November 30, 2007

the shifting world

The tectonic plates are shifting. Wireless carriers and handset suppliers are changing their long-standing relationship with consumers as well as with each other.

For the first decade of wireless if you asked a consumer the name of their carrier the answer was likely to be “Motorola,” the name they saw on their handset. When new entrants bought spectrum in the mid-1990s, competition raged and the focus shifted to carriers and their pricing plans. Now that networks are approaching functional equivalency it appears as though things may be shifting again with the handset reasserting its dominance.

First there was the iPhone; a revolution in which a carrier permitted a handset developer to dictate the functionality of the device and take a piece of revenue in the process. Previously, it was the carrier who delivered massive dictionary-sized handset specifications to the manufacturer and would permit nothing else. Steve Jobs (News - Alert) ended that.

Then came Nokia to upset the status quo yet again. Their share of the U.S. mobile phone market having fallen from 33 percent in 2002 to 10 percent today provided a “why not?” opening to change the rules. It looks like Nokia is sticking a finger in the eye of its carrier customers by announcing Web-based phones and services that leap the carriers’ walled garden — but clearly they see a change in the market dynamic. Channeling Apple’s retail outlets, Nokia is even selling these devices directly to consumers instead of just through carriers.

Then comes the long-promised “Google Phone,” actually an operating system with API’s named “Android.” One must ask, “Why does the world need another mobile OS?” The answer would seem to be that Google is the world and it needs the OS as a platform for its next steps in the wireless space. Trojan horse anyone?

The latest — and perhaps largest — tectonic shift came from Verizon (News - Alert). Their announcement to open their network to any device and any service that meets performance criteria is a nuclear blast to the walled garden.

What’s going on here? The Federal Communications Commission (FCC) has been playing around with various ideas to change wireless industry practices, but the industry (in all its parts) seems to be beating them to the punch. Is the vision of a coming struggle with the handset suppliers at the root of changes in carriers’ relations with consumers? Just look at the carrier news that preceded the Verizon announcement: AT&T (News - Alert), Verizon and other major carriers ended a long-time consumer gripe and now prorate the fees charged when a subscriber cancels service; and Sprint announced that it will end another gripe and unlock phones so that a departing subscriber can use their device on another CDMA carrier. Could these changes reflect recognition that these days it is the device, not the network that rules?

The economic model that has driven the wireless industry since the early 1980s just might be going in for a quarter-century tune up.

Recently I heard a senior executive from a major wireless carrier ask, “Why is it that the Net guys get into the carriers’ business rather than vice versa?” The answer, of course, is “because they can, and because carriers can’t.”

The Internet folks have already co-opted the wired telecom business. Next, they believe, their consumer-driven innovation will allow them to do the same thing to wireless. You have to give them credit for the pace of their innovation. Whereas carriers’ processes to implement something new are legendarily long, Net-centric companies bring forth one new initiative after another, throwing them out to see which one will stick and change the market.

The albatross around the wireless carriers’ neck is their networks. Carriers define themselves by building networks. The Internet folks define themselves by building services.

So why is it that carriers need to continue to play by these 25-year-old rules? What is it that carriers can do to change the game? Over the next several months this space will try and lay out some thoughts on the 21st century tune-up of the wireless business.

November 2, 2007

the discovery dilemma

And now your moment of mobile existentialism. We all recall the high school question, “What if a tree fell in the forest and there was no one to hear it? Would it make a sound?” Now we can update that for the mobile world with, “What if mobile content is available, but no one can find it? Does it exist?”

The excitement in wireless today is not in voice. There has been nothing new in voice since push-to-talk. The excitement — and the future of the industry — is all around non-voice content.

Why then is it so hard for the consumer to discover and purchase these non-voice services? The content tree is falling, but there is no one to “hear” it because no one can find it. Since no one can find it, buy rates are nowhere near what they should be.

The wireless industry faces a discovery dilemma. Wireless is such an obvious vehicle for delivering content, and there are so many content providers who see the potential, that content has overwhelmed the current generation of wireless devices. According to Nielsen, the average carrier deck for one popular phone model includes 112 applications, 549 games, 101 Web sites, 59 video channels, and over 7,000 tones.

No wonder a recent Forrester Research (News - Alert) study found only 44 percent of U.S. mobile subscribers use any of the non-voice services available on their phones and that 88 percent of that non-voice use is text messaging. They can’t find anything!

But wait, it gets worse. A study by Harris Interactive (News - Alert) found only 57 percent of mobile subscribers said that by 2010 they would use their phone for more than making and receiving calls. Because consumers can’t find it, it doesn’t exist.

Consumers (and those who seek to deliver mobile content to them) are facing a deadly double-whammy — the combination of being simultaneously overwhelmed by the choices and exasperated by the difficulty of finding and buying an app that might interest them.

The mobile device itself should be the best promotion tool. The sales messenger is in the consumer’s hand. But consider how hard it is to use a mobile device to discover content. On some carrier decks, for instance, it takes five clicks to get to a purchase. Imagine the consumer who has heard of a content app such as a game and goes to the phone to buy it…

Select “download” from the main menu and click,

Select “applications” from the downloads menu and click,

Select a category screen and click,

Select another category screen and click,

Finally buy the app with a click.

The rule of thumb is that there is a click half life: you lose half of your audience with each click. At the rate of five clicks to buy, 97 percent of the consumers who started out on the quest to buy the app will have dropped out. If we don’t do a better job of helping consumers discover and buy content, the mobile content business is going to be one huge forest with trees crashing everywhere but without any effect.

The discovery dilemma is a serious challenge to the non-voice future of the wireless industry. Absent an on-device solution, the easiest way for the consumer to get content may be to disintermediate the problem altogether and go directly to the Web. After all, the Net has historically disintermediated inefficiencies and the discovery dilemma is just one more such inefficiency. In such a situation, the carrier is just a delivery pipe and a billing engine rather than a content network. I doubt wireless carriers like that vision, but unless the discovery dilemma is resolved that may be their future.