I need some time to think about it, but after listening to the feed of the announcement and chatting with my friend Chris Dunphy, my quick reaction is that the iPad is more like a PC than I expected. That's not necessarily a bad thing. I had been thinking of the tablet as a new, third category of devices focused on content consumption. The content play is in there, but focused on print only rather than video and other forms of media, at least for the moment. But given its features and software, and especially the iWork suite, the iPad is actually more like a low end PC-displacement product: The PC reimagined as a portable, touchscreen device. Content delivery is a part of that rethinking. Nine years after Tablet PC, somebody got it right.
The iWork pricing of $9.99 per module is a knife aimed at Office, and a disturbing precedent for all traditional productivity app companies. If you're in one of those companies, you need to rethink your business model quickly.
I'm not saying the PC is dead (not at all), but it looks like Apple is trying to gradually move up from the smartphone space to chew chunks out of the PC market. So maybe the iPad really is a response to PC netbooks, which is what my Apple alumni friends said a year ago. In some ways the iPad is worse than a netbook, in some ways it's better. I will be very interested to see how it sells against netbooks this fall.
I'll have more to say after I've had some time to digest the announcement. In the meantime, your comments are welcome.
Wednesday, 27 January 2010
Monday, 25 January 2010
Reckless speculation about the Apple tablet
One of the easiest ways to embarrass yourself online is by making predictions for the record about an unannounced product. You're layering risk on top of risk -- not only might your predictions be wrong, but the information you're basing them on might be wrong as well.
But it's fun so I'm going to do it anyway.
Assuming that Apple actually announces a tablet product on Wednesday, here are four things to watch for...
What does it do, and who is it for? Aside from being cool, the tablet will need to solve some real-world problems for normal people if it's going to be accepted. In my opinion, there are two potential markets for a tablet, based on market research I've done in the past. One market is as an entertainment/browsing/content device, and one is as a business information-management tool (an info pad, a subject I wrote about here).
The worst thing Apple could do is try to target both markets with one device, in my opinion. The customers are not compatible, and they need a different mix of features. You could end up with a tweener that doesn't really delight any one group (can you say Palm Pre?)
Based on press reports, and friends who have links to Apple, it looks like they're going for the entertainment market. I think that's wise -- it's a natural fit with Apple's relatively young, creative image. It also leverages the infrastructure Apple has already created for the iPod.
Watch the infrastructure. Another problem Apple could solve is a major malfunction in the market for content products (magazines, books, short stories, video, etc). Content creators today have a couple of choices -- give their stuff away online, or pump their materials through a traditional distribution system that absorbs 85% or more of the revenue on overhead, distribution, printing costs, mailing, etc. Either way, creators often get shockingly little reward for their hard work.
What creators need is a system that will let them bypass the current distribution system entirely, selling directly to consumers and pocketing most of the revenue themselves. They could actually charge less money per copy, sell in smaller quantities, and still make more profit.
Apple could create that billing and distribution system. Or it could create a system that attempts to reinforce the power of today's content middlemen. The key question will be how easy it is for a content creator to sell something through Apple directly, and how big their revenue cut is. If Apple shares 70% or more of revenue, and lets anyone create their own content, the floodgates will begin to open.
This could have an enormous impact on the content industries. Ultimately it would give much more power to content creators, at the expense of publishers and other middlemen. And it would enable consumers to get a wider variety of entertainment and information than they can today. (I wrote about some of the possibilities here. That article is old now, but the situation has barely changed in the meantime.)
So, even though I am intensely interested in the Apple tablet's technology, I am even more interested in the business model around it. That's where the real revolution could happen, in my opinion.
Ignore the first 100 days' sales. A company of Apple's stature is almost always able to drive significant sales in the first three months of availability, especially when creating a new category product. There are enough fans and early adopters to virtually guarantee a sales spike early on. The big question is what happens after the enthusiasts have bought.
Remember, the original Macintosh 128 was quickly snapped up by about 70,000 drooling enthusiasts (including me!). We bought even though the computer had ridiculously little memory and almost no software. Picture a word processor that can't create a document longer than 10 pages. I paid $2,500 for that! After the first three months, Mac sales flattened, and didn't recover until Apple fixed the shortcomings of the product.
So I expect a sales explosion in the first three months. In fact, if there isn't one, the product is in deep trouble (see Apple TV). But even if it sells out at first, that doesn't mean much until we see at least six months of sales data. Preferably nine.
Price is a huge unknown. Here's the story I heard from my Apple alumni friends: There is a gap in Apple's product line. Apple has the iPhone and iPod Touch at around $300, and it has the iMac and MacBook at about $1,000. It needs something in the middle, and the tablet is expected to fill that gap.
The price point I heard from my friends was about $600. Lately the price rumors have gone higher, and I don't know what to think about that. Could be true, could be wrong, could be Apple leaking a fake price so they could "surprise" people with something lower. All I know is that at $1,000 they are in conflict with the low-end Macs, and at $300 they are in conflict with the iPhone, and my friends are adamant that they won't do either.
But even if the price is around $600, I think there is a problem: In all the market research I've done on mobile devices, the latent demand for a tablet device is centered at prices of $199-$399. You can skim a very small percent of the users at $499, but even that is a stretch. A price of $600 or higher is way beyond the comfort zone of most potential customers for a tablet, no matter how great the device is.
It scares me on Apple's behalf. You can get into deep trouble when you design a product around your business needs rather than the customer's feature needs. You start rationalizing things: "We know we ought to sell it for $300, but that doesn't work for us, so we add a bunch of extra features that ought to be worth $300 more, and we plan a big marketing campaign, and we convince ourselves that the product is so special that people will feel compelled to open up their wallets. It's just a couple hundred dollars more, after all..."
Nonsense. Some products have natural price points, and it's very hard to change them. Great marketing and great features get you a 10-20% premium, not 100%.
So watch the price on Wednesday. If it's in the $300-400 range, I am very comfortable with Apple's chances. If it's over $600, I will be very interested to see what special magic Apple has put into the product. I think they'd need features on the order of burning bushes and loaves-and-fishes in order to sustain a price of $600 or more in the long run.
But for the record, I'd be delighted to have Apple prove me wrong.
But it's fun so I'm going to do it anyway.
Assuming that Apple actually announces a tablet product on Wednesday, here are four things to watch for...
What does it do, and who is it for? Aside from being cool, the tablet will need to solve some real-world problems for normal people if it's going to be accepted. In my opinion, there are two potential markets for a tablet, based on market research I've done in the past. One market is as an entertainment/browsing/content device, and one is as a business information-management tool (an info pad, a subject I wrote about here).
The worst thing Apple could do is try to target both markets with one device, in my opinion. The customers are not compatible, and they need a different mix of features. You could end up with a tweener that doesn't really delight any one group (can you say Palm Pre?)
Based on press reports, and friends who have links to Apple, it looks like they're going for the entertainment market. I think that's wise -- it's a natural fit with Apple's relatively young, creative image. It also leverages the infrastructure Apple has already created for the iPod.
Watch the infrastructure. Another problem Apple could solve is a major malfunction in the market for content products (magazines, books, short stories, video, etc). Content creators today have a couple of choices -- give their stuff away online, or pump their materials through a traditional distribution system that absorbs 85% or more of the revenue on overhead, distribution, printing costs, mailing, etc. Either way, creators often get shockingly little reward for their hard work.
What creators need is a system that will let them bypass the current distribution system entirely, selling directly to consumers and pocketing most of the revenue themselves. They could actually charge less money per copy, sell in smaller quantities, and still make more profit.
Apple could create that billing and distribution system. Or it could create a system that attempts to reinforce the power of today's content middlemen. The key question will be how easy it is for a content creator to sell something through Apple directly, and how big their revenue cut is. If Apple shares 70% or more of revenue, and lets anyone create their own content, the floodgates will begin to open.
This could have an enormous impact on the content industries. Ultimately it would give much more power to content creators, at the expense of publishers and other middlemen. And it would enable consumers to get a wider variety of entertainment and information than they can today. (I wrote about some of the possibilities here. That article is old now, but the situation has barely changed in the meantime.)
So, even though I am intensely interested in the Apple tablet's technology, I am even more interested in the business model around it. That's where the real revolution could happen, in my opinion.
Ignore the first 100 days' sales. A company of Apple's stature is almost always able to drive significant sales in the first three months of availability, especially when creating a new category product. There are enough fans and early adopters to virtually guarantee a sales spike early on. The big question is what happens after the enthusiasts have bought.
Remember, the original Macintosh 128 was quickly snapped up by about 70,000 drooling enthusiasts (including me!). We bought even though the computer had ridiculously little memory and almost no software. Picture a word processor that can't create a document longer than 10 pages. I paid $2,500 for that! After the first three months, Mac sales flattened, and didn't recover until Apple fixed the shortcomings of the product.
So I expect a sales explosion in the first three months. In fact, if there isn't one, the product is in deep trouble (see Apple TV). But even if it sells out at first, that doesn't mean much until we see at least six months of sales data. Preferably nine.
Price is a huge unknown. Here's the story I heard from my Apple alumni friends: There is a gap in Apple's product line. Apple has the iPhone and iPod Touch at around $300, and it has the iMac and MacBook at about $1,000. It needs something in the middle, and the tablet is expected to fill that gap.
The price point I heard from my friends was about $600. Lately the price rumors have gone higher, and I don't know what to think about that. Could be true, could be wrong, could be Apple leaking a fake price so they could "surprise" people with something lower. All I know is that at $1,000 they are in conflict with the low-end Macs, and at $300 they are in conflict with the iPhone, and my friends are adamant that they won't do either.
But even if the price is around $600, I think there is a problem: In all the market research I've done on mobile devices, the latent demand for a tablet device is centered at prices of $199-$399. You can skim a very small percent of the users at $499, but even that is a stretch. A price of $600 or higher is way beyond the comfort zone of most potential customers for a tablet, no matter how great the device is.
It scares me on Apple's behalf. You can get into deep trouble when you design a product around your business needs rather than the customer's feature needs. You start rationalizing things: "We know we ought to sell it for $300, but that doesn't work for us, so we add a bunch of extra features that ought to be worth $300 more, and we plan a big marketing campaign, and we convince ourselves that the product is so special that people will feel compelled to open up their wallets. It's just a couple hundred dollars more, after all..."
Nonsense. Some products have natural price points, and it's very hard to change them. Great marketing and great features get you a 10-20% premium, not 100%.
So watch the price on Wednesday. If it's in the $300-400 range, I am very comfortable with Apple's chances. If it's over $600, I will be very interested to see what special magic Apple has put into the product. I think they'd need features on the order of burning bushes and loaves-and-fishes in order to sustain a price of $600 or more in the long run.
But for the record, I'd be delighted to have Apple prove me wrong.
Wednesday, 20 January 2010
Google shoots itself in the foot in mobile
I wish I knew the inside story on Google's recent confrontation with the Chinese government. At first Google's announcement looked like a principled, well thought-out stand in a long behind-the-scenes dispute (link). But as more details have emerged, it has started to look as if Google didn't think through the consequences outside of its core search business. In the mobile market, those consequences could be significant. Here's why...
Google's Android OS has been gaining enormous support among mobile operators and handset vendors because it was viewed as the most feasible alternative to total domination by Apple. All of the other OS options had nasty baggage -- Microsoft was viewed as both controlling and unable to create demand, Symbian was seen as Nokia's pet, and the other flavors of Linux were all below critical mass.
In contrast, Google seemed technically competent, vendor-neutral, and capable of attracting users. (By the way, it says something about Apple's growing power in the mobile industry that a company as controlling as Google was seen as the safe partner; it's kind of like cozying up to a kodiak bear to escape a tiger.)
Google's dispute in China damages its image as a safe partner. A phone announcement in China involving Motorola, Samsung, and China Unicom has now been delayed because of the dispute, and it's not clear when it will be rescheduled. The public story on the delay is that Google demanded it (link), but I'm not sure I believe that. China Unicom is basically owned by the Chinese government, and I wouldn't be surprised if the delay was forced by them as a way to punish Google.
Either way, picture how this must feel to Motorola and Samsung. They have nothing to do with the dispute, but now they're trapped between Google and the Chinese government. That wouldn't be a big deal if we were talking about, say, the Cambodian phone market (no offense, Cambodia), but Samsung and Motorola both view China as a critical growth market. They can't afford to be pushed out of it.
Even aside from the political fears, real economic damage has already been done. Google's actions have delayed the imminent release of some major licensees' devices. Unless you have worked in a handset company, it's hard to understand how utterly unacceptable that is to them. Product launches are planned many months in advance, and are coordinated down to the day. Samsung and Motorola both have phone inventory waiting to be sold. There's cash tied up in that inventory, salespeople can't make their quotas, advertising was probably planned that now has to be rescheduled at additional cost, and so on. Plus, both companies now lose ground to competitors selling other devices. Most phones have a short lifetime anyway, so sales lost now probably can't be made up later. If you were a Motorola employee and you caused that sort of disruption, you'd probably get fired. But Motorola can't fire its OS supplier.
At least not immediately.
Because of problems like this, Google is now talking hopefully about retaining its business unit in China even if it closes down its search engine there (link). That raises the question of why Google threatened to completely pull out of China in the first place. If I were an official in the Chinese government, I'd view this flip-flop as a sign of vulnerability, and would be tempted to systematically go after targets like Android in an effort to put more pressure on Google. But for the moment the government appears to be moving cautiously, perhaps to avoid creating sympathy for Google.
Maybe in a week Google and the Chinese government will have come up with a neat, face-saving resolution to the whole problem. But even in that best-case scenario, Google's image as a supplier to the mobile industry has been damaged. The company has shown that its search business is more important to it (and more top-of-mind) than its mobile OS. Mobile operators outside of China won't care about this, but the handset vendors will. Some of them are based in China, and almost all manufacture there and sell into that market. Who's to say that Google won't end up in another dispute in China in another year? Add in Google's decision to start making its own phones in competition with licensees, and it now looks like a much less reliable OS supplier than it was six months ago.
To a Chinese phone company, relying on Android must now feel extremely uncomfortable. I bet Samsung went ballistic in private; it is completely intolerant of a supplier who's interested in anything other than making Samsung rich. I'd expect Samsung to put more emphasis on its other OS options in the future. And somewhere at Motorola, a harried executive is probably rolling his or her eyes and starting work on evaluating alternative smartphone operating systems, yet again.
The question is what alternative they'd choose. There's speculation that the LiMO alliance may be strengthened (link), and I could picture Chinese officials eventually trying to create a home-grown OS standard, just as they did in 3G (link). But the most straightforward alternative is Symbian, and I suspect it may get a quiet second look in many places -- although for the handset companies, that would feel like fleeing a tiger and a bear in order to hug an anaconda.
Google's Android OS has been gaining enormous support among mobile operators and handset vendors because it was viewed as the most feasible alternative to total domination by Apple. All of the other OS options had nasty baggage -- Microsoft was viewed as both controlling and unable to create demand, Symbian was seen as Nokia's pet, and the other flavors of Linux were all below critical mass.
In contrast, Google seemed technically competent, vendor-neutral, and capable of attracting users. (By the way, it says something about Apple's growing power in the mobile industry that a company as controlling as Google was seen as the safe partner; it's kind of like cozying up to a kodiak bear to escape a tiger.)
Google's dispute in China damages its image as a safe partner. A phone announcement in China involving Motorola, Samsung, and China Unicom has now been delayed because of the dispute, and it's not clear when it will be rescheduled. The public story on the delay is that Google demanded it (link), but I'm not sure I believe that. China Unicom is basically owned by the Chinese government, and I wouldn't be surprised if the delay was forced by them as a way to punish Google.
Either way, picture how this must feel to Motorola and Samsung. They have nothing to do with the dispute, but now they're trapped between Google and the Chinese government. That wouldn't be a big deal if we were talking about, say, the Cambodian phone market (no offense, Cambodia), but Samsung and Motorola both view China as a critical growth market. They can't afford to be pushed out of it.
Even aside from the political fears, real economic damage has already been done. Google's actions have delayed the imminent release of some major licensees' devices. Unless you have worked in a handset company, it's hard to understand how utterly unacceptable that is to them. Product launches are planned many months in advance, and are coordinated down to the day. Samsung and Motorola both have phone inventory waiting to be sold. There's cash tied up in that inventory, salespeople can't make their quotas, advertising was probably planned that now has to be rescheduled at additional cost, and so on. Plus, both companies now lose ground to competitors selling other devices. Most phones have a short lifetime anyway, so sales lost now probably can't be made up later. If you were a Motorola employee and you caused that sort of disruption, you'd probably get fired. But Motorola can't fire its OS supplier.
At least not immediately.
Because of problems like this, Google is now talking hopefully about retaining its business unit in China even if it closes down its search engine there (link). That raises the question of why Google threatened to completely pull out of China in the first place. If I were an official in the Chinese government, I'd view this flip-flop as a sign of vulnerability, and would be tempted to systematically go after targets like Android in an effort to put more pressure on Google. But for the moment the government appears to be moving cautiously, perhaps to avoid creating sympathy for Google.
Maybe in a week Google and the Chinese government will have come up with a neat, face-saving resolution to the whole problem. But even in that best-case scenario, Google's image as a supplier to the mobile industry has been damaged. The company has shown that its search business is more important to it (and more top-of-mind) than its mobile OS. Mobile operators outside of China won't care about this, but the handset vendors will. Some of them are based in China, and almost all manufacture there and sell into that market. Who's to say that Google won't end up in another dispute in China in another year? Add in Google's decision to start making its own phones in competition with licensees, and it now looks like a much less reliable OS supplier than it was six months ago.
To a Chinese phone company, relying on Android must now feel extremely uncomfortable. I bet Samsung went ballistic in private; it is completely intolerant of a supplier who's interested in anything other than making Samsung rich. I'd expect Samsung to put more emphasis on its other OS options in the future. And somewhere at Motorola, a harried executive is probably rolling his or her eyes and starting work on evaluating alternative smartphone operating systems, yet again.
The question is what alternative they'd choose. There's speculation that the LiMO alliance may be strengthened (link), and I could picture Chinese officials eventually trying to create a home-grown OS standard, just as they did in 3G (link). But the most straightforward alternative is Symbian, and I suspect it may get a quiet second look in many places -- although for the handset companies, that would feel like fleeing a tiger and a bear in order to hug an anaconda.
Monday, 23 November 2009
The mobile data apocalypse, and what it means to you
The mobile industry is now completing a huge shift in its attitude toward mobile data. Until pretty recently, the prevailing attitude among mobile operators was that data was a disappointment. It had been hyped for a decade, and although there were some successes, it had never lived up to the huge growth expectations that were set at the start of the decade. Most operators viewed it as a nice incremental add-on rather than the driver of their businesses.
But in the last year or so, the attitude has shifted dramatically from "no one is using mobile data" to "oh my God, there's so much demand for mobile data that it'll destroy the network." A lot of this attitude shift was caused by the iPhone, which has indeed overloaded some mobile networks. But there's also a general uptick in data usage from various sources, and the rate of growth seems to be accelerating.
Extrapolating the trend, most telecom analyst firms are now producing mobile data traffic forecasts that look something like this:
The forecasts are driven by a couple of simple observations:
--Smartphones produce much more data traffic than traditional mobile phones. Cisco estimates that a single smartphone produces as much data traffic as 40 traditional feature phones. So converting 10 million people from feature phones to smartphones is like adding 390 million new feature phone users, in terms of impact on the data network. The more popular smartphones get, the busier the network becomes.
--A notebook PC generates far more traffic than a smartphone. According to Cicso, a single notebook computer generates the same data traffic as 450 feature phones. As notebook users convert to 3G-enabled netbooks and add 3G dongles to their computers, they dramatically increase the data traffic load on the network.
You can read Cisco's analysis here.
This becomes especially interesting when you look at the forecasts for growth of 3G-equipped netbooks and notebooks. Mobile operators in many countries have started subsidizing sales of those devices if you pay for a data service plan. It's an attractive deal for many people. Say your son or daughter is going off to college. Do you buy them a regular notebook computer and also pay for the DSL service to their apartment, or do you buy them a 3G data plan for about the same price as DSL and get the netbook for free?
The forecasting firm In-Stat recently predicted that by 2013, 30% of all notebook computers will be sold through mobile operators and bundled with 3G data plans (link). Notebook computer sales worldwide are about 150 million units a year, so that's 45 million new 3G notebooks a year -- or the data equivalent of adding 20 billion more feature phones to the network every year.
Jeepers.
These forecasts are producing a behind-the-scenes panic among mobile network operators. The consensus is that there's no way their networks can grow quickly enough to support all that data traffic. There are several reasons:
--They can't afford to build that much infrastructure.
--Even if they could afford the buildout, they won't have enough bandwidth available to carry all that data, even with 4G.
--Traffic-shaping techniques like tiered pricing and usage caps can't restrain usage growth enough to save them, because
--Fear of losing customers to a competitor will force them to continue to subsidize sales of 3G dongles and offer relatively generous caps in their data plans.
There are a number of projections that show the operators losing money on wireless data a few years from now, as costs continue to increase faster than revenue. The danger isn't so much that they will all go broke, but they're very afraid that they'll turn into zero-profit utilities.
Many operators now seem to be counting on WiFi as their ultimate savior. The theory is that if they can offload enough of the data traffic from their networks to WiFi base stations connected to wired networks, then maybe other measures like 4G, usage caps, and aggressive improvements to the network will let them squeak through.
It's an ironic situation. For a long time the mobile operators thought of themselves as the future lords of data communication. All devices would have 3G connections, the thinking went, and the fixed-line data carriers such as Comcast and BT would fade away just like the fixed-line voice companies are doing.
Instead, the new consensus is that we're moving to a world where the fixed-line vendors will be expected to carry most consumer data traffic for the foreseeable future. They'll provide your wireless connectivity at home and work, while the mobile network will fill in the gaps when you're on the move. The area of disagreement, of course, is who will get the majority of the access revenue. We'll let the fixed-line and mobile operators argue over that one; I want to talk about some of the other impacts of this weird new hybrid wireless world that we're heading into.
(I touched on some of this in my post on net neutrality a couple of weeks ago (link), but I want to go into more detail here.)
The brave new world of scarce mobile bandwidth
Built-in WiFi is now good. For a long time many mobile operators resisted selling smartphones with WiFi built in. They viewed WiFi networks as competitors for customer control, and wanted to prevent usage of them. Now that they see WiFi as their savior, the operators are suddenly encouraging its inclusion in phones. Don't be surprised if in the near future it becomes impossible to get a subsidized price for any smartphone that doesn't have WiFi built in.
Traffic shaping is a fact of life, and a likely source of irritation. Many mobile operators are starting to limit the performance of applications that consume the most data bandwidth (today that's mostly video and file sharing). It's already being done today, and in most cases the operators won't even tell you they're doing it, unless the government requires them to. Certain apps will just communicate more slowly, or fail altogether, when the network gets busy.
There are a couple of exceptions where operators have been more public about their traffic shaping activity. The 3 network in the UK recently announced restrictions (link). And O2 in the UK has given details on exactly which applications it restricts in its home wireless data service (link).
Current traffic shaping hasn't generated a firestorm of complaints from the average customer (as distinct from net neutrality advocates), in part because it is very hard for users to tell why a website runs slowly on a particular day. But as mobile traffic continues to increase, operators are going to find that it's cheaper to ratchet up the restrictions bit by bit rather than pay for more capacity. Eventually people will notice, and I worry that we'll end up in a situation in which the operators carefully balance out how much they can piss off their customers without creating an outright revolt. It's a lot like the way the US airline industry operates today, and it's a miserable experience for everyone involved.
What to do. There are better ways to shape traffic. I think operators should give customers more information on how much data they're using at any given time, so they can manage it themselves. Then let them make an informed decision about which apps they'll use their bandwidth on. It would be relatively simple to create an on-screen widget showing how much data is being transferred at any time, just like the signal strength and battery life indicators on today's phones.
It's also possible to create some APIs that would tell a website how much bandwidth is available to it, so the developer could adjust its features accordingly. This idea is being tossed around between web companies and operators, but I don't know how much is actually being done about it.
Combine those changes with usage-based pricing (my next point) and customers will shape their own traffic. Then there won't be any need for covert manipulation of the network.
Say hello to capped data plans. Completely unlimited wireless data plans are not sustainable long term; the economics of them just don't work. And in fact, virtually no data plans today are completely uncapped; there is almost always some fine print about the maximum amount of traffic allowed before surcharges kick in or the user is tossed off the network.
Some people are saying that the operators should go back to charging by the byte, and in some parts of the world (particularly Asia), there is a long history of per-byte pricing. But the experience in most of the world has been that per-byte pricing makes users so nervous about their expenses that they won't use data services at all.
(DoCoMo in Japan has an interesting hybrid approach (link) in which it charges per-packet until the user hits a maximum charge of about $70 per month. Additional usage beyond that cap is free. So that's capped pricing rather than capped usage. This reduces customer fear of accidentally running up a gigantic bill, but I wonder how DoCoMo prevents power users from flooding the network with traffic. Maybe there's a second, hidden cap on total usage.)
What to do. I think the right answer in most of the world is going to be flat-rate data plans in which there's a clearly-communicated cap, with tiered charges beyond that. The cap will need to be set at a level that moderate users won't ever reach, so they don't become gun-shy about data. To alleviate the fear of accidentally running up a huge bill, there will also need to be an on-device meter showing how much of the user's monthly data allocation has been used (just telling them to go look at a website is not enough; it should be on-screen). I'm told that on-screen meters like this are already being offered on netbooks by some European operators.
Today most operators are pretty up-front about communicating the data limits when a computer is connected to a mobile network. But many of them are still deceptive toward smartphone customers. AT&T's Smartphone Personal service, for example, promises the following for $35 a month:
Sounds pretty straightforward. No asterisks, no fine print. But if you click on the terms of service (link), you'll find a long list of banned application types, followed by this general provision:
In other words, if the network is getting slow, they can do anything to your service, at any time, without notice.
There is also a hidden 5G per month maximum:
This is not just an American problem. Orange in the UK calls its iPhone data service "unlimited," but there's a footnote saying that "unlimited" actually means 750 megabytes a month, a surprisingly low cap compared to AT&T's.
If we're ever going to collectively manage mobile network overload, we'll all need to be much more up-front about the way it operates and what a particular service plan will and won't do.
Is residential 3G really a good idea? Especially in Europe, it's common for operators to tell people that they should ditch their DSL or cable modem at home and replace it with a 3G modem. That works out well only when the network has excess capacity. As soon as the networks start to get congested, the operators will need to offload traffic to residential WiFi routers connected to DSL or cable. If those residential fixed lines have been removed, the operators can't offload.
What to do. I think this one is going to be self-limiting. Once 3G bandwidth gets scarce, the operators will realize that they can get a lot more revenue feeding data to smartphones than to PCs. The math works like this: With a given amount of bandwidth, you could support a single notebook computer and charge about $50 a month, or support 11 smartphones at $30 a month each. Hmm, $330 a month versus $50, seems like a pretty easy decision.
But there are two circumstances in which it would make sense for the operators to keep subsidizing PC sales:
1. If smartphone sales plateau. If this happens, eventually the network will catch up with demand and then there will be excess capacity for PCs; or
2. If operators can route most of the actual data traffic from PCs through WiFi connected to landlines. In this case they could sell you data plans knowing that you won't affect their networks much. That brings us to the next point...
Operators have a huge vested interest in unlocking WiFi access points. Most WiFi access points today are encrypted and inaccessible to other devices in the area. I think there's a strong financial incentive for mobile operators to work with fixed-line access companies to get those access points unlocked. The benefit for the wireless companies is clear -- the more WiFi points they can talk to, the fewer cell towers they need to build. But the benefits for the fixed-line operators are much less clear. Why should they help the mobile operators with their bandwidth crunch?
What to do. The ideal situation would be a revenue-sharing deal in which the operators share some money with the fixed-line companies to encourage them to open up access to their networks. In this scenario, your DSL or cable provider would give you a WiFi router that has been pre-configured to automatically and securely share excess bandwidth with mobile devices in the area. Your own traffic would get priority, but any extra capacity could be shared automatically. The benefit for you as a consumer would be a free router, and/or a lower DSL bill as the cable company passes along some of the revenue it gets from the mobile operators.
The effectiveness of this sort of approach is going to depend on the relative cost for an operator of subsidizing a set of WiFi base stations in an area, versus the cost of installing more wireless capacity. I wonder about weird scenarios like a DSL provider auctioning off excess WiFi capacity to wireless operators in a particularly congested area.
Femtocells for the rest of us. Another very logical step for the operators is to start pushing femtocells aggressively. (Femtocells are radios that work like a short-range cell tower, but are the size of a WiFi router. You connect one to your DSL or cable line, and it offloads traffic from the wireless network. Link)
What to do. Today femtocells are generally sold as signal boosters in areas with marginal wireless coverage. But in the future I think it may make sense for operators to give away femtocells, or at least subsidize them, for customers who live in areas where the data network is congested.
What it all means: Fixed-mobile convergence with a twist
If you step back from the details, the big picture is that we really need a single integrated data network that encompasses mobile and fixed connections, and switches between them seamlessly. People have been talking about this sort of thing for years (check out the Wikipedia article on fixed-mobile convergence here), but the focus has generally been on handing voice calls between WiFi and cellular. That's hard to do technologically (because you can't interrupt a voice conversation during the handover for more than a fraction of a second). Besides, it doesn't solve a significant customer problem -- the voice network isn't the thing that's overloaded.
The place where we could really, really use fixed-mobile convergence is in data. I'm worried, though, that the intense competition between the wireless and wired worlds will make it difficult and slow to achieve the coordination needed. This might be a useful place for government to put its attention. Not in terms of regulating the integrated network into existence (that would be the kiss of death), but to grease the skids for cooperation between the mobile and fixed-line worlds.
Just one more thing...
Everything above is based on the assumption that those Cisco and analyst forecasts are correct. But Cisco has a vested interest in hyping fear of the data apocalypse (Emergency! Buy more routers now!!), and my general rule about tech analysts is that every time they all agree on something you should bet against them.
There is a genuine crunch in mobile data capacity going on at the moment; you can read about network outages caused by the iPhone even today. And I can assure you that for every network failure you read about, there are dozens of other failures and near-failures that don't get reported. Many wireless data networks are very stressed.
And the situation will get worse.
But there's no such thing as infinite demand. At some point the growth of mobile data will slow down, and it's very important to try to estimate how and when that'll happen, so we as an industry do not overshoot too badly. The question isn't whether the growth forecasts are wrong, it's when they will be wrong.
I'll write about that next week...
But in the last year or so, the attitude has shifted dramatically from "no one is using mobile data" to "oh my God, there's so much demand for mobile data that it'll destroy the network." A lot of this attitude shift was caused by the iPhone, which has indeed overloaded some mobile networks. But there's also a general uptick in data usage from various sources, and the rate of growth seems to be accelerating.
Extrapolating the trend, most telecom analyst firms are now producing mobile data traffic forecasts that look something like this:
The forecasts are driven by a couple of simple observations:
--Smartphones produce much more data traffic than traditional mobile phones. Cisco estimates that a single smartphone produces as much data traffic as 40 traditional feature phones. So converting 10 million people from feature phones to smartphones is like adding 390 million new feature phone users, in terms of impact on the data network. The more popular smartphones get, the busier the network becomes.
--A notebook PC generates far more traffic than a smartphone. According to Cicso, a single notebook computer generates the same data traffic as 450 feature phones. As notebook users convert to 3G-enabled netbooks and add 3G dongles to their computers, they dramatically increase the data traffic load on the network.
You can read Cisco's analysis here.
This becomes especially interesting when you look at the forecasts for growth of 3G-equipped netbooks and notebooks. Mobile operators in many countries have started subsidizing sales of those devices if you pay for a data service plan. It's an attractive deal for many people. Say your son or daughter is going off to college. Do you buy them a regular notebook computer and also pay for the DSL service to their apartment, or do you buy them a 3G data plan for about the same price as DSL and get the netbook for free?
The forecasting firm In-Stat recently predicted that by 2013, 30% of all notebook computers will be sold through mobile operators and bundled with 3G data plans (link). Notebook computer sales worldwide are about 150 million units a year, so that's 45 million new 3G notebooks a year -- or the data equivalent of adding 20 billion more feature phones to the network every year.
Jeepers.
These forecasts are producing a behind-the-scenes panic among mobile network operators. The consensus is that there's no way their networks can grow quickly enough to support all that data traffic. There are several reasons:
--They can't afford to build that much infrastructure.
--Even if they could afford the buildout, they won't have enough bandwidth available to carry all that data, even with 4G.
--Traffic-shaping techniques like tiered pricing and usage caps can't restrain usage growth enough to save them, because
--Fear of losing customers to a competitor will force them to continue to subsidize sales of 3G dongles and offer relatively generous caps in their data plans.
There are a number of projections that show the operators losing money on wireless data a few years from now, as costs continue to increase faster than revenue. The danger isn't so much that they will all go broke, but they're very afraid that they'll turn into zero-profit utilities.
Many operators now seem to be counting on WiFi as their ultimate savior. The theory is that if they can offload enough of the data traffic from their networks to WiFi base stations connected to wired networks, then maybe other measures like 4G, usage caps, and aggressive improvements to the network will let them squeak through.
It's an ironic situation. For a long time the mobile operators thought of themselves as the future lords of data communication. All devices would have 3G connections, the thinking went, and the fixed-line data carriers such as Comcast and BT would fade away just like the fixed-line voice companies are doing.
Instead, the new consensus is that we're moving to a world where the fixed-line vendors will be expected to carry most consumer data traffic for the foreseeable future. They'll provide your wireless connectivity at home and work, while the mobile network will fill in the gaps when you're on the move. The area of disagreement, of course, is who will get the majority of the access revenue. We'll let the fixed-line and mobile operators argue over that one; I want to talk about some of the other impacts of this weird new hybrid wireless world that we're heading into.
(I touched on some of this in my post on net neutrality a couple of weeks ago (link), but I want to go into more detail here.)
The brave new world of scarce mobile bandwidth
Built-in WiFi is now good. For a long time many mobile operators resisted selling smartphones with WiFi built in. They viewed WiFi networks as competitors for customer control, and wanted to prevent usage of them. Now that they see WiFi as their savior, the operators are suddenly encouraging its inclusion in phones. Don't be surprised if in the near future it becomes impossible to get a subsidized price for any smartphone that doesn't have WiFi built in.
Traffic shaping is a fact of life, and a likely source of irritation. Many mobile operators are starting to limit the performance of applications that consume the most data bandwidth (today that's mostly video and file sharing). It's already being done today, and in most cases the operators won't even tell you they're doing it, unless the government requires them to. Certain apps will just communicate more slowly, or fail altogether, when the network gets busy.
There are a couple of exceptions where operators have been more public about their traffic shaping activity. The 3 network in the UK recently announced restrictions (link). And O2 in the UK has given details on exactly which applications it restricts in its home wireless data service (link).
Current traffic shaping hasn't generated a firestorm of complaints from the average customer (as distinct from net neutrality advocates), in part because it is very hard for users to tell why a website runs slowly on a particular day. But as mobile traffic continues to increase, operators are going to find that it's cheaper to ratchet up the restrictions bit by bit rather than pay for more capacity. Eventually people will notice, and I worry that we'll end up in a situation in which the operators carefully balance out how much they can piss off their customers without creating an outright revolt. It's a lot like the way the US airline industry operates today, and it's a miserable experience for everyone involved.
What to do. There are better ways to shape traffic. I think operators should give customers more information on how much data they're using at any given time, so they can manage it themselves. Then let them make an informed decision about which apps they'll use their bandwidth on. It would be relatively simple to create an on-screen widget showing how much data is being transferred at any time, just like the signal strength and battery life indicators on today's phones.
It's also possible to create some APIs that would tell a website how much bandwidth is available to it, so the developer could adjust its features accordingly. This idea is being tossed around between web companies and operators, but I don't know how much is actually being done about it.
Combine those changes with usage-based pricing (my next point) and customers will shape their own traffic. Then there won't be any need for covert manipulation of the network.
Say hello to capped data plans. Completely unlimited wireless data plans are not sustainable long term; the economics of them just don't work. And in fact, virtually no data plans today are completely uncapped; there is almost always some fine print about the maximum amount of traffic allowed before surcharges kick in or the user is tossed off the network.
Some people are saying that the operators should go back to charging by the byte, and in some parts of the world (particularly Asia), there is a long history of per-byte pricing. But the experience in most of the world has been that per-byte pricing makes users so nervous about their expenses that they won't use data services at all.
(DoCoMo in Japan has an interesting hybrid approach (link) in which it charges per-packet until the user hits a maximum charge of about $70 per month. Additional usage beyond that cap is free. So that's capped pricing rather than capped usage. This reduces customer fear of accidentally running up a gigantic bill, but I wonder how DoCoMo prevents power users from flooding the network with traffic. Maybe there's a second, hidden cap on total usage.)
What to do. I think the right answer in most of the world is going to be flat-rate data plans in which there's a clearly-communicated cap, with tiered charges beyond that. The cap will need to be set at a level that moderate users won't ever reach, so they don't become gun-shy about data. To alleviate the fear of accidentally running up a huge bill, there will also need to be an on-device meter showing how much of the user's monthly data allocation has been used (just telling them to go look at a website is not enough; it should be on-screen). I'm told that on-screen meters like this are already being offered on netbooks by some European operators.
Today most operators are pretty up-front about communicating the data limits when a computer is connected to a mobile network. But many of them are still deceptive toward smartphone customers. AT&T's Smartphone Personal service, for example, promises the following for $35 a month:
Included Data: Unlimited; Additional data: $0 per MB
Sounds pretty straightforward. No asterisks, no fine print. But if you click on the terms of service (link), you'll find a long list of banned application types, followed by this general provision:
"AT&T reserves the right to (i) deny, disconnect, modify and/or terminate Service, without notice, to anyone...whose usage adversely impacts its wireless network or service levels or hinders access to its wireless network... and (ii) otherwise protect its wireless network from harm, compromised capacity or degradation in performance."
In other words, if the network is getting slow, they can do anything to your service, at any time, without notice.
There is also a hidden 5G per month maximum:
"If you are on a data plan that does not include a monthly MB/GB allowance and additional data usage rates, you agree that AT&T has the right to impose additional charges if you use more than 5 GB in a month."
This is not just an American problem. Orange in the UK calls its iPhone data service "unlimited," but there's a footnote saying that "unlimited" actually means 750 megabytes a month, a surprisingly low cap compared to AT&T's.
If we're ever going to collectively manage mobile network overload, we'll all need to be much more up-front about the way it operates and what a particular service plan will and won't do.
Is residential 3G really a good idea? Especially in Europe, it's common for operators to tell people that they should ditch their DSL or cable modem at home and replace it with a 3G modem. That works out well only when the network has excess capacity. As soon as the networks start to get congested, the operators will need to offload traffic to residential WiFi routers connected to DSL or cable. If those residential fixed lines have been removed, the operators can't offload.
What to do. I think this one is going to be self-limiting. Once 3G bandwidth gets scarce, the operators will realize that they can get a lot more revenue feeding data to smartphones than to PCs. The math works like this: With a given amount of bandwidth, you could support a single notebook computer and charge about $50 a month, or support 11 smartphones at $30 a month each. Hmm, $330 a month versus $50, seems like a pretty easy decision.
But there are two circumstances in which it would make sense for the operators to keep subsidizing PC sales:
1. If smartphone sales plateau. If this happens, eventually the network will catch up with demand and then there will be excess capacity for PCs; or
2. If operators can route most of the actual data traffic from PCs through WiFi connected to landlines. In this case they could sell you data plans knowing that you won't affect their networks much. That brings us to the next point...
Operators have a huge vested interest in unlocking WiFi access points. Most WiFi access points today are encrypted and inaccessible to other devices in the area. I think there's a strong financial incentive for mobile operators to work with fixed-line access companies to get those access points unlocked. The benefit for the wireless companies is clear -- the more WiFi points they can talk to, the fewer cell towers they need to build. But the benefits for the fixed-line operators are much less clear. Why should they help the mobile operators with their bandwidth crunch?
What to do. The ideal situation would be a revenue-sharing deal in which the operators share some money with the fixed-line companies to encourage them to open up access to their networks. In this scenario, your DSL or cable provider would give you a WiFi router that has been pre-configured to automatically and securely share excess bandwidth with mobile devices in the area. Your own traffic would get priority, but any extra capacity could be shared automatically. The benefit for you as a consumer would be a free router, and/or a lower DSL bill as the cable company passes along some of the revenue it gets from the mobile operators.
The effectiveness of this sort of approach is going to depend on the relative cost for an operator of subsidizing a set of WiFi base stations in an area, versus the cost of installing more wireless capacity. I wonder about weird scenarios like a DSL provider auctioning off excess WiFi capacity to wireless operators in a particularly congested area.
Femtocells for the rest of us. Another very logical step for the operators is to start pushing femtocells aggressively. (Femtocells are radios that work like a short-range cell tower, but are the size of a WiFi router. You connect one to your DSL or cable line, and it offloads traffic from the wireless network. Link)
What to do. Today femtocells are generally sold as signal boosters in areas with marginal wireless coverage. But in the future I think it may make sense for operators to give away femtocells, or at least subsidize them, for customers who live in areas where the data network is congested.
What it all means: Fixed-mobile convergence with a twist
If you step back from the details, the big picture is that we really need a single integrated data network that encompasses mobile and fixed connections, and switches between them seamlessly. People have been talking about this sort of thing for years (check out the Wikipedia article on fixed-mobile convergence here), but the focus has generally been on handing voice calls between WiFi and cellular. That's hard to do technologically (because you can't interrupt a voice conversation during the handover for more than a fraction of a second). Besides, it doesn't solve a significant customer problem -- the voice network isn't the thing that's overloaded.
The place where we could really, really use fixed-mobile convergence is in data. I'm worried, though, that the intense competition between the wireless and wired worlds will make it difficult and slow to achieve the coordination needed. This might be a useful place for government to put its attention. Not in terms of regulating the integrated network into existence (that would be the kiss of death), but to grease the skids for cooperation between the mobile and fixed-line worlds.
Just one more thing...
Everything above is based on the assumption that those Cisco and analyst forecasts are correct. But Cisco has a vested interest in hyping fear of the data apocalypse (Emergency! Buy more routers now!!), and my general rule about tech analysts is that every time they all agree on something you should bet against them.
There is a genuine crunch in mobile data capacity going on at the moment; you can read about network outages caused by the iPhone even today. And I can assure you that for every network failure you read about, there are dozens of other failures and near-failures that don't get reported. Many wireless data networks are very stressed.
And the situation will get worse.
But there's no such thing as infinite demand. At some point the growth of mobile data will slow down, and it's very important to try to estimate how and when that'll happen, so we as an industry do not overshoot too badly. The question isn't whether the growth forecasts are wrong, it's when they will be wrong.
I'll write about that next week...
Thursday, 19 November 2009
The OS is always greener...
In a report from a developer meeting, Nokia officials said they're moving to Maemo Linux as the OS for their high-end smartphones. That resulted in an entertaining little obituary in the Register by Andrew Orlowski (link). But then later in the day Nokia clarified that "we remain firmly committed to Symbian as our smartphone platform of choice" (link). That in turn led to a lively online debate about what Nokia actually said, and the challenges that Finnish people face when speaking English (check the comments here).
It's just one more chapter in the long and exquisitely awkward saga of Nokia and Symbian. From the outside I can't tell exactly what's going on at Nokia, and it's possible that Nokia itself doesn't know. It's a very large company, and various groups there can have conflicting agendas.
But I can't believe that there would be all of these repeated reports, leaks, and artfully-worded partial denials unless Nokia were de-emphasizing Symbian in the long run. The most prominent theory, which I believe based on things I hear through back channels, is that Nokia does indeed intend to move to Maemo at the high end. And, as we all know, in computing whatever's at the high end eventually ends up in the mainstream.
I'm sure Nokia has valid technical reasons for moving to another OS. Nokia has said that there are some things it wants to do with its smartphones that Symbian OS can't support. But still the change worries me. Nokia's biggest problem in the smartphone market isn't the OS it uses, it's the user experience and services layer in its smartphones. Moving to a new OS does almost nothing to fix that. It does force a lot of engineers to work on writing a lot of low-level infrastructure code that won't create visible value for users. It also forces Nokia to maintain two separate code bases, which will chew up even more engineers.
All of that investment could have gone into crafting some great solutions, the things that are the only way to pull customers away from Apple and RIM. At a minimum, it's a terrible shame that Nokia spent so much time and money on an OS that couldn't take it into the future.
(By the way, this focus on the OS doesn't apply only to Nokia. I hear a lot of buzz from operators and handset companies who believe that if they just pick the right OS they'll automatically end up with great smartphones. Android is the latest white knight for most of them, but of course Nokia's not going to depend on a technology from Google.)
There's an old joke in the tech industry about rearranging deck chairs on the Titanic. I don't think that applies to Nokia because they haven't hit an iceberg by any means. But I do have a mental picture of a sweet old lady who spends all her time every day cleaning the bathroom while the food is spoiling in the refrigerator.
It's just one more chapter in the long and exquisitely awkward saga of Nokia and Symbian. From the outside I can't tell exactly what's going on at Nokia, and it's possible that Nokia itself doesn't know. It's a very large company, and various groups there can have conflicting agendas.
But I can't believe that there would be all of these repeated reports, leaks, and artfully-worded partial denials unless Nokia were de-emphasizing Symbian in the long run. The most prominent theory, which I believe based on things I hear through back channels, is that Nokia does indeed intend to move to Maemo at the high end. And, as we all know, in computing whatever's at the high end eventually ends up in the mainstream.
I'm sure Nokia has valid technical reasons for moving to another OS. Nokia has said that there are some things it wants to do with its smartphones that Symbian OS can't support. But still the change worries me. Nokia's biggest problem in the smartphone market isn't the OS it uses, it's the user experience and services layer in its smartphones. Moving to a new OS does almost nothing to fix that. It does force a lot of engineers to work on writing a lot of low-level infrastructure code that won't create visible value for users. It also forces Nokia to maintain two separate code bases, which will chew up even more engineers.
All of that investment could have gone into crafting some great solutions, the things that are the only way to pull customers away from Apple and RIM. At a minimum, it's a terrible shame that Nokia spent so much time and money on an OS that couldn't take it into the future.
(By the way, this focus on the OS doesn't apply only to Nokia. I hear a lot of buzz from operators and handset companies who believe that if they just pick the right OS they'll automatically end up with great smartphones. Android is the latest white knight for most of them, but of course Nokia's not going to depend on a technology from Google.)
There's an old joke in the tech industry about rearranging deck chairs on the Titanic. I don't think that applies to Nokia because they haven't hit an iceberg by any means. But I do have a mental picture of a sweet old lady who spends all her time every day cleaning the bathroom while the food is spoiling in the refrigerator.
Wednesday, 4 November 2009
Which mobile apps are making good money?
At a conference the other day, several industry executives were on a panel discussing mobile application stores. There were representatives from Yahoo, Qualcomm, Motorola, and an independent application store. Someone from the audience asked a simple question: "Other than entertainment apps, name three mobile applications that are monetizing well." (In other words, apps that have a good business model and are making good money.)
The interesting thing was that none of the panelists had a very satisfying answer. The Qualcomm person cited navigation apps and something called City ID, and had no third app. The app store guy cited search-funded apps (Opera) and apps that are extensions of PC applications (Skype). The Motorola person, who used to work at Palm, cited two cool old Palm OS developers (SplashData and WorldMate, the latter not even available for Motorola's Android phones). And the Yahoo guy talked about Yahoo-enabled websites.
None of them had the sort of answer that the room was looking for -- what categories of smartphone apps are making it, and what are their business models, so other developers will know what to emulate? I started to laugh at the panelists' obvious discomfort, but then I realized that if I'd been on the panel and had been asked the same question, I would have blown it too. I know of a lot of mobile app companies that aren't making steady money, because they send me e-mails asking for ideas, but I don't seem to hear from the raging successes. Also, because I try to focus on what needs to be fixed in the industry, I'm probably guilty of skewing my posts toward what's not working.
So I did some thinking and a bit of research, and here are my three nominations for categories of non-entertainment mobile apps that are making it, and why. Then I'll open it up to your comments -- I have a feeling you'll have much better answers than me.
1. Vertical-market business applications. This was a good category for PDAs ten years ago, and it's a good category for smartphones today. There are dozens of business verticals where information overload, or an excess of written forms, hinder productivity. Find a way to manage that information electronically, and your application quickly pays for itself in increased productivity.
One example is ePocrates, which gives doctors drug reference, dosing, and interaction information. ePocrates has a beautiful business model in which the drug companies pay to get access to the doctors who use it. That helps the company give away its base product. I have to believe there are other verticals where you could create apps that would act as a middleman between suppliers and users.
Another interesting example, which I ran into at a conference recently, is Corrigo. They do work-order management (stuff like managing a mobile workforce and dispatching them to work sites on the fly). I like Corrigo because it makes good use of mobile technology, and scales nicely to multiple vertical markets.
Note that neither Corrigo nor ePocrates is a purely mobile application -- they are business solutions that leverage mobile. That's very typical of the business mobile market. It's not about being mobile for its own sake, it's about solving a business problem and using mobile technology to help do it.
One other cool thing about these businesses is that you can ignore the whole app store hassle and market them directly to the companies. You control your customer relationships, and you can keep 100% of your revenue.
2. PC compatibility applications. Inevitably some people will need to do on a mobile device the same things that they do on a PC -- edit a document, for example, or query a database. There's a solid market for applications to let the user do that. The market isn't enormous (not everyone is crazy enough to edit a spreadsheet on a screen the size of a Post-It note), but the people who need to do that are usually willing to pay for the apps. Or to make their employers pay for the apps. Documents to Go was probably the most successful application on Palm OS, and based on the stats posted by Apple I think it is probably one of the most lucrative non-entertainment apps on iPhone.
Unfortunately, Docs to Go is also a very well-entrenched application, so good luck displacing it. Maybe you can find another category of PC app that needs a mobile counterpart.
3. Brand extenders. There seems to be a steady market for mobile apps that help a major brand interact with its loyal users. A few recent examples:
The business model for this one is simple -- you get hired by the brand (or its marketing agency), they pay you to develop the app, and then they give it away. The more popular smartphones become, the more companies feel obligated to create mobile apps, so this is a growing market for now. (Beware, though -- having an iPhone app is kind of a corporate status symbol right now, like creating a corporate podcast was a couple of years ago. Development activity could drop off when businesses find the next trendy tech fad.)
To create this sort of app, you need to be very skilled at visual design, and you need to be comfortable managing custom development projects. Some developers don't have this sort of project and client management skills, and you can get yourself into a lot of trouble if you sign a contract without understanding what'll really be required to execute on it.
Also, you don't get to change the world creating a shopping app for Brand X. But in the right situation this can be a good way to make money while you work on your own killer app on the side. And if you're not into changing the world, there are companies that have built solid ongoing businesses on custom mobile development.
Other possibilities
There are a few of other categories of apps that I think could be candidates for inclusion, but in my opinion the jury is still out on them. I'm interested in what you think:
Location. Right now there are several location and direction apps selling well for iPhone, but with Google making directions free on Android, I fear the third party apps are at risk. However, the direction-finding business is a lot trickier than you'd expect (I learned that as a beta-tester for the Dash navigation system, which sometimes tried to get me to make a right turn by telling me to make three consecutive left turns). So we need to wait and see how good Google's directions are. But in the meantime I don't feel comfortable pointing to this as a viable category in the long term. What do you think?
Travel apps. There was once a very nice business in city guides for PDAs, but I get the sense that like many other categories of mobile apps, this one is being sucked into the free app vortex. But I suspect that there may still be a paid market for specialized tools like translation programs, and software that helps executives manage trips. WorldMate is an interesting example -- the base product is free, but if you pay you get special services.
Upgradeware. Speaking of free base products, I think this is the most intriguing possibility in the whole mobile app business today. In the PC world, there are a lot of app companies that manage to build sustainable businesses by giving away a free base product and then charging you for the advanced version (this is how most of Europe gets its antivirus software today, for example). In mobile this model worked well on Palm, but was not available on iPhone because Apple's terms and conditions prohibited a free application from offering in-app conversion to a paid upgrade. Apple just changed those terms.
Rob at Hobbyist Software asked the other day what I thought about the change. I think it's very long overdue, and I'm intensely interested in hearing from developers who have moved to that model. How's it working out for you?
Okay, so that's my list. If you're scheduled to appear on a panel somewhere, you're welcome to quote from it as needed. But now I'd like to throw the discussion open to you. Please post a comment -- What do you think of my list? And what non-entertainment mobile app categories, and business models, are making good money today, and why?
The interesting thing was that none of the panelists had a very satisfying answer. The Qualcomm person cited navigation apps and something called City ID, and had no third app. The app store guy cited search-funded apps (Opera) and apps that are extensions of PC applications (Skype). The Motorola person, who used to work at Palm, cited two cool old Palm OS developers (SplashData and WorldMate, the latter not even available for Motorola's Android phones). And the Yahoo guy talked about Yahoo-enabled websites.
None of them had the sort of answer that the room was looking for -- what categories of smartphone apps are making it, and what are their business models, so other developers will know what to emulate? I started to laugh at the panelists' obvious discomfort, but then I realized that if I'd been on the panel and had been asked the same question, I would have blown it too. I know of a lot of mobile app companies that aren't making steady money, because they send me e-mails asking for ideas, but I don't seem to hear from the raging successes. Also, because I try to focus on what needs to be fixed in the industry, I'm probably guilty of skewing my posts toward what's not working.
So I did some thinking and a bit of research, and here are my three nominations for categories of non-entertainment mobile apps that are making it, and why. Then I'll open it up to your comments -- I have a feeling you'll have much better answers than me.
1. Vertical-market business applications. This was a good category for PDAs ten years ago, and it's a good category for smartphones today. There are dozens of business verticals where information overload, or an excess of written forms, hinder productivity. Find a way to manage that information electronically, and your application quickly pays for itself in increased productivity.
One example is ePocrates, which gives doctors drug reference, dosing, and interaction information. ePocrates has a beautiful business model in which the drug companies pay to get access to the doctors who use it. That helps the company give away its base product. I have to believe there are other verticals where you could create apps that would act as a middleman between suppliers and users.
Another interesting example, which I ran into at a conference recently, is Corrigo. They do work-order management (stuff like managing a mobile workforce and dispatching them to work sites on the fly). I like Corrigo because it makes good use of mobile technology, and scales nicely to multiple vertical markets.
Note that neither Corrigo nor ePocrates is a purely mobile application -- they are business solutions that leverage mobile. That's very typical of the business mobile market. It's not about being mobile for its own sake, it's about solving a business problem and using mobile technology to help do it.
One other cool thing about these businesses is that you can ignore the whole app store hassle and market them directly to the companies. You control your customer relationships, and you can keep 100% of your revenue.
2. PC compatibility applications. Inevitably some people will need to do on a mobile device the same things that they do on a PC -- edit a document, for example, or query a database. There's a solid market for applications to let the user do that. The market isn't enormous (not everyone is crazy enough to edit a spreadsheet on a screen the size of a Post-It note), but the people who need to do that are usually willing to pay for the apps. Or to make their employers pay for the apps. Documents to Go was probably the most successful application on Palm OS, and based on the stats posted by Apple I think it is probably one of the most lucrative non-entertainment apps on iPhone.
Unfortunately, Docs to Go is also a very well-entrenched application, so good luck displacing it. Maybe you can find another category of PC app that needs a mobile counterpart.
3. Brand extenders. There seems to be a steady market for mobile apps that help a major brand interact with its loyal users. A few recent examples:
- -The Gucci app lets a customer get special offers, play with music, and find travel attractions endorsed by Gucci. The company calls it a "luxury lifestyle application."
- -There are four different Nike iPhone apps: a shoe designer, a women's training guide, a football (soccer) training guide, and an Italian soccer league tracking app.
- -The Target store search app lets you find stores, and search for items within the stores (it'll tell you which aisle to look in). (For those of you outside the US, Target is a large chain of discount department stores.)
- -Magic Coke Bottle is a Coke version of the Magic 8-Ball. It's one of three Coke-branded apps.
The business model for this one is simple -- you get hired by the brand (or its marketing agency), they pay you to develop the app, and then they give it away. The more popular smartphones become, the more companies feel obligated to create mobile apps, so this is a growing market for now. (Beware, though -- having an iPhone app is kind of a corporate status symbol right now, like creating a corporate podcast was a couple of years ago. Development activity could drop off when businesses find the next trendy tech fad.)
To create this sort of app, you need to be very skilled at visual design, and you need to be comfortable managing custom development projects. Some developers don't have this sort of project and client management skills, and you can get yourself into a lot of trouble if you sign a contract without understanding what'll really be required to execute on it.
Also, you don't get to change the world creating a shopping app for Brand X. But in the right situation this can be a good way to make money while you work on your own killer app on the side. And if you're not into changing the world, there are companies that have built solid ongoing businesses on custom mobile development.
Other possibilities
There are a few of other categories of apps that I think could be candidates for inclusion, but in my opinion the jury is still out on them. I'm interested in what you think:
Location. Right now there are several location and direction apps selling well for iPhone, but with Google making directions free on Android, I fear the third party apps are at risk. However, the direction-finding business is a lot trickier than you'd expect (I learned that as a beta-tester for the Dash navigation system, which sometimes tried to get me to make a right turn by telling me to make three consecutive left turns). So we need to wait and see how good Google's directions are. But in the meantime I don't feel comfortable pointing to this as a viable category in the long term. What do you think?
Travel apps. There was once a very nice business in city guides for PDAs, but I get the sense that like many other categories of mobile apps, this one is being sucked into the free app vortex. But I suspect that there may still be a paid market for specialized tools like translation programs, and software that helps executives manage trips. WorldMate is an interesting example -- the base product is free, but if you pay you get special services.
Upgradeware. Speaking of free base products, I think this is the most intriguing possibility in the whole mobile app business today. In the PC world, there are a lot of app companies that manage to build sustainable businesses by giving away a free base product and then charging you for the advanced version (this is how most of Europe gets its antivirus software today, for example). In mobile this model worked well on Palm, but was not available on iPhone because Apple's terms and conditions prohibited a free application from offering in-app conversion to a paid upgrade. Apple just changed those terms.
Rob at Hobbyist Software asked the other day what I thought about the change. I think it's very long overdue, and I'm intensely interested in hearing from developers who have moved to that model. How's it working out for you?
Okay, so that's my list. If you're scheduled to appear on a panel somewhere, you're welcome to quote from it as needed. But now I'd like to throw the discussion open to you. Please post a comment -- What do you think of my list? And what non-entertainment mobile app categories, and business models, are making good money today, and why?
Thursday, 29 October 2009
A web guy and a telecom guy talk about net neutrality
It was a nondescript bar in the American Midwest, the sort of place where working men drop in at the end of the day to unwind before they head home. You wouldn't expect to find two senior business executives there, and as I sat in the empty bar at midday I wondered if maybe my contact had given me a bad lead. But then the door opened and a general manager from one of the leading web companies walked in, followed by a senior VP from one of the US's biggest mobile network operators. I hunched down in the shadows of a corner booth and typed notes quietly as they settled in at the bar.
Bartender: What'll you have?
Telecom executive: Michelob Light.
Web executive: I'll have a Sierra Nevada Kellerweis.
Bartender: Keller-what?
Web executive: Um, Michelob Light.
Telecom executive: Thanks for coming. Did you have any trouble finding the place?
Web executive: All I can say is thank God for GPS. I've never even been on the ground before between Denver and New York.
Telecom executive: I wanted to find someplace nondescript, so we wouldn't be seen together. The pressure from the FCC is bad enough already, without someone accusing us of colluding.
Web executive: No worries, my staff thinks I'm paragliding in Mexico this weekend. What's your cover story?
Telecom executive: Sailboat off Montauk.
Web executive: Sweet. So, you wanted to talk about this data capacity problem you have on your network...
Telecom executive: No, it's a data capacity problem we all have. Your websites are flooding our network with trivia. The world's wireless infrastructure is on the verge of collapse because your users have nothing better to do all day than watch videos of a drunk guy buying beer.
Web executive: Welcome to the Internet. The people rule. If you didn't want to play, you shouldn't have run the ads. Remember the promises you made? "Instantly download files. Browse the Web just like at home. Stream HD videos. Laugh at an online video or movie trailer while travelling in the family car."
Telecom executive: That was our marketing guys. They don't always talk to the capacity planners. Besides, who could have known that the marketing campaign would actually work?
Web executive: Don't look at me. I've never done a marketing campaign in my life. I think you should just blame it on A--
Telecom executive: You promised, no using the A-word.
Web executive: Sorry. But I still don't see why this is a problem. Just add some more towers and servers and stuff.
Telecom executive: It's not that simple. The network isn't designed to handle this sort of data, and especially not at these volumes. Right now our biggest problem is backhaul capacity -- the traffic coming from the cell towers to our central servers. But when we fix that, the cell towers themselves will get saturated. Fix the towers and the servers will fall over somewhere. It's like squeezing a balloon. We have to rebuild the whole network. It's incredibly expensive.
Web executive: So? That's what your users pay you for.
Telecom executive: But most of them are on fixed-rate data plans. So when we add capacity, we don't necessarily get additional revenue. It's all expense and no profit. At some point in the not-too-distant future, we'll end up losing money on mobile data.
Web executive: Bummer.
Telecom executive: More like mortal threat. Fortunately, we've figured out how to solve the problem. The top five percent of our users produce about 50% of the network's total traffic. So we're just going to cap their accounts and charge more when they go over.
Web executive: Woah! Hold on, those are our most important customers you're talking about. You can't just shut them down.
Telecom executive: The hell we can't. They're leeches using up the network capacity that everyone else needs.
Web executive: Consumers will never let you impose caps. You told them they had unlimited data plans, that's the expectation you set. You can't go back now and tell them that their plans are limited. They won't understand -- and they won't forgive you.
Telecom executive: First of all, the plans were never really unlimited in the first place. There's always been fine print.
Web executive: Which no one read.
Telecom executive: Off the record, you may have a point. On the record, the fact is that you can retrain users. Look, you grew up in California, right?
Web executive: What does that have to do with anything?
Telecom executive: Once upon a time, there weren't any water meters in California. Now most of the major cities have them, and they'll be required everywhere in a couple of years. Something that was once unlimited became limited, and people learned to conserve.
Web executive: The difference is, I can read my water meter. You make a ton of money when people exceed their minutes or message limits, and you don't warn them before they do it. If you play the same game with Internet traffic, it'll scare people away from using the mobile web -- or worse yet you'll invite in the government. Look what happened with roaming charges in Europe.
Telecom executive: Jeez, don't even think about that. Okay, so we'll need to add some sort of traffic meter so people will know how much data they're using when they load a page.
Web executive: Great, that'll discourage people from using Yahoo.
Telecom executive: Huh?
Web executive: Oops, did I say that out loud?
Telecom executive: Then there's the issue of dealing with websites and apps that misuse the network.
Web executive: Not this again.
Telecom executive: I'm not talking about completely blocking anything, just prioritizing the traffic a little. Surely you agree that 911 calls should get top priority on the network, right?
Web executive: Of course.
Telecom executive: And that voice calls should take priority over data?
Web executive: I don't know about that.
Telecom executive: Oh come on, what good is a telecom network if you can't make calls on it?
Web executive: (sighs) Yeah, okay.
Telecom executive: So then what's wrong with us prioritizing, say, e-mail delivery over video?
Web executive: Because when you start arbitrarily throttling traffic, I can't manage the user experience. My website will work great on Vodafone's network but not on yours, or my site will work fine on some days and not on others. How do you think the customers will feel about that?
Telecom executive: Not as angry as they will be if the entire network falls over. Listen, we're already installing the software to prioritize different sorts of data packets. We could be throttling traffic today and you wouldn't even know it.
Web executive: But people will eventually figure it out. They'll compare notes on which networks work best and they'll migrate to the ones that don't mess with their applications. Heck, we'll help them figure it out. And if that's not enough, there's always the regulatory option. The Republicans are out of office. They can't protect you on net neutrality any more.
Telecom executive: You think you're better at lobbying the government than we are? We've been doing it for 100 years, pal. Besides, we have a right to protect our network.
Web executive: You mean to protect your own services from competition!
Telecom executive: Parasite!
Web executive: Monopolist!
Telecom executive: That's it! It's go time!
They both stood. The telecom guy grabbed a beer bottle and broke it against the bar, while the web guy raised a bar stool over his head. Then the bartender pulled out a shotgun and pointed it at both of them.
Bartender: Enough! I'm sick of listening to you two. Telecom guy, you're crazy if you think people will put up with someone telling them what they can and can't do on the Internet. The Chinese government can't make that stick, and unlike them you have competitors.
Web executive: See? I told you!
Bartender: Shut up, web guy! You keep pretending that the wireless network is infinite when you know it isn't. If you really think user experience is important, you need to start taking the capabilities of the network into account when you design your apps.
Web executive: Hey, he started it.
Telecom executive: I did not!
Bartender: I don't care who started it! Telecom guy, you need to expose some APIs that will let a website know how much capacity is available at a particular moment, so they can adjust their products. And web guy, you need to participate in those standards and use them. Plus you both need to agree on ways to communicate to a user how much bandwidth they're using, so they can make their own decisions on which apps they want to use. That plus tiered pricing will solve your whole problem.
Telecom executive: Signaling capacity too. Don't forget signaling.
Bartender: That's exactly the sort of detail you shouldn't confuse users with. Work it out between yourselves and figure out a simple way to communicate it to users. Okay?
Web executive: I guess.
Telecom executive: Yeah, okay.
Bartender. Good. Now sit down and start over by talking about something you can cooperate on.
Telecom executive: All right. Hey, what's that guy doing in the corner? Is that a netbook?
Web executive: He's a blogger!
Bartender: There's no blogging allowed in here!
Telecom executive and web executive: Get him!
I ran. Fortunately, the bar had a back door. Even more fortunately, the web guy and the telecom guy got into an argument over who would go through the door first, and I was able to make my escape.
So I don't know how the conversation ended. But I do know that I wish that bartender was running the FCC.
Bartender: What'll you have?
Telecom executive: Michelob Light.
Web executive: I'll have a Sierra Nevada Kellerweis.
Bartender: Keller-what?
Web executive: Um, Michelob Light.
Telecom executive: Thanks for coming. Did you have any trouble finding the place?
Web executive: All I can say is thank God for GPS. I've never even been on the ground before between Denver and New York.
Telecom executive: I wanted to find someplace nondescript, so we wouldn't be seen together. The pressure from the FCC is bad enough already, without someone accusing us of colluding.
Web executive: No worries, my staff thinks I'm paragliding in Mexico this weekend. What's your cover story?
Telecom executive: Sailboat off Montauk.
Web executive: Sweet. So, you wanted to talk about this data capacity problem you have on your network...
Telecom executive: No, it's a data capacity problem we all have. Your websites are flooding our network with trivia. The world's wireless infrastructure is on the verge of collapse because your users have nothing better to do all day than watch videos of a drunk guy buying beer.
Web executive: Welcome to the Internet. The people rule. If you didn't want to play, you shouldn't have run the ads. Remember the promises you made? "Instantly download files. Browse the Web just like at home. Stream HD videos. Laugh at an online video or movie trailer while travelling in the family car."
Telecom executive: That was our marketing guys. They don't always talk to the capacity planners. Besides, who could have known that the marketing campaign would actually work?
Web executive: Don't look at me. I've never done a marketing campaign in my life. I think you should just blame it on A--
Telecom executive: You promised, no using the A-word.
Web executive: Sorry. But I still don't see why this is a problem. Just add some more towers and servers and stuff.
Telecom executive: It's not that simple. The network isn't designed to handle this sort of data, and especially not at these volumes. Right now our biggest problem is backhaul capacity -- the traffic coming from the cell towers to our central servers. But when we fix that, the cell towers themselves will get saturated. Fix the towers and the servers will fall over somewhere. It's like squeezing a balloon. We have to rebuild the whole network. It's incredibly expensive.
Web executive: So? That's what your users pay you for.
Telecom executive: But most of them are on fixed-rate data plans. So when we add capacity, we don't necessarily get additional revenue. It's all expense and no profit. At some point in the not-too-distant future, we'll end up losing money on mobile data.
Web executive: Bummer.
Telecom executive: More like mortal threat. Fortunately, we've figured out how to solve the problem. The top five percent of our users produce about 50% of the network's total traffic. So we're just going to cap their accounts and charge more when they go over.
Web executive: Woah! Hold on, those are our most important customers you're talking about. You can't just shut them down.
Telecom executive: The hell we can't. They're leeches using up the network capacity that everyone else needs.
Web executive: Consumers will never let you impose caps. You told them they had unlimited data plans, that's the expectation you set. You can't go back now and tell them that their plans are limited. They won't understand -- and they won't forgive you.
Telecom executive: First of all, the plans were never really unlimited in the first place. There's always been fine print.
Web executive: Which no one read.
Telecom executive: Off the record, you may have a point. On the record, the fact is that you can retrain users. Look, you grew up in California, right?
Web executive: What does that have to do with anything?
Telecom executive: Once upon a time, there weren't any water meters in California. Now most of the major cities have them, and they'll be required everywhere in a couple of years. Something that was once unlimited became limited, and people learned to conserve.
Web executive: The difference is, I can read my water meter. You make a ton of money when people exceed their minutes or message limits, and you don't warn them before they do it. If you play the same game with Internet traffic, it'll scare people away from using the mobile web -- or worse yet you'll invite in the government. Look what happened with roaming charges in Europe.
Telecom executive: Jeez, don't even think about that. Okay, so we'll need to add some sort of traffic meter so people will know how much data they're using when they load a page.
Web executive: Great, that'll discourage people from using Yahoo.
Telecom executive: Huh?
Web executive: Oops, did I say that out loud?
Telecom executive: Then there's the issue of dealing with websites and apps that misuse the network.
Web executive: Not this again.
Telecom executive: I'm not talking about completely blocking anything, just prioritizing the traffic a little. Surely you agree that 911 calls should get top priority on the network, right?
Web executive: Of course.
Telecom executive: And that voice calls should take priority over data?
Web executive: I don't know about that.
Telecom executive: Oh come on, what good is a telecom network if you can't make calls on it?
Web executive: (sighs) Yeah, okay.
Telecom executive: So then what's wrong with us prioritizing, say, e-mail delivery over video?
Web executive: Because when you start arbitrarily throttling traffic, I can't manage the user experience. My website will work great on Vodafone's network but not on yours, or my site will work fine on some days and not on others. How do you think the customers will feel about that?
Telecom executive: Not as angry as they will be if the entire network falls over. Listen, we're already installing the software to prioritize different sorts of data packets. We could be throttling traffic today and you wouldn't even know it.
Web executive: But people will eventually figure it out. They'll compare notes on which networks work best and they'll migrate to the ones that don't mess with their applications. Heck, we'll help them figure it out. And if that's not enough, there's always the regulatory option. The Republicans are out of office. They can't protect you on net neutrality any more.
Telecom executive: You think you're better at lobbying the government than we are? We've been doing it for 100 years, pal. Besides, we have a right to protect our network.
Web executive: You mean to protect your own services from competition!
Telecom executive: Parasite!
Web executive: Monopolist!
Telecom executive: That's it! It's go time!
They both stood. The telecom guy grabbed a beer bottle and broke it against the bar, while the web guy raised a bar stool over his head. Then the bartender pulled out a shotgun and pointed it at both of them.
Bartender: Enough! I'm sick of listening to you two. Telecom guy, you're crazy if you think people will put up with someone telling them what they can and can't do on the Internet. The Chinese government can't make that stick, and unlike them you have competitors.
Web executive: See? I told you!
Bartender: Shut up, web guy! You keep pretending that the wireless network is infinite when you know it isn't. If you really think user experience is important, you need to start taking the capabilities of the network into account when you design your apps.
Web executive: Hey, he started it.
Telecom executive: I did not!
Bartender: I don't care who started it! Telecom guy, you need to expose some APIs that will let a website know how much capacity is available at a particular moment, so they can adjust their products. And web guy, you need to participate in those standards and use them. Plus you both need to agree on ways to communicate to a user how much bandwidth they're using, so they can make their own decisions on which apps they want to use. That plus tiered pricing will solve your whole problem.
Telecom executive: Signaling capacity too. Don't forget signaling.
Bartender: That's exactly the sort of detail you shouldn't confuse users with. Work it out between yourselves and figure out a simple way to communicate it to users. Okay?
Web executive: I guess.
Telecom executive: Yeah, okay.
Bartender. Good. Now sit down and start over by talking about something you can cooperate on.
Telecom executive: All right. Hey, what's that guy doing in the corner? Is that a netbook?
Web executive: He's a blogger!
Bartender: There's no blogging allowed in here!
Telecom executive and web executive: Get him!
I ran. Fortunately, the bar had a back door. Even more fortunately, the web guy and the telecom guy got into an argument over who would go through the door first, and I was able to make my escape.
So I don't know how the conversation ended. But I do know that I wish that bartender was running the FCC.
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