• Nokia acquired the established email specialist Intellisync to acquire key mobile device management capabilities, an embedded wireless solution business for e-business applications, and to integrate the unique presence-enabled mobile unified messaging solution into its Nokia Business Center roadmap.

• SEVEN, a leading wireless email challenger, acquired the European specialist Smartner, to become the only middleware vendor with strong roots on the three main continents.

• Sybase, a global CRM software vendor, bought the promising IT-centric mobility enabler Extended Systems to gain an embedded wireless solution business for e-business applications and integrate email into its mobile CRM roadmap.

Strategy Analytics is convinced that that Microsoft and Nokia will start to assert their might in the mobile email space during 2006. We estimate that Nokia/Intellisync will see their share of the market grow from about 10% in 2005 to 17% at the end of 2006. Likewise, Microsoft with its huge installed base of IT managers looking for the mobile email ‘path of least resistance’ and liability will exceed 11% market share in 2006.

In our view, that these enormous players are creating such a ‘market splash’ in 2005 and 2006 that all vendors need to quickly react with innovative strategies aimed at distancing themselves from direct confrontations with these giants, moving towards a calmer unoccupied profit sweetspot. This dynamic is depicted below in Exhibit 4.11.





Exhibit 4.11: Mobile Email Vendor Retrenchment

Wireless Email Solution Vendor Retrenchment as Heavyweights Flex their Muscles in 2006

Economies of Scale

Market Impact / Share

Cus

tom

er V

alue

/ PR

OFI

TS

Niche Specialization


Microsoft ?

Nokia ?

Microsoft ?

Nokia ?

SEVEN

ExtendedSystems

R I M

Visto

Good

Intellisync

The next group of middleware winners will also be able to pre-install their solutions on devices that are not necessarily bought specifically for mobile email, and therefore must be email-optimized while easily performing basic voice and other data functions (SEVEN has enjoyed a good deal of success in this regard).

Real estate on devices in terms of striking deals to pre-install software on devices is the name of the game here. Vendors will scramble for prime pre-positioning on popular devices such as the Treo 650 in 2005. Microsoft will leverage its successful models of Windows Mobile-powered devices (including Treo700w and Motorola Q) to promote its exchange 2003 solution. Nokia is likely to push its harmonized Intellisync and Business Center solutions through the back-door of corporates, thanks to its unmatched installed base and new portfolio of business devices (including the new E series). Consequently, a key question most wireless players should bear in mind is now how many players can the market sustain.

We predict that the wave of consolidation that has emerged in 2005 will strengthen in 2006. The last wireless email specialists will be forced to exit in 2006.





They will seek alliances or acquisitions to fight with the same weapons of financial stability, solution permanence and roadmap evolution as their competitors. These potential acquisition prospects include Good Technology, Visto and Seven.

4.3 Operator & Vendor Positioning & Value Chain Outlook

4.3.1 Segmentation: An Imperative for Device Vendors & Operators

Success in the future will be closely linked to the ability of device manufacturers, software developers, mobile operators and other value chain players to collaborate like never before in orchestrating, and then effectively selling, premium user experiences.

Turning specifically to Western Europe, Strategy Analytics has stratified the over 45 million business wireless data users currently up for grabs into five optimized demand segments.

– Connectivity Junkies: Connectivity plus mobility with no compromises. Communications is timely and frequent

– Content Creators: Experts in their field and highly collaborative. Communications is rich and dense

– Connected Responders: “Issued” a device with wireless data and on-call. Clearly defined reporting relationship. Communications is more often one-to-one.

– PIM Freaks: Groupware-inspired and dependent on PDA to stay organized. Often in larger highly-matrixed organizations. Communications is voice-centric.

– Cubicle Dwellers: Deskbound rank and file workers. Do not necessarily shun technology but low mobility and scant need to extend the desktop environment

Each segment’s contribution to an $8.4 billion W. European enterprise wireless data revenue pie in 2006 is as follows-





Exhibit 4.12: Segment Contribution to W. European Enterprise Wireless Data Revenues


Content Creators

22%

Connected Responders

22%

PIM Freaks13%

Connectivity Junkies

20%

Cubicle Dwellers

23%

PIM Freaks are the next segment beyond the corner office to target for a broad range of wireless email and connected PIM tools given the importance they place on being contactable, their historically generous spending patterns and their interest in the benefits of these services.

PIM Freaks are good candidates for groupware tools beyond email including wireless calendaring, scheduling and directory lookup services such as Global Address Lists (GALs) most notably offered by Microsoft, RIM and Nokia (through Intellisync and Nokia Business Center’s deluxe service level).

Content Creators are a crucial segment that will require and can justify premium types of email and office suite application functionality.

In fact, as the capabilities to suit their stringent needs evolve (namely better attachment handling closer to a desktop experience), we believe that Content Creators could easily surpass PIM Freaks in terms of monthly ARPU.

A dramatically higher need for viewing and manipulating attachments is evident in the wireless email needs of Connectivity Junkies and Content Creators.





Exhibit 4.13: Segment Mapping – Need for Attachment Viewing





4.3.2 Pricing: How to Get Beyond Inelastic Early Adopters

While Connectivity Junkies may not blink at spending $250 a month on their combined wireless bill, the remaining 90 plus percent of the addressable business wireless data market will require dramatically lower price points to adopt. One way of looking at this thorny issue is from a monthly expenditures standpoint. Perhaps the most useful barometer is to determine what percentage of the addressable market of notebooks owners will adopt flat rate 3G connectivity at given price intervals.

Current all-you-can-eat wireless data plans can range from as high as well over a hundred euros for some flat rate plans in W. Europe down to US$ 60 in the US with bundling. In fact, with the right bundling package, rates can dip even lower as is the case with Verizon Wireless’s unlimited EV-DO plan at US$ 15 for unlimited notebook EV-DO connectivity (on a tethered RIM 6130, provided you subscribe to a minimum voice and email plan).

Strategy Analytics postulates that an inflection point with respect to demand exists at the $40 monthly spend level for flat rate wireless data plans.

An important starting assumption is that one third of the market will simply not adopt. Subsequently, at US$ 100 per month we estimate that 1% of the remaining market will adopt over time (i.e. allowed to reach equilibrium), at US$ 90 per month we believe that another 5% will adopt. At US$ 80 we believe that adoption could rise to 10%. On a near linear path for a period, we believe US$ 70 could result in 15% adoption and US$ 60 (today’s best pricing) would yield 20%. Accordingly, US$ 50 would see 25% take-up. At US$ 40, however, we believe an inflection point is reached where adoption could jump to 50%. US$ 30 could see 65% adoption and US$ 20 would result in 80%.

4.4 2006 Risks/Upside

Strategy Analytics currently sees more downside than upside risk to its 2006 wireless enterprise forecasts.

Although we believe that our usage scenarios for most types of enterprise wireless data consumption remain realistic, our forecasts for new services, such as email and instant messaging are dependent on the continued delivery of enabled handsets into channel and the ongoing up-selling of business cellular users to 3G networks and email. Likewise, a continuation of more notebook manufacturers embedding 3G into their products as well as operators significantly subsidizing 3G cards, are important variables that impose downside risk to our projections.





The last uncertainty our models would be highly sensitized to that bears mentioning would be the extent to which competitive elements spurring on heavy pricing and promotion competition continue in 2006. This is true for both devices and service subscriptions.





5 Appendices

5.1 Appendix I: Related Research

End-User Level Wireless Email Market Forecast (2004-2010) Nov 2005

The Battle for Supremacy in Wireless Email: MARKET UPDATE Nov 2005

Nokia’s Intellisync Acquisition Pressurizes Tier-2 Vendors to Differentiate Nov 2005

Does Palm's Microsoft-Based Treo Pose a Serious Threat to RIM & Nokia in the Enterprise Device Arena? Sep 2005

Benchmarking Enterprise Solutions in W. Europe: Wireline Roots Give Incumbents IT Edge, Vodafone Most Consistent Across the Board Sep 2005

Can Motorola Finally Hit the Mark in the $14B Enterprise Market with the Ultra-Slim Q? Aug 2005

Wireless Enterprise Survey First Sightings - What Mobile Professionals Want Aug 2005

The Promise and Pitfalls of Wireless Field Force Automation Apr 2005

Elite Device Showdown: Treo 650 & Nokia 9300 Get Top Marks for Versatility but Blackberry Still Best Fix for Inbox Junkies Mar 2005

Wireless Enterprise User-Level Market Forecast (2004 -2009) Feb 2005

5.2 Appendix II: Analyst Contacts

Cliff Raskind, [email protected], tel: +1 617 614 0707

Antoine Mathiaud, [email protected], tel: +33 (1) 49 69 19 22

David Kerr, [email protected], tel: +1 617 614 0720

mobile business application outlook

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