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

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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.

Handsets: The GoogApp effect

The handset industry has seen better times; it has seen worse times. These are changing times indeed for handset manufacturers around the world. The entry of iconic industrial design-driven companies such as Apple, and the (omni-present) Google into the mobile platform arena, have sure shaken many a top 5 player out of their growth slumber. Nokia's decision to buy out the remaining portion of Symbian that it did not own, and SE's decision to stop development of UIQ, ain't the result of a sudden change of heart towards open source. Rather, they reflect a measured response to Google's launching of Android and how Apple appears to be attracting an increasing number of developers, in spite of all its opaqueness on app selection. And with Google having created enough noise about open ecosystems, and the like, and mainstream and digital media eating out of Google's-PR laced hands, carriers and handset vendors could do little other than play to the gallery.

While most players are now coming to terms with the importance of UI and industrial design, however, what they have not factored in is the current economic slowdown, and how companies like Apple can impact their sales of high-end devices. Gartner's numbers for Q3'08 show the rapid rise of Apple even in a deteriorating economic environment. With close to 13% market share, to say that Apple has disproved many a traditional theory about handset sales is an understatement. Handset manufacturers, and carriers alike, have consistently espoused the need to have a wide portfolio; a portfolio that offers something for everyone. What they haven't realized over the years, and what Apple has, is the market opportunity for a device that offers a little bit of everything, but in a far more evolved manner than anyone else. Consequently, vendors have spent billions in building portfolios of devices at various price/feature points. Apple came in and disproved the portfolio theory with just one model (two, if you consider the 8GB and 16GB as separate models). Similar is the story when it comes to applications for the smart phone. Traditionally, carriers have exercised a strangle-hold on application availability for the smart phone. And they have ensured that developers are frustrated with the slow pace of approval (justified in part by the large portfolio that carriers need to test). And in this juncture comes Apple's App Store, offering a clear 70% revenue to the app owner, and a device that's currently selling like hot cakes. No wonder, App store has already seen over 300 M downloads in just over five months !

While handset sales across the world are slowing down inevitably in the face of retreating consumer demand, companies like Apple are proving that a compelling product can work against the macroeconomic forces. The iPhone may still flounder, after the initial fascination for the device worn out, however, what is here to stay are some of the lessons that they have brought out in the open...

Gaming Industry: Is the grass still greener on the other side?

As we have all come to realize, some earlier than others, the economy is in full retreat. The crash of the stock markets has had a deep impact on all major sectors. While it is certain all sectors will try to brave the storm, some will do the job better than others. So how will the gaming industry perform? Many market analysts, present company included, felt that the gaming industry represents a tremendous growth opportunity at the start of the current generation of consoles in 2006 end. And the gaming industry has thus far not disappointed, undoubtedly being the fastest growing sector of anything near its base size currently in the market. But will the recession change all that, or will gaming continue its anti cyclical trends?

We believe that while the gaming industry is not in any immediate danger, but continued economic downturn will trickle down to gaming as well, and effect the ‘Casual Gaming’ segment in particular. Many may wonder what casual gaming exactly means.

The term ‘Casual Gaming’ has existed for very long, but it came into popular use ever since Nintendo picked a different direction for their current gen console the Wii when compared with Sony and Microsoft. While Sony and MS went to market with a typical generation upgrade, namely better graphics with similar gameplay, Nintendo made negligible improvements to their visuals from the previous generation, and focused more on making the gameplay fundamentally different. Not improving the visuals also ensured they could offer the consoles much cheaper than their competition from day one.

What ensued post the Wii launch in Nov-Dec 2006 is the stuff of legends! Nintendo not only succeeded in selling a whopping 35 million Wii in two short years, it also consistently sold first party titles in each region’s top 10 games. In hind sight, it is believed that Nintendo’s price points for hardware and software (Wii games are cheaper than 360 and PS3 titles) and it’s unique gameplay opened the close knit gaming community to many casual gamers. The Wii is believed to be a very popular choice amongst the very young and the very old. Many publishers have since caught on to the concept of casual gaming, and each month many titles targeted at casual gamers are being churned out of the gaming industry engine.

While this is great news for the gaming industry, many core gamers feel estranged. Gaming forums are constantly bombarded with comments on how Nintendo has abandoned its core fanbase in search for big bucks. Now with the new market dynamics in play, where many so called casual gamers might reduce their gaming purchases drastically in these trying times, where does Nintendo stand? To put this question into a little more perspective, let us look at what MS and Sony have been doing while Nintendo was running away with the first place. MS has been aggressively slashing the prices of its hardware, upto a point where the lowest end Xbox 360 (Arcade) is now cheaper then a Wii. MS has also developed a healthy online gaming community with its Xbox Live Arcade. Xbox is considered the best console for First Person Shooters, and many of its flagship products like the Halo series, and the Gears of War series are FPSes. The 360 has its share of technical problems of course, with the rate of units dying (the infamous Red Ring of Death) significantly higher than other consoles. Sony meanwhile, has had to fight an uphill battle from the start of this generation. The PS3 had immense trouble in the initial phases as it struggled with its install base, because it is the most expensive console of its generation. Lack of quality titles has also been one of its major criticisms. In most regions, the PS2 still outsells the PS3 on raw numbers. But the last few months have seen a stream of strong titles for the PS3 such as Metal Gear Solid 4 and Little Big Planet, and an impressive list of upcoming exclusives like Final Fantasy XIII, Heavy Rain and the unnamed ICO project (makers of the critically acclaimed PS2 title “Shadow of the Colossus”), the PS3 seems to stand a much better chance than it did before.

Although many possible scenarios can emerge from the new economic developments, the most plausible scenario seems to be unfavourable to Nintendo. Most of the current and upcoming titles for the Wii are aimed at the casual mass market, and the new price points of the 360 Arcade take away the cheapest console advantage as well. Of course many of their bigger titles like Wii Fit, and Mario Cart will continue to sell at least till the other side of the holiday season 2008. So while, we don’t see any immediate problems in Nintendo’s future, continued recession may start to drag them down Q2 2009 and beyond. The key question here is, “Will we see Nintendo exhibit a stronger focus trying to rekindle the interest of core gamers, or will they once again prove that casual gaming points to the future?”