Livewire

Since the credit crisis is absolutely dominating news topic (with good reason!), I would feel remiss if I did not at least provide some coverage to this issue. While I will not go into the intricacies of a bailout package or credit default swaps, I will address the potential impact to the ecosystem around the mobile communications industry. Disclaimer- do not construe any of this as investment advice or financial guidance from Infosys.

Service Providers: I expect a possible softening, but nothing beyond the effects to the larger economy on the whole. Due to the seemingly inelastic demand for mobile service due to it becoming extremely important in our daily lives, we could possibly see an acceleration of fixed mobile substitution if consumers start to cut back spending. This could simply be an acceleration of a current trend. While voice minutes and texts are important, I could foresee consumers scaling back on large data plans which could affect Content Providers (see below).

Handset Providers: The most obvious issue would be a potential delay in handset upgrades if consumers decide to hold off on new spending. The smartphone segment does seem pretty strong in the US and could be buoyed by downward price pressure from new entrants (G1 Android phone at T-Mobile http://www.t-mobileg1.com/g1-announcement.aspx) which would make that buying decision less painful for consumers. I would be more concerned about Handset Providers that have a large market share in financial services (e.g. RIM) since this segment will slow as well.

Credit Providers: This is obviously the area of highest impact and the lifeblood; let’s consider raising capital, private equity and venture capital.  The ability to raise capital will be constrained since banks will be less able to easily release funds, equity (stocks) valuations are reduced due to the downturn of the market so you get less money from stock offerings, and the bond market would demand a higher premium (yield) due to overall risk which reduces the cash generated from the bond sale. Private Equity should remain a strong player as they should have large war chests, but their ability to support highly leveraged deals would be impacted. We already witnessed the unwinding of Alltel to Verizon after only a relatively brief holding, but there are new PE rumors in connection with Sprint’s iDEN Network (http://www.ft.com/cms/s/2/97010fa4-8c11-11dd-8a4c-0000779fd18c,dwp_uuid=e8477cc4-c820-11db-b0dc-000b5df10621.html). Venture Capital should be the least affected, with the possible exception of raising new money, and should continue to fund the smaller innovators at potentially more favorable terms (for Venture firms) than before.

Network Equipment Providers: This to me seems to be the area of highest risk since tightened credit could cause Mobile Service Providers to slow down their large capital investments for network upgrades. At this time, I don’t believe we are looking at the telecom meltdown of the early 2000’s, but I don’t feel too bullish about this group since they depend on large projects to generate revenues. This actually creates a trickledown effect to Content Providers who rely on those infrastructure upgrades to enable higher speed access by consumers for next generation services.  

Content Providers: This is a pretty diverse “catch all” group, but should have some similar issues. The first consideration is a slowdown in consumer spending may negatively impact content purchases as discretionary spending dries up. This is a larger issue for providers that rely on subscription or pay per use models, but less of an impact for ad supported models that provide free content. Another issue could be a cut back on large data plans by consumers which would also negatively impact the ability to consume content (see above). Finally, they are also impacted by slower rollouts of new phones and new networks (see above). When this segment may still get capitalized, it could be under considerable pressure.

While this is not an exhaustive analysis of the entire industry, it should be enough to spark some thoughts or validate opinions you already have. I would be interested to know your thoughts on this matter.

Update: Since I posted this blog entry, Reuters reported analysts cutting mobile phone forecasts for 2009 due to longer replacement cycles (http://ca.reuters.com/article/technologyNews/idCATRE4969VW20081008?sp=true) 

Posted by Jeremy Kloubec at 04:22 PM | Permalink | Comments (4) | TrackBacks (0)

More specifically, the lack of buzz from CTIA Wireless IT & Entertainment show in San Francisco was the big story line. In my opinion, the most interesting vendor announcement to me was expansion of the Yahoo! Blueprint platform (http://mobile.yahoo.com/developers/roadmap) and OneConnect messaging integration to include aggregation of Facebook, MySpace, Bebo, Flickr and Friendster. Yahoo! has made considerable inroads in the mobile space, I am not sure if they are able to really monetize these offerings or if the real money is simply with mobile search where Google is leading quite handily in most western markets according to the last comScore research (http://www.comscore.com/press/release.asp?press=2469).

 

The other interesting story line was the call for “open” networks. I feel this is a desirable endeavor, but mired in the debate of what “open” truly means. It is a multi-faceted issue which affects various parts of the value chain from core network elements to development environments. Additionally, the people receiving the customer support calls (e.g. mobile operators) typically like to control events to limit any potential issues which inherently restrict “open”. This debate is obvious from the comments of the keynote speakers as they provided their own definitions of “open” networks.

If you can’t get enough online video or are tired of reading my posts, you can view my interview at CTIA with Michelle Sklar from bnetTV where she asks about current industry trends (http://www.bnettv.com/player.php?id=1686&title=Infosys&actionLogin=fail).

Posted by Jeremy Kloubec at 02:46 PM | Permalink | Comments (0) | TrackBacks (0)

It seems like a good idea has really catching on with the mobile operators lately. Last year we saw announcements regarding mobile access to social networking sites on their handsets (see Vodafone and MySpace http://www.vodafone.com/start/media_relations/news/group_press_releases/2007/myspace_launches_exclusive.html)  and driving of upgraded data plans to support the accompanying activity (revenue was also initially generated with monthly subscriptions for access, but that quickly went away since there was not exclusivity for the carrier and competition drove the subscriptions to zero). This lead to the next round of innovation to partner on special initiatives like a web 2.0 music offering to increase the mobile operator premium (see Vodafone and MySpace part II http://www.vodafone.com/start/media_relations/news/group_press_releases/2007/vodafone_teams_up.html). Now mobile operators are moving even further beyond the “dumb pipe” and taking more control over the social networking interface. Verizon SocialLife and ATT My Communities have launched respectively to provide a starting aggregation portal to access information from a variety of social networking sites (sorry no Facebook as of this posting). The consumer can still directly go to their favorite social networking portals via a mobile browser or downloadable application, but would have to login to each separately.

I have previously blogged about how Orange UK introducing their version of a similar service in July and how it took control of the customer back from the social networking portal while providing adverting and commerce opportunities for itself. While the mobile operator does not get the rich social graph data (more reading http://en.wikipedia.org/wiki/Social_graph) generated from the interactions with the social networking site (the portals only have a view of the data, but does not own the data). However, I feel this is still a step in the right direction to maintain brand importance in addition to controlling the customer experience.

Is this simply buying time for the mobile operators or can they stay in front of the social networking companies in the battle for consumer brand share? I would welcome your thoughts.

Posted by Jeremy Kloubec at 02:15 PM | Permalink | Comments (4) | TrackBacks (0)

Mobile Application Storefronts are very simple concept, but received such little fanfare until the new driver of the mobile industry, Apple (yes Apple, the non-traditional mobile competitor), released its App Store for the iPhone. This move essentially provided a marketplace for new innovative content or services developed by third parties to be purchased or used by iPhone owners. At first glance, this seems very similar to current developer programs provided by handset manufacturers like Forum Nokia, marketplaces for platform providers like Window Mobile Catalog, or storefronts for application aggregators such as Handango, so why the fuss since this is old news? In a nod to the existing incumbents, there is a wealth of information regarding mobile applications, content reviews and developer support. So why after the Apple App Store launched, followed by the Google Android Market announcement (promising immediate time to market for developers) did Microsoft need to announce a relaunch with Skymarket for Windows Mobile and then Symbian (read: Nokia) following suit with a another marketplace? Don’t we have enough, aren’t they already there? My guess is a significant amount of press coverage to go along with a $1M/day sales number over the first month of launch and recent announcement of 100M downloads has something to do with re-launches.

What is Apple doing differently? They are not dreaming up new concepts, just executing by creating better experiences within their “walled garden” (note- this is counter to what most are pushing for with open networks or ecosystems). First, they laid the framework with the iPod/iTunes success which then led to the iPhone that promotes heavy internet or service usage due to the easy navigation and display. They then opened their iPhone SDK and marketplace to third party developers while tying the purchasing and product browsing back to familiar tools like iTunes in addition to the iPhone itself. You get a double win by enabling developers to create very advanced content and providing a next generation buying experience that also fully incorporates web 2.0 concepts such as rating and recommendation into a familiar tool with iTunes. In my opinion, it is a brilliant ecosystem that addresses the consumption and development of mobile services. The only issue here is that content sales will not go beyond the iPhone user base, but those concerns do not seem to be too great as iPhone sales continue to climb in the highly desirable smartphone segment (due to the higher average spend compared to feature phone owners). This is where the “iPhone Killers” and marketplace competitors who are following behind need to understand the fact that it is all about the customer experience created from all the elements in concert, not just a device or service in isolation. It is the sort of innovation the mobile market needs to push other incumbents to make things easier and more enjoyable for the consumer, which is something not always heard in relation to mobile services.

What do you think about the mobile application development and subsequent monetization opportunities? Does Apple have the right idea with a walled garden approach or will open platforms be the winner? I am sure the answer will start with “depends” since we will be concerned with the target customer segments. I am interested in your thoughts.

Posted by Jeremy Kloubec at 04:22 AM | Permalink | Comments (2) | TrackBacks (0)

Social Networking seems to be tracing a normal hype cycle for popular innovations in the market. It is a scenario where a core group finds value in a concept, it progresses almost under the radar until it makes that mass market leap to “cross the chasm” (to use Geoffrey Moore’s famous concept*) into wide mass market adoption. By this time, venture capital would have been funding the early leaders, the media would breathlessly cover the subject, valuations would skyrocket, consolidation occur as traditional players try to buy into markets or provide their solutions, and then at some point we actually have to make some money doing it. We are obviously to the point where someone needs to make money doing “social networking”, but what are those next steps?

Early on, the value of the network was proportional to the membership of the closed network making outreach somewhat difficult for new entrants or companies trying to reach their customers via this technology. OpenSocial and other similar initiatives seemed to change the dynamics slightly to open those networks which helped users who became burdened by managing so many siloed logins or buddy lists. However, as companies tried to reach out to their customers using these new developments in social networking, they found a market of fragmented technology providers, single vendor technology stacks that create “lock in” to vendors with custom solutions, or a separate option to be beholden to launching within a platform provider such as MySpace or Facebook. Obviously due to brand considerations (with some exceptions for teen brands), having your own social networking platform was a better from a control perspective, but created a significant amount of risk due to the high cost of integrating and managing all the disparate technologies involved in establishing a consolidated offering. Furthermore, commerce would need to be added to enable revenue opportunities which also increased integration cost and complexity.   

For these reasons, I am most excited about Infosys’ current social commerce and marketplace offerings which encourage customer intimacy and co-creation activities while providing revenue streams for commerce and advertising. Our hosted model based on an open architecture reduces the risk of deployment by supporting flexible commercial models for our enterprise customers to let them pay as they grow. This transfer of capital expenses to operating expenses more closely matched to revenue recognition is a winning proposition in this current economic climate. The key is to not only provide the basic social networking functionality, but to enable a unified platform to provide 360° views of customer behavior within the platform. Our team has dedicated a significant amount of manpower to solving these complex issues to enable a quick launch and experimentation with social networking concepts. I may be biased, but this sounds better than risking the development cycles on doing a single custom build. I look forward to writing more on this in the future and am interested in your thoughts.

(*Moore’s chasm applies to new disruptive innovations to which I feel social networking applies)

Posted by Jeremy Kloubec at 02:10 AM | Permalink | Comments (1) | TrackBacks (0)

The problems of justifying the ROI for an IPTV deployment have been widely documented by many analysts and media outlets. Most generally, cost concerns about the associated network infrastructure, software platform uplift, customer premise equipment and content acquisition for an IPTV deployment seem to be the biggest issues. However, Telcos must provide IPTV services as a defensive hedge against triple play offerings of voice, broadband and video from competitors such as cable companies. This issue can be addressed by revenue streams beyond monthly subscriptions which include interactive services and advertising. The breadth of interactive services and deployment into a lean forward/back environment with TV remote navigation is a subject upon itself, so I will focus on the potential and complexity of providing advertising to the IPTV platform.

The good news is that cable local advertising sales and insertion in North America is a fairly evolved model for which to copy. European based operators have additional regulatory considerations which creates some adjustment. Based on cable local ad sales in the US, the addressable market is approximately $19B* with Comcast taking a lead, partially due to their highly regarded AdTag and AdCopy platforms (this may change with the new Canoe Ventures pan-cable advertising proposition). IPTV offerings from Telcos could potentially expand the market by providing new interactive capabilities such telescoping (clicking through the ad to a landing page), better targeting and measurement which increases the ad avail value, and providing more channel sponsorship possibilities since IPTV does not have the current channel limitation concerns of cable.

The bad news is that establishing that advertising value chain from the Ad Agencies to the delivery at the set top box is still quite a task. Not only do advertising operations need to be established, but the supporting analytics, campaign management, ad insertion and measurement systems need to be deployed. Interestingly enough, the strength of IPTV, the ability to micro-segment customers and track distinct actions, creates issues with managing all the ad avail sales combinations and discrete ad serving. Tony Hart at Packet Vision, a good colleague of mine, whose company helps Telcos integrate into the advertising value chain feels that while the complexity of establishing this model is significant, goal alignment with the Telcos and Ad Agencies will help to solve this problem with the assistance of innovative technology vendors. While this is exciting activity, I feel the biggest value will be realized when a combined three screen offering is available across TV, mobile and web since the monetization potential of those ad avails would be significantly higher with unified campaign management and tracking. This is one of the reasons that owning the mobile channel will be so important. However both IPTV and the concept of three screen advertising are still evolving.

While the total potential for local advertising sales may change due to factors such as economic conditions and DVR (ad skipping) technology, the there is still significant opportunity to increase average revenue per user with advertising. This is why at Infosys; we are focusing on new developments such as micro-targeting, customer value analysis and segmentation in addition to proactively building out advertising value chain solutions to help our customer take advantage of this opportunity. What are your thoughts on the advertising potential for IPTV providers?

 (*2007 estimate from SNL Kagan)

Posted by Jeremy Kloubec at 05:40 PM | Permalink | Comments (2) | TrackBacks (0)