Northstreaming – the blog « Northstream

Very recently Microsoft showed a convincing new user interface that indicated a new start at their mobile OS efforts, renamed Windows Phone 7 Series. This week they pushed ahead and presented more details, with fascinating prototype openness, of its upcoming phones, including their application platform. Now it is even clearer how fundamentally Microsoft has changed its approach. For the first time, they have literally put the end user first while building the new OS and application platform. By taking a stronger grip of the hardware specifications, while implementing a strong platform for application development and provisioning and defining a “common user experience”, they aim to ensure that end users will flock, thrive and stay.

The initial core elements of this strategy are similar of Apple’s iPhone:

• Microsoft will do more in both hardware and software. Initially, smartphone manufacturers will be limited to three reference hardware chassis designs. Most likely, Windows Phones will look alike, irrespective what OEM they come from.
• Windows Phone applications will only be sold through Microsoft’s “Windows Phone Marketplace”, which will have “policies” for approval
• No support for storage expansion through e.g. microSD cards
• No background processing for third party apps
• No native applications in the new OS
• Microsoft Location Service and Microsoft Notification Service as one point shopping for location and background alerts
• No initial support for copy/paste

On the other hand, Windows Phone will have Flash support and the Marketplace will support trying out applications before buying, as well as operator billing and ad-funded programs...

Several of these decisions are understandable when the user experience is in focus. And maybe this is a middle road in the consumer space between iPhone and Android. But while Apple develops, manufactures and brands Apple devices, Microsoft licenses an operating system to smartphone manufacturers. With Windows Phone 7, Microsoft will limit hardware differentiation and push smartphone manufacturers towards application-based differentiation. By year end, a bunch of new Windows Phone smartphones will surely offer a “delightful and consistent” user experience in a PC-like split between hardware and software but Microsoft’s designs to lure manufacturers and developers look less differentiating than may be necessary to win.

With Windows Phone 7 Series Microsoft has shown the first post-iPhone user interface that clearly differentiates from the Apple style and an impressive capability of change. It is gratifying that Microsoft is acknowledging the role of the emotional user experience in the modern smartphone market, but both manufacturer, developer, and operator locomotives are needed to ensure success with users. Operators still represent the most important smartphone distribution channel. Before the year is over both iPhone and Android will have moved forward, most likely offering form factors and functionalities differentiating them from the Microsoft threat, in addition to an even more overwhelmingly larger amount of apps. iPhone and Android have eager operator partners who continue to see different benefits from using their phones targeting primarily “consumer” segments (for lack of a better word).

If Microsoft has struck the right balance between freedom and control, they will certainly still be in the game, but final success is only possible if operators manage to reposition Microsoft Windows Phone 7 Series as consumer smartphones, breaking away the traditional Microsoft position as an “enterprise thing.” The branding exercise of an “LG Microsoft Windows Phone” towards consumers is definitely less trivial than selling an apple.

24 Mar 2010 | Northstream

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It came out of the sky!?

When we visited MWC in February it struck us that never before has the smartphone segment been more conformant in design and look-and-feel factor. Big touch screen, a few navigation buttons, GUI built on home screen with icons and very hard to tell one brand from the other. Traditional differentiation seems to be next to nowhere.

It probably goes without saying that this ‘copycatism’ stems from a clear (and probably sound) reaction to the shock Apple’s iPhone sent to the handset market, and for now that very form factor and look-and-feel is pretty much the way to go if you want to sell phones. But looking forward, we expect to see more attempts at branching out to more innovative ways than “just” creating the next “iPhone-killer” and rather taking jump steps to differentiate the portfolios. And then we don’t mean just further variations in zooming mechanics, screen size and resolutions demonstrated in Barcelona.

So, are there any potential quantum leaps out there? What is the next step?

One potential leap could be the complete ‘cloud based solution’. By cloud based we mean a solution which requires minimum SW footprint and processing power through utilizing “cloud” server capacity for all types of services and applications. This is nothing new and it has been pointed to by several others before (e.g. http://www.marketingcharts.com/direct/cloud-based-mobile-market-to-grow-88-12043/) but rarely is any analysis made on the real impact on the device side. Analogous with the thin client concept, the ability to derive a number of advantages both in SW and HW design should open up. Not needing huge memory, processing power could for starters enable new form factors but also potentially increase battery lifetime.

The prerequisites are there. HSPA coverage is becoming close to ubiquitous (and LTE is just around the corner…) so networks should be able to cater for it. The applications market is thriving, with several thousands of developers looking to capitalize on Apple’s, Android’s, OVI’s and operators’ app-stores. The only difference would be placing the applications, i.e. functionality and processing, in the cloud instead.

When and by Whom? We don’t really have a firm answer to that question (yet..), but we are sure it will come sooner than most anticipate and that we will have reason to write about the new wave device explosion in a year or so.

17 Mar 2010 | Northstream

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The dossier for our Prediction #3 - Shoemaker stick to your last - is building up

One of the world’s largest operators Vodafone is closing down Wayfinder, its provider of navigation- and location-based services. After players such as Google and Nokia started offering maps and other navigation support for free, “We could not charge for something that others give away for free” says a Vodafone spokesperson. Vodafone’s move, as well as Google’s and Nokia’s, may confirm the overall relatively low standalone value of positioning itself. The last decade has proven that location-based service revenues are elusive. Only now are we witnessing some success of positioning as a supporting component to e.g. social networks, but the final numbers are not in yet.

More importantly, Vodafone gives another example of how challenging it is for operators to run services in competition with other players, higher up in the value chain, such as handset and internet players who can scale their services globally. Not only is the footprint needed very large, operators who are searching for new revenue sources increasingly need to consider indirect, advertising-based income. That business logic is different from most operators’ main business and requires both new competences and changed priorities.

12 Mar 2010 | Northstream

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There’s no such thing as a simple answer

We are frequently asked by other analysts, media and friends whether we believe mobile broadband is profitable. As with most questions asked to a consultant, a simple question will rarely get a simple answer…. Seriously though, we believe that there is no general answer. It depends on how you dress the case and most definitely on the operator situation. The most difficult part is allocating the relevant opex and capex. We have seen many approaches of cost allocation, of which two basic ones are quite common:

- The ‘cost plus’ approach. Means treating the investments made before mobile broadband as a given (sites, active infrastructure etc.) and then summing all additional costs related to mobile broadband, such as new licenses, additional capacity, device subsidies, etc. This means that site infrastructure, the base level for network O&M related opex etc. are all excluded from the mobile broadband case.

- The ‘capacity distribution’ approach. Infrastructure and equipment cost + opex are distributed based on traffic load. This means that the total cost of network capex and opex will be distributed according to capacity utilization. This would be a good way to do it if only that distribution was easy to pin down. If capacity is simply counted in MB, mobile broadband will most probably get an unjustifiably too big share of the allocation (see for example Ericsson’s white papers on mobile broadband business case for further explanation on that)

In other words, both cases provide a picture that is not completely accurate. In addition, taking a P&L approach requires defining the lifetime of your equipment in a market landscape that is ever changing. Is the lifespan of a NodeB really five years nowadays? (a trick question…)

So how do we believe that it should be done? According to us there is need for a deep consequential analysis of what mobile broadband really does to the network and the operation of it. As an example; how many of the site visits last year were a direct consequence of the mobile broadband offering? How much time of the radio and transmission network departments is currently consumed on planning and engineering for capacity increase and topology shifts to cater for mobile broadband data traffic? How much of capacity and upgrade capex is related to mobile broadband traffic load and shaping? …and so on.

Not until the real drivers are understood for that particular operator, mapped out and applied on its specific cost structure will we have the real answer to the question. Needless to say, we feel strongly that this is a key thing for any operator going forward, and especially in times like now when strategic decisions of when (not if..) to start dipping the toes in the LTE lake while keeping a steady traction on the HSPA island. Making mobile broadband profitable is likely a key priority for anyone trying to leverage this growth area. Understanding where you are now is of course only the first step, but with that in hand the rest will come out easier and with more confidence.

So next time we are asked this “simple question” – we will most likely have a set of tricky questions in return, paving the way towards the good answer.

09 Mar 2010 | Northstream

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