The OEM service strategy
August 5 2008 - 5:59 am ET | Shawn Conahan, founder and CEO of Intercasting Corp. |
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Editor’s Note: Welcome to our weekly Reality Check column. We’ve gathered a group of visionaries and veterans in the mobile industry to give their insights into the marketplace.
Along with every one of my friends in this industry, from entrepreneurs to product managers at carriers, I have been lamenting the state of our industry’s service model for several years: You can have the best product with obvious consumer value with high relevance in the mobile space, and it will absolutely tank when the carriers “put it on the deck” in an ill-named category where it is impossible to find. It’s not the carriers’ fault — they are just doing the best they can with the tools they have been provided. It’s not the OEMs’ fault, either — they are just providing hardware to the specification provided by the carrier.
This is true, but over the past ten years, RIM went from startup to $67 billion company based on the concept of integrating one very important service (e-mail) into a purpose-built device that was not just easy but addictive for consumers. Danger essentially followed suit with a purpose-built IM device.
Today, a confluence of events is presenting the opportunity for OEMs to embed a class of third-party communication services not just into high-end smartphones or purpose-built devices, but into mid- and low-market feature phones. This is going to dramatically change the way such services are provided and the way consumers use their mobile devices.
Evolution
“Dumb hardware” is now being forced to evolve. Mobile phones are basically radios on a very large trunked system. The word “terminal” was used until very recently for a reason: A mobile phone was meant as a termination point on the network, essentially completing a circuit-switched connection with another mobile phone. The really hard part, therefore, used to be inside the network, routing all those calls and making connections. Then packet-based networks replaced the circuit-switched world and meant connecting those same devices to information sources instead of completing a circuit. While it is true that operating the network infrastructure did not get any easier, mobile phone technology changed dramatically; no longer “dumb hardware,” they turned into what are basically small computers. This, combined with available mobile broadband networks, means you can now “put the internet in your pocket.”
As a result, the past few years have seen an explosion in the growth of data services on mobile phones. That has meant record sales of mobile phones, and record numbers of wireless subscribers. The downside of this growth in data services is interesting: According to Informa Telecoms & Media, due to flat-rate pricing of data, traffic is growing much faster than revenue. As an example, Vodafone reported for its recent fiscal year a more than tenfold increase over 2007 in data traffic, but only a 55% increase in data revenue. Informa Telecoms & Media is forecasting a 77% increase in global mobile data revenues from 2007 to 2012, with a 1,000% increase in global mobile data traffic over the same period. Some sources predict that this trend signals the inevitable devolution of wireless networks into low-margin dumb pipes. Without offering an opinion on that viewpoint, what I can say is that I am seeing an exciting trend toward a robust data service integration strategy on the part of the OEMs.
I am specifically talking about integrating mobile devices with third-party communication services like social networking, e-mail and IM, which are sometimes called the “three pillars of personal communication.” I do not mean encapsulating a service like, say, MySpace, in an application and “putting it on the deck.” I mean integrating these communication services so that they are part of the native handset experience, making them as simple and transparent to use as, say, SMS. Why? Because the shift toward “openness” and “widget-based UIs,” will essentially disintermediate the hardware vendors from providing such services on their own while at the same time will empower them to establish partnerships that were previously off-limits. (Consumers are not likely to use a “Nokia IM” service over AOL Instant Messaging, nor are they likely to use “Samsung Mobile Social Networking Community” over MySpace Mobile.) To compete, the device manufacturers must seek out the high ground and provide a superior native communication experience integrating the third-party brands that resonate with consumers.
Raising expectations
This shift is happening now, and I can offer anecdotal insight into the future of feature phones. (My company, Intercasting Corp, is working with several OEMs to integrate these services, and so I have a good vantage point.) Imagine a camera phone that automatically sends every photo you take to Photobucket or Flickr. Also imagine clicking on a name in your address book and bringing up that person’s MySpace profile. Consider the simplicity of having an IM widget that is always on your phone’s home screen. These are examples of small improvements that are very hard to actually do which represent a dramatic improvement to the use of third-party communication services and mobile devices alike. In a couple of years, consumers will simply expect to see certain service providers integrated into their mobile devices because that is where they are already communicating.
Here is some more good news: This is not necessarily an indication that OEMs will ultimately win the “hundred-year war” between wireless carriers and device manufacturers over ownership of the customer relationship. Almost every carrier is fully embracing this approach because they know it will drive service adoption and data usage, and there is massive opportunity for cooperation and collaboration. Everybody wins. But certain OEMs, namely the ones that move first and in the biggest way, will win more: The only negative effect here is to the OEM that does not fully embrace an integrated communication service strategy. As Apple has shown this industry with the iPhone, a better (or just different) approach can resonate with consumers in a big way, and once the bar is raised, it is raised for everyone who wants to stay in the game.
I continue to marvel at the pace of change in this industry, but I have not been this excited about a specific evolutionary branch of the mobile space in a long time. As communication devices, improving to the extent possible the communication capabilities of mobile devices is a winning strategy. Before our eyes, we are seeing what used to be strictly “hardware” companies transform into “software and service” companies, all to the benefit of our industry and the consumers who embrace it.
You may contact Shawn at shawn@intercastingcorp.com. You may contact RCR Wireless News at rcrwebhelp@crain.com.
August 6, 2008 03:01 pm
Shawn, you are right on point! I would question the respective attitudes between the OEM's, Carriers and Content/App folks. At the end of the day, each is driven, not so much by a service strategy but by the need to derive incremental revenue and bottom line profits. We all get that fact. The cable MSO/Program Networks/Program producers and everyone in that food chain have demonstrated time and again a business model that has everything to do with extracting the greatest respective piece of every subscriber dollar spent. The Carrier/OEM/Content/App relationship is becoming a mirror of the cable model. Fighting over the handset and carrier deck real estate should not become a channel auction the way the cable MSO's treat their channel slots. In that model, even gaining access or obtaining a more desirable channel positioning is mostly determined by how much "marketing" support is offered to the MSO. Retail chains have followed this path for decades, except they call those monies, "slotting" fees. In effect, you buy your shelf space and pay to keep it. It would be nice to see the most popular services made available in an easy to find and use way on the carrier decks. Hopefully the carriers and OEM's will ultimately understand that they are not just in the business of voice and , data plans and hardware sales, but are additionally,purveyors of entertainment and information delivered by really cool mini-computers with web browsers. The better the content, at reasonable prices, the more customer adoption there will be.
August 5, 2008 06:00 am
It's great that you see a future where phones can upload every photo to a photo storing and sharing, an address book incorporating the contact's social networking site, and instant messaging right on the home screen! This vision would indeed represent the bleeding edge of mobile communication. That it exists already today is even more surprising to some. But that's exactly the truth.Mobile neophytes can be easily awe stricken by an iPhone, but it doesn't do much for true power users. True mobile power users and mobile freaks have long been setting the bar not just for smartphone convergence, but mobile computing in general. Like my Nokia N95 8gb, most Symbian S60 devices allow photo uploading to your choice of multiple photo sites using the built in Share Online 3.0, our address book has always allowed adding links to a contact's various pages, including social networking profiles, and many users assign a shortcut or softkey to the Yeigo 2.2 messaging and communications application on the Standby screen. So your future is already beginning, and Nokia is obviously leading the way. Christmas will remind us all once the newest Nseries devices are launched.