Early August, when the launch of Android version 2.2 was imminent, HTC Desire users of Vodafone UK (as many others) were eager to get the update. When it eventually arrived, disappointment ensued.

It turned out that the update was not the awaited 2.2 but a new 2.1 with lots of Vodafone 360 apps and graphics. Apps and graphics that were non-removable to the user. This created enough stir in the community that Vodafone took action (planned or non-planned?) and ensured all users that a 2.2 update would override the 2.1 update and be based on the common Android version.

Read all about it here: http://www.telecoms.com/22013/vodafone-backs-down-on-custom-android-update/

Needless to say, the initiative went off the mark but I still believe that Vodafone are on to something in taking the Android track with their 360 initiative.

With Android, operators with the scale and ambition of Vodafone may have their “final” shot at designing and “owning” the customization, UI and applications. The Open Source nature of Android, the possibility to add UI layers and create applications pose a clear opportunity for anyone wanting to add the little extra.

So, what do I think they should have done? Well, offer the applications, UI layers, widgets etc. in the android market (yes, I know they’re offering some, but..). Their basic strategy evidently implies a belief in being able to add value to the customer experience. If so, then why not compete with all other apps in the market. Why not go for a wider audience than the Vodafone user base?

In the new world of app stores freedom of choice prevails, and if Vodafone wants to play a role in the applications and software arena they will have to compete with the best of breed to really win their customers’ hearts.

/ Per

Per Stenström is a Manager at Northstream

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This development is of course not news to Microsoft who since long has announced the much anticipated next version of Windows Mobile, now dubbed Windows Phone 7. Release dates are set for October/November, just in time for the holiday sales. Early reviews have generally concluded that it looks promising but has its share of issues that need attention. Microsoft’s new mobile OS is not likely to shake the earth when it hit stores but may at least halt their loss of market share.

Even if Windows Phone 7 lacks features to really set it apart from iOS and Android it does seem to have something quite unique: the Xbox Live gaming network. Xbox Live thrives and Microsoft claims some 25 million registered users. Looking at the mobile gaming competition, Apple’s iOS has some very popular games but they cannot really compare to the titles available for Sony PlayStation Portable (PSP) or Nintendo DS. Quality games for Android are generally hard to find, likely a consequence of Google’s inability to having launched paid applications in more than 13 countries so far. In the fierce competition on mobile operating system market share, Xbox Live and good portable gaming experience may indeed be the differentiator Microsoft needs for their new OS release.

If Microsoft can convince just some percentages of the current 25 million Xbox Live users that they need Windows Phone 7 for great mobile games, their market share will increase by significant numbers. Microsoft needs to hurry though: iOS shows high growth on the portable gaming market as well, mostly nibbling share from Sony’ PSP according to Flurry. To approach tomorrow’s market, there are important lessons to be learned from both present and past:

First, make sure you understand which features are essential and which are key differentiation attractors. Make essential features as good as the competition, but focus efforts on making the key differentiation attractors outstanding. Apple’s overall iPhone strategy was clear: you can get away with “good-enough” hardware as long as the device user experience is excellent. Microsoft should take on a follower approach in the user interface and then focus on the things they do really well. One of the reasons that Nokia’s N-Gage phone/game device failed a number of years ago was the split focus. N-Gage was neither a good phone nor a good gaming platform and on top of that too expensive.

Second, make sure that consumers can pay for applications and games immediately in all countries where the OS is launched. Failing to do this will alienate users as they will not be able to access premium quality content and developers because they don’t get paid. This is the problem Android phones face with Android Market in most countries. Make sure the best game titles are available and you will attract consumers, but avoid being middle-of-the road with content that is readily accessible elsewhere. Microsoft is in a good starting position as the Xbox Live infrastructure is already in place.

Third, in providing third party applications through an app marketplace, strike a good balance between open and closed. At present Android Market represents the fully open while Apple’s App Store is the closed alternative, both with their respective pros and cons. We believe there is a middle road here allowing for developer openness while curating the experience for consumers to find the best and weed out the worst. Microsoft’s intention with Windows Marketplace for Mobile is not clear yet.

There is little doubt Windows Phone 7 will have significant challenges in trying to grab market share from iOS and Android, but Xbox Live could turn out to be just the thing Apple and Google lacks. Microsoft has to carefully navigate with their strategy to please the market and stay in touch with their users. For instance, Microsoft announced that multiplayer support will not be part of the initial Windows Phone 7 release. Such features might prove essential and not only nice-to-have when you are up to the kind of competition that Microsoft is facing. Microsoft needs to get these things right or risk losing in both the smartphone and portable gaming market opportunities.

/Erik

Erik E. Byström is a Senior Consultant at Northstream

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First, let’s run through all the good things with that experience;

• It was automatically pushed but still asked whether I wanted it or not. It also asked over which type of connection I wanted to download it to avoid me getting ripped off by mobile data rates, should I not be on an unlimited subscription.
• Installation was fast, automatic reboot, all settings remained and data was kept

Key point: I got new features and capabilities (without paying any more than the data transfer). The most interesting seemed to be Google’s Voice Actions application. I.e. an application that enables me to control my phone by audio commands. I truly believe such technologies will be a key and ubiquitous feature in all devices in coming years.

When I got to the office Monday morning some other things became apparent;

• I was the only one in the office with an Android device that had been prompted to be, and been, updated to 2.2. All others were on 2.1 or even 1.6 versions (We have two HTC Desire, two HTC Hero, one Xperia X10Mini and two Xperia X10)
• Google’s Voice Actions application only works on the 2.2 version
• Actually, it didn’t really “work” for me on the 2.2. version either. Voice Actions only work for English language. That ruled out about 90% of my contact list for email, sms and phone calls. The navigation add on to maps isn’t supported for Sweden so that feature didn’t work either. I was able to make Google searches pretty accurately if I used English queries.

I think the above points from my micro cosmos nicely summarize what the key hurdles are to leap in Google’s Android strategy:

• Ensuring backwards and/or forwards compatibility for applications in a device base that is already diverging between versions
• Ensuring developers make the decision to develop applications for the existing device base and not just for coming versions. Additionally, ensuring enough attraction for these developers given that the platform(s) have varying amount of addressable users, now and in the future
• Competing with the complete end to end packaging and usability of iPhone, that has full control of Hardware, OS, UI and I/O method

With this divergence in the making, I believe that Google just might have to step back from the “Beta version” strategy and take a stronger coordinating role in how they distribute and develop applications for the device base and on how the Android versions are rolled out. Otherwise, a backlash may be imminent.

/ Per

Per Stenström is a Manager at Northstream

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More than a straightforward implementation of the Android OS in an iPhone-form factor, the Xperia X10 mini demonstrates an OEM’s creative divergence from the mode du jour and value-adds in terms of the Sony Ericsson UI additions, the overall design and finish.

After the iPhone launch in 2007 it has been fascinating to see smartphone after smartphone quickly imitating its form factor. For a while it seemed as if the Motorola Razr blockbuster phenomenon never happened. However, we must remember that consumer purchase criteria do not change as quickly as Apple and Google would have us believe. Of course there are lots of people for whom a small phone, a sturdy phone, a long-lasting-talktime phone, or a powerful-antenna phone is more attractive than one with a large screen, just as some prefer a physical QWERTY keyboard to a touch screen keyboard. The better then, if a small phone can offer a smartphone experience. In a way, this was specifically acknowledged by EISA by awarding a smartphone the mobile phone award. Size won the jury, and an “uncompromising smartphone experience” was a value-add.

Remarkable then, that in their award motivation, EISA concludes “Its small size and weight and variety of vivid case colours make it perfect for introducing the fairer sex to smartphone technology”. Geez, we wonder on the composition of that 50-person jury… As long as this kind of sexist thinking prevails, there is certainly room for more changes in the consumer electronics business!

/Johan

Johan Ragnevad is a Senior Manager at Northstream

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One may also wonder if incumbents have given up on these exotic points of interconnect, as so many of them are out of order or badly maintained. In Finland they are gone all together. Even though the website of the Independent Payphone Association of New York has expired, we understand that some private payphone owners still make money in the Big Apple – to the tune of $200 per month. Mobile phones – it is sometimes forgotten – run out of battery or simply are not fully ubiquitous yet!

But maybe the Finns will regret their haste. As mobile data demand continues to grow exponentially and operators struggle to cope, there has been much talk about femtocells and WiFi offload solutions. Well, how about using those pieces of phone booth real estate? It turns out that that is exactly what TeliaSonera is doing in Sweden. At least 25% of the remaining phone booths serve as hubs for Telia homerun WiFi surf zones, offering laptop, smartphone and tablet users a boost while relieving the 3G network. Let me predict that the number of phone booths in places like downtown Stockholm will not reduce further! Now, how about attaching some chairs and benches as well…?

/Johan

Johan Ragnevad is a Senior Manager at Northstream

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I think it’s very natural. Most operator pushes to differentiate on VAS, apps etc. has seen very little traction nor made any huge impact. In particular now that the device manufacturers/platforms are taking care of apps, services and content the operator position is more than ever pushed back to access. There’s simply not that much room left to differentiate on anything else than price and network quality.

At the same time another major other trend is ongoing in the industry. Network Sharing. Earlier this year Orange and T-Mobile in UK announce their major agreement. Telenor and Tele2 in Sweden are pooling their spectrum and capital to modernize GSM and build nationwide LTE. We expect that this trend continues with other operators and indeed for the coming mass roll-out of LTE.

So, the paradox then; While differentiation opportunities are more or less restricted to network quality, operators still strive to share networks. What will be left?

I believe that the above point to the obvious. If sharing is a must, full consolidation will be the next step. There are several markets where we can see signs of over-establishment and 3rd-4th market players suffer financially and hurt the overall market by price wars. Other utility industries with heavy infrastructure (e.g. energy or water supply) hardly spend cash on four to five parallel nationwide infrastructures. Why should telecoms be different?

/ Per

Per Stenström is a Manager at Northstream.

Feedback to blog@northstream.se

Digital media is taking giant steps – storage, services, and software are increasingly organised in clouds – and the speed on which new services and solutions are offered shows no signs of slowing down. Here in the Nordics we all know Spotify or iTunes, but globally there are many other services that are equally appealing like Vevo (revolutionarily offering music videos from three major record labels), Hulu (“TV. Your way.” – free video content such as TV shows and movies on the viewers terms) and soon Google TV will join this wide range of digital media offerings.

Sadly, for Europe these clouds seem to be drifting further and further away. There are many examples of unsuccessful or excruciatingly slow attempts to conquer Europe with Digital media. Most of the services listed are not available at all in Europe. Nokia’s music service (Comes with music) is one example of a painfully slow rollout due to issues with having to launch separately, country by country.

Copyrights – and the plethora of rules around them – are partly to blame. This old and well established institution is still based on cumbersome national copyright agreements, and this has been one of the biggest reasons hampering the rollouts of digital media services Europe wide.

But the complexity is not only about managing copyrights. It is also about managing mobile data roaming. All of you might not be aware that some digital ebook readers in Europe have an American SIM card preinstalled since data roaming agreements are so extremely complicated and expensive that content packaging becomes virtually impossible. Amazon is one service provider that has plans for Europe as well, and although having had a slow start in Europe, they now have an agreement with a European operator (Vodafone UK) and will start to offer the latest version of their eReader (Kindle) equipped with a local SIM card this month.

Will these legacies prevent Europe from developing in the forefront of the digital media era?

For the very least, European media and EU are up for some new challenges here. US has taken the lead in the innovation of digital media, but the question is, how far will they drift and will the gap become too wide for Europe to catch up?

/Suvi

Suvi is a consultant at Northstream

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Nevertheless the privacy issues cannot be overlooked. The Internet giants have (more or less reluctantly) done some changes to their services in order to protect users’ privacy, but as long as the business models are based on ads they will continue to be reluctant to change the rules of the game.

Consumers’ privacy concerns are creating an opportunity for someone else to provide privacy management as a value added service, provide security management services. Recently, examples of privacy management focus can be seen in the emerging portfolio of family life management and communication services (Fambit, Cozi, Family2job etc). These services are based on innovations from social networking and digital calendars bringing features into a family context. We all set different privacy expectations on our family life than on Facebook networking.

Telecom operators are used to obeying rules and regulations, and (at least in theory) they have the possibility to associate themselves with services where privacy issues are properly dealt with. Operators might not be best suited to develop or innovate social media services themselves, but they could instead provide the authorization and authentication services and/or act as trusted distributors for services where privacy management is central. Through careful segmentation, operators could find their strong niche in the privacy area – possibly even beyond their current technology assets.

But to avoid backfire, operators will need to carefully and efficiently avoid even the smallest privacy related pitfalls; like AT&T recently got painfully reminded about. Gaining trust from the consumers is only possible if one has all one’s ducks in a row.

/Suvi

Suvi is an Analyst at Northstream

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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

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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