The Future of Voice

[Is telco voice innovation dead? Or will smartphones and LTE deliver a much wider breadth of voice applications? Guest author Dean Bubley argues that ‘voice’ is about to experience several discontinuities as it goes beyond  our limited notion of ‘telephony’.]

VisionMobile - The Future of Voice

Telecom operators are facing a huge problem: in developed markets, we are close to the point of “Peak Telephony” – or maybe even past it already. Peak Telephony – inspired by the notion of reaching “Peak Oil” production – refers to the point after which voice revenues will face terminal decline. Already the traditional fixed and mobile telecoms industry is potentially facing a bleak outlook as call volumes stagnate and prices are eroded. While fixed operators have long recognised the threat to their core telephony business, mobile networks are now also facing the inevitable as well. Globally, over 70% of wireless operators’ revenues still comes from voice services and SMS, so this is an existential threat – one which threatens profound change to business models and even extinction of some operators as we know them today.

To an extent, many older telcos had a ten-year extension granted to them by the rise of mass-market mobile services. These appeared at exactly the right point, just as fixed voice prices (especially long-distance) started suffering the competitive onslaught from early VoIP players. But at a group level, declines in fixed-line profits were offset by the rise in mobile. The inherent value of mobility, and the convenience of handsets loaded with easy contact-lists and call-registers, postponed the onset of saturation and substitution.

But now, finally, a combination of Moore’s Law, devices and the Internet are catching up – mobile voice is about to experience several discontinuities and radical change in coming years.

The limitations of “distant voice”
For the past 100 years, we have pretty much only had three ways to communicate over long distance between people: letters, telegraph and telephone (from the Greek words for ‘distant sound’). The traditional phone call has been wonderfully transformative and yet, at the same time, very limiting – even in mobile guise. It has enabled revolutions in both commerce and society greater than virtually any other invention since the wheel and printing press.

But phone calls do not correspond to the way humans really communicate with each other. We don’t generally think of conversations as “sessions”, or measure their value in terms of their length.

In essence, we have surrendered our natural modes of communication to the restrictions of telephony. We have boiled down “distant voice” interactions into Person A calling Person B for X minutes, via numbered identifiers. Compare that to the more normal style of “close voice” of dropping in and out of conversation, with interruptions, breaks in the flow, background tasks, simultaneous interactions with other people and so forth – using our names.

Normal in-person conversation is enhanced by non-verbal communications, physical context and a multiplicity of other factors. We use a broad range of volume levels, tonal frequencies and gesticulation. Some conversations are synchronous, some asynchronous – people talking over each other, or speaking in turn, perhaps based on relative authority or another social construct. Some are unique to the specific two people or particular cultures, others are generally accepted universally. In a crowded room, we might hear snippets of other conversations, by chance or deliberately, through eavesdropping.

The phone call has been an excellent lowest-common denominator baseline for “distant voice”. Telecom operators have profited immensely from its enablement, especially with the enhancements of mobility and the “wrapper” of a cellphone and its user interface. But in doing so, they have provided us with a single speech product that is intended to span myriad use cases and social/business needs. Only a few other distant-voice technologies have emerged to address niches: push-to-talk, voice messaging, walkie-talkies, CB radio and private radio systems addressing fringe-cases such as taxi dispatch or public safety services.

But now, the landscape is shifting. The combination of smartphone platforms, thriving developer ecosystems, smartphones, PCs and the Internet have enabled new communications formats to evolve. These formats can map much better onto natural human communications preferences. We no longer need to constrain our innate ways of interacting, because of the constraints of a piece of wire (or air) and a switch. We can “politely interrupt” with a soft alert or IM before escalating to a call, locate team-mates in virtual worlds with stereo cues, or interact directly with a voicemail for simple tasks, rather than calling back.

We already have in-game voice chat between players, remote baby monitors, always-on voice telepresence, audio surveillance and all sorts of other voice applications which really are not calls, as such. Numerous other voice communication modes are evolving, especially those linked to social and messaging applications.

In a nutshell, we no longer need to shoehorn all of our “distant voice” communications needs into the unnatural format of a “phone call”. We are able to visualise, contextualise, obfuscate, interrupt, lie, drop in and out, waffle, multi-task, spy, listen, store, mumble, overhear, translate, declaim, announce and recall speech over a network in many, many different ways.

Not only that, but the supply of basic “phone calling” functionality has grown much faster than demand. If we do want to make a traditional A-B for X minutes call, we have many modern variants on the theme of a “piece of wire and switch”, now over mobile networks as well as fixed lines. It’s not that hard to do. Sure, numbering is a constraint, and ultimate quality may be a limit – but that is quality measured against the yardstick of the “telephony application”, and not a more general measurement of social communications. We don’t really complain about the QoS of speech in a noisy pub – or pay extra for a quieter venue.

Will LTE voice be “old telephony” again… or something new?
But the final kicker is the imminence of a major transition point – the adoption of LTE and all-IP mobile networks which are not yet optimised for telephony. Although various initiatives – notably the GSMA’s VoLTE (Voice over LTE) specifications – are developing carrier-grade LTE telephony, the likelihood is that it will take several years to get to the quality, reliability, scalability and cost/power performance of today’s basic GSM. 4G networks have not really been designed with voice in mind – or viewed more cynically, it has always been “someone else’s problem” to solve.

Nobody yet knows what happens when we have 1,000 mobile VoIP users in a cell, moving around, handing off to other cells, causing interference, audio glitches and so forth. Experience from fixed VoIP suggests that tuning networks to mass-market perfection takes a very long time, and it seems unlikely that the extra variables of RF and mobility will make the task easier.

This implies that smartphones on LTE networks – and, by extension, 3G networks as well – risk creating a vacuum, which could well be filled by other “non-telephony” voice applications, while we wait for “plain vanilla mobile calling” to catch up to the realities of wireless IP. The telecoms standards and market representation bodies (3GPP, GSMA and others) have made little effort to diversify efforts into the more generic “distant sound” world, instead focusing on replicating what we have today. Much-trumpeted enhancements such as “HD” (high-definition) codecs go only a tiny distance towards the more complex human-interaction models discussed above.

There is an argument that plain-old telephony (fixed or mobile) can be packaged up and “distributed” through various new “delivery” channels. Linked to the Web and appropriate call-control APIs, many operators are hoping to create new “cloud communications” platforms. But it is unclear whether the underlying telephony control mechanisms and the “session philosophy” of calling really represent the best possible basic ingredient. Add in the usual rigid telco attitudes towards numbering, security, pricing and specific acoustic mechanisms and it seems unlikely that telco-powered telephony will be the best way of creating all of the new “distant voice” applications that will emerge.

Filling the voice innovation gap
What will fill the gap, becoming the platform(s) of choice for the plethora of innovative voice apps and services? It is still too early to tell. It could be some of the larger VoIP incumbents such as Skype or Google, or an established software-client provider like CounterPath. But it could also be one of the new breed of speech-centric application developers such as Viber, Vivox or RebelVox. Major carrier-voice infrastructure vendors such as Cisco, Sonus, Acme Packet and Broadsoft also have roles to play, with some attempting to become more open platforms – although with an eye to their traditional operator customer base.

From a handset standpoint, things are likely to get quite complex. Ordinary phone calls are not going to disappear – but we will start to see multiple voice applications present on each device. This is already happening with Skype and GVoice apps, but looking further ahead, more fragmentation is probable. This will present huge challenges for UI and “contact” applications, as well as a debate about which voice and audio/acoustic components are best installed in the OS, on the baseband or apps processors, in individual apps or even in dedicated audio chips.

One thing is certain however; making a clear and careful distinction between “voice” and “telephony” is a critical starting point for understanding the landscape. Telephony is what telcos do today. It’s a closely-defined service, subject to rules and regulations, and billed in a structured way. But increasingly, general voice applications will go beyond homogeneous “calls” – for example, chat between players of an online game. This will require new business models, new platforms, and new forms of user interaction. How the traditional telephony industry deals with these new voice innovations will be fascinating to watch.

– Dean

Dean Bubley is the founder of research company Disruptive Analysis. He is currently developing a programme of “Future of Voice” master-classes together with communications industry visionary Martin Geddes. Dean can be reached at AT disruptive-analysis DOT com.

The mobile services landscape: Can OEMs compete with platform vendors?

[Growing competition and price pressures push handset makers to seek new ways to differentiate. This increasingly means services. VisionMobile Research Partner Michael Vakulenko compares service offerings of leading handset makers, explaining why OEMs will struggle to create meaningful differentiation through services.]

VisionMobile - The mobile services landscape

Remember the Motorola RAZR or the Nokia N95? Long gone are the days when handset hardware was fertile ground for innovation and differentiation. Convergence of device form-factors and equal access to advanced chipset technology pushes the handset market to the brink of deep commoditization.

Focus on smartphones can only provide short-term life support for deteriorating margins. Android opened the floodgates to low-cost assemblers to compete in the smartphone market. Aggressive new-comers, like ZTE, Huawei, Acer and Dell, along with a growing list of previously unknown handset manufacturers, push incumbents deeper and deeper into the commoditisation corner. Differentiation based on services increasingly looks like an attractive solution for many handset OEMs.

Services, services, services
Let’s look at how service offerings of leading handset OEMs stack up against each other. Nokia, Samsung, Apple, RIM, HTC, Motorola and Sony Ericsson (in no particular order) all have service ambitions and will be the subjects of the comparison.

State-of-the-art service offerings go far beyond much-hyped application stores. We ‘ll dig into the following service categories:

– Content retailing services: App stores, music, premium video and billing.
– Cloud services: Cloud-based contact book, cloud synchronization/backup, and device management (i.e. location tracking and remote lock).
– Communication services: Email services (e.g. gmail.com, me.com or nokia.com), instant messaging and video conferencing services
– Location-based services: Maps and navigation
– Advertising: Ownership of an ad network, display ads, multimedia ads and location-based ads.

Since many of the OEMs use Google Android and Windows Phone 7 platforms, we ‘ll also compare OEM service offerings with the ‘native’ services of the platforms.

The table below compares service offerings of different OEMs, as well as smartphone platforms across the above service categories.

VisionMobile - handset manufacturer services

The Leader: Apple
Apple, as usual, is in a league of its own. Apple has an extensive set of services anchored in the well-oiled iTunes content machine and MobileMe cloud services. One glaring omission is location-based services. For now, Apple has to rely on an uncomfortable partnership with Google Maps. There are persistent rumors that Apple develops its own location and mapping services (here and here). We can expect that sooner or later Apple will find its way out of its dependency on Google Maps, launching its own location-based services.

Challengers: Nokia, RIM
The next group of companies are the challengers – Nokia and RIM. Both use integrated models similar to Apple’s, combining proprietary software platforms with proprietary hardware (for now I will ignore the big unknowns of the partnership between Nokia and Microsoft).

Nokia has a comprehensive service portfolio, even compared to Apple. It ranges from the quintessential app store and music service all the way to location-based services and its own ad network. However, Nokia’s execution was weak and the future of Nokia’s services is up in the air following announced the partnership with Microsoft.

In contrast, RIM has a sketchy service portfolio, focused on its best-in-class messaging services. These include push-email, the BlackBerry Enterprise Server (BES) and the BlackBerry Messenger (BBM), in addition to the mandatory app store. It looks like RIM continues to focus on hardware and its new QNX operating system. For now, service-based innovation outside messaging takes a back seat for the BlackBerry platform.

Wannabes: Samsung, HTC, Sony-Ericsson and Motorola
Finally, Samsung, HTC, Sony-Ericsson and Motorola are OEMs building smartphones based on the Android and, in some cases, Windows Phone software platforms (Samsung also owns the bada software platform).

While Motorola is strong in cloud services with its MOTOBLUR service, Samsung leads the way in content. The Samsung offer includes music downloads and movie services, bundled with the popular line of Galaxy smartphones and tablets. Due to the licensing terms of content owners, content services have a limited geographical footprint, being available only in North America and Europe.

Overall, the services offering is very mixed for these vendors with piecemeal solutions mostly focused on content and cloud sync services.

Platforms: Android and Windows Phone
Unsurprisingly, Android and Windows Phone offer a comprehensive set of ‘native’ services across all service categories. Google Android is weak in content services compared to Apple and even Windows Phone, but compensates with leading-edge location-based services and a comprehensive ad offering. Windows Phone ‘native’ services leverage Microsoft’s Bing, Live, Zune and Xbox assets having millions of active users.

These ‘native’ services form the basis for platform differentiation and user value proposition for both platforms.

OEMs will struggle to make impact with services
Out of these handset OEMs, only Apple and Nokia come close to the breadth and scale of service offerings provided by platform vendors. It’s really difficult to see how Samsung, HTC, Sony Ericsson and Motorola can create highly differentiating services on the Android or Windows Phone platforms. For them, services will not become a solution for the upcoming wave of commoditization.

Dependency on 3rd party software platforms, lack of scale for making meaningful content deals, conflict of interests with operators and incompatible company DNA will make it extremely difficult for handset OEMs to make an impact with services.

In the words of Nokia’s CEO “Devices are not enough anymore”. No, this quote was not one of Stephen Elop’s, taken from the recent “burning platform” memo – it comes from a speechmadebackin 2007, by then NokiaCEO,OlliPekkaKallasvuo. Nokia realized early that services will play a critical role in handset value proposition. The Finnish OEM has tried hard to reinvent itself and become a hardware+services company.

The rest is history. Nokia found it nearly impossible to reconcile the DNA of a hardware company, which “lives” by device release cycles, with the DNA of a service company that “lives” by developing long term relationships with users, developers and partner ecosystems. If Nokia failed to do so with their vast resources and enviable volume leadership, what are the chances that Samsung, HTC, Sony Ericsson or Motorola will manage it?

– Michael

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[Michael Vakulenko is a Research Partner at VisionMobile. He has been working in the mobile industry for over 16 years, starting his career in wireless in Qualcomm. Michael has a broad experience across many aspects of the mobile industry, including smartphone ecosystems, mobile services, handset software, wireless chipsets and network infrastructure. He can be reached at michael [/at/] visionmobile.com]

100 Million Club: Winners and losers in the OS Arena

[2010 was a year of upsets in the mobile industry, as the league of top 5 handset manufacturers saw the inclusion of pure smartphone vendors (Apple and RIM) for the first time. As the rate of smartphone penetration accelerates, Marketing Manager Matos Kapetanakis takes a closer look at the winners and losers of 2010 as part of the latest 100 Million Club].

VisionMobile - 100 Million Club H2 2010 - Winners and Losers in the OS Arena

Welcome to the H2 2010 edition of the 100 Million Club, our semi-annual watchlist tracking mobile software embedded on more than 100 million devices. Click here to download the full watchlist.

Key Highlights
WebKit continues to grow, fueled by the accelerated rate of smartphone penetration. Up to the end of 2010, WebKit-based browsers had been shipped in more than half a billion handsets

– While smartphone penetration has increased to more than 20% in 2010 globally, featurephones continue to dominate the industry. Indicatively, S40 shipments were almost equal to total smartphone shipments.

–  In 2010, Android raced past iPhone’s iOS and BlackBerry, almost reaching Symbian’s shipments despite Nokia’s smartphone woes. While Nokia will undoubtedly push up Microsoft’s mobile market share in the future, we’ll continue seeing Symbian in the smartphone OS top-5 for another year.

– Total handset shipments for the second half of 2010 were 780 million, a 25% increase over the first half. A handful of software products, like vRapid Mobile by Red Bend and CAPS by Scalado, managed to tap a sizable portion of this figure, having more than 500 million shipments in H2 2010 alone.

– Myriad Group is now the only company to have 3 products with more than 100 million shipments, after Nuance merged two products into one, with T9/XT9/T9Trace. With the products combined, cumulative shipments have reached a staggering 10.5B shipments.

VisionMobile - 100 Million Club - H2 2010

Winners and losers: changes in the OEM landscape
Who were the winners and losers in 2010? In terms of handset OEMs, we have two clear losers – Sony Ericsson and Motorola have been seeing declining market share for some time now, but 2010 marks the first time that these two traditionally dominant players were toppled from the top 5 leaderboard by pure-smartphone players RIM and Apple (see our latest infographic for more details). At the same time, LG just managed to stave off competition, but without achieving a growth in shipments. Samsung, on the other hand, has effortlessly held its position as the number two handset OEM, having been the most aggressive incumbent OEM in ramping up smartphone shipments.

ZTE is the one piece of the OEM puzzle that doesn’t fit. Some estimates place the Chinese company near the bottom of the barrel, while others feature ZTE in a prominent position in the top 5 OEM leaderboard.

These upsets in the OEM landscape form the foundation for the OS race in 2011 in both feature phones and smartphones.

Feature phones made up nearly 80% of all mobile shipments during 2010. While it’s true that smartphone penetration has accelerated this past year, the days where every phone will be a smartphone are still far.

The next chart clearly shows that feature phones are still the driving force for the mobile industry in terms of shipments. However, revenues and profits are an altogether different matter (see slides 8-9 in our Mobile Megatrends 2011 report).

If combined, media-favorites iOS and Android barely account for 10% of the total shipments for 2010, which are roughly half the shipments of the lowly S40 OS. Samsung’s strong sales through 2010 have helped the company maintain a sizable piece of both the handset and OS pie.

VisionMobile_OS_Market_Share_H2_2010

The OS Arena – Smartphones
But what about smartphones? Which were the dominant OEMs and OSs in 2010? As always, Nokia has the lion’s share. As a smartphone vendor Nokia claimed more than 34% of shipments for 2010, while RIM and Apple, managed to get around 16% each.

VisionMobile_Smartphone_market_share_by_OEM_2010

The above diagram also shows how Samsung has maintained its lead over immediate competitors, with their smartphone shipments equaling those of Motorola, Sony Ericsson and LG combined. Samsung’s lead in this race of the ‘old OEM generation’ is thanks to reacting very fast to ramping market demand and delivering a highly sought after product; Samsung sold more than 10 million Galaxy S smartphones in 2010 in just 7 months, a figure that exceeds the total smartphone shipments of some of Samsung’s competitors.

So, what does it all mean for our favourite smartphone OSs?

Symbian. Dead, you say? That might be the case in terms of developer interest and Nokia’s R&D expenditure, but the current smartphone leader has yet a lot of shipments left in it. Perhaps not 150M shipments, as stated by Nokia CEO Stephen Elop, but a committed handset roadmap can’t change overnight which means that Nokia will continue shipping Symbian smartphones well into 2012, well after their much-discussed WP7 devices start coming out.

While the Verizon deal has not boosted iPhone sales as much as expected, the operator has the potential to tip the balance of the smartphone scales in the US. The question remains whether the Verizon handsets will cannibalise iPhone sales from AT&T, rather than generating new ones, but that should be little cause for concern. Apple has enjoyed a steady growth in shipments over the past couple of years and that, coupled with an accelerated smartphone penetration rate, should ensure that iPhone sales continue to enjoy a healthy increase. Furthermore, there are indications that the iPhone is starting to replace BlackBerry phones as the ‘executive handset’ and could start growing in that segment as well. This is Apple’s ‘blitzkrieg’ tactics at work, advancing on a market segment not just with a platform, but a thriving ecosystem of app developers and content publishers. The realization of this might be one of the driving factors behind RIM’s sudden adoption of Java and Android apps for its admittedly hurried Playbook release.

The biggest smartphone OS surprise has of course been Android. Growing by 100% QoQ for the first three quarters of 2010, the Google operating system shows no signs of slowing down. The biggest contributors to Android’s success have been HTC and Samsung, with Sony Ericsson, Motorola and, to a lesser extent, completing the top 5 contributors. HTC has enjoyed steady growth in smartphone shipments, mainly concentrating on their Android vs. the Windows line. With 60M smartphone shipments forecasted in 2011, HTC seems poised to drive Android sales once again. Samsung will also continue to grow in terms of smartphone shipments, capitalizing on their Galaxy series success. But what of Sony Ericsson, Motorola and LG? These vendors are losing market share, with the latter two having already lost their prestigious position in the top 5 leaderboard. With more OEMs adopting Android (ZTE announced 3 new Android phones at MWC), the Android map still has a lot of surprises in store.

 

The battle of ecosystems and BOMs
The demand for smartphones continues to rise, driven by mobile operators and handset manufacturers both of which need to remain competitive and differentiate. In 2011 the share of smartphones and the OEM competitive landscape will be determined by 3 fundamental factors: ecosystems, services and price points.

Price points. Firstly, hardware BOM (bill of material, including screen, chipsets and memory) is the key factor limiting how low smartphones can go in terms of price points and therefore how quickly they will be replacing feature phone projects within OEM roadmaps. Qualcomm has confirmed fears of a price war that is going to be taking place amongst chipsets in 2011 which will should allow Samsung or LG to deliver unsubsidized $100 retail price smartphones this year.

Ecosystems. Secondly, as Stephen Elop eloquently said in his burning platform memo, “our competitors aren’t taking our market share with devices; they are taking our market share with an entire ecosystem”. The three horse race of iOS, Android and Windows Phone is a race of developer adoption. Any new horses (including Qt, MeeGo, BREW and SmarterPhone) will have to show sizeable ecosystem support in terms of 10,000s of applications and 10s of millions of downloads in order to join the race as worthy contenders.

Services. Thirdly, smartphone growth is driven by western markets where mobile operators are dominant. With subsidies and marketing boost for smartphones coming from operators, a key determinant of device sales will be how well OEMs can drive operator services revenues; both in terms of supporting ‘hero’ operator services across regions on day 1 of launch and in terms of offering out-of-the-box white label services with a revenue contribution going towards the operator. This third services battlefront is heating up, too, with HTC buying up service companies, Samsung growing its global services deployments (more about OEM services landscape in a next article).

How do you see the future of smartphones in 2011?

-Matos