How Piracy Reveals Opportunities in Emerging Markets

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DISRUPTIVE TECHNOLOGIES
The technology magazine
edition three 2012
TECHTALK

GfK 2012
It was Malcolm X who famously said, “The Future belongs to those who
prepare for it today”. Social reform rather than technology disruption
was likely on his mind but nevertheless it is a fitting quotation for this
edition of TechTalk. Technology has fundamentally changed the way
we live our lives and it will continue to do so.
In this edition, we explore how technology is driving innovation and
new business models in categories as diverse as photography, gaming
and the automotive industry. Within these categories and beyond,
preparation for the future is certainly more critical than ever which
means being smarter about how we collect, manipulate and interpret
our growing sources of data and insight. As such, we explore how
Big Data, when used smartly, gives brands a real chance to prepare.
For example, we work with our sales data which provides a unique
opportunity to not only measure the market but to start to draw out
the future implications of the trends we see as discussed in our analysis
of the smartphone market. In addition, our article on technology piracy
highlights how sometimes pointers to the future come from unusual
places.
The future is an uncertain place and while we can help prepare for
it, we discuss the need for new business models to help manage this
uncertainty.
Join us in the discussion about the innovative ways in which we can
prepare for the future.
Yours
Anette Bendzko
Global Lead
Technology
GfK
EDITORIAL
TECHTALK - DISRUPTIVE TECHNOLOGIES 2

GfK 2012
CONTENTS
THE WORLD OF COUNTERFEIT PHONES
By Gerard Tan and Paul-Henri DeQuatrebarbes
THE SMARTPHONE BOOM IN EMERGING MARKETS
By Gregoire Lemaitre
THE POWER AND PITFALLS OF PREDICTION
By Colin Strong
THE CHANGING LANDSCAPE OF PHOTOGRAPHY
By Oliver Robinson and Heribert Tippenhauer
DRIVING DISRUPTION IN THE AUTOMOTIVE INDUSTRY
By Sam McCloy and Jonathan Shingler
THE RISE OF FREEMIUM GAMING
By Chris Cox
FROM BIG DATA TO SMART DATA
By Colin Strong
P.04
P.08
P.11
P.14
P.17
P.21
P.25
TECHTALK - DISRUPTIVE TECHNOLOGIES 3

GfK 2012
LESSONS FROM PIRATES: THE
WORLD OF COUNTERFEIT PHONES

GfK 2012
Indeed, it is difficult to say with complete certainty
how many imitation products exist. However, our
data (looking at sales of smart mobile phones
in MEA APAC countries in 2012) provides as
comprehensive an overview as is possible and
identifies that mobile phones and smartphones
are by far the fastest growing category.
Globally, the Middle East and Africa (MEA), and
Asia Pacific (APAC) appear to be the regions most
susceptible to the proliferation of counterfeit
mobile devices. But there remains significant
variation by market, with fake device sales
constituting less than 1% in Vietnam, but rising
to 18% in the Ivory Coast. While some of these
numbers may appear relatively inconsequential,
this still amounts to thousands of devices a
month.
Keeping up appearances
There is no one-size-fits-all approach to counter-
feiting. Instead, distinct regional varieties
exist which reflect local demand and mobile
maturity. This demonstrates how adaptable the
counterfeiters are.
In MEA, most phones tend to be ‘genuine fakes’
exactly copying legitimate devices in design,
appearance, and branding. As with the legitimate
market, feature phones (sold at entry-level price)
Last year I had the opportunity to visit the labyrinthine Silk Street Market in Beijing.
Although government-led initiatives have apparently curbed the availability of ‘false
commodities’ there, I couldn’t help but notice the suspiciously-cheap electronics stalls
with a degree of scepticism. Such uncertainty is natural, I suppose, when entering the
murky world of counterfeit products.
By Gerard Tan and Paul-Henri DeQuatrebarbes
form the majority of sales, with smartphones
representing circa 0.5%. The near impossibility
of replicating advanced operating systems
contributes to this skew, but it’s by no means a
barrier to smartphone counterfeiting everywhere.
Indeed, in Asian markets, producers avoided the
inconvenience of proprietary operating systems
by mimicking hardware design, and then oh-
so-subtly tweaking brand names (BlueBerry
or Samzong anyone?) and building their own
OS. In China, these ‘lookalike’ models (referred
to as ‘Shanzai-ji’) create a somewhat grey area;
evidently consumers should be aware they are
purchasing an imitation but, given the similarities
to major manufacturers, uncertainty still exists.
Counterfeiting is also no longer limited to
emerging markets – the implications now extend
into the smartphone-dominated west. Here
though, the issue is more likely to be imposter
apps and games sold to genuine device owners,
TECHTALK - THE WORLD OF COUNTERFEIT PHONES 5
FAKE DEVICE SALES
CONSTITUTE LESS THAN 1%
IN VIETNAM, BUT RISE TO
18% IN THE IVORY COAST

GfK 2012
market prices higher. But consumers are getting
affordable products - so that’s a good thing,
right? Well, no, actually.
Any cost benefits, particularly in MEA, tend to be
quickly offset by inferior build quality. There is
also a risk that phones might explode - a number
of devices in Senegal were recently reported to
be overheating and burning out. In countries with
poor landline infrastructures and where mobile
phones (via mobile payments etc.) transform lives
and support livelihoods, a malfunctioning phone
is no joke.
And with no possibility of regulators applying
specific absorption rates (SAR) testing to
counterfeit devices, a lack of standardization can
lead to wider health risks.
Even in Asia, where the quality of the lookalike
devices is relatively high, there are difficulties
for the consumer. An imitation iPhone we
trialed last year (while allowing phone calls and
other core functionality) with no access to the
Apple’s ecosystem meant the overall experience
was distinctly inferior. These experience and
associations may well be a long-term detriment
to a brand.
Piracy: a reflection of the market?
So, the negative implications of counterfeiting
are fairly clear. However, as the authors of Misfit
Economy argue, “Pirates are ruthless criminals,
yet their innovative and adaptable approach is not
without its lessons.” Indeed, piracy in its broadest
sense can be seen as a symptom of failed business
models or a reflection of unmet consumer needs.
As such, exploring the key purchase drivers for
counterfeit goods can be instructive.
1. Cost: an estimated 40% of counterfeit goods
in Africa are sold to people (mostly) innocently
either through illegal sites, or lookalike versions
in official market places (as an example of the
latter, Apple removed ‘Temple Jump’ from the
top of the apps store, after it was accused of
intellectual property theft of the more successful
‘Temple Run’). And it’s a growing problem: Sports
Interactive (makers of ‘Football Manager’), for
example, recently identified a 9:1 piracy ratio
among downloads of their latest release.
You get what you pay for
Arguably, the availability of counterfeit versions
of products could (perhaps) be taken as a positive
indication of brand health (imitation being
the sincerest form of flattery and all that). So,
while fake Nokias used to dominate in Asia, in
recent years it is imitation Apple and Samsung
devices that are increasingly popular. In China,
entrepreneurs even went so far as to set up a fake
Apple store complete with imitation blue T-shirts
for unsuspecting employees.
However, recognizing that desirable devices are
being produced is scant consolation when the
loss of revenue totals millions per month. Such
deficits naturally impact a brand’s capacity for
research and development which could block the
innovation flow - a flow that brings real benefits
to the market place, as well as keeping official
COUNTERFEITING IS ALSO
NO LONGER LIMITED TO
EMERGING MARKETS – THE
IMPLICATIONS NOW EXTEND
INTO THE SMARTPHONE-
DOMINATED WEST

GfK 2012
while some counterfeit apps are undoubtedly
malicious, many ‘lookalikes’ involve a perceived
expansion and improvement of already popular
content.
‘Pirates’ have previously proved influential in
a number of categories - just ask the music
business. So, while we must remain vigilant to
protect intellectual property rights, software
developers are now facing the same question as
numerous other industries before them: should
we re-educate consumers and fight piracy with
regulation or does the industry have to change
with the market?
Manufacturers and developers can learn from
the needs underpinning the existence of the
counterfeit device trade. Ultimately, these
consumer demands may be the final judge as
to the future direction of the industry. Organic
changes to the industry in Asia are a prime
example of this, with the arrival of genuine
Android smartphones available at less than
€50. This could potentially negate the need for
imposters to exist at all.
For further information, please contact:
Gerard Tan, gerard.tan@gfk.com or
Paul-Henri DeQuatrebarbes
paul-henri.dequatrebarbes@gfk.com
trying to acquire the cheapest handset available.
The vast majority of counterfeit phones in MEA
therefore falls into in the sub-€50 category.
This desire for affordable devices speaks volumes
about the importance and pervasive nature of
cell phones in today’s increasingly technology-
driven civilization. Without the availability of
counterfeit products, many people in the poorest
regions would be priced out of this market. As
black markets tend to thrive where regulation is
sparse, a possible solution would be to improve
infrastructure and top-down initiatives to ensure
the flow of affordable, genuine handsets into the
market.
This is no easy task. Indeed, the Communications
Commission of Kenya (CCK) recently warned
it would take heavy-handed action to disable
counterfeit mobile phones that could deny
millions the use of their devices. However, if
we are to ensure that developing countries can
properly protect and provide for their citizens
in the mobile age (an aim of the International
Telecommunication Union), initiatives, such as
collaborations between manufacturers and official
bodies, are required.
2. Additional features: counterfeiters don’t just
replicate, they innovate. An estimated 30% of
counterfeit device purchases are created with
features that manufacturers have either omitted
or been unable to implement.
Extra sim-card ports (along with exploding
Senegalese handsets!) are possibly the most
common example but, with other bespoke
variations becoming increasingly sophisticated,
counterfeiters are appearing to foster innovation
through identifying and responding to untapped
consumer demands. This is also true with software:
AN IMITATION IPHONE WE
TRIALED LAST YEAR WITH
NO ACCESS TO THE APPLE’S
ECOSYSTEM MEANT THE
OVERALL EXPERIENCE WAS
DISTINCTLY INFERIOR

GfK 2012
THE SMARTPHONE BOOM
IN EMERGING MARKETS

GfK 2012
TECHTALK - THE SMARTPHONE BOOM IN EMERGING MARKETS 9
In 2008, smartphones accounted for just 9% of all mobile phone sales
in China. Indeed, despite being the world’s largest country, fewer than
200 million phones were sold every year. Move forward to 2012 and
there has been a seismic shift in the market. With smartphone sales
totaling 59% of the market and overall mobile phone sales boosted to
307 million, the Chinese smartphone market has seen a growth in sales
of 108% in 2012. But what factors are behind this vast and sudden
uptake of smartphones?
Over the past 18 months, China has seen monumental growth in smartphone sales
representing a rapid shift of consumers away from feature phones. China has swiftly
transformed itself into the world’s fastest-growing economy. Could the reasons
behind the smartphone proliferation there be used to predict similar trends in other
emerging markets?
Change agents
Unsurprisingly, the key driver of change was price, with numerous elements combining to
drive down the cost of both producing and buying smartphones. Local operators played
a critical role in the first wave of smartphone growth in China through heavy subsidies,
offering them at the symbolic retail price of CNY1,000 (circa €120) in September last year.
The second wave of growth is now led by domestic manufacturers who have started
selling entry-level smartphones below CNY1,000. As their research and development
into the design and manufacture of Android smartphones has started to pay dividends.
Finally, high levels of competition in China’s well-established handsets supply chain have
influenced a fall in costs across the component set, from application processors to screens
and touch panels.
Competition was not, however, the only reason for price change. A move from 3G to 2.5G
chipsets and 4-inch screens to 3.5-inch screens allowed for price reductions for consumers
of between 20-30% while maintaining acceptable levels of quality. This has been vital
in convincing a wider consumer base of the value of upgrading to smartphones. Smaller
vendors in China’s tier-4 and tier-5 cities (county-level cities) have developed their own
smartphone propositions, including landmark sub-CNY600 (circa €73) handsets – under
half the price of entry-level smartphones sold by tier-1 vendors without subsidies.
By Gregoire Lemaitre

GfK 2012
Future growth markets
So where should we look for the next boom in smartphone purchasing?
We’ve identified emerging markets such as India, The Philippines and Nigeria
as the next growth markets for smartphone penetration. The opportunity
for cheap smartphones to replace feature phones in these markets is huge:
95% of phones that consumers buy in India are below INR8,500 (equivalent
to CNY1,000 or €122), compared to 45% in China.
Yet the lack of operator subsidies in these markets means that the smartphone
category is not being supported in the same way that we see in Western
European markets. As such, these low-priced smartphones are particularly
critical for geneemearating growth in the market and fuelling a switch from
even lower-cost feature phones.
As Chinese and domestic manufacturers ramp up their production capabilities
and tier-1 vendors start lowering smartphone prices further, we expect
smartphone growth to accelerate in emerging markets from the end of this
year and maintain elevated levels over the next two years.
Looking ahead
Of course, each emerging market will have its own local
twist: smartphone sales in India, for example, should
grow 95% in 2013 against only 46% in Brazil where
import duties will constrain the cheaper supply effect.
Looking ahead, manufacturers who are able to maintain a
competitive edge in this new segment will secure a strong
position in the future mobile phone market.
Nevertheless, despite such rapid market change, 2012 is likely to mark the
end of such explosive growth in China. Our data indicates that unit growth
will slow moderately this year and more rapidly thereafter.
Gregoire Lemaitre, gregoire.lemaitre@gfk.com
TECHTALK - THE SMARTPHONE BOOM IN EMERGING MARKETS 10

GfK 2012
THE POWER AND PITFALLS
OF PREDICTION

GfK 2012
TECHTALK - THE POWER AND PITFALLS OF PREDICTION 12
Psychology researcher Philip Tetlock is well
known for his study on the predictive power of
the expert. In the mid-1980s he began a research
project in which he interviewed 284 experts. He
asked them to answer 27,450 questions resulting
in nearly 100 predictions. With admirable
patience, he waited over 20 years to see if those
predictions came true.
The bad news is that the predictions hardly
ever did. When Tetlock compared the results
of the experts with those of a control group of
undergraduates recruited at the same time, the
experts did better – but only slightly.
What does this mean for us when we make
predictions about the technology market, and
just how well are we able to do this?
Complex versus simple systems
Of course, we can predict some things pretty
well. We can predict that the sun will rise in the
morning and that the airplane we are sitting on
will take off and land. On the other hand, it is
rather difficult to predict with any significant
level of accuracy which way stock prices will move,
how many people will buy a new model of car or
Just how well can we predict the future? This is a key issue for any company developing
new products and services, often placing a huge amount of resources into trying to
establish what they should back in order to generate future revenues.
By Colin Strong
whether a campaign to encourage healthy eating
will have the desired effect.
So why can we predict some things well and
others poorly? This can be explained by looking
at the difference between simple and complex
systems. Simple systems are those in which a
model can capture all or most of the variation.
A complex system, by contrast, contains many
interdependent components working in non-
linear ways, which make it difficult to capture the
variance. And an awful lot of social and economic
activity is necessarily complex.
The influence of social effects on system
complexity
Research shows that social effects often impact
system complexity. This is illustrated in a study
conducted by Duncan Watts, a sociologist working
at Microsoft, and his colleagues who used the
music download market to explore the social
networks that people use.
An artificial music market was created with over
14,000 consumers from a teen-related website.
All participants were asked to rate a list of
previously unheard songs from unknown bands.
After rating the songs, they were given the option
to download them. A second group did exactly the
same but with a crucial difference: they were able
to see the number of times that the songs had
been downloaded by the first group. When they
could see the preferences of others (number of
WHY CAN WE PREDICT
SOME THINGS WELL
AND OTHERS POORLY

GfK 2012
react to the demands of the market by designing,
producing, shipping and then selling up-to-the
minute fashion. For Zara, a quick response to
fashion trends has been highly profitable.
How does market research fit in?
Market research is a key part of ‘measure and
react’ strategies. First, the story of the ‘collective
pulse’ of the market can be told effectively using
a variety of techniques from ethnography and
focus groups to co-creation, survey work, and
data analysis. And, web-based technologies
(such as rapid prototyping tools) and emerging
technologies (such as 3D printing tools) can
provide lifelike representations in order to quickly
test and predict the potential in a large group of
consumers.
The prediction stage can offer highly valuable data
to product managers focused on the appropriate
design, pricing and potential success of their
product or service. However, this stage needs
to be approached cautiously. Assumptions that
underlie any ‘volumetrics’ need to be shared. And
probabilities of outcomes should be given instead
of definitive numbers.
The apparent success of ‘measure and react’
strategies is a reflection of the way in which
technology companies can make informed
hedges about the future. Consumer research
has much to offer in this environment with an
emphasis on greater clarity, openness and sharing
of assumptions relating to how forecasts and
predictions are derived.
Colin Strong, colin.strong@gfk.com
downloads), there was a significant shift in their
preferences, with just a few songs becoming
hugely popular and the majority getting much
lower ratings.
Interactions between individuals therefore often
magnify small fluctuations and result in outcomes
that are very difficult to predict.
The strategy paradox
There is an increasing realization that predictions
about fast-changing markets, such as tech, may
not be entirely reliable. Consequently, business
processes need to reflect this unpredictability.
Indeed, the work of Canadian writer Michael
Raynor suggests there is a ‘strategy paradox’
whereby companies might apply excellent logic
in the development of their innovation strategy,
but they can simply make the wrong call on a very
uncertain future.
To this end, Raynor advocates that brands should
adopt a ‘measure and react’ strategy of flexibility.
Here, strategic uncertainty is integrated into the
planning process. This contrasts with the more
familiar ‘predict and control’ strategy where a
particular outcome is anticipated against which
business processes are then put in place. So we
have a broad portfolio of strategies, some of which
will work while others – we accept – may fall on
stony ground. We simply don’t know in advance
which strategies will be the ones that work.
The case study that is often quoted in this
context is that of Zara, the clothes manufacturer
and retailer, which has successfully developed
a ‘measure and react’ strategy. Their success
depends on their ability to measure and quickly
TECHTALK - THE POWER AND PITFALLS OF PREDICTION 13

GfK 2012
THE CHANGING LANDSCAPE OF
PHOTOGRAPHY

GfK 2012
“Photography has the capacity to provide images
of man and his environment that are both
works of art and moments in history.” Cornell
Capa’s description of photography outlines
two objectives: documenting the present, and
producing an artistic interpretation of it.
Looking at the first objective, video is arguably
better suited to recreating the present. Indeed,
the advent of 3D could raise the bar even higher,
with the increasing preference for integrating
multimedia elements within digital publications
being perhaps an early indicator here.
So, what of the second objective? Will the creative
and artistic elements of photography prove
more resistant to changes in our technological
landscape?
Smart-photography
Smartphones have changed the nature of
photography, not only in expanding camera
ownership, but also in ensuring that our cameras
are in our hands (or at least, in our pockets)
throughout the day. Thanks to this accessibility,
we now produce more photographs than ever
before.
The vast quantity of images collected is changing
the way we document life, both simplifying and
complicating the task for historians of the future.
But what does it mean for manufacturers today?
Crucially, as the quality of smartphone cameras
has increased, they’ve become ‘good enough’ for
many of us; the need for an ‘even better’ stand-
alone camera is decreasing. Our global sales data
The end of the 20th century saw a significant increase in our ability to capture images,
with photography becoming a true mass medium. Largely driven by the proliferation
of smartphones and our ability to edit, store and share images, what’s the picture
look like for the future of this category?
By Oliver Robinson and Heribert Tippenhauer
illustrates the consequent decline in the compact
camera category, with total value down 14% in the
first half of 2012.
This disruption follows a pattern evident in the
portable gaming market. When the equivalent
experience on a smartphone improves at a faster
rate than the stand-alone device, we’re less inclined
to carry one (much less purchase one). Eventually,
the stand-alone device is either rendered obsolete
or evolves into a niche market for needs that its
smartphone competition cannot meet.
Logically, this should be bad news for camera
manufacturers. However, a closer look at the
data shows considerable growth at the high-end
of this category. With digital single-lens reflex
cameras (SLRs - total value up 11% in the first
half of 2012) and a new generation of ‘compact
system’ cameras (up 56%), the average price paid
by consumers globally for a stand-alone camera
in 2012 has actually increased – from €206 to
€223.
Encouragingly, this high-end growth is almost
enough to offset the value lost at the low-end.
So, what’s driving it?
How we all became photographers
Growth in smartphone adoption may have
brought photography to wider audiences. We
can also assume that this growth has encouraged
wider participation. However, this does not seem
enough to explain the growth in the high-end
camera category and we also need to look beyond
the camera itself.
TECHTALK - THE CHANGING LANDSCAPE OF PHOTOGRAPHY 15

GfK 2012
field of interested amateurs. It’s these enthusiasts
that are likely to be driving the high-end camera
growth outlined above, equipping them to (at
times) compete with professionals.
So, what does all of this mean for the future of
photography?
Photo opportunities
For a long time, success in this category was
defined by the ratio between picture quality and
price. Smartphones have competed with this,
driving accessibility, sociability, and engagement
with photography across a wider audience.
Though image quality may have become a hygiene
factor (at least, relative to past importance),
significant opportunities remain at the high
end where a growing segment of enthusiastic
amateurs are seeking increasingly professional-
grade solutions. Devices like Samsung’s new
Galaxy camera, which offer a transitional step
between the integrated, socialized world of
smartphone cameras and the serious, financial
investment of SLRs and Compact Systems, also
seem well positioned.
However, while product innovations will continue to
move the category forwards, the most significant
innovations are likely to come through services;
harnessing our growing engagement with the
category to integrate it further into our digital
lives. Enabled by technology, we’re getting closer
to another of CornellCapa’s ideas: the camera really
is becoming an extension of ourselves.
Oliver Robinson, oliver.robinson@gfk.com or
Heribert Tippenhauer
heribert.tippenhauer@gfk.com
Two of the key differences between smartphone
cameras and their predecessors are integration
and connectivity; integration with other
functionality on the device, and connectivity with
the rest of the ecosystem they inhabit. As an
example, consider these two methods of sharing
a photograph:
Working together, the products and services have
streamlined the user experience and socialized
the activity. The 300 million photos uploaded to
Facebook daily are testament to their success.
Alongside socialization, apps like Instagram have
empowered users to edit and manipulate their
photographs. Such easy-to-use apps provide
another example of simplified solutions driving
wider engagement with the category (Instagram
alone recently passed 80 million users ).
The connectivity of devices including smartphones,
tablets and televisions has provided a further
catalyst to engagement with photography. The
synchronization of these platforms, and take-
up of cloud services that function across them,
is improving the accessibility of our photo
collections. Increasingly, we can view our photos at
any time, in any place and across different devices.
The cumulative impact of these changes is
perhaps most evident in the ongoing debate about
whether amateur photography is impacting on its
professional counterpart. While Instagram doesn’t
replace the skill set required for professional
photography , it’s undoubtedly expanding the
TECHTALK - THE CHANGING LANDSCAPE OF PHOTOGRAPHY 16
taking it with a digital camera, sideloading it
to a computer, uploading it to a website and
sending the link to a friend
taking it with a smartphone and uploading it
to Facebook

GfK 2012
DRIVING DISRUPTION IN THE
AUTOMOTIVE INDUSTRY

GfK 2012
Back in the 1980s, many relished that hour
every week when they’d switch on the TV
program ‘Knight Rider’ to watch ‘The Hoff’ drive
around in a black sports car. Not only did the
car look good, but it could speak with the driver,
pinpoint locations using satellite technology
and drive itself to those locations. It also let the
driver communicate with colleagues via video
conferencing and advised on the coolest places
to hang out. A truck that acted as a central base
could track the car’s movements and process the
data (known as telematic information) to advise
on optimum driving style, driver and car health.
The Hoff was also given local intelligence to help
him to save the girl from the bad guys. It certainly
offered an exciting sci-fi vision of what a car may
be able to do in the future. And some recent,
interesting developments could see some of these
fantasies become a reality.
Tech adoption to date
Much of the technology just mentioned has
been around for a while but has taken a long
time to be adopted by automakers. So what has
been stopping them? A key reason is product
development lifecycles. Car templates (particularly
the internals) only get refreshed every 6-10
Technology has always had a strong relationship with the auto industry but it’s only
recently that the full potential of this partnership is being realized. We are now
seeing a new generation of cars on our roads that offer a new and enhanced driving
experience.
By Sam McCloy and Jonathan Shingler
years. Alongside this, governments are wary
of new technology integration, introducing
legislation to limit technology usage in order to
limit driver distraction. Finally, adverse economic
conditions have inhibited development beyond
the normal chassis/body/engine refreshes. Tech
adoption has been largely limited to iPod and
Bluetooth integration, and is usually thrown in
as an afterthought.
TECHTALK - DRIVING DISRUPTION IN THE AUTOMOTIVE INDUSTRY 18
THE INCREASING
ROLE THAT THE
LATEST SMARTPHONE,
NOTEBOOK AND HOME
ENTERTAINMENT
TECHNOLOGIES ARE
PLAYING IN CONSUMERS’
LIVES ARE DRIVING CHANGE
IN THE AUTOMOTIVE
INDUSTRY

GfK 2012
Telematics: getting to know the driver
Meanwhile, integration of telematic information in
cars is starting to happen, as demonstrated by the
showcasing of Ford’s Evos car in late 2011. Cloud-
based connectivity, coupled with automated and
customized system calibration enables the car
to recognize the driver, monitoring his or her
driving style, as well as basic health information
such as the heart rate. All of this telematic data is
transmitted and saved to the cloud via 3G or 4G/
LTE connectivity which is embedded in the vehicle.
As such, the car can ‘get to know’ the driver over
time, adjusting its set-up to match the driver’s
However, things are changing. The increasing
role that the latest smartphone, notebook and
home entertainment technologies are playing
in consumers’ lives are driving change in the
automotive industry. Consumers now expect to
have such technologies integrated seamlessly
into their cars. Consequently, to stay competitive,
automobile manufacturers must anticipate such
consumer technology needs to help them ‘future-
proof’ the latest models, and through that to
instigate a long-overdue shake-up of the industry.
The rise of infotainment
Infotainment is an area where such changes are
occurring. Car companies are forming partnerships
with innovative technology brands. For example,
Audi is using NVIDIA’s latest mobile quad-core
Tegra 3 processors and Sierra LTE modules to
power its in-car systems. The possibility of
integrating these technologies with Android or
Windows Mobile-based operating systems opens
a whole new world of in-car application services.
Obviously, Apple and Google have had plenty
of success with their App Stores and the tablet
market has widened application remits to make
more use of larger screens. These changes will
naturally evolve within the automotive industry
as apps are developed to specifically meet driver
and passenger needs. This will help to provide
seamless transitions from home to car to work,
and back again. Software and app upgrades can
also be used to help disrupt the long 6-10 year
car development cycles.
TO STAY COMPETITIVE,
AUTOMOBILE
MANUFACTURERS
MUST ANTICIPATE SUCH
CONSUMER TECHNOLOGY
NEEDS TO HELP THEM
‘FUTURE-PROOF’ THE
LATEST MODELS, AND
THROUGH THAT TO
INSTIGATE A LONG-
OVERDUE SHAKE-UP OF
THE INDUSTRY

GfK 2012
speed control). This does, in some respects, go
against the 20th century image of the car offering
a sense of freedom. Although the reality of car
ownership has long moved away from that notion,
it is still used by many car advertisers.
So, with the possibility of telematics being used
as a means of further control by insurance
companies and governments, it remains to be
seen how it will impact the industry, and whether
that will ultimately be a positive or a negative for
consumers. With all this in mind, new technology
needs to be carefully managed as it becomes
integrated into cars, and the ability to ‘opt-in’ will
very likely play a role in this.
Looking ahead
On the whole, convergence of the technology
and automotive industries offers some exciting
possibilities with developments in infotainment
and sophisticated integration with consumer
lifestyles as well as communications. Nevertheless,
as real-time tracking data become readily
available, governments, regulatory bodies, and
insurance companies will be able to control driver
behavior further. Whatever happens next, there
will inevitably be a period of adjustment, and
ultimately, the driving experience is likely to be
radically altered by the end of the decade.
Sam McCloy, sam.mccloy@gfk.com or
Jonathan Shingler, jonathan.shingler@gfk.com
style, mood and health, and to provide optimum
safety throughout the journey. Location-based
services may also be included to monitor not only
the driver, but also the environment (for example
automatic switching to electric from gas when
moving from highway to city areas).
Telematics is also becoming a powerful tool for all
sorts of new business and public sector models.
It has already been adopted in the insurance
sector where some companies offer ‘black-box’
solutions to track drivers over time. This is seen
as a ‘foolproof’ method of keeping premiums
down. Insurance companies can also use the data
in aggregate to segment drivers more effectively,
and to better tier their rates according to driver
age, gender and situation.
Other applications for telematics include fleet
management and traffic optimization (including
INSURANCE COMPANIES
CAN ALSO USE THE
DATA IN AGGREGATE TO
SEGMENT DRIVERS MORE
EFFECTIVELY, AND TO
BETTER TIER THEIR RATES
ACCORDING TO DRIVER AGE,
GENDER AND SITUATION

GfK 2012
FREE
$7
$7
$7
$7
THE RISE OF FREEMIUM GAMING

GfK 2012
On 14 July 2011, Steam, the popular online game
distribution service, launched free-to-play games.
Initially offering five titles, its offer ballooned to
76 titles in a little over a year, and this number is
set to increase. Valve, the owners of Steam, even
made one of its most popular games of all time -
Team Fortress 2 - a free-to-play product.
The rise of free
Yet the size of the computer gaming market
seems at odds with this free-gaming revolution. In
2011, it was estimated the industry had revenues
of US$74 billion (€57 billion), and that figure is
set to rise to US$115 billion (€88 billion) by 2015.
In the UK , it is the biggest entertainment sector,
having recently outpaced even video in terms of
sales while, in the US, video game revenue in
2011 was around US$16 billion (€12 billion) .
So, why the sudden drive toward giving games
away for free? There are a range of factors at play
here. PC games have long been subject to piracy,
with the industry claiming this has impacted on
revenues. Meanwhile, gaming on tablets and
smartphones is still a relatively limited experience
meaning producers cannot rely on large numbers
buying their games.
The past few years has seen a shift in how people consume and pay for games. Moving
from a cash up front model to a freemium one, free-to-play games appear to be on
the rise. So, why this sudden increase and what does this mean for incumbent game
producers?
By Chris Cox
Game producers in Europe and the US have also
noted the huge success of companies in Asia. For
these companies, free-to-play has been the norm
for some time, driven by multiplayer games with
micropayment systems (such as Ragnarok Online).
The dream, as expressed by Tim Sweeney , CEO
of Epic Games, is to couple the sophisticated
business models from Asia with the production
values available to European and American
studios.
It is also hoped that free-to-play will make inroads
in the battle to combat piracy. Yves Guillemot,
CEO of Ubisoft, said recently, “The advantage of
F2P is that we can get revenue from countries
where we couldn’t previously — places where our
products were played but not bought.
TECHTALK - FREEMIUM GAMING 22
GAME PRODUCERS
IN EUROPE AND THE US
HAVE ALSO NOTED
THE HUGE SUCCESS OF
COMPANIES IN ASIA

GfK 2012
There was also a brief phase of ‘try and buy’
games, particularly for casual games on mobile
platforms. These games allowed users a small
amount of game time for free before being forced
to purchase the game in order to play further.
This practice has largely died out in favor of ad-
supported gaming, with some claiming that ad-
supported gaming provides three to seven times
more revenue.
The scale of this industry shouldn’t be under-
estimated. Research conducted by IHS in January
2012, found that in-game purchases totaled
US$970 million (€734 million) last year while
predictions indicated this figure could grow to
US$5.6 billion (€4.3 billion) by 2015 .
The risks
Many industry experts have been quick to criticize
the rise of free-to-play games, arguing that they
will never guarantee large enough revenues to
create so called ‘AAA’ games like Call of Duty.
Due to the significant upfront cost of creation,
it seems unlikely anyone would risk creating a
free-to-play game of this scale when there is the
possibility that it could flop.
Other commentators say that free-to-play lends
itself primarily to multiplayer online gaming,
rather than the single player experience enjoyed
by many gamers. Within multiplayer games,
enjoyment can be limited by introducing a so
called ‘pay-to-win’ factor, due to the item store .
Games like Team Fortress 2 and Tribes: Ascend
Now with F2P we gain revenue, which helps brands
last longer. “ Free-to-play games remove barriers
to entry, and micropayments within games are
usually low priced and streamlined, encouraging
and enabling purchases.
So where does the money come from?
Companies are becoming more sophisticated in
how they monetize both free-to-play games, as
well as paid games after the point of sale. Some
of the most common methods are:
subscriptions - most online multiplayer
games allow players to play for free for a set
period, and then require a monthly fee for
continued gaming. This is uncommon outside
of multiplayer games. Notable examples: World
of Warcraft, EVE Online
in-game advertising – ad-supported games
are primarily found on tablets and smartphone
games. Due to their potentially disruptive
impact on the game experience, they’ve not
been used significantly in PC gaming. Notable
examples: Angry Birds
downloadable content (DLC) – a long-standing
tradition in both paid and free-to-play games
offers players a few hours more gameplay for
a relatively small fee. Notable examples: Mass
Effect 3, Dragon Age II, Forza Motorsport
unlocks/item stores – many games now offer
players opportunities to purchase in-game
items (such as additional weapons or characters)
direct from an online store. Notable examples:
Tribes: Ascend

GfK 2012
customers, it would represent a major victory for
gaming publishers who have always struggled to
deal with piracy. With Team Fortress 2 , Valve also
showed that more money can be made through
free-to-play, with monthly revenue rising by a
factor of 12 after the game was made free.
Free-to-play gaming is not a nirvana that the
industry has finally reached; it is a disruptive
element within an established industry. There
will of course be both winners and losers, yet the
main winner is likely to be the consumer. Gaming
companies will have to work harder than ever to
define themselves in an increasingly crowded
marketplace, where ‘free’ is the price point to
compete against.
Chris Cox, chris.cox@gfk.com
have been on the receiving end of these criticisms,
potentially driving players away from these games.
There’s also the risk that producers will be
overzealous in trying to monetize their games.
The paid game Mass Effect 3 fell into this trap,
alienating fans by removing content from the
main game and repackaging it as downloadable
content, to be sold the same day the main game
came out. Fans felt they had been cheated out of
content which should have been theirs.
The rewards
Free-to-play is undeniably a good trend for
gamers, at least on the surface; it offers more
content at an attractive price point. Although
there might be variation in the quality of free
games, the play experience of popular games will
be enhanced as more players buy in.
Small ‘indie’ gaming studios will be able to share
their products with a wider audience. As a result,
there will be greater opportunities to make
money. Of course, gaining an audience in the face
of monolithic gaming companies is a significant
challenge. Yet free-to-play has helped smaller
companies like Zygna build impressive revenues,
despite the relative simplicity of their offering.
Although Zygna is now struggling, it shouldn’t be
forgotten that one of Facebook’s largest sources
of income is social gaming.
The same opportunities also exist for the large
publishers who increasingly experiment with
free gaming. For them it would be beneficial to
convert pirates into potential customers. Even if
a small proportion could be converted into paying
EVEN IF A SMALL
PROPORTION COULD BE
CONVERTED INTO PAYING
CUSTOMERS, IT WOULD
REPRESENT A MAJOR
VICTORY FOR GAMING
PUBLISHERS WHO HAVE
ALWAYS STRUGGLED TO
DEAL WITH PIRACY.

GfK 2012
FROM BIG DATA TO SMART DATA

GfK 2012
Indeed, don’t let the emphasis on size fool you;
data is only useful if used in a smart way. So no
matter how extensive they might be, behavioral
information should be combined with consumer
survey data and a social science perspective to get
the most from your data assets. And researchers
need to be at the forefront of setting the Smart
Data agenda.
The right skills
Global management consultancy McKinsey and
Company estimates that, in the US alone, there is
a shortfall of 190,000 analytics experts and 1.5
million data-savvy managers with the necessary
skills to make decisions based on the analysis of
Big Data .
However, the skills associated with market
research are very relevant to Big Data. These
include excellent analytical skills, an ability to
understand and manipulate large data sets, and
an ability to interpret findings and apply them
to business. Indeed, some research agencies
are now in a position where they’re handling
Big Data every day as the level of digital data
being captured increases and agencies start to
aggregate this information.
Big Data is the term loosely used to describe the exponential increase in data volumes
alongside the growth in our ability to transfer, store and analyze. To you and me, Big
Data is a powerful tool used to advance our knowledge of consumer behavior. But
contrary to what some would argue, it isn’t a universal panacea to the challenges
businesses face in understanding their customers.
By Colin Strong
Intelligent integration
The need to understand the context and meaning
of the behavior observed in large datasets will
rapidly become critical as a purely behavioral
analysis will only provide so much nuance. The
consumer intention that is driving activity can only
be properly understood by talking to the consumer.
This is an opportunity to involve a wide range of
thinkers and practitioners, from ethnographers
and qualitative researchers through to marketing
scientists and quantitative analysts.
Without understanding the consumer mindset,
there is a danger that Big Data will never become
Smart Data. As such, the value for marketers is
limited. Intelligent integration brings consumer
and research knowledge together with Big Data
to avoid the risk of chasing the wrong questions
and finding false positives. Appreciation of
underlying assumptions within the data and of
the motivations behind consumer actions is likely
to improve the way findings are understood and
communicated.
Big picture
The starting point for Big Data has often been
for brands to analyze their own proprietary
TECHTALK - FROM BIG DATA TO SMART DATA 26

GfK 2012
tools we use always shape how we make sense of
the world. So if they suddenly evolve, then so will
our understanding - not just in size and scale, but
qualitatively too.
Perhaps this is the real heart of Smart Data, where
our understanding of consumers is embodied
within the data itself, generating insights into
the human condition that are hard to obtain by
other means. Creating this type of understanding
will affect how brands use their datasets as they
start to properly integrate models of human and
social behavior.
The challenge for our industry is making the case
for the use of Smart Data, rather than just Big
Data. This could become the most profitable way
for brands to unlock the value held in their data
assets.
Colin Strong, colin.strong@gfk.com
datasets generated from their own digital assets.
They would then use this information to optimize
consumer interaction with their brand. However,
walled-garden approaches like this only tell a part
of the story.
They explain nothing about the activity that
led the consumer to encounter the brand in the
first place. Nor, indeed, which other brands the
consumer is having conversations with.
Research agencies are in a strong position to
deliver the Smart Data approach by:
Together, these provide the opportunity for a
broader comprehension of a brand’s performance
and can be used to place the research done on the
brand’s own data assets in a wider context.
Eyes on the prize
The era of Big Data allows us to explore human
behavior, and specifically human social interaction,
in a way that was not previously possible. The
TECHTALK - FROM BIG DATA TO SMART DATA 27
WITHOUT UNDERSTANDING
THE CONSUMER MINDSET,
THERE IS A DANGER THAT
BIG DATA WILL NEVER
BECOME SMART DATA. AS
SUCH, THE VALUE FOR
MARKETERS IS LIMITED
becoming aggregators of different clients’ large
datasets. It is possible to provide services that
reflect activity in the market as a whole
building panels of consumers that capture
digital activity across multiple devices. It is
possible to build a comprehensive picture of
their online lives, not just those related to
specific brands
accessing social media data through application
programming interfaces or other agreements
to undertake a much more detailed look at the
nature of online social interactions
using life-logging approaches to build up
large datasets for a relatively small number of
individuals

GfK 2012
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about anything featured in TechTalk,
simply get in touch by contacting our
editorial team techtalkinfo@gfk.com
Alternatively, you can keep up to
date with GfK by visiting our website
www.gfk.com
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