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.