Pocket Watch

AdMob just released their January metrics report.  The key trends I highlighted last month (Android Catching iPhone) continued into the new year.  In the Android-iPhone universe, Android now accounts for 30% of usage.  In the “does Symbian have a chance?” realm of inquiry, we’ve got another month of data suggesting things aren’t working for them.

% of AdMob ad requests, iPhone & Android only. Android continuing to take share from iPhone.

AdMob ad requests. iPhone and Android growth rates outpace Symbian.

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Click for Video of Steve Ballmer predicting success of Zune over iPhone, back in 2007.

Steve Balmer made an appearance at Mobile World Congress this week. He’s far richer than I am ever likely to be, so maybe I’m the wrong guy to listen to, but Microsoft has been having trouble with their mobile strategy for a long time now, and Windows Phone 7 doesn’t seem to address the key issue.

The great stuff Ballmer promised for Phone 7 doesn’t seem likely to save their rapidly listing mobile ship. To me, their strategy seems to be a doubling down on the same strategy that has been failing them for the last decade in the mobile OS space.  The bottom line on Windows Phone 7 is that it has a lot of great OS capabilities, but doesn’t address the most fundamental strategic challenge Microsoft faces in the mobile OS space: iPhone, Android, and BlackBerry have superior go to market strategies.

It seems that Microsoft is a victim of their own tremendous success in the PC OS business, where they are THE Platform company. When it comes to their mobile OS efforts, they seem to have forgotten two very important things:

1. The reality is that people buy solutions to their need and wants. In the early days of a sector, there cannot be a supply of third party applications/services that turn a Platform into a solution to any needs/wants. It is only after some maturation of a sector that the third party applications/services make it possible for people to recognize their need/want for a Platform.
2. Microsoft’s PC OS was installed into The Platform position by IBM in the early 1980′s, with IBM’s enterprise marketing clout and bundled/available applications. Simplistically, one could say that Microsoft has never had to go through the phase of delivering solutions to meet the needs/wants of end users, and lack that DNA.

Look at how BlackBerry stole the mobile enterprise business that by all rights should have gone to Microsoft. BlackBerry’s core usage is BY business/enterprise users, OF data in Microsoft Exchange Servers. How could Microsoft have lost in that arena? BlackBerry delivered a solution to the need/want of having mobile access to Email, Calendar, Address Book, etc (all functions sitting in Microsoft Exchange Servers!). Instead of delivering a solution, Microsoft tried to skip straight to offering a Platform, hoping they could go straight to the more developed phase of an ecosystem, where there are third party apps and services that do the dirty work of addressing the pesky needs/wants of the end users. Oops!

Now, I think there is a very difficult question for Microsoft to address, which is How to Compete with Apple, Google, and BlackBerry? I don’t see a silver bullet here.  The default Microsoft strategy of attempting to deliver a “better” OS seems even less likely to work now than it has the last handful of times they’ve tried this approach.

Apple monetizes their OS through tight bundling with wonderful hardware, creating a better user experience. Given this strategy, Apple can’t “run the table” given the diversity of desires/interests of the handset vendors, mobile operators, and end users, which does create something of an opening for Microsoft. But that iPhone is a darn nice device to compete against, as Microsoft learned the hard way.

Google (plans to) monetize their OS through the ads/searches resulting from increased mobile Internet usage. How does Microsoft compete against a better whole product offering (inclusive of the existing huge installed base of third party apps that add the value that Microsoft lacks), which Google gives away FOR FREE to the handset vendors, and where Google hands all the app store revenues over to the mobile operator? That sounds just about insurmountable.

BlackBerry has just plain out-executed Microsoft. It’s simply too late for Microsoft to (i) develop the whole-product DNA/mentality, (ii) develop the solutions, (iii) get the range of devices into the market, and (iv) build the brand, to effectively compete against BlackBerry with an end to end solution. Microsoft was widely rumored to have been in discussions to buy RIM in the previous years. With 20/20 hindsight, whoever was the champion of that deal within Microsoft deserves big kudos.

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As noted by many at Mobile World Congress this week, the mobile operators are working feverishly to avoid becoming “dumb pipes”. My previous blog post on this topic isn’t likely to change the mobile operators’ view one iota, so how does a mobile entrepreneur best make their way in the reality of this landscape?  I think it depends on where you are in the development of your business.

(1) If you’ve already got a business selling something that involves the mobile operator creating, marketing, or merchandising anything, my advice is very simple: treat your business as a consulting business, and get paid on a cost-plus basis for the deployment, rather than on any revenue-share down the road. The mobile operators may be willing to pay for deployments, but it seems highly likely that there will only be limited end-user uptake of their various new content initiatives. Mobile operator app stores are one very good example. And, even if the mobile operator(s) you’re dealing with does happen to succeed against the odds, they will look to commoditize your solution, removing any ongoing equity value from your business.

(2) If you’re in the early stages of your entrepreneurial endeavor, my advice is: don’t make any plans based on the mobile operator being able to be more than a carrier. Outside of a few rare instances, they’ve shown that they can’t create, market, or merchandise anything other than the service of carrying bits (created by others) on a black-box basis (ie, no real knowledge/understanding of what’s in those bits). Simplistically, just use the mobile browser, or apps on just iPhone and Android (and BlackBerry if you’re targeting a professional/business use case) and ignore the other ~80% of handsets. Why? The other 80% of handsets represent less than half of the consumer buying power, are horrifically costly to develop for, and are the shrinking part of the pool. Skate to where the puck is going: Android and iPhone (and BlackBerry for professional/business users).

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All aboard the GSMA Wholesale Applications Community FAIL bus.

At Mobile World Congress this week, the GSMA announced the formation a hastily thrown together idea for supporting a centralized Wholesale Applications Community. I would like to be one of the first to make the obvious prediction: This Will Fail.

I know, I know, I’m not really going out on a limb with that prediction. For the benefit of the GSMA members who were clearly too loaded with Tapas & Cervezas to think clearly before making this announcement, here are the top three reasons why this initiative seems doomed.

(1) Historical precedent. Mobile operators have a lackluster history of being involved in the creation, marketing, and/or merchandising anything other than being a carrier.

(2) Flawed conception of the opportunity. In the most simplistic terms, the prevailing sentiment seems to be

• • iPhone = Success;
  • Most distinguishing feature of iPhone = Apps;
  • Therefore, Apps = Good Business to be in.

This is just plain wrong-headed thinking. As noted before, for Apple, Apps are a means to an end, not an end in and of themselves.

(3) All the technical reasons why apps in a fragmented handset population are tough. It will take a lot of time/effort to get the technical infrastructure working well. My guess is that this task is so daunting that the idea won’t even see wide deployment. And, even if it does see wide deployment, the resultant “write once, port/debug everywhere” nightmare is going to be a tremendously painful one for developers.

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Dumb Pipes or Carriers?

At Mobile World Congress this week there was lots of discussion around the future of mobile operators, and how they avoid becoming “dumb pipes”. Obviously, that term is laden with pejorative baggage, and is therefore going to elicit a sharply negative reaction from anyone inside a mobile operator. So, let’s try to look objectively at what value the mobile operators have delivered to end users over the years.

• In the first couple of decades of the industry, 100% of the revenue and profit came from voice calls.
• Then, SMS became a meaningful percentage of revenue, and an even more meaningful percentage of profitability.
• Then, “content” (ringtones, games, pictures, etc) sales were added. These have never become significant fractions of revenue, and even less significant fractions of profitability, for the mobile operators.
• Most recently, Internet access has been added. This is starting to become a meaningful fraction of revenues, and is very profitable. BUT, it comes attached with the “dumb pipe” baggage and hysteria.

Look at what has been proven successful in the industry: voice calls and SMS. These are value propositions where the mobile operator acted as a “carrier” hauling data for the consumption of their end users. The mobile operators were no more or less involved in the creation, promotion, and merchandising of voice and SMS “content” as they are with content that is originated on the Internet. It seems that the debate about “becoming” dumb pipes misses the point. The fact is, in the most relevant, non-pejorative sense, the mobile operators have ALWAYS BEEN dumb pipes. Maybe the answer to the current debate is to move beyond the baggage-laden dumb pipe label, and embrace the positive fact that the mobile operators have always been CARRIERS — carriers of voice, SMS, and now Internet traffic. There is nothing wrong with being a Carrier!

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Last week, Apple posted on their iPhone Dev Center a Tip regarding use of a LBS function, which has led several folks to speculate that Apple wants to “own” Geo Location Advertising on the iPhone.

I don’t think so.  As I read the post from Apple (below), it says the use of location has to do something useful for the end user; can’t be just for geo specific ads.  Key part of Apple’s post:

If you build your application with features based on a user’s location, make sure these features provide beneficial information. If your app uses location-based information primarily to enable mobile advertisers to deliver targeted ads based on a user’s location, your app will be returned to you by the App Store Review Team for modification before it can be posted to the App Store.

Let’s think about it from Apple’s perspective. There is some use of device resources that is associated with getting the location information.  If getting that info doesn’t add value (ie, “beneficial information”) to the end user, consumes device resources (lowering the overall quality of the UX), to just line the developer’s pockets, Apple is justified in rejecting these apps.  This philosophy is completely consistent with the observation (Apps = Songs to Apple) that iPhone (and iPod Touch) hardware generates about 50X as much profit for Apple as do the iPhone applications. Apple must religiously guard the user experience of these hardware platforms; therefore, it is completely reasonable to expect that any app that compromises the UX for the sole benefit of lining the developer’s pockets should be rejected by Apple.

But, come on, if you are an app developer hoping to materially lift your CPMs by jamming LBS info into the  ad attributes in a non-geo-focused app (ie, one that doesn’t use LBS info to provide “beneficial information” to the end user), you are kidding yourself.  Any truly great LBS-oriented monetization strategy has to involve explicit use of location in the app (yes, in a way that provides “beneficial information” to the end user).

Here’s an illustration of what I mean.  Consider two apps using LBS info:

(1) Tetris app.  My current location reveals almost nothing about my buying interest or intent.  I’m focused on playing the game.  An ad from a local Starbucks is tangential at best, and I am only marginally more likely to respond (think 10% CPM lift) to a local Starbucks ad as I am a general Starbucks ad.

(2) ShopSavvy shopping app.  My current location reveals where I’m interested in buying that product I just scanned.  An ad for that same item for less money at a nearby location is HUGELY valuable to me, and I am therefore MUCH more likely to respond (think 10X+ CPM lift).

In the first case, LBS info provides no “beneficial information” to the end user, and getting it to just increase CPMs is not in the best interest of the end user, and frankly doesn’t make much sense as part of a monetization strategy; this is case that Apple says they are going to reject.  In the second case, LBS info IS used to provide “beneficial information” to the end user, AND using it is a sensible strategy for the app developer because the location information can actually drive much better monetization; this is the case that Apple says they will allow.

All is good in the world.

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Actual customer usage is the best leading indicator of success in the marketplace.  Usage begets usage, and is the source of the most important ingredient for success: happy customers.  When it comes to Mobile OS’s, the best publicly available proxy for actual customer usage of the kinds of things mobile startups care about (ie, use of apps, browsers) is the AdMob monthly ad request data.  This is end-users voting with their time, and demonstrating that they are seeing true utility from these platforms.

There is a great two-horse race between Android and iPhone, with iPhone clearly advantaged by their head start, and Android with better momentum and a broader set of devices coming to market.  Steve Jobs may be able to continue to wow the market with great selling devices, but the long term trends favor Android.  As long as Google continues to support the effort, Android is the clear favorite in this race.  Either way, it will be a great race to watch, and we in the mobile space are hugely fortunate to be the beneficiaries of the opening of the mobile space driven by Apple and Google.

I hear my friends in Europe reminding me that Nokia/Symbian is still important, and that we Americans have a very parochial view of the mobile world.  Perhaps.  Or, maybe we’re just excited to be the center of the action for the first time in the history of the mobile industry.  But, the data shows that activity on Symbian has been essentially flat over the time when Android and iPhone have seen tremendous growth.

There are clearly initiatives in the works at Nokia/Symbian attempting to change this trajectory–including a potential wholesale shift to Maemo.  Nokia is to be congratulated for recognizing the problem and for demonstrating a willingness to consider bold steps to address it.  And, if one were to bet on any big company to successfully make a transition as big as this, perhaps it is the company that transitioned from being a rubber boot manufacturer to a mobile phone manufacturer a couple of decades ago.   But, Maemo is too little too late for Nokia.  By the time a meaningful number (tens of millions) of Maemo devices are in the market, Android and iPhone will have completely dominated the Mobile OS space.  The basis of competition in that space is about the apps and services that can be provided to the end-user, and it will be just about impossible for a new platform to reach parity given the huge head start Android and iPhone have.

The sooner Nokia commits to Android the better.  It would allow Nokia to focus on their strengths of handset physical design and manufacturing prowess. Besides, the OS game in Mobile is much different than the OS game in the PC world.  ”Owning” the Mobile OS isn’t the monopoly opportunity it was in the PC business.  When Google open-sourced Android, they gave away the ability to collect economic rent from the OS platform.  This change is so fundamental that all the old business thinking around OS’s is obsolete.

Uncategorized android, Apple, Google, iPhone, maemo, Nokia, symbian, Winner