SpringSters - Mobile Savvy Bunch

MySpace and Google announced a multi-year exclusive search agreement in September- 06. Wonder when deals like this will happen on the mobile side?. As it stands today, in comparison to the totally open Internet world, mobile data world is full of friction . To launch a decent data service requires the whole value chain, from OEM to operator to brand owners to service/application providers, to play nice with each other which more often then not is extremely challenging. It’s hard enough to make two companies to play nice with each other, leave alone three or four or five. This long value chain results in long development/deployment cycles and sub-par products. I for one firmly believe that one of the main reasons mobile data services, after six/seven years, still see single digit penetration (leave ring-tones etc.. out) is because of poor quality of products. This brings me to the original intention behind this post - how can the industry become more frictionless, while protecting business interests of involved parties?

Operators have made big investments in the network and rightfully want return on that investment. One of the immediate point folks bring up is operators are afraid of being dumb pipes just charging for access as at the end of the day network access is a commodity item which is bound to see downward pricing pressure, hence profit margin decline. Which leads to this theory that they must control access to all services thru’ their networks. Compare and contrast this to Internet world - Cable/DSL providers do not/cannot control what you have access to - friction #1.

Handset manufacturers spend billions of dollars in R&D, and manufacturing facilities, in an effort to bring continued innovations to the market place and are largely responsible for bringing the phone to where it is today. Sure enough they don’t want to be commodtized like the PC market (look at Dell, HP etc..). As hardware designs are easy to copy, the differentiation has to be done at the Software level which leads them to keep the “mass market” operating systems closed and allow developers/content providers to develop services within this tightly control sandbox called J2ME/BREW etc. in a “write for every device model” reality. As a content/service provider, you have no choice but either to work with the handset manufacturers or do the best you can within the confines of these limited platforms. Again, Dell’s of the world have very limited control/influence over what you can do as a developer. For it’s part MSFT is actually a very open system. All the tools that’s required to develop the killer applications - say IE, Microsoft Office, etc..etc.. can be done without ever talking to Microsoft - friction #2.

If the two points above were not enough wireless bodies/consortiums like GSMA etc. have done a decent job of standardizing the wireless aspect of the industry but standardization on the developer platform side leaves much to be desired for. Problem gets compounded because of proliferation/availability of different operating platforms. Providing an Internet (and or PC) based services and targeting just Windows OS and IE, gives the service provider 90+% market coverage as oppose to the largest handset manufacturer (Nokia) with it’s multiple platforms (150+ skews of phones every year) giving sub 30% market penetration world-wide. End result being higher development cost both in-terms of time to market and raw $s - friction #3.

I am sure there are bunch of others but I think these are the three major items (for sake of simplicity, assuming majority of mobile phone user’s want suitable data based services, just like the Internet, on their phones, which is a big assumption).

So, what do I think is on the cards in very near future. Don’t think operator control is going anywhere. I don’t think OEMs are going to open-up access to their proprietary, mass-market, OSes. So, not much change..huh?..Well..what I see happening is, one of my friend brought this back up today, is deals like above. Big content/service providers like Goggle, MSN, Yahoo, AOL etc. striking deeper, multi-year, multi-billion $ business arrangements with the bigger operators to give them unconditional access to the network (could call this a data MVNO but I am staying away from that terminology as in today’s world it essentially means a new operator) removing friction #1 for some % of the market

Same will happen (or already happening) on the handset manufacturer side..removing friction #2 for some additional (may not be additive) % of the market.

As technology evolves and Friction #1 (by working closely with the operator) and Friction #2 (by working closely with the OEM) start to become less of a pain, effect of friction #3 will diminish too as in case of Operators they, to some extent, can excersize their buying power over handset manufactures to force OEM co-operation and in case of OEM, they own their proprietary systems enabling deep integration.

So, watch out for big AOL/Google like deals to happen in the wireless arena in the near term. I think Google and/or MSN will take the lead here. Expect advertising to be big part of any such deal and that, my friend, will be the inflection point where business model for data services on mobile start to resemble more like what they are on the Internet creating an opening for new era for mobile data applications for the mass market users. Operators will recoup their investments by a cut of ad-revenue just as publishers of AdSense like advertising programs do (too bad for Comcast/DSL providers of the world..they don’t have an opportunity to rewrite history). Advertiser will derive more value from Mobile advertisting (think location the only reason it hasn’t taken off so far is because of the frictions I talked about before). I am sure some brave soul will even try the eMachine model (give away the computer for advertising)…

Another way this could go down is, service providers like Google/Yahoo/MSN etc.. refuse to play ball with the operators (or vice-versa) and use their internet presence to drive the operators to open up their networks. As we all know, for operators, new customer acqustion costs combined with customer support costs make the difference between a profitable customer and a non-profitable customer. In the world where customers can take their numbers to any operator - network coverage and value added services are truly the only service differentiators (another matter that we are too lazy to call and change service providers). So, question to ask is if an operator can afford to risk avg. ARPU of $55 - $60 per user, per month for something that makes approx. 10% ( 5% of which is SMS revenue) of their overall revenue? How could the big service providers put these at risk you ask? by utilizing their brand and internet power and educating the consumers that, say for example, google’s local search service, doesn’t work on a particular operator because that operator blocks that service. However, operator xyz doesn’t block the service and here is the way to switch to operator xyz (and in the process collect bounty offered by the operators for new customer acquisition) or call customer support at their operator to complain (which wipes out months worth of data revenue the current operator has from that subscriber in customer support costs). There will be a mobile data service that will drive the early adopters to take this drastic action because they want to use that service and we all know it doesn’t take much to get to a tipping point.

Well enough of theories..I am sure reality will take it’s own course but one thing is sure there will be a come to Jesus moment, in not too distant future, for the industry which will shake things up and remove/reduce the friction in brining services to mobile. Good luck to all..it sure is going to be exciting over the next few years to see how all this plays out. Irrespective of how this really plays out, all I want is a mobile world with less friction in creating super valuable data applications. Mobile world has so much potential for innovations and growth that it amazes me how long it has taken us to get this far. Good news is that, glass is half full now and I can see light at the end of the tunnel. Think, wouldn’t it be cool if you didn’t have to think about the medium you were using to access a service/information and were seamlessly able to go from one medium to another while keeping the context!