Views on the new media market

Defensive business models against disruptive business models

There is a common argument at gatherings of folk in the mobile space that goes along the lines of "Which business model will win in mobile the internet model where all the money goes to the new players (e.g. Google) or the telco business model where all the money goes to the network provider (e.g. the operator)"

An interesting study is to look at the approach to location based services (LBS) used by the operators/device manufacturers/internet companies and explore who's winning - while there is a lot of money to be made this area of the market is still relatively early and is continuing to show growth.

Here the traditional models are being played out. The Operators spent on building infrastructure to "own" and "control" the location in the network using clever solutions like cell triangulation, then tried to resell this valuable data to developers - without huge amounts of success. Device manufacturers added GPS hardware to devices in an effort to sell more devices at higher price points ("buy this device for $20 more than that device - it's got location") - given the Q4 results from Motorola, Nokia and Sony Ericsson this doesn't seem to have significantly increased overall volumes or improved margins. Internet companies have made location information available to everyone for free, and focussed on driving traffic to monetize using advertising.

Overall the only folk who stand out as winners here are the specialised device manufacturers - Garmin in particular has done a great job of creating niche product lines that are focussed on individual applications of location and are driving their business forward as a result.

So all those attempts to "own the platform" don't seem to be working? Why not? I believe that the lesson here is that platforms are created as a result of great products. So the iPhone & iPod Touch is creating a platform out of OS X for embedded devices with iTunes, the IBM PC created a great platform from a great product - just so people in LBS need to focus their attention on creating "great products" that speak to users - not try and defend their existing platforms and business models.

Dial 866 272 4337 to speak to Lara

Unless you've been hidden under a rock for the last year you have probably noticed that "App Stores" are all the rage with mobile phone companies - Apple has the lead here with the success of the iTunes App Store. RIM have launched their Blackberry App Store, Palm are bringing an "App Catalogue" to the Pre, Google have the "Android Marketplace" for the G1 devices launched, and I expect to see more announcements of new, or revised applications stores from both OEMs (Nokia relaunching the "Nokia Content Download" portal, Sony Ericsson relaunching their "Fun and downloads" portal) - along with many application store relaunches of operator wap portals.

All this innovation in interfaces, business models and competition is ultimately good for mobile application developers - as with more retailers vying for their applications they should ultimately see higher revenues, and lower margins at the retail so a greater share for the developer. So with this growth in applications how are phones going to cope with all the complexity of lots of applications - how will users discover the applications, and how will they get to them? What happens when your phone has 2,000 applications - clearly something is broken. Or is it?

Actually even the simplest phone today already copes with unlimited numbers of applications. The phones have been architected from the very start to provide access to an unlimited catalogue, and have flexible billing models integrated, settlement systems between providers and the ability to perform international transactions. The mobile industry doesn't call these "applications" though, they call them "contacts".

Mobile phones come with great address books - and shortcut systems to let you bookmark your favourites, and easily find them again - "quick dial" and "call log" are excellent at this. They have a superb URL system that the phone interfaces are optimised for in the hardware - phone numbers, and every consumer understands that there is a cost associated with making a call. The infrastructure even has regulation that enable free applications (0800 numbers in the UK) - low cost applications (0845 numbers) and premium products.

Given this fabulous infrastructure and consumer education the mobile industry should be the market leader in applications surely?

Unfortunately not - while every mobile phone is optimised for voice, and dialling, I'm not aware of a single design that has taken advantage of the user interface and consumer education to enable people to "dial" applications. Simple solutions like "dial this number to get this application" haven't been implemented. Instead the mobile industry has looked outside it's core competence and core value and tried to copy the PC industry - with application launchers, application icons and browser based online stores. Maybe the phone industry would be better served at looking more closely at it's own advantages - and building on it's strengths than trying to copy solutions from outside.

So why dial 866 272 4337 for Lara? Look at your phone keypad, and the letters, it spells out Tom bRa ider

Will SaaS survive a recession?

Over the last few years SaaS has become a buzzword in the software industry as major software vendors shift their business models from "selling shrinkwrap software in boxes" to "renting access to the software in the cloud"

Google are a pioneer here and they offer applications such as email, office applications and even a calendar. It's not just consumer applications - either plenty of enterprise offers are available, like the excellent products from Salesforce . In the boom this is great - demand goes up and you get a predictable revenue stream from your subscribers. What happens though if times get tougher?

One of the challenges of offering SaaS is that you need to keep the machines running all the time - in the old software model if you decided to cancel a product then that was fine - you could make that decision, and sure, your customers might be upset that the product they bought was not going to get any version updates, but if it did what they wanted it will continue to do it on their own machines. In the SaaS world this isn't true - if your provider switches off then you lose service instantly. Sure, you also save the monthly fee, but what if you don't want to find a replacement offering today?

The reduction in flexibility and the need to keep an operational focus on running services that become part of the everyday lives of their customers will be quite a change for all those innovative tech startups who've built their businesses on software licensing. In fact they might start looking rather like Mobile Network Operators - with all the challenges that running an operational business like a mobile network has.

Premium SMS revenue shares of 30% are a fair deal

Anyone who's done business using premium SMS has a story about the unfairness of network operators and their SMS termination fees.

In my experience the termination fees vary based on geography - so my rule of thumb guide is

• South of europe is 70% goes to the operator 30% goes to the content provider
• North of europe 30% goes to the operator 70% goes to the content provider
• Central europe is between the north and south - both geographically and in revenue share split. Work on an assumption of 50%/50% and you'll be doing well
• Japan is reported to be in the region of 15% operator 85% content provider - but I don't have first hand evidence here

There is an often repeated complaint that these are unreasonable, and the market would grow if only operators would charge more reasonable shares of revenue. At first glance this seems a reasonable assumption, as it's OK to assume that the operators are all greedy licensed semi-monopolists intent on ripping off content providers.

What if they aren't? There are plenty of players in the transaction space - Visa, Mastercard, American Express - if this market really was that lucrative I'm sure that they would have moved in to capture some of that higher margin business (credit card shares are closer to 2-5% of the transaction value) - yet they haven't - why not?

It turns out that the transaction cost of premium SMS is actually very high - very high percentages of transactions fail due to insufficient credit (I've seen evidence of as much as 40% failure rate per transaction) - the cost of processing all those failed transactions has to be accounted for - even in the case of post pay phones there is the real financial risk of non payment - and as bills increase in value and the cost becomes money that's paid out of the operator so the cost increases.

I'm left with the conclusion that the "market rate" for micro transactions is 30% of the transaction value - which is what we see from premium SMS. The only way to reduce the percentage is to aggregate transactions - then bundle them through existing "macro transaction" platforms such as Visa/Paypal/Mastercard. Maybe those operators aren't ripping people off after all.

Netbooks - the future of mobile internet?

If you've commuted on a train to London recently then you've probably seen a Netbook. The most common seems to be the Acer AspireOne - though I've also seen the Asus Eee PC in the wild. Based on my "over the shoulder" completely non scientific or representative study they are being used for the following

• Email using web clients - Hotmail, Yahoo
• Watching video - interesting as they have no DVD built in - so this is electronic media. BBC iPlayer downloads are going to be popular here.
• Playing games - I've spotted football (soccer for my US readers) management simulations, as well as the ubiquitous versions of Solitaire

So far all the devices I've spotted have been Windows devices - none of the buzz of low cost Linux based devices yet - though looking at the use cases above 2 out of the 3 would be fine on a Linux based device, assuming that Adobe's AIR platform was pre-installed.

So is a netbook a low cost laptop, or a smartphone that's not well suited for voice? I believe the answer is yes to both questions. The netbook represents a big threat to Smartphones - the key selling point of smartphones "the web on your phone" is challenged by netbooks - which really can show you the full web - big screen (Smartphone resolutions are currently max of VGA, netbooks are 1024x600 screens - twice the area). Compatibility with all the web, and downloaded applications (remember Intel's "the Web runs on Intel" - consumers _get_ that sort of marketing - the web runs on Windows too, netbooks have both - it's a safe choice). Connectivity is at least as good, or better than smartphones - all netbooks have Wifi built in, and with a simple 3G dongle you get flexible broadband, without a contract lockin if you go pre-pay - better than a smartphone.

As a developer platform Netbooks are great too - it's the web and windows. All your normal PC tools work - you don't have to learn fragmented mobile operating systems, or immerse yourself in complicated jargon or operator approval cycles - just build and launch.

Netbooks look like a winner - anyone upgrading a laptop in the current economic environment is likely to look at them (the price point makes it compelling) so I predict even more growth in the category over 2009 (and this is a category that did 1m units in 2007, growing to 14m in 2008) - smartphone manufacturers (Nokia, HTC) need to watch out as do laptop manufacturers who will find their unit prices and margins decreasing as consumers switch purchasing to lower cost units.

Palm Pre & Web OS - another platform for mobile

Palm announced their long awaited "new OS" last week at CES. Details of the first product the Palm Pre can be found. First impressions from bloggers are "Wow" and "I want one" - so Palm's clearly got the initial appeal right, but is it a game changer?

Palm has already experimented with breaking from it's original software strategy with PalmOS devices, and the ultimate failure of PalmOS as a licensable OS (how many non Palm PalmOS devices can you find in stores today?) and has survived recently on a diet of low end PalmOS devices and high end Windows Mobile devices. The Pre with another new OS will open one additional question "Do consumers care about the platform on mobile phones?"

Conventional wisdom today is that the platform is critical to the success of mobile devices. Apple are perceived to have a massive success with the AppStore on their iPhone devices, and everyone who's anyone is creating an "AppStore" for their device in order to ape some of the success. Palm want to copy this with the App Catalog and are promoting development for their new platform.

Pity the mobile developer here - to create a world class experience on a mobile phone they now have to deal with (in no particular order)

• Java MIDP - various flavours (S40, Sony Ericsson, Samsung)
• Cocoa - MacOS on the iPhone
• S60 - Symbian on Nokia (and Samsung) devices
• Android - another Java flavour as far as the developer is concerned
• Windows Mobile - all those enterprise customers have them
• RIM - another flavour of Java with different API's
• XHTML - For those people who won't install applications, hundreds of different browser feature and screen size combinations here
• Mojo - Palm Pre's platform
• BREW - for those Qualcomm platform devices

I expect there will be a few more along this year - in fact here's a few predictions of compelling new open platforms that might come along in 2009 and 2010 to better enhance the experience of developers

• S40 native apps - Nokia open the S40 platform SDK for native developers and provide an ARM C based toolkit to developers along with a webkit environment. Native apps ported to all those S40 devices please!
• Nucleus native apps - Mentor Graphics is one of the hidden successes in the mobile industry - with over 1bn units shipped - if they open their platform environment and enable application developers to target highly efficient low cost mobile phones there is yet another range of handsets that can have excellent consumer experiences
• Samsung Handset Platform - Samsung are making huge strides in opening up their devices for developers - as they start to see the return on this I expect to see more openness as the device platforms mature

All this looks very confusing for the poor developer - who'll be dying for some consistency across these platforms - so what do I think the real winner here will be as the mobile industry fragments further?

Web technologies will be a binding thread across these platforms - WebKit is becoming a "defacto standard" across all these platforms, and I can see manufacturer and device competiton being driven by two simple consumer measures

• How good is it at browsing the web?
• Can I get access to Facebook/Myspace/Bebo (or your web social network of choice)

This competition will drive OEMs to improve on the browse and web technology experience - and engage with the major web brands to bring their platforms "native" to the different devices. I expect the web brands to be promiscuous here - they will look to provide their experience across as many of the platform devices as they can, and will look for consistency with what they are used to developing - that is XHTML, Flash and AJAX experiences. The lesson for the savvy mobile developer? Build web first - and port to mobile devices - that's the vector of innovation today.

iPlayer and downloaded content

Quietly, just before Christmas the BBC released a new version of iPlayer. You'd have to have been hunting to find this - it was announced on the BBC blog by Anthony Rose, but to actually get hold of it you need to be part of the BBC Labs trial - this isn't hard, you just click the button on the BBC Labs site, and you'll see a button that looks like this: What this enables people to do is to download programs and watch them later. What's the real impact? It means, that if you think ahead you can guarantee to watch a show without any breaks in streaming. It's not much ahead either - my experience so far is that the download of a 60 minute show takes between 15 minutes (off peak) and 60 minutes.

What is the impact of this going to be? I predict more impact on ISP's - increased bandwidth usage by consumers, as those who previously didn't get a great iPlayer experience during peak viewing times can now plan ahead and download shows to watch later - so total traffic in the UK used by iPlayer will increase, and ISP's costs associated with the traffic will also increase. I'd also expect to see some real impact on mobile networks - the ubiquitous USB dongles that are being sold now are an ideal solution for downloading a show - simply plug the USB dongle into a netbook, and you've got the ability to download and watch shows at your leisure, without worrying about ensuring you get maximum signal strength at any given time.

With the impact of the credit crunch restricting the free cash that consumers are willing to spend in the UK I'd expect to see even greater usage of TV entertainment during 2009. It looks like another painful year for providers of internet data services.