Mobile
Industry 1H 2010 Assessment
http://chetansharma.com/1H10mobileassessment.htm
As the mobile world
approaches the 5 billion subscription landmark, it is time to do
a half yearly assessment of 2010. We will have our official Q2
2010 analysis for the US market in Aug and the global analysis
for 1H 2010 in Sept after all the numbers are in. In the
meantime, it might be worthwhile to take a stock of the first 6
months, the ensuing trends and what they mean for the long-term.
Mobile Ecosystem
has become much more complex
In case you didn’t
notice, the competitive landscape has changed significantly over
the last 6-12 months. The fine line between partners and
competitors can get obliterated in a quarter. Apple is competing
with Cisco, Comcast is going after AT&T’s business, Visa and
Verizon want to be the payment channel of choice, Amazon is
gunning for Microsoft’s enterprise business, Kodak is competing
with Yahoo, so on and so forth. One product launch, one
acquisition, can change the game in an instant. And this is
only the beginning.
Network evolution:
more capacity, more bandwidth, tremendous usage
We have covered this
topic in detail in our paper -
Managing growth and profits in the Yottabyte era. As we had
predicted, the tiering of pricing plan has started in the US
which is actually a good thing. It will force some discipline
and technology innovation to solve the longer-term problem of
network congestion. While AT&T got things in motion, market
forces will take care of the right pricing and GB levels in the
coming months. Data consumption on TeliaSonera and Clearwire’s
network is a good indicator of what’s to come with 3-4x the
usage compared to its counterparts.
New sources of
revenue: mobile advertising, commerce, and more
Regular readers know
that we have been bullish on the mobile advertising space for a
long time. Over the last 6 months or so, some of the pieces are
coming together though significant amount of work remains.
Sergio Zyman, former CMO of Coca Cola once said “There is only
one rule: advertising must sell.” And nothing will sell better
than mobile. Period. While North America and Western Europe have
been slow to wake up to the mobile commerce opportunities, in
Japan, it is already a multi-billion dollar industry. Several
trials are underway that are going to help open up the western
market in the next 12 months for significant opportunities. In
fact, the pie for the mobile services will keep on growing
bigger but so will the number of players who want a piece of it.
This will set up an interesting tug-of-war for the next couple
of years
It’s the iPhone,
dude!
Just when the
competitors think they are all caught up with Apple, Steve Jobs
and co. releases a new product that raises the bar further.
Google, Samsung, HTC, LG, Motorola have done well in emulating
Apple while Microsoft and Nokia have fallen behind. The
embarrassing launch and demise of KIN is a example of how
confused things are for some of the players. While both
Microsoft and Nokia are capable for mounting good comebacks, it
will take more than an org change and a sprinkle of holy water.
Android will easily outsell iPhone just by the law of arithmetic
but Apple’s secret weapon is iTunes. With over 150M billing
relationships, it has fostered a great apps ecosystem that
others will find hard to replicate entirely. While some point to
Apple’s tiny marketshare, wall street looks at the fat margins -
rewarding Apple by making it the most valuable technology
company surpassing Microsoft in a major tech tremor. Google has
run the mobile chess game with great acumen so far. Despite the
Nexus experiment, the explosion of the superphone category has
gone according to the plan. Overall, most of the western
operators are selling smartphones at 50%+ levels each quarter.
Always On Real-Time
Access
The always-connected
vision of the late Mark Weiser is finally approaching some
realization. Mobile is so perfectly suited for cloud computing.
The younger generation is growing with the expectation that they
can get access to any content from any device anywhere. The
constraints and friction that doesn’t allow them to do that is
just not acceptable. As such, the mobile industry is scrambling
to provide tools and technologies that help the digerati access
content at will. All this has to be designed and developed
against the current network, content, and device constraints and
evolution paths. Whether it is access to music or movies for a
15 year old or availability of the entire corporate
knowledgebase, information will need to be available at a touch
of a button. Companies big and small are investing in the
infrastructure and software tools to make this happen. We are
likely to see some interesting launches in the next 12 months.
Battle for the
analytical mind - data, context and intelligence drives
everything
Many people don’t realize that the
battle for the consumer of 2015-2020 has already begun. The
company that has the best understanding about the most consumers
will have a pole position in the mobile ecosystem. Players like
Google, Apple, Amazon, Mastercard, Microsoft, Facebook, Twitter,
China Mobile, Disney, AT&T, Vodafone, Motorola, and others are
amassing a lot of information on individuals. Besides Google and
Apple, Facebook has quietly become one of the most important
players in the mobile ecosystem with its phenomenal reach across
many countries, tremendous stickiness of the app, and innovative
onboarding process of the carriers. Of course, data is a double
edged sword - it can provide enormous benefits to consumers in
terms of intelligence, experience, and engagement and can also
prove to be problematic when privacy and data breaches happen.
In fact, that will be one of the tightest ropes many including
the regulators will have to walk this decade - figuring out what
they call in Swedish - lagom - the right balance.
Apps vs. the Web
Recently, the
ecosystem has been more enamored with the apps vs. the web
debate than the early departure of Brazil and Argentina from the
world cup. It is rather a silly debate. As we mentioned in our
apps economy paper, both worlds will coexist for a long
time. What matters for the developers is the “reach” of a
certain platform or technology and the “cost” and “potential” of
that reach. For the user, the only thing that matters is what’s
available on “their” device. Obviously, the capabilities of the
mobile browser will grow over time and it will make more sense
to build certain category of applications for the web vs. on the
native platforms but developers live and die in the present.
Internet of Things
Nokia took the
leadership stance of announcing that all of their smartphones by
the next year will have NFC. You can expect pretty much all
major OEMs following the same trend which means that hundreds of
millions of devices will be equipped with a chipset that will
enable new experiences, applications and services. Though we
still need to do a lot of work to complete the end-to-end
ecosystem, we are getting close. Further, all major carriers
have created separate units to address the M2M and emerging
devices opportunity. iPad showed what’s possible - it
fundamentally created a new leisure computing category. Also,
iPad (and similar form factor devices) will find good usage in
the enterprise as well. Pretty soon, it will be hard to imagine
a computing device without the communication capability.
Operators will have to release pricing plans to accommodate such
an evolution.
Nurturing
ecosystems - fight for the developer mindshare
It is good to be a
developer in 2010. The success of many players goes through
developersville. The love fest won’t last forever though, it
will depend on how vibrant the various ecosystems become and how
profitable individual developer shops are over the course of
time. One thing Microsoft did very well with the windows empire
was to create a web of partners and developers who were incented
to use the tools and develop for the platform. In a more
fragmented world of mobile, things are a bit complicated.
Developers don’t have time or the energy to go after the newest,
shiniest toy, what matters in the end is the “cost” to develop,
“reach/distribution” of the platform, and “potential” of the
reach. Players who don’t consciously make an effort to make
developers thrive in their ecosystem will see their developer
efforts collapse like house of cards. While the media attention
is squarely on iOS and Android, we are not heading down the
duopoly path as the dynamics of the mobile ecosystem are
significantly different from that of the PC. RIM, Nokia, Samsung
and others will do well, the fight is over the relative rankings
in the pecking order.
Shifts in the
revenue sand dunes
By the end of 2010,
the global ondeck revenues will be overtaken by the offdeck
revenues. As the smartphone penetration grows, it is less likely
that the user will purchase VAS from the operator. While the
carrier gets a healthy access revenue of $15-40 or more/month,
the VAS business is shrinking for many. Some operators are
trying to extract some value but are likely to follow T-Mobile’s
path and give up on the smartphone appstore eventually. On the
featurephones and probably low-tier smartphones, operator do
have a role to play but perhaps some of it can be outsourced to
other appstore providers so that they can focus on higher-margin
services. We are going to see a readjusting of the appstores
again in the next 12-24 months with the weaker ones whittling
away from the landscape.
New experiences -
display, interaction and commerce
The man-machine
interaction took a significant leap with the introduction of the
iPhone. Now the touch-interface is embedded in our evolutionary
genes. There is significant work going into accomplishing more
with less friction with the help of new interfaces and
experiences that can like trying out a new outfit in front of a
mirror - at home or in the store and with a flick of finger -
choose the color, purchase it, and get it shipped. The amount of
time it takes to “accomplish any given task” is going to reduce
dramatically. With the help of contextual sensors, extreme
personalization, and brainiac software, we will take automation
to a new level. This will lead to new experiences that will
enable more commerce, social interaction and participation, and
general awareness and intelligence about every day things.
Examples like Kinect, Augmented Reality, Projection displays are
just the start of the decade when the display and interaction
paradigms will be fundamentally redefined.
Reallocation of
revenues - winners and losers are decided in reallocation
If we take a look at
the spending habits of the US consumers on “access and
communication services” which includes the spending on
Telephone, Cable, Internet, and Cell phones, the total “access”
spending over the course of last decade has been consistently
around 4% of the total personal income per capita. However, the
share of each of the services has been changing steadily.
Telephone used to have 65% share of the spending but is going to
be below 30% by end of 2010. Others have been climbing at the
expense of telephone revenues, especially the cellphones which
since 2007 command the highest share. So, the overall spending
has stayed constant while there has been significant
reallocation of spending. Similarly, within cell phone services,
data has gone from being less than 1% of the overall revenues to
over 35% in 2010 and is going to be more than 50% of the overall
revenue mix by early 2013. Mobile operators will need to figure
out how to manage these reallocation undercurrents and maintain
the overall life time value of the customer. It will come from
re-architecting of the business and technology practices as well
through the introduction of new services.
Mobile takes off in
Verticals
Mobile has become a
full-fledged computing platform and other industries are taking
notice. There is significant work going on in the mHealth,
mRetail, mCommerce, mEducation, mEnergy, and others to keep
things busy for the next few years. There are some really
innovative startups focused on making use of the computing power
that the device affords and turn them into full-fledged medical
instruments. Add the communication bit and you can see the
revolution happening in front of your eyes. The impact on saving
lives and quality of health care will be tremendous - worldwide.
The regulators and the legacy players will need to keep up. As
we mentioned before, the NFC wave is coming and if all goes
well, it will change the retail experience. Stay tuned.
(Mobile) World is
flat
There is a significant
readjusting of players going on right now with some of the Asian
players flexing their muscles for dominant share of the market.
Competition is driving more M&A, the gravity of the mobile data
world is slowly shifting from Japan and Korea to the US with
Verizon overtaking the long time leader NTT DoCoMo in terms of
quarterly mobile data revenues. India’s Bharti became the number
5 operator after completing the acquisition of Zain. On the
device front, Samsung and LG have been ferocious in their
pursuit of marketshare and have been rewarded well by their
performance esp. in the North American market. HTC has undergone
metamorphosis and has become a serious competitor. Many
non-traditional brands like Dell, Garmin, HP, Cisco are also
flexing their muscles in the space that has become the computing
battleground. On the infrastructure front, ZTE and Huawei are
going to make life difficult for some of the players. We can
expect the big “M&As” to continue as the industry consolidates
around the top 3 players in different markets and sectors. The
local skirmishes will spill into the global arena. North
American operators have been curiously silent on the global
front. Being the most lucrative mobile market probably has
something to do with it but we can expect some of the bigger
players to go shopping in the coming days.
Regulatory
Excursions
The much-awaited
national broadband plan was finally unveiled earlier this year.
The current FCC has done a good job of engaging the industry and
informing the citizens, better than its predecessors. It is also
taking a deeper interest in setting up guidelines for the
industry. The Comcast ruling was a setback but FCC is moving
ahead with its plans. It will be interesting to see the
execution details and how things pan out over the course of this
decade. Similarly, regulatory agencies in other nations are
acutely aware of the role broadband plays in nations economy and
competitiveness and what they need to do keep their country on
track. The mad scramble for more spectrum is underway. FTC is
also keeping a close eye on the mobile industry for privacy
related violations. If someone has
any doubts of how much regulators are likely to get involved in
this matter should read through the settlement between the FTC
and Twitter.
Scenario Analysis -
more changes in the next 10 years than in the previous 100
Despite all the
commotion, the excitement, and the turbulence in the ecosystem,
the trajectory of the winners and losers is not set. Like the
Chaos theory, a lot depends on how the dynamic elements of the
mobile universe effect and react to changes. Players will do
well to have strategies in place per scenario so they can adapt
quickly and keep the mother ship in the right direction. We can
expect more changes in the next 10 years than in the previous
100. The triggers for various scenarios will vary - regulatory,
competitive, technology, business model, consumer adoption,
economic - each of these can have an impact on how a trend
becomes the fact of life.
To discuss all these
trends and more, we are putting together a unique
Mobile Future Forward Executive Summit and are fortunate to
have the company of some of the sharpest minds in the industry,
folks who both have the vision to shape the evolution and the
authority to invest billions of dollars this decade to make
things happen. Hope to see you in Seattle on Sept 8th.
Abhi Ingle, VP, AT&T; Amir
Mashkoori, CEO, Kovio; Anand Chandrasekhar, SVP & GM,
Intel; Bob Azzi, SVP - Network, Sprint Nextel; Chamath
Palihapitiya, VP - Growth, Mobile, Intl, Facebook;
Christopher Dean, Chief Strategy Officer, Skype; Danny
Bowman, President, Sprint Nextel; David Weiden,
General Partner, Khosla Ventures; Dr. Boris Nikolic, Sr.
Program Officer, Global Health & Discovery, Bill & Melinda Gates
Foundation; Dr. Genevieve Bell, Intel Fellow & Director,
User Experience, Intel; Dr. Greg Brandenberg, CEO,
Columbia Basin Health Association; Dr. Sailesh Chutani,
CEO, Mobisante; Dr. Suzanne Clough, Chief Medical
Officer, WellDoc; Glenn Lurie, President, AT&T; Hank
Skorny, SVP, Media Mobile Cloud Computing, Real Networks;
Jack Kennedy, EVP, News Corp; Joe Sims, Lead Partner
- Digital Convergence , Booz & Company; Jon Stross, VP &
GM - Babycenter, Johnson & Johnson; Ken Denman, CEO,
Openwave; Krishna Vedati, SVP & GM - Mobile, AT&T
Interactive; Lirong Shi, President, ZTE; Louis Gump,
VP Mobile, CNN; Mario Queiroz, VP - Product Management -
Android, Google; Mark Selby, VP, Nokia; Matt Bross,
CTO and Vice Chairman, Huawei; Michael Sievert, Chief
Commercial Officer, Clearwire; Neville Ray, Chief Network
Officer, T-Mobile ; Omar Javaid, CEO, BBDO; Paul
Palmieri, Founder and CEO, Millennial Media; Rob Glaser,
Chairman, Real Networks and Partner, Accel; Sean Cai,
VP - Advanced Technology, ZTE; Stephen David, Former CIO,
Proctor & Gamble; Subba Rao, CEO, TataDoCoMo; Takayuki
Hoshuyama, CEO D2 Communications; Tony Lewis, VP,
Verizon; Wim Sweldens, President, Alcatel-Lucent
Each panel discussion will involve
luminaries/experts on specific topics, for e.g.
|
M2M/Internet of Things
Danny Bowman, President, Sprint
Amir Mashkoori, CEO, Kovio
Tony Lewis, VP, Verizon Wireless
Mark Selby, VP, Nokia |
Evolution of Communication/ Engagement
Christopher Dean, Chief Strategy
Officer, Skype
Chamath Palihapitiya, VP - Mobile,
Facebook
Mario Queiroz, VP - Android, Google
David Weiden, General Partner,
Khosla Ventures |
The size of the panel will be small and
the time duration long so we can delve deep into the issues and
questions. For more details, please visit
http://www.mobilefutureforward.com
Your feedback is always
welcome.
