Tag: operators

Palm: $1.2B Down the Shredder

[The acquisition by HP will not save Palm. Guest author Michael Valukenko explains why the sum of Palm and HP is close to zero]

As an old-time Palm user, I was always secretly hoping for resurgence of this familiar and trusted company. At a rational level however, I didn’t believe that the new Palm stands a chance in rapidly changing smartphone market. See my earlier analysis in Who can save Palm here at the VisionMobile blog.

HP’s acquisition makes Palm part of large and financially solid company, but doesn’t compensate for its other weaknesses. Smartphone competition today boils down to competition of service platforms with Apple and Google leading the way. Considering the realities of today’s smartphone market, there are very few real synergies between HP and Palm.

The three missing synergies
Today people don’t buy smartphones for their hardware, but for what they can do with them. This largely means software platform and services built around the phone. Both Apple and Google excel in this area, albeit using very different approaches.

Palm’s WebOS offers a slick UI and a promise of simplified app development by fully adopting the web paradigm. But it lacks a clear differentiation (a killer use case) and an ecosystem unlocking the device into hundreds or thousands different things people could do with it. Let’s face it: It wasn’t that WebOS devices didn’t sell well because Palm lacked marketing dollars. They didn’t sell because they weren’t good enough compared to competition. HP marketing money and distribution muscle won’t save the day.

Today’s leaders – iPhone, Blackberry and Android – all have clear differentiation: iPhone is all about entertainment and Internet and is backed by large iTunes user base. Blackberry sells mobile email and is backed by corporate IT adoption and a strong distribution network. Android seamlessly integrates with Google services promising free and open Internet. The vague notion of “HP Experience” looks pretty pale in comparison.

Critically important, app developers and Internet companies already have their hands full with iPhone, iPad, Blackberry, Android, not to mention the upcoming Windows Phone 7. What does HP have to offer in exchange for some mind-share? Any bright ideas?

Last, but definitely not least. Mobile operators/carriers take on the lion’s share of smartphone promotion and subsidy costs, hoping to attract new subscribers and increase ARPU of existing ones. What can HP/Palm offer to convince operators to take marketing and subsidy dollars from iPhone, Blackberry and Android, and put them into HP/Palm?  I don’t see much. Do you?

Clear differentiation, developer mindshare and operator subsidies  are all critical today for the success of a smartphone platform. All these were and remain Palm’s weaknesses regardless of its financial situation. HP does not complement Palm in any of these critical areas.

Chasing the Apple dream
A quick glance at HP earnings breakdown reveals HP as an electronics equipment company at its core. The company generates most of it revenues from selling printers, laptops, desktop PC and servers. Smartphone unit sales are catching up to laptop sales, while laptop margins are getting thinner and thinner. It is easy to see how tempting would it be for HP management to try to emulate Apple’s model of selling high-margin devices.

However Apple owes much of its success to its vertical integration, which allows blending hardware, software and services into iconic products. This vertical integration is ideally suited for breaking new grounds and creating new product categories. It is critical factor in Apple’s ability to create such products as Apple Lisa, iPod, iPhone and iPad.

As explained by Clayton Christensen in this seminal paper, vertical integration is an advantage in emerging product categories, where it helps to overcome technical challenges. Vertical integration however becomes a disadvantage in maturing markets, where flexibility, customization and modularity are of greater importance.

It is difficult to see HP successfully reproducing Apple’s model. The opportunity to be the first with iPhone-like product does no longer exist. 

Is this good news?
The deal doesn’t look particularly bright for HP shareholders. But may be in the broad scheme of things the deal is great news for many other people: Investment bankers will pocket multi-million dollar commissions, Palm’s investors and management will be spared from their misery, HP executives will boost their ego, business newspapers will sell some ads, and bloggers (including myself) will have something to write about.

How do you think the acquisition will shape up for Palm and HP?

– Michael

[Michael Vakulenko has been working in the mobile industry for over 16 years starting his career in wireless in Qualcomm. Throughout his career he gained broad experience in many aspects of mobile technologies including handset software, mobile services, network infrastructure and wireless system engineering. Today Michael consults to established companies, start-ups and operators. He can be reached at michaelv [/at/] WaveCompass.com]

Why Mobile Operators have a crucial role to play in the second wave of “smart” apps

[Just how smart can mobile apps get? Guest author James Parton explains why most apps today are pretty much dumb, just scratching the surface of what could be possible and describes how mobile operators can help power the next-generation of smarter, context aware applications]

The noise level around Apps and App Stores has reached saturation point. Every day a new launch, a new report, or a new statistic hits the newswires.

We have passed the point where there are now more people accessing the internet via a mobile device than via a PC, overall revenue from mobile apps (including ads, payments, and in-app transactions) is expected to grow to $17.5 billion in 2012 from $4.1 billion today, the iTunes store has delivered more than 3 billion downloads, 22 apps are downloaded per second from Nokia’s Ovi store, there are more than 30,000 Apps available in the Android store… you get the idea…

There can be no doubt that the explosion of interest around the App ecosystem brought home just how important mobile will be as a future content delivery channel, typified by the increasing number of Apps being produced by leading brands. No digital marketer worth their salt would now neglect having an app story in their digital marketing plan, even if in all honesty some are not quite sure why!

However, make no mistake that we are still firmly in the realms of a version 1.0 ecosystem. The App retail delivery platforms are still very basic; in fact they have not yet significantly evolved in terms of features and capabilities from the content delivery platforms that were offering mobile games, wallpapers and ringtones at the beginning of the decade.

The Apps themselves are clearly “dumb”. What do I mean by “dumb?” The vast majority of today’s App’s sit on the customer’s handset and have no understanding, or appreciation of its context or the person using it. Yes, increasing numbers of Apps are using location to introduce geographic context, but that is hardly pushing the boundaries of the art of the possible.

To take the App ecosystem to version 2.0, Apps have to become “smart”. I believe this is where Mobile Operators finally have a key role to play in the progression of the App ecosystem.

Of course this role is not a divine right. The Mobile Operators need to go through considerable change in order to be able to contribute effectively. That change is both technological: opening up “smart enablers” to allow developers to easily consume these capabilities, and secondly: culturally – to embrace the independent developer community and relax their traditional command and control philosophy for mutual gain.

So what does a “smart app” look like?
Well consider today’s customer experience. You run an app and it is a one size fits all experience i.e. the app behaves exactly the same way for every one of its users, regardless of who they are, and how they are using it. Imagine a “smart” app that could customise the user experience based on intelligent, real time, information delivered from the Mobile Operator.

Examples of Mobile Operator unique enhancements to the customer experience could include:

  • On the fly customisation of the App UI based on a detailed understanding of the device currently being used. Remember that increasing numbers of customers are SIM swapping. How do you know that a customer using your service on a Monday via an iPhone is now using your service on a Tuesday using the same SIM in a 3G dongle connected to a Netbook?
  • On the fly customisation of content richness based on knowledge of the users  current connection speed (e.g. 2.5g, 3G, WiFi). For example trying to force rich video content to a customer on a slower 2.5G data connection will probably deliver such a poor customer experience they will never use your app again. If you know in real time their connection speed, you can deliver the most appropriate experience.
  • Personalisation of content and configuration of your App UI based on user demographics (gender, age, location, social economic profile, etc)
  • Targeting & profiling of the audience based on segmentation information e.g. travel profile (stationary, commuter, jet-setter), spend segment (>€100 per month, €50-100 per month, €30-50, etc).
  • Micro billing to the customer’s mobile bill or debits from their pre pay balance at VISA like transactions rates.
  • In-App interactivity via messaging or calling
  • Up -selling the customer from a basic service to a premium guaranteed service (for example low ping rate for multiplayer gaming apps).
  • Then for the owner of the App, post usage analytics providing data like who, where, how long their users are consuming their services, and other customers of the Mobile Operator that match their current users profile, who could be targeted by a marketing campaign.

Examples of the enablers that Mobile Operators could deploy include; quality of service, billing, handset information, customer analytics, network traffic analytics, messaging, call management, location, age verification, tariff information. The list can go on and on, and in fact in our own planning sessions we have identified over 50 potential enablers.

This is a more intelligent way of developing not only the App, but also the business opportunity. Via the Network Operators turning their network infrastructure and assets into a plug and play platform, Mobile Operators become vital in the creation process of the second wave of ‘intelligent’ apps that can deliver far richer experiences for users which will drive adoption, longevity, and profitability.

Evangelisation and education on the benefits of creating “smart” Apps is crucial – this won’t just happen by itself. We are at the start of the process, and many companies are only now trying to get to grips with their App 1.0 strategy.

To ensure Mobile Operators both identify and capitalise on the opportunity to become relevant in the App ecosystem, it is vital they adopt an open and transparent approach. Therefore there cannot be enough effort to bring together the various players in the App ecosystem to share thinking, create strategy and influence product roadmaps, and marketing plans.

A great example of this is the Mobile Entertainment Forums Smart Enabler Initiative. I’d strongly recommend you check it out and get involved.

Critically the experiences and enablers I have described here are not commercial reality today. Talking and listening to developers will be essential to ensure that the Mobile Operators invest in the right technology enablers and introduce compelling business models to encourage their adoption.

Of course enablers are just one piece of a complex App ecosystem. There are many other challenges that hinder unlocking the full commercial value of the market place, not least the fragmentation and choices available to developers at the handset Operating System level. However, our approach is the same: dialogue and insight.

That is exactly why O2 Litmus has partnered with VisionMobile to undertake the largest developer research to date. We’re encouraging all mobile developers to participate, and we look forward to sharing the results with you all.

Have your say at visionmobile.com/developers.

I’d welcome your thoughts on both this piece and some key questions it poses:

  • Have you used a Mobile Operator enabler? What was the experience like?
  • What enablers do you need to make your App “smart”?
  • How can we effectively spread this message?

James Parton
Head of O2 Litmus
You should follow me on Twitter at @jamesparton

[James is a Chartered Marketer specialised in Mobile. With an award winning track record of product delivery including twenty five major launches, featuring twenty first to market achievements, including MMS, mobile video, mobile music downloads, the UK DVB-H Broadcast TV trial in 2005, and the ticketing and interactive services supporting The O2 Arena in London. Recognised by Revolution Magazine as one of the “Future 50”, James is a regular industry speaker, panellist, judge, blogger, and has lectured in Marketing and New Product Development at The University of Oxford Faculty of Continuing Education and Reading University.]

Demolition Derby in Devices: The roller-coaster ride is on

[The economic realities will lead to a roller-coaster ride that will shake up the mobile industry. Guest blogger Richard Kramer talks about the impending price war, the implications for industry growth, and how this will alter the landscape of device vendors in the next decade]

With all the discussion of technology trends on the blogosphere, there are some harsh economic realities creeping up on the handset space. The collective efforts of vendors to deliver great products will lead to an all-out smash-up for market share, bringing steep declines in pricing.

In November 2009 I wrote a note about what Arete saw as the impending dynamics of the mobile device market. I called it Demolition Derby. This followed on from a piece called Clash of the Titans, about how the PC and Handset worlds were colliding, brought together by common software platforms and adopting common chipset architectures. As handsets morphed into connected devices, it opened the door for computing industry players, now flooding in.

New categories of non-phone devices
A USB modem/datacard market of 70m units in 2009 should counted as an extra third of the smartphone market, as it connected a range of computing devices. By the end of 2010, I believe there will be many new categories of non-phone mobile devices to track (datacards, embedded PCs, tablets, etc.), and they may be equal to high-end smartphone market in units in 2011.  Having looked at the roadmaps of nearly every established and wannabe vendor in the mobile device space, I cannot recall a period in the past 15 years of covering the device market with so many credible vendors, most with their best product portfolios ever, tossing their hats in the ring.  I see three things happening because of this:

 

1. First, a brutal price war is coming. This will affect nearly every segment of the mobile device market. Anyone who thinks they are insulated from this price war is simply deluded. I have lost count of the number of vendors planning to offer a touch-screen slim mono-bloc Android device for H2 2010. The only thing that will set all these devices apart will be brand, and in the end, price.  Chipmakers – the canaries in the handset coal mine – are already talking about slim HSPA modems at $10 price points, and $20 combined application processors and RF. Both Huawei and ZTE now targeting Top Three positions in devices, with deep engagements developing operator brands. They are already #1 and #2 in USB modems.  Just look at the pricing trends ZTE and Huawei brought to the infrastructure market; this will come to mobile devices.

2. Second, growth will rebound with a vengeance. I expect 15% volume growth in 2010, well ahead of the cautious consensus of 8%.  I first noted this failure of vision in forecasting in a 2005 note entitled “A Billion Handsets in 2007” when the consensus was looking for 6% growth whereas we got 20%+ growth for three years, thanks to the onset of $25 BoM devices. Consumers will not care about software platform debates or feature creep packing devices with GHz processors in 2010. Ask your friends who don’t read mobile blogs and aren’t hung up about AppStores or tear-downs:  they will simply respond to an impossibly wide choice of impossibly great devices, offered to them at impossibly cheap prices.

3. Third, the detente is over. The long-term stability that alllowed the top five vendors to command 80% market share for most of this decade is breaking down.  This is not simply a question of “Motorola fades, Samsung steps in” or “LG replaces SonyEricsson in the featurephone space”.  Within a year, there could be dangerously steep market share declines among the former market leaders (i.e. Nokia) to accompany their decline in value share. Operators are grasping control of the handset value chain; many intend to follow the lead of Vodafone 360 to develop their own range of mid-tier and low-end devices. Whether or not this delivers better user experiences, operators are determined to target their subsidy spend to their favourite ODM partners. In developed markets, long-established vendors are getting eclipsed: in 2010, RIM or Apple could pass traditional vendors like SonyEricsson or Motorola in units. RIM and Apple already handily out-paced older rivals in sales value, and with $41bn of estimated sales in 2010, are on par with Nokia.

Hyper competition
So where does this lead us? Even with far greater volumes than anyone dares to imagine, there is no way to satisfy everyone’s hopes of share gains, or profits. With Apple driving to $25bn in 2010 sales and Mediatek-based customers seeking share in emerging markets, the mobile device market is entering a phase of hyper-competition. It is all too easy for industry pundits to forget that Motorola and Sony Ericsson collectively lost over $5bn in the past 2.5 years. More such losses are to come.

Never before have we seen so many vendors acting individually rationally, but collectively insane. Albert Einstein once famously said that “the defintiion of insanity was doing the same thing over and over but expecting a different result”.

The men in the white coats will have a field day with the mobile device market in 2010.

– Richard

[After four years as the #1 rated technology analyst in Europe, Richard Kramer left Goldman Sachs in 2000 to form an independent global technology research group. Arete has 10 years experience dissecting the financials and industry trends in  semis, software, devices and telecom operators, out of offices in London, Boston, New York and Hong Kong. Richard can be reached at richard [dot] kramer [at] arete.net]