The role of the operator

The roles and perspectives of five kinds of stakeholders are discussed and debated: the end user; the device and hardware manufacturers; the traditional media houses; the Internet giants and the telecom operators. All are very important and play essential parts in the mobile/Internet eco-system. The balance between them has shifted over time and will continue to do so. The telecom operators seem to be the most criticised and questioned. Is this unfair or have they earned it?

Historically the telecom operators have been enormously successful offering high quality global fixed line telecom services. Next in line was mobile telephony developed in cooperation between Nordic operators, such as Telia and Sonera, today merged into TeliaSonera, and hardware suppliers such as Ericsson and Nokia. The success of the operators has been based on a network centric business model. Even with many attempts to expand into new adjacent areas almost all of the profits still come from the original core of the business. Moving into new areas has shown to be difficult. This is probably due to limited knowledge and experience, cultural differences and conflicting business strategies. Focus has been on increasing traffic and not end user value, a strategy which now even may show quite dangerous risking ending up in a network apocalypse scenario. Should then the operators avoid new tempting areas and just stick to what they clearly understand, running networks and offer access?

The operators struggle with the dilemma of finding new revenue sources at the same time as they desperately defend the existing cash cows. The main difficulty lies within that the old network business is local/national and telecom centric and most new business is global and based on IP/Internet logic. You can’t move into the new business without starting competing with the old thinking. Moving from a fully controlled stove pipe environment to a horizontally layered business structure with fierce competition on each layer may be an almost impossible equation.

What we see over and over again are attempts to move into new value added services without understanding what it takes to become successful. The new services most often need to be competitive by their own on a regional or global scale utilising significant scale advantages. Instead the new business is subsidised by the old until some brave young business controller analyse the case, showing that the new business is not competitive, have a far too high cost level and do more harm than good.

We have entered into a situation of access independent services also for the mobile. As outlined in a recent report by Gartner the mobile will already in 3 years be set to overtake the PC as the most common web browsing device. Internet will finally be available for all of humanity through Internet enabled mobiles, especially important to developing countries. The operators are of course instrumental to make this happen. We need well run high quality and efficient networks. There is also a number of enabling functionalities, such as efficient payment solutions, location data, device management etc. that the operators may offer partners. However, there are still some very basic elements related to cost control that urgently need to be in place, the two most important being: affordable flat rates and reasonable and transparent data roaming charges.

There is also a lot of talk about utilising all the data the operators have about usage and the end user. However, this data is hard to get out of the systems and is rather technical in nature and not originally defined for marketing purposes. It’s time to realise that the huge amounts of detailed data hidden in the operator’s systems is rather useless. We need specific data depending on business logic, that can be used for marketing purposes, and that is automatically generated and monitored without first involving the technical staff for weeks.

The operators need to shift focus from traffic maximisation to end user and partner value creation. They also need to support device and operator independent initiatives, such as UMIs, as all will be winners when penetration of Internet access through the mobile increases. Differentiation of the access offering through exclusive value added services and content is a very costly and is not sustainable. Stop doing costly experiments in attempts to find new revenues sources in business areas you don’t understand. There’s no reason why being a bit pipe provider should not be a profitable business even in the future, except for if the regulator mess things up completely. Please realise that moving into an IP environment gives access independent services, focus on making data charges understandable and affordable and incentivise all to maximise the value to traffic ratio.

Key mobile trends

I was asked at the Mobile Monday event at the Squace office in Stockholm yesterday what people read on this blog. Going through the statistics over the last year some conclusion may be drawn. If this says anything at all regarding general mobile trends could be debated. The top three posts discuss the importance of the mobile to developing countries, as a new marketing channel and as a way to distribute long-tail content. Reflecting key industry trends? Yes, I think they do.

Below the top 10 blog posts are ranked based on popularity:

The importance of the mobile phone to developing countries

Key considerations when choosing mobile marketing platform

The Reversed Long Tail – Key to the success of mobile Internet

The first ever true UMI is born!

Why companies should do mobile versions of their web sites

Will the business models of web 2.0 services work when expanded to the mobile?

Why search will not be as powerful when accessing Internet through the mobile

Cloud computing – a key enabler for mobile service development

Microsoft moves into the Universal Mobile Interface space launching OneApp

The operating system forest may turn into a jungle

Avoiding app stores turning into app graveyards – Part 2: Any solution?

The app stores grow in size and it becomes very hard to gain visibility and sufficient usage for the majority of the services offered. What was first a market place for small developers has now become an important marketing and sales channel for well established brands.  Less known services and brands, that initially may have gained some attraction, now find it harder and harder to succeed. The app stores have turned into huge warehouses where the consumer may find what she’s already familiar with and is looking for, but with quite limited or low precision support to encourage exploration of new services. Increasingly the most successful and used apps rely on a brand with an existing user base from other media such as the online web, television, and print. There are exceptions but they become more and more rare.

Why have the very promising phenomena of the app store resulted in a very limited usage for most services offered? There is fundamentally nothing wrong with the app stores but the expectations are far too high. Why?  This is due to a number of reasons:

• The app stores are not really built as stores. Let’s just compare to the ordinary grocery store. The most frequently bought items, such as the milk, is far into the store and on the way there you are bombarded with promotions and offers. The business is carefully managed to: promote products in cooperation with the suppliers; align with other marketing channels; make us buy specific products by intelligent shelf management; improve loyalty by cards and programmes resulting in increase revenue and decreased customer acquisition cost etc. For the app stores to really become stores there is a long way to go.
• Most of the services offered are actually not good enough. The services are actually not meeting a demand from a big enough market segment. Many developers are prepared to take a chance developing and launching a new service, but many times with limited knowledge about the market need or how to reach a specific target group. Most services should never have been developed and are just a waste of resources. Trial and error may many times be a quite costly way to determine if there is a true market need or not.
• There are very limited means to reach a specific target group. Many apps would probably be quite appreciated by a specific and limited group but there are not good enough support to make this happen. The logic is now mainly based on that the end user knows what she’s looking for or that she’s regarded as an average user offered the same as anyone else. There needs to be ways for the suppliers to target specific groups is a cost efficient way.
• Most services are not marketed at all. With the exception of established brands with existing marketing channels, the services are hardly marketed at all. You can hope for that you get some free PR, being mentioned in a popular blog or similar, but what are really the chances of getting attention among 100.000 apps without a know brand or a substantial marketing budget? I would say that they are quite slim.
• Recommendation is underdeveloped. As the number of apps grow to very high numbers it starts to become much harder to find what you are looking for. Search will help you to find what you know exist, while recommendations will help you find what you did not know existed or that you were looking for. The recommendation tools are today quite limited and recommendations are mainly found on online web sites. Seems like quite a detour.
• The app stores have a too wide scope. As the stores grow and the end users become more advanced there is a growing need for niche app stores or sites focusing on specific interests. You need to put the services in some kind of context which will also improve the marketing and PR possibilities significantly.
• Most apps are bad business. The business cases for most apps are rather optimistic. Far too little resources, if any, are allocated to marketing and with limited revenues further development and promotion of the service become quite a challenge. Even a very good app may be buried under piles of other less attractive services and with very limited possibility avoiding a slow death.

Is there a solution to the problem? From the app store owner perspective they need first to figure out what they want to achieve running a store. With the limited competition a warehouse approach may be ok for the time being. However, eventually the present app stores have to decide if they should stay as “app warehouses”, if they should develop into real managed niche stores or shopping malls. One may also question the sustainability of the business models and if there’s really a need for the app stores further down the road. If staying with the present strategy they need to strengthen the recommendation functionality and possibilities to involve the end user. There need also to be better possibilities for suppliers of apps to directly target specific customer segments.

As the app store owners presently are quite happy, advice given to the developing community may be more worthwhile:

• Add the chapter Marketing to your business plan. As we all know, no product will sell itself. Don’t rely on that the app store will market and sell your service. Partner up with known brands, market through existing channels and allocate resources and money for this.
• Address specific needs of a defined segment that you have the possibility to target. Do the homework. Is the market really big enough?
• See to that the service is good enough. Depending on addressed market you have to see to that you really fulfil the needs of that target group. Services giving a close to good enough experience for many but not really good enough for any, will hardly gain usage or loyalty.
• Enable viral marketing. Make sure a happy user can act as an ambassador for the service and recommend this within her network.
• Keep costs down and have a realistic view on the revenue potential. Make sure you have enough to develop a good enough product and to market it. Go for general platforms, such as UMIs, to avoid high additional costs redoing the same service in different versions for all different devices. Consider a browser based approach as opposed to the more costly and harder to manage app/client approach.
• Minimize your risk. Have a portfolio approach as it is very hard to predict what services that will really become successful. Calculate and prepare for that the majority of the services will fail.

Avoiding app stores turning into app graveyards – Part 1: So what’s the issue?

The development of app stores has been beyond anyone’s expectation. The key driver for the development the last 18 months has been the iPhone app store but similar concepts have been around for many years with services, such as Handango and GetJar, as well as many operator portals. The overall numbers are really impressive. There is today about 115,000 iPhone apps and more than 100 million downloads a month (incl. iPod Touch), while the second largest app store Get Jar, serving all types of mobile phones, has about 60,000 apps and 50 million downloads a month.

With close to 40 million iPhones sold the number of apps downloaded per user is on average quite high. Some claim that the number is as high as 11 apps per month and user, but I’m not really sure they got the math right. Anyhow, is this a gold mine for the developing community? We do have success stories but the app stores are now quite crowded. On average each app is downloaded about 1000 times a month. But looking at the usage patterns for free apps presented by Pinch Media only about 20 % return to the app a second time, only 5% return to the app after 25 days and after 90 days only 1% still use the app. Keep in mind that these numbers are all averages. Also taking into account that the top 1% of the apps in the larger app stores probably account for 90% of all downloads, then the numbers become quite disappointing for the majority of the apps not making it to the top. Most apps do probably not have more regular users than, well, those involved in developing them. Sad but probably true. The numerous launches of app stores by device manufacturers and mobile operators do expand the market but it also becomes quite fragmented. All different operating systems and specific demands result in that each app have to be made in many different versions, driving cost even further.

The likelihood that a new app after some initial attraction ends up in a close to zero down load frequency and that those initially downloading it stop using is, despite the over all success of the app stores, quite high. The app stores are turning into app graveyards for most new apps, buried under piles of more attractive apps and with very little possibility to gain visibility. Gaining visibility is a marketing issue but the limited stickiness of the services may indicate that most of the apps should never have been made as they do not meet a specific customer demand. Services with a limited but loyal segment are fine but with false expectations on future take up and revenues the cost levels are usually far too high for the development.

The term app graveyard has been used for clusters of apps that were not approved and never made it into the so attractive looking gated communities of the app stores. The question is if they actually have a better chance of succeeding outside the fence. The app stores may be fantastic and one of the most disruptive elements seen for quite a while within the mobile sphere, but please remember that they still can’t sell services that are not really marketed, nor sell services that actually do not meet a customer need.

The Mobile Internet is dead – long live the Internet!

I think it’s time to stop using the term “mobile Internet”. In the early days of mobile Internet services, these were in WAP or similar formats, and usually within a separate universe compared to ordinary online Internet services. With increased bandwidth and capacity of the mobile devices the mobile and online versions have gradually converged. Today most content accessed through the mobile is technically integrated with the online web platforms, but often adjusted to the limitation of the mobile.

The mobile has become an additional access point to more or less any Internet service. We are referring to services “in the cloud” independent of access point and ordinary web services are increasingly viewed directly on more advanced phones such as the iPhone, parsed into a more mobile friendly format or through an app. What is then the difference between the “mobile Internet” and Internet? Well, there’s actually no difference as it is all one and the same Internet accessed and viewed through the computer, the mobile or, soon also to a high extent, the TV. However, there is still a need to adjust the content depending on context and device where the computer probably will be the exception compared to other devices, as it’s the only one with a full size key board.

The network apocalypse is getting closer

Mobile internet services have gained significant increase in attraction and usage. About 20% of all active on Facebook use the mobile to access the service. 27% of the mobile phone owners browse the Internet, use applications or download content, according to comScore. 3G, smartphones and flat rate data plans are key enablers.

Apple demands that the iPhone is sold bundled with a flat rate data plan to encourage the use of data services. The success of the iPhone gives a good indication for how large the unmet market need is and what can be achieved when services are easy to find, buy, download and use in combination with simple pricing. High quality screens, improved data speed, and flat rates also open up for services that are quite data heavy such as streamed videos, TV and music, for example YouTube and Spotify. The perceived end user value per MB decreases as the users become more advanced and with the introduction multi media services. The dilemma is that the additional value is usually less than the additional cost of production. With flat rates we can expect that the usage of non-voice services will grow rapidly resulting in heavy pressure on the mobile networks, demanding further significant investments.

Flat rates as such are a good thing for the end user giving cost control. The network operator may also initially get an increase in average revenue per user (ARPU) as customers migrate to flat rate data plans, but exponential increase in data traffic drives cost and additional network investments. There is today no incentive for a player like Apple to decrease the data consumption. This situation should worry the network operators as they may be trapped in a situation with competition on flat rate pushing the prices down at the same time as usage increases heavily.

What are then the options for the operator? Trying to avoid introduction of flat rates on the market is probably not an option. To cap “unlimited” data plans is possible but the upper usage limit has to be set at a quite high level not become counter productive. We will also see attempts to increase the price but it may be difficult depending on the competition. Most probably these alternatives will either not be possible or may have a too limited effect. The equation does not add up and we may gradually move into a situation where the networks collapse as it may be impossible to justify further investments. It may be necessary to enter into stage of network apocalypse before we can rebuild the ecosystem on sustainable business principles. Is there then no way out of this situation?

Let’s go back to the original thinking of NTT DoCoMo regarding imode. This success story was created in times of quite limited network capacity. imode was built to maximise the end user value per consumed data volume. The whole system was built based on this basic idea safeguarding that all actors in the value chain should be happy. NTT DoCoMo thereby forced, as they did set up the rules, the content providers to develop services that used as little data as possible. It is now time to once again try to optimise the value for the end user to data consumption ratio, the value density. The operator needs to incentivise the content providers and device manufactures to promote concepts with less data consumption and to develop technology and services to avoid the collapse of the system. Is it too late for this? No, I don’t think so given the options. Flat rates are needed and are welcome but all, including the end user, should be incentivised not to waste data as we today are aware of not wasting any resources in the society.

The operating system forest may turn into a jungle

First when the mobile phone became a device for more that voice and sms we started to worry about the different operation systems. Ringing tones and games were down loaded and we started to surf the operator WAP portals. The non voice services were taking off and the enthusiasm was high. This was though shown to be rather difficult to manage for the content providers and operators due to different operating systems and even variations depending on phone model and brand. Many versions of each individual game had to be developed and we had to keep track of exactly what phone model the end user had and sometimes even the software version of the particular phone model.

The kind of obvious solution to the issue was to try to agree on open standards and platforms and harmonise the different operating systems. One solution after the other was announced to facilitate the further development, new operating systems such as Symbian, operator initiatives on common device specifications, and languages such as Java. But Symbian ended up being owned by Nokia, operator initiatives never materialised fully and a language such as Java ended up in many different versions. Why? The strategic agendas of the device manufacturers and the operators as well as others in the ecosystem were not aligned and most players thought they had more to lose than to gain through cooperation. All claimed to supports open standards but the drive to differentiate and keep competition out was evidently stronger. This has resulted in a forest of operating systems significantly increasing the barriers to innovation and decreasing the efficiency of the industry.

Then Apple iPhone added further to the complexity, having a very positive impact on the take up of new services but being a vertical it added yet another operating system. Next solution that we then hoped for was Android, being a free software and open source and we finally seemed to get closer to making it all more simple for the developer community. But is this really the case?

Now device manufactures, such as Motorola, start doing their own versions of Android. Where will an Android quickly mutating itself get us? If we to the present complexity and all verticals add a number of versions of Android, similar but not similar enough, this will not make it easier but rather turn the present operator system forest into a jungle. A decrease in number of operating systems that all know would make life easier and spur innovation is obviously a too scary thought for most and will most probably not happen within the coming five to ten years. The only short to mid term solution that seems available is to add a layer on top of all existing operating systems creating a virtual common operating system interface. This will make it much easier to reach the mobile users and minimise the hassle created by the jungle of operating systems. This needs to be made in a way so that the overall performance is not set by the weakest system and so that we achieve a good enough overall user experience.

Cloud computing – a key enabler for mobile service development

I remember the early hype regarding cloud computing within the computer and operator industries, this was the way to go and all the benefits were piled on top of each other in endless power point presentations. All wanted to become Application Service Providers etc. A lot of the thinking was of course right as it usually is, but the timing was wrong. Once again we have experienced that the take up comes later but then it’s in many aspects more pronounced and with a broader impact compared to what was expected. The impact of cloud computing is now widely recognised, as for instance this week’s cover of The Economist illustrates.

Cloud computing is today a given and it does dramatically change the business logic and balance within the software/computer/Internet industry. The triggers and drivers for the take off are not always the expected. The increased network capacity and low cost storage are for sure key enablers for services in the cloud. Initially the limited need for local computing capacity was seen as a major benefit opening up for cheaper computers, but as prices anyhow rapidly went down this has not really been a driver. I would say that the key drivers from a user perspective are good, convenient and easy to use services giving end user value in relation to the cost. The end user does not care about the technology and if the service is within the cloud or not, as long as it delivers.

We now see mobile services moving into the cloud. How will this change the game and will it experience that same development phases as was seen for the computer services? There are similarities for sure, but some quite important differences. Most services that now show significant increase in the mobile environment have been used since long on the computer. The mobile is not a totally new media in that respect but rather a new access point to existing services. The mobile environment is unfortunately quite complex with many different operating systems etc. Mobile phone capacity when it comes to computing and storage will be a limiting factor for mass market devices for quite some time. In this aspect cloud computing may be even more relevant in the mobile context compared to what it has ever been for the computers. We may now see a development where low end devices can make use of all types of Internet services.

Services and storage of data in the cloud will further drive the presently strong growth for mobile development and penetration. This is not anymore an expansion of what we so far have called “mobile Internet”, this is an expansion and an extension of the Internet. The mobile Internet as a separate parallel universe will now die and Internet will with its mobile access become ubiquitous – at last. This development will change how we access and relate to Internet, also when still using the computer.

Microsoft moves into the Universal Mobile Interface space launching OneApp

Microsoft announced a few days ago their launch of OneApp. OneApp is “a new software application that enables feature phones — commonly found in emerging markets — to access mobile apps such as Facebook, Twitter, Windows Live Messenger, and other popular apps and games.” Microsoft thereby aligns with the basic horizontal operating system independent structure of a UMI. The primary focus is on less smart phone penetrated emerging markets and the distribution will be through operator partnerships. First out is Blue Label Telecoms in South Africa.

It is very positive that Microsoft moves into this space and it will be really interesting to follow the progress. The trend that mobiles will rely more and more on cloud computing is clear and clients will be the tool to make this happen, even if they are quite complex to manage. It’s not really clear how Microsoft intend to play this game mid to long term but so far this UMI approach seems to miss some key elements of which the most important are that the services need to be operator independent to reach the full potential and that it has to be very simple and cost efficient to create applications for true long-tail content and services to become available. The business model would be interesting to know more about to evaluate the service fully. OneApp is part of Microsofts Unlimited Potential initiative aiming to “enable social and economic opportunity for everyone”. This is of course a good cause, but what is really the strategic agenda behind OneApp? Given the history, there will always be the suspicion that Microsoft this way try to create a virtual mobile operating system.

The launch of OneApp by Microsoft clearly shows that the UMI approach now gain acceptance and will be one very important way forward overcoming the present limitations of the mobile phones. We’ll follow this development with excitement.

The first ever true UMI is born!

I just want to inform you that the new version of Squace went live a few days ago. We now have the first service to illustrate the strength of the Universal Mobile Interface, UMI, concept. Hopefully more services will follow, but presently this is to my knowledge the only service that can be regarded as an UMI. The new version of the client already runs on about 1000 different phone models. For further information about the service and to down load please visit the Squace site.

What is it then that makes Squace a UMI and why will this release the potential of the mobile Internet? The new version of Squace has the capability to act as the mobile desk top comprising most key services, such as messaging, calling, web links and applications. It does so independently of operator and device and is fully controlled and customised by the user. In addition, it is also very easy to integrate existing web services or create mobile services enabling long tail content going mobile. Compared to the previous version of the Squace service, launched in the spring of 2008, the whole Internet is now available and there is also direct access to applications. The user interface has become even more intuitive. The number of clicks to whatever content or applications, the individual may prefer, are fewer than ever. The viral potential of Squace, being a fully operator and device independent service connecting all users, will be really interesting to follow. We are now in a similar position compared to the early days of the Internet with the position to experience massive peer to peer distribution of content, but this time in the mobile space and now including more or less the whole population on this globe, not just those having a PC. Exiting!

The new version of Squace certainly holds a huge potential and with more integrated content and applications this may be a key mile stone within the development of the mobile Internet. However, what this type of UMI service does is to fully integrate the mobile and the fixed Internet. This is making the mobile what it should have become a long time ago, just another window or access point to the Internet and its services. Well done!

Here are some examples:

GigaOM, Oliver Starr, TechCrunch, Google Search, Yahoo mobile