Taking to tablets: Applications are big business as the market goes mobile

In line with global trends, sales of smartphones and tablet computers in Thailand have steadily increased in recent years. For smartphones, this growth has come despite limited 3G service availability (see Telecoms overview). Regardless, sales of these devices grew by 200% in 2011, according to market research firm IDC. Moreover, this trend looks set to continue, with smartphones expected to account for half of the handset market by year-end 2012, the National Broadcast and Telecommunication Commission (NBTC), the sector’s regulator, has estimated.

Similarly, Thailand’s middle-class youth are driving the growing demand for tablet computers, with some 400,000 units sold in 2011, and this figure is expected to rise to 1m tablets in 2012, according to the Software Industry Promotion Agency (SIPA).

This boost in hardware sales will accordingly expand the market for mobile software applications. Local software developers are already dong quite well, according to Siam Commercial Bank’s Economic Intelligence Centre, which has estimated that internet software firms in Thailand average earnings before interest, tax, depreciation and amortisation of 21%, far higher than its estimates for IT services firms.

ON THE GO: Mobile applications represents a newer area of local software development, in part due to the fact that the country has historically had relatively slow mobile internet connections. This is set to change, however. “Data penetration has lagged, but as the government moves to facilitate access, the market will grow larger and attract more developers,” Anudit Nakornthap, the minister of information and communication technology (ICT), told OBG. Indeed, the Association of Thai ICT Industry expects sales of mobile applications to drive growth in Thai software sales both domestically and internationally over the coming three years. Local developers like the MFEC Group, a small enterprise listed on the stock exchange, and software vendor Click Connect have emerged to focus on mobile apps and content.

Moreover, enthusiasm for this new medium is not confined to software companies. Leading media groups like record and multimedia producers GMM Grammy and RS Media have joined the fray, for instance, seeing an opportunity to maximise the value of existing intellectual property in ways that go beyond merely selling ringtones to handset users.

NEW OPPORTUNITIES: The country’s media firms have even shown interest in bidding for planned mobile virtual network operator (MVNO) licences for use of Telephone Organisation of Thailand’s 3G network once it is completed late in 2012. “We have seen the success of MVNOs in other markets and we realised we have a serious opportunity to generate new revenue by launching a mobile service dedicated to music content,” Paiboon Damrongchaitham, the chairman of GMM Grammy, told OBG.

Traditional print outfits like the Nation Group and Post Publishing have also expanded their readership through mobile applications, although revenue from this media has not yet taken off (see Media chapter). The tourism authorities have also sought to tap the local talent pool with its “Thailand in your hands” programme, launching 19 mobile applications ranging from language classes to culture and attractions in a dedicated website for tourists.

The development of content-focused applications presents opportunities for mobile operators to drive higher-value-added services and preserve average revenue per user levels. Yet voice over internet protocol apps such as WhatsApp messenger, Skype and Viber could yet prove to be a sap on demand for mobile connections. As data connections improve with the expected roll-out of 3G services, operators will seek to evolve alongside this industry shift.

BATTLE OF THE PLATFORMS: Traditional mobile handset producers are also seeking to follow this shift, with competition increasingly centred on software platforms. As more traditional platforms like Nokia’s Symbian system have lost steam, the mobile operating system (OS) market has become increasingly concentrated. In this way Thailand mirrors global trends, with just two platforms for third-party applications capturing the bulk of the market: Apple’s App Store and Google’s Play Store.

Apple’s iOS platform accounted for 20% of the market in 2011, while Google’s Android OS – not linked to one particular hardware manufacturer – has grown at a rapid pace. A landmark year for Android, 2010 saw its market share in Thailand grow from 2.9% to 36%. In the face of such aggressive growth Nokia dropped the Symbian platform entirely in February 2011, hoping that a tie-up with software giant Microsoft for its new Windows 7 mobile platform would stabilise its position on the smartphone market. Blackberry too has faced challenges at a global level. This retreat shows the significance of establishing strong platforms for applications from local developers, who have shifted to prioritising Android and iOS versions of their software.

MOBILE LEARNING: While private sector demand has largely driven the mobile application market since 2010, the software industry is expecting a strong stimulus from the government in 2012. A key campaign pledge for the ruling Pheu Thai party was to provide free tablets to schoolchildren in a bid to move towards a more knowledge-based economy and to improve curricula for the country’s youngest students. While the government did subsequently scale back its initiative – announcing that it would provide tablets to first-grade students only – the Ministry of Education allocated some BT1.6bn ($51.04m) for the provision of tablets to schools, of which BT1.18bn ($37.64m) would go to public schools, BT428m ($13.65m) to private establishments and BT12.9m ($411,510) to demonstration schools.

The government tendered for 1m tablets in early 2012, with a number of equipment vendors bidding for the contract, from top-end firms like Apple (for its iPad) and Lenovo to lower-cost suppliers like Shenzhen Scope Scientific Development of China and BenQ of Taiwan. The government then announced in April that it had signed a memorandum of understanding with Shenzhen Scope.

A Chinese company may have won the first government contract, but manufacturers are fast expanding the array of lower-priced tablets available. For example, Samsung is launching its BT7900 ($250) model for the local educational market, while the Thai telecommunications equipment producer Forth will bring to market the first Thai-produced tablets in July 2012. Apple is also seeking ways to cooperate with the Ministry of Education to provide some of its iPads to primary schoolchildren.

NEW APPLICATIONS: While the Ministry of Education will run the programme, the purchase of tablets for schoolchildren will also create significant opportunities for the local software community, supported by the Ministry of ICT. “We plan to have SIPA help develop software for the tablets purchased for students, which will be a boost for local developers as well,” Anudit told OBG. Local developers have not waited for the distribution of tablets to gear up for the shift to mobile. Click Connect, for instance, is ready to launch educational applications for first-graders in the second half of 2012. E-books in particular are expected to receive a strong boost from the policy, with Thai publishers set to produce digital versions of their books and textbooks. Nitat Maneesilasan, the head of Thai operations at Openserve, a leading e-book provider, told the Bangkok Post in March 2012 he expected the market to double in each of the next five years.

Beyond presenting opportunities for venture capital in scaling up existing software start-ups, Thailand is also pushing for greenfield investments from local and foreign firms. For the latter, the Board of Investment extends eight-year tax privileges for investments over BT1m ($31,900) in the software industry. This type of support could boost the sector, as could the easing of bandwidth limitations.