Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
The introduction of the iPhone was the most significant event in the 2007 wireless industry. Apple wanted to raise the bar and identified that handsets were suffering from the lack of an intuitive and efficient user interface. Apple’s risky adoption of the touchscreen was the first truly innovative feature since the introduction of cameraphones based on CMOS image sensors.
Cleary, the up-coming tidal wave of “iPhone killers” provides validation of the trend.
The Trojan iHorse
A second innovation which has received less attention is that the Apple iPhone initiated a new handset market dynamic. The innovation spawned a significant trend. It has taken what was once silo technology, the handset, and opened it up as a platform with an open OS. Google’s Android and LiMo (a Linux-based mobile platform operating system) are the next elements of a developing trend. In June 2008, Nokia responded and announced that it was acquiring the remaining shares of the Symbian Limited Software licensing company, essentially given its personal, strong validation of the trend.
An interesting byproduct of the iPhone and other open platform handsets is that they “encourage” unlimited data plans. The result is that the handset is transformed into an Internet access device. Essentially, MultiMedia Intelligence sees this as a disruptive business model to the status quo. We see the rise of a new class of mobile devices that are application-centric with voice functionality. These devices are first Internet browsers, music players, text messengers and e-mail devices, with the bonus of being able to still make voice calls. Operators such as Verizon Wireless are responding to this product class and have embraced it by opening their networks. New market combatants such as Intel with its Atom processor see this as an opening to penetrate wireless with a new class of products as well.
Although mobile operators are salivating over the prospect of applications driving subscribers to unlimited data plans, the transition does come with a cost . . . or a sacrifice. If the handset has an open data pipe, the handset is no longer constrained by the operators. Essentially, the operator’s on-deck walled gardens, as well as the constraint of buying content from off-deck content providers through premium SMS, is destroyed. The worldwide web is now truly open for mobile business.
In the short term, the dilemma creates a definition problem for mobile content. A subscriber can receive content on a mobile device in one of three methods.
(1) Content can go through an operator’s deck and/or be billed to the subscriber’s bill using tradition mobile content method (on-deck).
(2) Consumers can find content from a third party, purchase the “off-deck” content and have it billed through their operator
(3) A subscriber can access content on the open Internet on devices such as the iPhone and bill the content to a credit card, PayPal or other similar means.
In the third scenario, operators do not see any of the mobile content revenue. Since MultiMedia Intelligence defines mobile premium content as content that is delivered to a mobile handset with payment made directly to the carrier’s bill, the third scenario would be defined as “broadband content,” similar to that of iTunes content being consumed on an iPod. Interestingly, Nokia’s proposed “Comes with Music” program would also not be defined as “mobile content” using this definition. Since the content costs would conceptually be included in the cost of the handset and updated via broadband, “Comes with Music” would be categorized as broadband music.
The math does not add
The worldwide web opening for mobile business creates two very significant problems for the mobile content industry. The first problem is that the numbers do not add. You can go to iTunes and order a full track song for 99 cents. You can likewise go to the AT&T deck. You can buy a sixth of song, call it a “ringtone,” and pay two or three dollars.
Call me a simpleton, but the math is too simple to allow this market anomaly to continue. We are already seeing the fissures starting on the walled gardens. The winner of the BREW “Best Up and Coming Application” category at BREW 2008 was mSpot’s Make-UR-Tones. Also, remember that Apple is at its very core a company that makes elegant hardware with user friendly software. Content sales are simply a way to enable and facilitate the ecosystem to allow Apple to sell more hardware, an excellent plan for a hardware manufacturer. If the mobile content industry is usurped by the worldwide Web, there will probably be few tears shed in Cupertino.
Why buy when you can share?
The second problem with the opening of the worldwide Web for mobile business is much foreboding. Please forgive me if I have a rather macabre or apocalyptic tone. However, once the worldwide Web is fully open to the mobile handset, the file sharing problems that have plagued the music industry move to the mobile handset. After all, the mantra of many digital music consumers seems to be, “Why buy when you can share?”
The piracy issue is much more devastating in the mobile world. Open Internet pipes enable sharing to go beyond MP3s to other forms of content. Ringtones have been a blessing for music companies. Although we are seeing marginal declines in ringtone sales in some markets, the sharing of ringtones could be devastating. The “DRM Free” trend, one of the worst missteps in the history of the music industry, exacerbates the problem. Beyond piracy, free Internet radio makes subscription downloadable music less compelling. In this new world, ringback tones are the last protected class.
Not exactly a happy ending
What’s next and if everything is shared (stolen)? How do companies stay in business? We see this trend worsening with the implementation of true broadband to mobile devices in form of WiMAX and LTE. Forgive me for sounding dire, but who are the winners if they aren’t making any money? Could there be a rise to the old business model of exclusivity, the rebirth of reinforcement of the walled garden?
Stay tuned..
Questions or comments about this column? Contact Frank at [email protected] or contact RCR Wireless News at [email protected].
