Northstreaming – the blog « Northstream

T-Mobile USA recently announced that they will shut down their mobile developer programme. Developers are now asked to use existing platform app stores; in particular Android Market, BlackBerry App Store and Microsoft’s Windows Marketplace for Mobile. One convenient conclusion from this could be that T-Mobile has thrown in the towel in the fight against the established apps stores.

What I think we are witnessing here is not really giving up, it’s the brave move by an operator to admit that they are not the ones best suited to run a developer ecosystem. Just because Apple succeeded in creating huge momentum with their App Store, it’s not that easy to copy the recipe and hope for success. We witnessed the same chain of events with mobile music stores a few years ago after iTunes Music Store had proven the way to online music sales. Too many decided to set out on the same journey without properly answering “why” and “how”. Most failed to create sweet music on their income statements.

In contrast, when launching Android Market, Google seems to have done their positioning homework. Apple upset some developers – the suppliers – with a proprietary, closed operating system and a strict application approval process. Android offers open source and virtually anything to be published on Android Market (though here we have some other concerns, soon to be published on the blog). Google also saw that there was demand among consumers for devices that had great user experience but weren’t necessarily an Apple product. Realizing the unbalanced supply and demand opportunity, Google could successfully move into the market.

Nokia’s Ovi needs to be mentioned as well. Ovi’s lack of real success is likely due to bad experiences both from a consumer and a developer perspective. It simply was, and perhaps still is, too cumbersome for people to download and buy applications. If consumers (demand) are not impressed you will soon run into trouble attracting the developers (supply) due to lack of market, thus making it very hard to get momentum.

The question now remains how the rest of the app stores should position themselves for survival. Will operating system specific app stores stay as the dominant players? Do initiatives such as the Wholesale Application Community stand a chance? Regardless, a developer programme or app store must carefully serve both the supply and demand side. Suppliers, the developers, need enough and constantly updated features to keep them happy and productive while differentiating the programme from others. Demand is created by consumers who want easily accessible, high quality applications with a consistent user experience. If you cannot keep a good supply/demand balance, your developer programme risks failing.

T-Mobile should be credited for pulling the plug on a venture that would likely not receive the attention needed, internally or externally, to stay competitive and profitable. To compete with the industry leaders you need not only be very quick and innovative in the applications field, something that mobile operators are not geared up to. You also need to have great reach and scale, something a mobile operator typically does not have with its shared national or regional footprint.

The way we see it, operators shall first and foremost do what they do best: coverage, quality and operational excellence (see our December 2009 blog post Prediction #3 - Shoemaker stick to your last). This is the uncompromisable base for a healthy business in the longer run. There are several value adding roles for operators, but being an app store is probably not one of them.

/Erik

Erik is a Consultant at Northstream

Feedback to blog@northstream.se

31 May 2010 | Northstream

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We can work it out

A few weeks ago we posted a comment on how operators should approach mobile advertising utilizing their unique assets (see blog post: Mobile Advertising - Who’s got a ticket to ride).

While we firmly believe that operators should make an effort to capture revenue and be part of this important ecosystem we also believe that the opportunity needs to be put in the overall perspective.

If we zoom in on the US market; a well developed market from a mobile operator, mobile user and marketing/advertising ecosystem point of view.

Emarketer has forecasted the following (analysis released 23/9 2009)

- Annual mobile ad spend of 593 MUSD in 2010
- Annual mobile ad spend of 1560 MUSD in 2013

This is indeed a substantial market and a significant growth. But…the combined wireless revenues of mobile operators in US were roughly USD153 billion in 2009, or USD535 per user (Source: CTIA).

Assuming mobile operators would get a 50% share (remember now, fixed operators’ share of advertising on internet over their “pipes” is 0%) the share of mobile advertising spend of the total revenue cake would thus be 0.2% in 2010 and (assuming a fairly stable revenue base until 2013) 0.5% in 2013. Using the same CAGR as forecasted between 2010 and 2013 (38%) it would take mobile advertising until 2020/2021 to reach 5% of the total revenue.

Given that many analysts, including ourselves, expect a decline in voice revenues for operators one question on the table is whether advertising will make up the difference. The above exercise indicates it won’t…

- Mobile advertising will not offset voice revenue decline. They don’t play in the same ballpark
- Time and investments are better spent on efforts in delivery efficiency and operations streamlining for core services and other access related aspects
- But when spending time and effort on mobile advertising (which should be done, don’t get us wrong), e.g. through utilizing assets in UDM, this should not be limited to target mobile advertising but also to augment and optimize other services

So, you go for that tempting money on the table but never ever lose focus on the key assets.

/ Per

Per Stenström is a Manager at Northstream.

Feedback to blog@northstream.se

12 May 2010 | Northstream

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You can’t always get what you want

I cannot get this Google tax idea out of my head. It was announced this week that Vodafone joins Telefonica and other big Telcos in lobbying efforts to get EU approval to charge on-line content providers for the services they provide to Telco customers.

The supposed logic is that these on-line services generate so much traffic that the Telcos need to make huge investments in network capacity which their customers are not paying for. It’s relatively easy to score some cheap points about this e.g.

• Hey Mr. Telco, why don’t you instead charge your customers in accordance with how much bandwidth they consume, the EU wouldn’t mind.
• Or, Telcos make about 1500 billion $ a year and Google makes 23 billion $, how high should that “Google tax” be to have any material impact for you?

But we don’t want to score cheap points, so let’s dig a little further.

Most Telcos are lead by smart people, and they surely know that they will not be successful in this lobbying campaign. There must be something else they are looking for. What could it be? A couple of guesses from my side:

1) There are many important battles going on for Telcos with the EU; international roaming fees, call termination fees and net neutrality (which this topic is part of). Rather than being defensive on all fronts it’s important to be offensive with something.

2) It’s not a battle that can be won near term, but in the future when all Telcos may be bit pipes and most services are provided by on-line players it will be important to have a two-sided business model established.

3) The potential threat from Google to Telcos’ core service revenues is so big that any chance to stop it must be taken. It’s part of the bargaining, “if we give in on “Google tax” you have to give us a slice of the advertising revenues” or something like that.

Whatever the real agenda behind the Google Tax lobbying campaign is it’s more likely about the longer term role of Telcos in the digital services value chain rather than getting EU support to charge on-line service providers for what Telcos failed to charge their customers in the first place.

/Bengt

Bengt Nordström is the CEO of Northstream

Feedback to blog@northstream.se

05 May 2010 | Northstream

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Why don’t we do it in the road…

Roaming revenues have always been a lucrative source of high-margin revenue contributions for mobile operators. One can easily understand the GSM-community’s reluctance towards lowering prices, at least as long as end customers are not considering the roaming charges when selecting their subscription.

With the overwhelming success of both mobile broadband and data-hungry smart phones, it has become obvious that the current roaming model does not satisfy the needs of the end-users. It is not only the cost level that is the problem, but also the lack of transparency. Strong willingness to pay is proven by travelers (especially business but more and more consumers) that are happily paying the odd 20 € or so for WiFi access at hotels or airports. But those who have tried to use their mobile broadband or iPhone when traveling are not likely to do it again. (My colleague’s football match a couple days ago (see previous blog post) would have cost above 10,000 Euro in a roaming scenario…).

No, what is needed is clearly a kind of flat rate also in the roaming case. Paying for daily usage is the most transparent model for travelers. And if the market is segmented in an appropriate way, it will for sure lead to increased revenues rather than decreased, not to talk about user satisfaction and the ensuing increased uptake and usage. Segmentation is about packaging a product in suitable packages so everybody pays what they are willing to pay. This maximizes both revenues and profit. Exactly how it is solved commercially and technically is to be determined, but this industry has managed more difficult challenges than this, and there are already markets, notably in Asia, where this scheme is already deployed.

Many are the industries that have undergone drastic reshaping of their business models due to changes in user behavior or innovative competition from newcomers, and many are the giants that have not adapted in time (lots of examples in music industry, airline industry, auto industry), so for the mobile equivalents to grab the opportunity it’s really time to bring an attractive roaming model to its billions of users to deserve (and get) a bigger portion of their spending.

At least I would start using both my mobile broadband and my iPhone when travelling and happily (well...) increase my mobile spending.

/Jakob

Jakob Larsen is a Manager at Northstream

Feedback to blog@northstream.se

03 May 2010 | Northstream

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