Mobile Internet, the Morgan Stanley Version

Mary Meeker & Co at Morgan Stanley are back at it again....Trying to replicate what they achieved nearly 14 years ago with The Internet Report, the analysts at Morgan Stanley are back at doing what they do best. Sticking their neck out and trying to identify trends that could mark the advent of the next big business in the tech industry. And what better time could they pick than end-2009, when the tech community is drinking Apple's Kool-aid like there's no tomorrow, when Google has apparently decided to go high-street retail with their self-branded phone, when a mobile social network raises more money in under 12 weeks of existence than what a 90 year-old magazine is sold for! Indeed, just when the contours of a bubble around mobile are beginning to emerge, such reports sure will help increase awareness of a space that continues to show strong growth. Neverthless, signs of a bubble not withstanding, the mobile Internet sure is likely to spawn a whole parallel industry to the PC based Internet. As networks grow in capacity, and devices grow in capabilities, and developers in creativity, we are likely to find that the mobile Internet is probably making to make a significantly more impact on our day-to-day lives than the PC based Internet, and in the process, also create new leaders and winners. The mobile Internet sure is big, but will it also necessarily go thro' a bubble before settling down?

The report is definitely worth a good read. You can find the executive summary embedded below and the two reports after the break. Be advised though, they are bulky.

Morgan Stanley-Mobile Internet Report-Exec Summary-Dec 2009

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Is a Smartphone Bubble Building Up?

The signs are getting clear by the day. What started off as a category created by a blockbuster product, is today being heralded as the savior of the mobile handset industry. Correction, the mobile industry in itself. Smartphones, and I am referring to the genre that has unleashed itself post the advent of the iPhone, have seen a smart uptick in sales in recent years. Driven by significant carrier subsidies in the US and elsewhere, and a renewed focus on mobile applications, this category has rapidly gained, both in user acceptance, and in industry attention.

Indeed, for the first time in years, smartphones, coupled with an open mobile ecosystem where customers are not bound by walled gardens, are helping in creating an industry of their own with stakeholders as varied as advertisers, ad networks, mobile developers, and others. Of course, the carriers and the handset vendors still figure in the equation, however, they appear to be increasingly dis-intermediated by either large Internet players such as Google or by innovative device entrants such as Apple, who have successfully recreated walled gardens of a different type. While all of this portends great for the consumer, however, the manner in which the hype is building up in the smartphone space, dominated by discussions over mobile applications, makes one wonder if there is indeed a bubble that's building up, across two of the important elements of this value chain, applications and devices.

The mobile applications space refuses to show signs of any letdown in activity. First it was the spate of announcements over mobile application store launches, and now the focus appears to be on other enablers of the value chain such as ad networks. Apple's App Store sure has seen a couple of billion downloads and a catalog of over 100,000 applications, however, the marginal utility of an ever-increasing number of apps is highly debatable. And not to be outdone, Google's Android marketplace has over 10,000 applications already. Which begs the question, how much is enough? For the consumers, discoverability becomes a huge hurdle, while for the developers, the ecosystem is beginning to act as a strong black hole. Sure there are AAA app developers who've struck it rich, but then, like in the case of any other content businesses, it is only a few apps that hit the jackpot. However, the mobile apps business sure is showing no signs of acknowledging this fact. To add to the overall confusion, multiple versions (Android 1, 1.5 and now 2.0!) of OS platforms are currently out in the market simultaneously, which has significant potential to alientate customers that can't figure out why a specific app is working on their friend's Android phone and not theirs. Yet, device vendors continue to create platforms to attract developers, Samsung's Bada being the latest to join the bandwagon. And with increasing apps, comes the realization of the need for monetization. And this is where ad networks like Admob hit paydirt. Their acquisition for $750 Mn is indeed seen as a validation of the potential of the mobile advertising space, and of course, without underplaying any of the value that in-app usage data that Google gets along.

On the device side, Apple continues to see rising sales. Forecasts are now coming in on how smartphones will likely make up for the bulk of handset sales 18 months from now! Players like Sony Ericsson and Motorola have kind of decided to go away from their low-cost handset focus and invest more on high-end smartphones. And we have even more new entrants in to the smartphone space. Dell, which has been on the fence for quite a while, has finally decided to take the plunge and is launching its smartphone in two of the world's largest emerging markets of Brazil and China. Android is now in to V2, with the Motorola Droid appearing to get early traction.

Rapid growth in any industry segment is always welcome. It indicates that there is significant previously unmet customer demand that newer products are meeting. However, the risk of such rapid growth lies in the possibility of over-the-top exuberance when it comes to estimating future growth. As a wise man once said, most forecasts are over-estimated in the short-term and under-estimated in the long term. Smartphones and mobile applications appear to fit this bill. One can only hope that the current hyper-growth phase is also likely to act as a natural shakeup with the result being fewer smartphone platforms, more open standards for mobile application development, an ecosystem that offers genuine revenue prospects for developers, ad networks, and advertisers, and most importantly, a top-notch customer experience, rather than morph itself in to an uncontrollable bubble.

Update 1: It didn't take long for the next major announcement in smartphones. Techcrunch's quoting unnamed sources that claim Google is close to launching its own smartphone ! Highly doubtful why they want to do that, given manufacturers are already making a beeline to adopt Android. Would Google want to compete with its partners? And more importantly, can Google ensure rapid adoption of its services through its own phone, as opposed to collaborating through the Android ecosystem. Nevertheless, up goes the hype curve !

VoIP Redux

VoIP is back in to the big league, and who else to be in the spotlight, other than Skype! Skype has been the poster child for the VoIP brigade for quite a few years now. However, most, including me, were disappointed to see Skype find its way into eBay, for there were evidently very little synergies. Indeed, one could vividly recall some of the rather wierd monetization options that eBay could conjure up for Skype, including one in which they considered selling ringtones for Skype calls ! Finally, it appears to have dawned on eBay after over four years that they are better off focussing on their core auctions and e-commerce enablement area (the irony wasn't lost on anyone on how eBay had paid significantly less for PayPal). Nevertheless, to eBay's credit, it has let the company quietly grow in to a potent service that is now looking at hitting a $1 Bn revenue run rate and clocks over 2 Bn paid minutes. What is interesting is that eBay has retained a stake in the company, and the surprise entrants back in to the company are the original (ruthless?) entrepreneur duo who founded Skype.

However, more than the intricacies of how the deal is structured, the deal and its size throws the spotlight back on the VoIP industry. Despite its immense potential, VoIP hasn't really take off in a manner befitting. While Skype has seen success with consumers, however, the real challenge, and the big monies, lie in encouraging enterprises to sign up. The VoIP space is beginning to see renewed traction with competition in consumer VoIP picking up. Nimbuzz recently launched its paid calling service, 'creatively' called Nimbuzzout. Google's Voice service, while not being a full-fledged VoIP service, however, lays bare the Internet giant's intentions for this space. And with rumors flying around of Google's acquisition of Gizmo5, one can be rest assured of a shakeup in the VoIP industry. On the carrier side as well, there appears to be some movement. AT&T has decided to allow VoIP calls over 3G, a point of much contention when Skype for the iPhone was released.While carriers around the world have agreed on the One Voice standard making all future mobile calls VoIP, however, full-scale LTE deployment is a while away.

VoIP, and more so mobile VoIP, appears poised for an interesting future. Having come in to mainstream when mobile ecosystems were tightly closed and , mobile VoIP has historically been limited in its ability. However, recent developments which are progressively breaking down carrier walls, opening up of operator APIs and creation of innovative platforms, such as the one offered by BT's Ribbit, create the potential for an exciting and innovative future.

Update 1: The current spate of action in this space ain't done yet, apparently. Techcrunch is reporting on a possible acquisition of Jajah, and for a change, we finally have a telco in the fray.

Update 2: The news about Google acquiring Gizmo5 indeed turned out to be true. Should be quite interesting to see how Google Voice evolves, now that they have access to a strong SIP platform and a PSTN termination link. More importantly, the prospect of a communications platform that integrates IM, Mobile, Location and uses SIP as the backbone indeed opens up exciting possibilities for realizing the unfulfilled dreams of unified communication. Telcos, watch out!

This Apple Defies Newton's Laws

The title sure seems apposite when viewed in light of Apple's latest quarterly results. Despite the all-round depressed economic environment, and declining consumer spend on TME products and services, Apple has managed to drive both top-line and bottom-line growth significantly. That such stellar results have come in what is usually considered a soft quarter of the year is testament to the twin growth engines of Macs and iPhones. With the iPhone having established itself as the benchmark in the smartphone space, and Macs increasingly finding mainstream acceptance, Apple now appears to be setting sights on creating future revenue streams.

In this backdrop, it is interesting to see how Apple is increasingly using content to create and sustain its future growth. While the iPhone with its staggering 100 K+ apps (leaving aside the quality/quantity debate) forms a key part of Apple's long-term competitive edge in the smartphone space, its attempts to use the iTunes platform as the gateway for digital content into the home merits a deeper look.

Recent reports indicate that Apple is now negotiating with TV networks on introducing a monthly subscription product. The idea being that for an amount of ~$30, consumers could get access to TV content through iTunes. Internet TV is steadily raising its profile, with the rising success of Hulu. However, treating it at par with traditional TV platforms is some time away. Broadcasters and cablecos have begun to feel threatened over such over the top services. However, Apple's entry has the potential to raise the stakes and enhance the reach of Internet TV services. Unlike a Hulu, which is largely viewed on PC (forgetting the Rokus of the world), the prospect of using iTunes as the enabling platform, as opposed to a device, poses a tricky situation for the TV networks. In putting iTunes as its front. Apple's leaving the door open for a device-agnostic future, where content can be viewed/purchased on PC/mobile/E-book/Netbook/what-have-you. With a rising interest from both device vendors and software players in embedding applications directly into next-generation large-screen TVs, the prospect of Apple embedding iTunes in to a TV doesn't sound that much more preposterous. Now compare this offering from Apple with that of a traditional operator like Comcast. And suddenly, Comcast's digital TV offerings sound obscene with monthly rentals of over $60! And yes, out goes the "TV Everywhere" initiative as well, given the fact that it requires customers to have a regular cable subscription in order to view the content on PC.

iTunes has had a more than significant role in hastening the demise of the traditional music labels, with its a la carte pricing model. If Apple is able to bring a similar proposition to the TV space, that could significantly impact cablecos who thrive on creating bundles and where a host of also-rans piggyback on one or two premium channels. Of course, there is the key issue of one of the large networks actually signing up with Apple, but it is more likely a question of when and not if anymore. Internet TV of course has still to better its overall user experience, given the significant bandwidth requirements, and the renewed debate in US and other developed economies on metering usage. And there's also the issue of shifting consumers to a different screen other than the TV. However, Apple does have a dark horse in there in the form of its relatively-neglected Apple TV line of products. A la carte pricing of TV channels, and a more robust Apple TV can precisely replicate Apple's success in the music business in TV content. And Apple's success is defined not by the margins that it is making in its music sales, but by the strong vertical control that it has over the customer experience, including billing and provisioning. Music labels who initially treated iTunes as just another distribution platform are now realizing that the middleman (Apple) today exerts more influence over the consumer, than them. Video could be the next market.

Economy and Internet Trends Presentation

Mary Meeker from Morgan Stanley comes up with a data-rich presentation every year at the Web 2.0 summit. Some of the panels from this year's presentation are pretty telling. For instance, the massive drop in mobile Internet traffic to operator portals! True indeed, mobile is going to play an increasing role in the lives of consumers, and location adds the ideal topping. Mobile broadband is likely to hit its inflection point in developed countries, and find its feet in emerging markets in the coming year. Social network sites are rapidly replacing horizontal portals as the landing pages and walled gardens appear set to be relegated to being a relic of the past.

Check out the complete presentation below.

Economy & Internet Trends - Morgan Stanley Presentation

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Internet Radio: Fresh Breath of Life or Last Nail in Coffin

The recent agreement between SoundExchange and various online streaming companies begs the question whether webcasters can now heave a sigh of relief or if it is time for them to down their shutters. The music industry has been in a tailspin for a while with the demise of the CD, and the rise of snacking. Add music piracy, and increased consumer demand for DRM-free music, and you have an industry that is increasingly looking at a black hole. No wonder then, that the current agreement is being viewed in many channels as a victory for the music industry. A way to monetize what is increasingly being seen as the future of music.

While the specific terms of the deal in themselves are highly skewed against smaller webcasters, what with a minimum $25,000 guaranteed payout, it has not given large streaming players such as Pandora a free hand. An immediate visible step that Pandora took has been to cap the number of free hours of listening down to 40, bringing its freemium model into play. While that may offer the solution for the short-term, however, the moot point is, whether this whole debate realizes and recognizes the direction that digital music is taking. Music has been one of the earliest content categories to be impacted significantly by digitization, with the high-priced high-margin physical music falling out of favor with consumers. Rise of media players such as the iPod together with the iTunes ecosystem also hastened the demise of the CD. Now, the same thing seems all set to repeat in the space of a few years. Music labels are increasingly looking at online streaming as the next cash cow, and current pricing levels appear to be pointing towards that direction. Evidence such as those coming from Sweden where labels are making more money from Spotify, than from iTunes, are clear indicators of the future of the music industry.

Rising penetration of mobile devices, coupled with high-speed wireless networks, present a market that is potentially larger than any of the earlier music consuming markets. Working with Internet and telecom players in creating compelling music streaming services, and ramping up uptake of streaming by consumers is the need of the hour. Indeed, evidence is also coming in of how streaming not only has the potential to reduce piracy, but on the contrary, lead to increased consumption of physical music. The music industry could do well to look at Internet streaming in a more holistic way, than just as another revenue stream where they need to adopt a skimming strategy. Whether the recent agreement represents a rising of the phoenix from the ashes or a step towards a pyrrhic victory for the music industry is something that will be keenly seen.

The Online Video Shakeout

Online video is a great service offering. That Google continues to plough money into YouTube is more than enough validation for many that online video is the way to go for the future. Club that with rising viewership online, and you have a potent combo of an online service. However, the troubling part is, online video is not a great business to be in, at least currently.

The recent demise of Joost should serve as a warning to the fledgling industry that all's not well. Despite having a top-notch starcast (started by Kazaa & Skype founders), and being pre-funded to the tune of $45 million, Joost has consistently struggled to make the cut, be it in terms of being a preferred destination for the viewer or for the advertiser. The company has now decided to shut down its consumer offering and offer 'white-label' services to other content providers (a fiercely competitive space where Yahoo! just ditched its $160 million acquisition of Maven Networks). So, what did it in? While there are a lot of reasons, in a nutshell, lack of compelling content. Hulu, on the other hand, has consistently ensured that content is something that it doesn't lack. Luring away Disney from a possible Joost deal was probably the last nail in the coffin for Joost. Likewise, Veoh, another video aggregator that topped $70 million in funding, recently cut its staff and changed its focus to a browser-based plug-in. Other aggregators such as Metacafe have moved on to focus on professionally-produced content, while Crackle cut off user-uploads a couple of months back. And Microsoft, of 'em all, has acknowledged that user-generated content might not really have a major role to play in the future. The Redmond giant has decided to re-focus Soapbox, its long-time also-ran in the online video space.

There appears to be a tangible shift away from user-generated content towards professionally produced content. The success that Hulu is seeing, it is estimated to now account for over 10% of all online video ad revenues, coupled with YouTube's losses, is encouraging video aggregators to move towards professionally produced content. It also helps that consumers are increasingly showing clear preference to consuming long-form video content on the Internet. Media companies are increasingly watching the action unfold with glee. Unlike the long-drawn battle that music labels have been having with online music streaming, large media houses are increasingly preparing for a future where they are the distributors themselves, or own portions of aggregators such as Hulu. And till the time that Google or anyone else can figure out an easy, and inexpensive way of monetizing user-generated content, and compelling content is made available by large media players at a fair revenue-share, online video sites will continue to flounder.

Free

Chris Anderson, the popular editor of Wired, is back with his second book, Free. And despite all its recent controversy over sourcing/plagiarism, the "Long Tail" author remains a compelling read, if not for the theories that he espouses, but for the manner in which he does so. His current book is all the more relevant in the present context when certain content categories, such as music, are showing clear signs of movement to a zero-pricing model. And keeping in line with the theme of the book, the author and his publisher have made the digital book free.

Update: The free, as in free beer, offer for 'Free' is over, and you'll need to pay up to understand how giving free stuff away is great for businesses

Functional Ecosystems: The Need of the Hour?

In recent times there has been a lot of noise around ecosystems, and how open ecosystems, given Google's flashy entry, are now here to stay. In the mobile space, the transition to open mobile ecosystems appears to be happening rapidly, with traditionally open Symbian, having had to re-position itself, and older consortiums such as LiMo trying hard to tell people that they've been around for a while. Android in particular is increasingly being touted as the platform of the future. With reports coming in of Android deployment not just on smartphones, but on netbooks/set-top-boxes and what not, the clamour around the potential of these open ecosystems appears all set to rise further.

However, amidst this cacophony, it will be pertinent to take a step back and see what lessons existing systems have for us. Arguably, one of the most successful ecosystems in recent years has been the iPod-iPhone-iTunes combo. Apple has successfully created a completely vertically integrated system that made the user-experience a stroll in the park. Consumers were offered a simple way of downloading content/apps with billing tightly integrated. On the supply side, Apple maintained a stranglehold on pricing, availability and distribution. It stood up to content majors in deciding the pricing of single tracks, and it made the app store proposition attractive to mobile developers by keeping only a flat 30% retainer. The results are out for everyone to see. The iPod has become one of the best selling portable devices of all time, while the iPhone has set the cat amongst the device manufacturers aflutter.

The other successful ecosystem example in recent times has been the Amazon Kindle. The Kindle, in both its iterations, has consistently been sold-out, with varying sales estimates. Again, the Kindle too offers a vertically integrated ecosystem with mobile connectivity built into the cost of the device, and content availability driven by Amazon. Despite the high price tag, the simplicity of the offering, is attracting customers in droves. And like the Apple ecosystem, Amazon too exercises tight control over what can and cannot be viewed. And it is to Amazon's credit that by limiting, rather inconveniencing, usage of the Kindle, they can even charge for pulling RSS feeds !

In both these cases, consumers have shown a clear preference towards a simplified usage-experience, and one that is devoid of roundabouts. Consumers do not want to be bothered about confusing options around content discovery or billing. And this is something that device vendors, telcos and content players alike need to imbibe in future offerings. While early adopters will always be willing to go through a couple of hoops, however, hitting the mainstream will require players to bring elegant integrated and transparent solutions. Players along the value chain will increasingly need to collaborate in driving uptake. Traditional models that have worked in the past will not work in the future. For instance, while telcos have been able to get away with high revenue share for any third-party service in the past, increasingly, they will have to come to terms with the changed reality and accordingly price their role in a ecosystem. A delay in doing so will hurt everyone involved in the process. Amazon's attempts at launching Kindle in Europe have apparently been stalled due to breakdown of talks with telcos on revenue-share and pricing of connectivity. Likewise, Nokia's attempts at easing consumer hassles by having integrated carrier billing are slowing up their rollout of Ovi Store, giving its competitors strong headway.

It is indeed true that advent of digital media has had a strong impact on existing business models, however, the true benefits of digital media can only be achieved if and when competency-based collaboration kicks in the industry. End of day, as the Kindle and iPod/iPhone examples have shown, consumers are least bothered with the question of an open or closed ecosystem, all they crave for is a functional ecosystem which meets their needs!

Is Apple Making its Biggest Push for Enterprises Ever?

Is Apple getting ready to finally change gears and look beyond the consumer market? That is what appears on the surface given some of the recent moves coming out of 1, Infinite Loop.

In the rapidly evolving smartphone space, Apple's version 3.0 of its iPhone software marks Apple's biggest move to challenge RIM's domination in the enterprise space. With support for push email, Exchange, voice memos, and (finally!) copy/paste support, the iPhone now appears an option that enterprises can consider. Add to that, support for remote data wipe, hardware encryption, and tethering, and you now have a compelling smartphone, that can finally do all that has been done by a lot of other phones, but in a much more smarter and user-friendly manner. 

The App store that Apple has built also brings a key differentiating point to the table in its favor. While RIM and Microsoft are now making moves into the app store arena, Apple's app store already offers a straight-forward and tightly integrated solution for downloading apps. While enterprises will continue to have security issues around making available their internal apps on a public list, however, it is quite possible that Apple can create customized app stores that allow enteprises the security and privacy that they so desire in creating and pushing applications to their employees. 

Sure, there are a host of challenges that Apple still needs to surmount if its devices/software can even be considered for an enterprise-deployment scenario. However, Apple has its best shot at gaining a foothold in enterprises with its iPhone. With mobile workers requiring increasingly 'smart' devices, and the growing appreciation of vertically integrated solutions, such as the iTunes-iPhone combo, it is only but natural that enterprises consider the iPhone as a compelling alternate to the Blackberrys. It also helps that the iPhone has been seeing what can probably be described as the best growth ever for any smartphone. Apple, though, will have to ensure that it does away with its current adhoc approach and bring more transparency, and a sense of stability to its software release process if it hopes to convince enterprises to sign up.

Bharti+MTN: One Hurdle Too Many?

Bharti's renewed attempt at creating an Indo-African telecoms giant appears poised to face several roadblocks, some due to the inherent differences, and some due to the externalities surrounding such large deals. While Bharti has seen strong, in fact tremendous growth, in India, the company is limited in its geographic presence across the globe. MTN, on the other hand, has seen growth outside its home market of South Africa. However, there exist significant differences between the kind of markets that Bharti and MTN serve. India is a low ARPU, high usage market while markets where MTN operates typically are low ARPU, low usage. Competitive dynamics are yet to kick in pricing of services which continues to remain high in multiple African markets. While prices are expected to fall down in the coming years, however, increasing reach to the low-income rural communities will be a significant strain on their balance sheet. 

The contours of the how the deal will likely be structured, although this could change, also point at significant complexity. Bharti is looking at raising close to $4 bn in debt. Given the fact that 3G spectrum auctions in India are round the corner, and Bharti's necessity to participate heavily in them, Bharti could end up facing an uphill task in raising funds. 

And lastly, a key point in the whole proposed merger, and which was largely responsible for the breakdown of talks last year, is the nationalist feelings that are stoked through such large cross-border deals. Opposition could arise from labor unrest. Regulation in many emerging markets in Africa as well appears to be dictated by nationalist feelings, particularly in matters involving international operators. France Telecom's problems in Egypt, and, Vodafone's troubles with the local regulator in South Africa suggest caution.

In a nutshell, the path to a combined MTN-Bharti is riddled with potholes, however, the prospect of a combined entity having over 200 Mn subscribers appears too enticing for not overcoming these challenges.

Whose content is it anyway?

Hulu's snagging up of Disney network as an equity partner begs that question. Whose content is considered more exclusive, more desirable, and consequently, more monetizable?

While youtube has always led the numbers game, in terms of all kinds of user-driven metrics, however, Hulu appears to be fast catching up on the more-important financial metric of bringing in monies. While ever-rising traffic at Youtube only leads Google to mounting operational expenses in terms of hosting and streaming costs, the converse appears to be true at Hulu. With all of its content monetizable, without legal baggage, Hulu offers advertisers a far more compelling proposition, and naturally, has been on a high. It doesn't help that under 10% (far less than this by other estimates) of videos at youtube are deemed monetizable.

What does this show? Well, for starters, that content continues to be king. And that's the good news.However, that doesn't mean that there is no space for user-generated content and scope for commercial exploitation of the same. UGC has been a hallmark of web 2.0 and will continue to remain so. However, online video sites as well as media players have to look beyond a model where there's a straight-forward content-advertiser relation. The Hulu model, for instance, seems atavistic for reasons more than one. It continues to build on the traditional advertiser-content owner angle and basically extends that practice from the Television on to the web. While the system in itself is a fine example of how the web can create all-round value, for all parties involved, yet, through its inherent reliance on large content companies, it fails to recognize the power of the web.

Youtube showcases all that is representative of the future state of the web, albeit at a staggering cost, and how UGC will continue to be one of the key producers of content. However, it has to make out a compelling case for a model where UGC can harmoniously exist along with professionally-produced content. The media players, and the UGC community, have to recognize the fact that compelling UGC has almost always come out of a right mix of both forms of content, and to that extent, neither is dispensable nor can be wished away and same goes for legalese involved in it all. All stakeholders involved need to recognize and appreciate the contribution of each of the parties involved, and build ad-supported/subscription models that are more reflective of the changed realities. Until that happens, it is going to remain a messy road for Youtube, while others such as Hulu will continue converting the web into a Television.

The Monetization Conundrum

The music industry has been, for quite a while, exhibiting the head-stuck-in-sand syndrome. Despite the continuous fall in CD sales [pdf] music labels still love to go around suing individuals and trying to sign up more and more artists in their restrictive agreements. Labels refuse to recognize the fact that physical music is in a state of irreversible decline. Advent of platforms such as iTunes that encouraged uptake of snacking appear to have done little to wake up the labels out of their stupor. On the contrary, the recent price rise, to put it properly-the introduction of variable pricing, in the iTunes store reflects the desperation of the labels to try and make up for "lost" revenue. The spate of announcements that major labels have been doing on collaborating with all and the sundry reflect their attempts at trying to milk the last penny out of all their content repertoire. However, the sad part is that most labels are still trying to outrun the pace of evolution of digital music. In doing so, they have been focussed on monetizing new media in a classic old media format, only difference being they now tend to do it with more partners and in more geographies. This is the easy way out that they are taking due to their reticence to adopt to digital media in its truest form and create innovative business models that ensure they gain a fair value for what is undeniably their copyright. 

This problem of monetizing content in the digital media space is something that is coming to haunt content owners of all hues and types. However, there do appear to be early signs of content owners working with partners to create innovative business models. The Amazon Kindle, of course, represents an emerging and successful way of monetizing and creating newer markets for content that was increasingly being seen as dying. Similarly, Vodafone Spain, along with Real Networks has come up with a reasonably priced flat-rate data plan which allows consumers to download unlimited tracks, from all the major labels limited by DRM though. Rising penetration of mobile devices, coupled with high speed mobile networks, offer a compelling proposition for bundled offerings such as these. With mobile operators as well looking for newer revenue streams, given their declining voice revenues, partnerships are waiting to be frozen. 

Content owners will have to look beyond existing ways of monetizing their assets if they are to truly participate and profit from the digital wave. However, in their short-sightedness in looking only at the next quarter's result, they are increasingly getting further and further away from their core consumer. And this is a void that is now up for grabs from players across the spectrum !

The App Store Gold Rush

Describing the current flurry of announcements around app stores as anything but a gold rush would be an understatement. Driven by the wild (?) success that the Apple app store has seen, operators, online players, and device manufacturers are making a beeline to courting developers with promises of riches unseen ! With majors such as Nokia, Microsoft, RIM, Vodafone, Verizon, France Telecom, and China Mobile committing to either launch app stores and/or greater co-operation with developers, competition for the consumer's discretionary spending on mobile apps/content is only set to increase. And not to forget, the ubiquitous Google, with its Android Market, which appears to be seeing strong traction with the first wave of customers. However, lost in all this cacophony is the increasing fragmentation that is likely to set in once all these app stores are launched. While Apple has had a strong success with its version, however, a large portion of that success can be easily traced to the limited portfolio of its devices (all of two-iphone and ipod touch), however, the same cannot be said for other app store operators. Numbers are being bandied about on how Apple's store crossed, in two years, the number of apps that Microsoft took over 9 years to build. What is clearly overlooked in this apples and oranges comparison is how apps built for a windows Mobile platform are meant to work on a much wider range of handset portfolio. Ensuring mass customization by using a narrow range of devices, as in the case of Apple, significantly reduces development, porting, and testing costs for a developer.

While development costs are one aspect of the complexity that having multiple platforms entails, a larger problem would be to encourage adoption beyond the early adopters and uber geeks, for creating an efficient billing platform is certainly no stroll in the park. Most of these app stores have exhibited an intention of cutting off the mobile operator from the picture, thereby complicating the billing mechanisms, and consequently risk alienating significant portion of the user base that would prefer the convenience of tying all mobile-based purchases to the carrier bill. And this is where mobile operators believe they can drive home their advantage. The announcements from China Mobile and Verizon need to be seen in this light. AT&T as well appears to be taking early steps with its App Beta program. In Europe, Orange too appears to be hitching the app store bandwagon.

The success that Apple has seen can be clearly traced to the virtually complete control that it has of the value chain; right from the device to the software, to the iTunes interface, to the payment mechanism, and in some cases, down to the operator (thro' exclusive agreements) ! However, the same is not really viable/practicable for any of the other new entrants. Fragmentation is a reality that they have to adapt to. And consequently, they might never be in the same league of the Apple app store. And more importantly, whether they like it or not, it will indeed be very challenging for either content companies or device vendors to create alternate mobile payment gateways bypassing the carrier billing.

The app store phenomenon will likely act as the final nail in the coffin for operator walled gardens. It remains to be seen how operators ensure they can find their collective bearings and work towards creating an ecosystem that offers value to the customer and monies to their pockets !

3G in India-A Non Starter?

That India's 3G spectrum auctions have been jinxed right from the start has been more than clear, given the clear timeline of regulatory delays. The DoT and TRAI, aided by the finance ministry, have contributed more than their part in ensuring consumers in India are denied 3G services.   Nevertheless, operators have been patiently waiting for the spectrum matter to be cleared, and tap on to the data-starved Indian consumer. Indeed, some have even expressed the intent to enter the Indian market using the 3G route ! However, the acute spectrum crunch in most major cities of India, and consumer reticence towards using high-priced data services are very much likely to act as a dampener. Add to this, the fact that operators have not really encouraged consumer friendly tariff plans when it comes to data and you have a picture that is definitely not encouraging for uptake of 3G based services. Operators such as Reliance and Tata Teleservices recently launched their wireless broadband services based on EVDO revA (grey area when it comes to its classification/spectrum usage). And the prices belie any real interest in encouraging uptake. With prices hovering around Rs.1,200/- for an unlimited connection, and fair usage caps coming in at a paltry 10GB, uptake is quite likely to be muted. Given India's abysmal broadband penetration, and with limited visibility on local loop unbundling, one would have thought the mobile operators would have been a bit more aggressive on pricing their mobile broadband services. That ain't to be, sadly though ! 

The intriguing part is the pricing strategy adopted by the two state owned incumbents, BSNL and MTNL.  MTNL's pricing at Rs.5/MB and BSNL's Rs.3/MB on 3G spectrum that they have already been granted displays limited understanding of the potential and of their first-mover advantage of this space. By pricing next generation services out of reach of most potential consumers, operators continue to display their disconnect with the consumer on data services. While most operators have successfully demonstrated the demand that could be generated by offering affordable voice services, sadly, when it comes to data, they don't appear to be inclined to do so, atleast, as yet! It is probably no wonder, that reports in media suggest a very poor uptake for the 3G services that have already been launched by BSNL/MTNL. Operators need to appreciate the scale of the opportunity that delivering mobile broadband and data services offers in India. However, it appears very likely that operator focus will continue to remain on voice for the immediate future, given the galloping growth rates. Nevertheless, with voice pricing set to be commoditized pretty soon, operators would do well to start paying more attention to data services.

The Beginning of the End

Prophetic as it may seem, the official launch of Sistema-Shyam's mobile service in India, under the MTS brand, indeed appears to portend the beginning of a slowdown in the great Indian mobile story that has thus far been steaming ahead. With Sistema being the first of five new entrants to get off the ground, along with expansion from incumbents, the word competition just got a whole new meaning. Also, with the subscriber base likely to rise strongly over the next two years, and slowing down therefrom, the battle for top-line and bottom-line growth is only likely to get more intense, pushing back payback periods. 

Sistema appears to have recognized the new imperatives of the market and the impact that it is likely to have. Their break-even, which they have hinted at seven years, suggests the same. More than the increase in competition, it will be interesting to see how some of these global majors bring their expertise and strategies into the Indian market. MTS has been following a micro-segmentation strategy of its consumers based on demographic and behavioral patterns, and to add, with reasonably strong success. Operators in India, have thus far been using one-size-fits-all solutions. With it's low cost and segmented strategy, it will be quite interesting to see the strategy that MTS adopts and incumbent operator response to it. Early indicators of MTS' strategy appear to be seen in the variety of special value vouchers that it has already launched. Likewise, it will also be interesting to see how Telenor, with its GSM focus and strong experience in other emerging markets, plays out in the Indian context. Moving beyond current land-grab strategies will prove the litmus test for incumbents, and new entrants sure will play their part in playing spoilsport for the incumbents.

MVNOs-New Models, Old Problems

Yet another MVNO is launching in the US next week. And this one hopes to achieve success with a twin combo of VoIP and flat rate plans and completes the combination with a prepaid plan. Zer01 Mobile hopes to achieve what multiple others have tried and failed at. Run a successful MVNO! The model, as in the case of multiple other MVNOs is quite interesting. The company claims to have developed it's own applications for most of the current smart phones, and all calls are routed through VoIP by it's application that is closely integrated with the handset dialpad.  The company's business model appears to be intriguing in ways more than one. They claim to have their own IP backbone, and rely on roaming agreements with AT&T and T-Mobile. And incredibly enough, also claim to have fine-tuned their VoIP platform to even work on GPRS & EDGE networks!! Remains to be seen if they actually go beyond their closed beta and launch commercially. Success, however, is an altogether different ball-game. 

High costs of subscriber acquisition coupled with extremely ambitious targets have seen many an MVNO burn cash like there's no tomorrow. Indeed, apart from Virgin Mobile in the UK, there aren't too many successful MVNOs across the world. Of course, there are some of the smaller, interesting and arguably successful examples across some of the Benelux countries, and then there's the new kid on the block, Blyk. 

India's experiment with MVNOs, although still caught in regulatory and inter-departmental conflict, will be quite interesting to see. With limited uptake of data services, and a larger problem surrounding scarcity of spectrum, it will surely take some serious thinking to break the MVNO conundrum !

Indian Media Factbook 2009

Came across this comprehensive report on performance of various segments of Indian media in 2008. 

The Mudra Media Factbook 29 01 2009

View more presentations from slashvelandy.

Voicing its way ahead

It appears any and all news in the online world in the recent past has been doomed to be focussed on the GoogApp duo ! Be it Apple' announcement on its new iPhone OS or Google's launch of a souped up Grand Central or the more controversial move to have behavioral targeting in adsense !   

Google's frontal move into voice appears, as always, ominous to the telcos that have hitherto survived in locking out users in closed environments. Google's attempts to open this ecosystem up, with all its efforts on spectrum/platforms/handsets, whilst having minimal immediate real impact, are however forcing telcos to go in directions that they have resisted up until now. Whilst Google has thus far restricted itself to what can best be described as Guerilla tactics in targeting telcos, Google Voice goes a step forward and takes the competition right into the backyard of the operators. With free domestic calls in the US, and low rate international calling, Google appears to be looking at a revenue stream that goes beyond its staple diet of search advertising. Of course, directory services will likely be a focus and be tightly integrated with Google Voice. However, I am more inclined to look at this launch as an acknowledgment of the fact that establishing platforms and ensuring Android based handset uptake grows is an uphill task. In its home market, Google is yet to tie up with the top two operators for the Android platform. And with the global handset market showing clear signs of losing steam, mobile advertising could take that much more time in becoming mainstream. And it is in this backdrop that Google's launch of Google Voice appears all the more interesting. Instead of building an ecosystem that is favorable to its core business from ground up, Google appears to have realized the advantages of taking a multi-pronged approach that effectively uses their repertoire of acquisitions.   

Telcos will definitely not be pleased with Google's latest move. However, there's little that they could do, other than accept the fact that their distance from the consumer is rapidly increasing. Being a dumb pipe now appears to be thrust upon them, even when it comes to delivering their core service, voice!  And while the extent of upside for Google is debatable, what appears certain is the downside for telcos that competition of this nature is likely to bring to the overall telco industry.