Augmented Economics: Making Money at the Edge of Reality

[There’s lots more than meets the eye in augmented reality. Research Director, Andreas Constantinou talks about Augmented Economics, a new form of economy where value is created by superimposing virtual value on top of our physical world]


Economics is an area of continuous research, both academic and industrial. Once in a while, new revenue models or new markets surface, which are followed by a string of industry capital movements. Take for example new revenue models being pioneered in the Internet like the cost-per-follower (ie being paid based on how many people are following you on twitter) or in the mobile domain (pay-per-app-activation when B2B provisioning applications on a device). New markets are continually formed around new solution types; in the fast-moving mobile industry for example, App Stores,  Social Addressbooks and Service Analytics are  new solution markets which emerged only in the last two years.

What’s more interesting is when entire new economies emerge, ie new systems for creating value and monetising from that value. I would argue that in the last few years we have been witnessing the creation of Augmented Economics, ie the economy formed by superimposing value on top of our physical world. But let me take a step back to explain.

There’s been a lot of buzz recently around augmented reality browsers. These browsers bring augmented reality to the mass market; now you can scan through the surroundings through your phone’s camera and see information superimposed, from advertising to siteseeing in real time. Augmented reality browsers have been made possible in a mass market sense thanks to the GPS and compass sensors  first appearing within Android and iPhone devices. The value in augmented reality browsing is in the connection between the physical world (what the camera captures) and the commercial information that is displayed on top. Already a number of startups have emerged to capture value in augmented reality browsers like Metaio, Total Immersion, Zugara, Layar, Mobilizy and Tonchidot (see here for a detailed review of augmented reality startups)

In a sense, Facebook is no different. Facebook is a platform that overlays virtual games and applications on top of the people profiles and mesh of relationships that exist in the physical world. Facebook is indeed a connecting platform between the physical world and 1000s of virtual worlds created by third parties. Facebook monetises through on-site ads for now, and moving to off-site ads, self-service ads and virtual goods which is expected to increase ARPU (average revenue per user) from $0.25 to $0.50 according to Fred Wilson, a prominent VC.

Flirtomatic, a popular mobile dating service in the UK, Germany and USA, monetises by offering social capital for sale. Flirtomatic allows users to buy social capital; users can send virtual ice cubes, auction themselves to the top of the service homepage, or even buy Ego services so they can eliminate bad ratings on their profile or bend the voting rules (see here for a good review of the service by Tomi Ahonen). Flirtomatic again monetises by bonding together the physical world with the virtual world where users can defy physics.

There’s lots more examples.
Monopoly City Streets creates capital by allow users to buy virtual real-estate (viewable only through your browser) in exchange for real money.

Cyworld, Everquest, World of Warcraft and Second Life are virtual worlds which monetise by subscriptions, virtual goods, virtual currency exchanges and ads by physical world brands. Fortune reported that the market in China for virtual goods is larger than the market for online advertising with Tencent, China’s largest messaging+Avatar+social networking service, generating $1 billion  in revenues in 2008, 90% of which is from virtual goods, as cited in the Business Model Database.

– A barcode (or QR Code, Data Matrix and Ezcode)  allows a mobile device to connect a physical product in a store or a poster in the train station to a wealth of online information, such as where the product ingredients came from, or when is the next train (the Economist has a good update on the commercialisation of 2D codes). Again monetisation is by providing the connection between physical and virtual worlds.

Anoto, a Swedish company, produces technology to connect a digital pen with the origin of the paper that it’s writing on. For example, by writing on a business card, you can send that to the contact directly, or by writing on a recruitment form, you can have your job application dispatched immediately. Anoto monetises by acting as the link between the physical world (pen and paper) and the virtual world (that of service providers of business information, recruiters, etc).

There’s probably lots more examples where companies have formed connections between the physical world and countless virtual worlds. And as Clayton Christensen et al argue in Skate to Where the Money Will Be, those who control the interdependent links in a value chain capture the most profit. In other words, the platform that links the physical with the virtual worlds stands to profit the most.

It’s amazing how value can be created out of thin air.. in this case creating social capital that allows users to ‘augment’ the physics of the real world (time, money or influence). And as S Schaffer said the next Google might be a physical world connection company. That’s the world of Augmented Economics.

Looking forward to your comments,

– Andreas
follow me on Twitter: @andreascon

Socializing the mobile address book: market overview and trends

[2010 might be the year when the mobile address book will become social. Guest blogger Florent Stroppa analyses the market of social address book services, the main actors and the trends.]

addressbookFor years, mobile network operators have invested billions of dollars in networks, subsidized phones and targeted marketing campaigns. Yet they have neglected one of the most used applications on the mobile phone: the address book.

Recent events such as the launch of the INQ1 phone by 3, the acquisition of Zyb by Vodafone and the acquisition Cellity by Nokia, seem to prove that operators are finally beginning to appreciate the importance of the address book.  The boring address book is about to be rebooted with social address book services.

So, what is a social address book service and why are contacts so important? Who are the market players and why is this all happening now?

Behind the social address book
Network-based address book services are not really new. Back in 2004, Orange UK launched a network address book with Voxmobili allowing mobile synchronization of contacts and calendar events with a Web-based service. While initially a niche market, those services are now widely deployed and most of the Tier-1 operators provide a mobile synchronization or backup service. Those solutions are usually based on the OMA DS SyncML protocol and are integrated within the mobile operator infrastructure.

social addressbook

A social address book (SAB) is an online service which allows end-users to save their mobile contacts, synchronize them and link them up with their social network profiles. The contacts are no longer static, as they display presence, location and status updates. A social address book is usually coupled with a new mobile address book application, a type of ‘phonebook 2.0‘ which similarly transforms static contacts into a Skype-like buddy list. The company I worked for, Voxmobili (recently acquired by OnMobile), developed last year a product called (simply) Phonebook 2.0, and which happens to be one of the Google ADC 1 finalists.

Why is the mobile address book so important?
Along with the other core applications like the idle screen, the dialer, the call logs or the inbox, the mobile address book is one of the most frequently used applications on the phone. The address book is:

  • The central enabler of voice and messaging. In a previous article, The Mechanics behind the Mobile User Interface, Andreas Constantinou clearly presented the place of the address book in user’s journey, where most calls are initiated from the address book.
  • The ultimate retention tool. The mobile address book is the most precious vault of people’s life-long connections and relationships. While it is relatively easy to build an internet address book from email messages, it is much more difficult to retrieve a mobile address book in case of phone loss. The social address book service ensures that contact information follows the mobile subscribers, not the SIM cards or handsets. T-Mobile US with the MyFaves and Contacts service has executed this strategy amazingly well.
  • At the heart of customer relationship. New mobile players such as Apple and Google are taking a piece of customer relationship from the operators. By integrating Facebook, Linkedin, GTalk and MSN into the address book, the operators have the opportunity to be back at the center of customer’s attention.

Who are involved in this new market?
The social address book landscape is one of the most fascinating in the industry as all the major players seem to be involved: mobile operators, handset manufacturers, internet giants, white-label solution providers and Silicon Valley start-ups:

  • Mobile operators: 3 was the first operator to launch a phonebook 2.0 application with the INQ 1 phone. They will not remain alone very long. A video leaked on Techcrunch UK about a service called People that Vodafone is about to launch.
  • Internet giants: Google and Microsoft have also launched synchronization services with Google Sync and MyPhone. Those services started from their webmail services, they introduced a while ago presence and lately synchronization of those contacts. Google also added location with Google Latitude and launched (quite silently) Google Profile. As usual, Google is launching services which are not initially completely integrated but we can already see where they are going.
  • Internet service provider: Comcast acquired Plaxo last year. They are now putting a social address book in the center of their online services.
  • Handset manufacturers: Apple has developed its own MobileMe service. Some rumors talk about a possible social networking app within iTunes. In turn, Nokia launched OVI Contacts and acquired cellity. They are also launching a quite impressive Maemo-based phone, the N900, with Lifecasting. HTC has launched a phonebook 2.0 integrated to the Hero, while Palm provides the Synergy service which links all contacts in a single view on its Pre device.
  • B2C start-ups: Many start-ups like Skydeck are in this space. We can find mature ones like Plaxo and smaller ones like ZYB and cellity. Most of them have already been acquired. Given the big players involved, I doubt there will manage to grow significantly their user base if they remain independent.
  • White-label network address book providers [updated]: Here we can find Colibria, Critical Path , Funambol , FusionOne and OnMobile . FusionOne powers the Verizon service, Funambol provides the Earthlink and AOL solutions while OnMobile is behind the Orange , Telstra , T-Mobile and Turkcell services.

Apart from those actors, the mobile industry has started several new standards initiatives. The OMA is working on the CAB (Converged Address Book) specification and the GSMA has released the RCS (Rich Communication Suite) specification. RCS is now a live commercial service in South Korea with KT, LG Telecom and SK Telecom providing an interoperable service.

Why is this happening now?
The success of Facebook and Skype has shown that people-centric services are highly in demand by end-users. The idea of transforming a static list of phone numbers into a convenient view of relationships has become natural.

Technology is another important factor. The synchronization protocols (SyncML or Exchange Active Sync) are mature and widely deployed while mobile platforms are much more open. For instance, on Android, all applications are created equal which means that any developer can create their own flavor of address book. The Internet platform is also more open than ever: social networking sites, Webmail and even Skype provide rich API allowing an easy integration.

Who will own the address book?
There is no simple answer. There will be competitions and “coopetitions” between operators, handset manufacturers, social networking sites and webmail providers to control it. Some handset manufacturers and small operators won’t even try to enter this game, while some others will play an important role.
I believe that in the long run, this service will benefit the end-users. They will still own their data, they will enjoy a much simpler communication experience, they will never lose their life-long connections and they will be able to use their contacts across multiple devices and multiple applications.

Looking forward to your comments.

– Florent

[Florent Stroppa is Product Director at OnMobile, the largest mobile VAS provider in India. He previously worked as Director of Product Management at Voxmobili, a Paris-based company specialized in social address books and synchronization solutions for mobile operators.]