Friday, November 30, 2007

The Mobile Phone As The Next Internet Platform - The HOWs and WHYs

Mobile phones are the next frontier on the internet. So far, mobile telephony has grown into a select club of players with enviable margins. This situation has attracted the interest of a couple of reputable contenders (Apple & Google), with little stake in the status quo as defined by OEMs, application developers, and operators.

Some sample facts and trends are:

1) Google "Android" platform -- a Linux based mobile-phone software stack;
2) iPhone SDK (after its traditionally closed system was hacked into);
3) Google mash-ups;
4) Facebook success with software developers;

Why would we see this trend toward mobile phones as the next internet platform?

Because not everyone can afford/need a PC or a laptop. But everyone usually finds a need or case for a cell phone. Be it for staying in touch or conducting business. This means that cell phones have a greater potential reach/penetration as opposed to PCs.

How would this trend toward mobile phones as the next internet platform occur?

If you look at the hardware and software of current cell phones, they can match (to an extent) those of PCs. At least in terms of accessing the Internet and services like e-mail. Even the networks are capable enough to offer a decent browsing experience. Having said that, obviously in some countries carriers control what sites a subscriber can access and what they can't. To see true mobile Internet, this has to change. Also, with more online applications for mobiles, we should see more carriers coming up with all-you-can-consume Internet plans.

Is the mobile industry following the PC?

Some trends might suggest so. We are already witnessing an OS war, just like we did during the initial PC days. Here we have Microsoft, Symbian and now, Android, with their OS. None of these three (if you excuse Symbian, which now belongs to Nokia) make any hardware but have several OEMs making devices on their behalf.

The browser wars are also beginning to come out in the open. Surprisingly, Microsoft seems to be losing this one, after it discarded the Deepfish project. Other players like Opera, Mozilla and others are becoming very aggressive on this front.

Like initial e-commerce on PC, we are witnessing m-commerce on the mobile platform. The GSMA is working towards mobile banking and mobile transactions are already popular in Japan. And yeah, eBay is a partner in the OHA.

And how can we forget Nokia's Ovi?

Eventually, just like the PC biz, we may see the focus become more on the OS and applications than the hardware. At the moment, we go by megapixel cameras and touchscreens. Whereas in the coming years, our first preference may likely be the OS and then the functionalities.

One thing that we are yet to see is a cheap Internet browsing phone without frills like megapixel cameras. Many diehards dream of seeing a sub-$100 unlocked phone with a big screen (not a touchscreen), QWERTY keypad and a good OS. Perhaps that dream may be a relity in the not too distant future. We can only hope.

Now consider the potential cell phone landscape with these changes:

1) Service neutral handsets;
2) Royalty free/reduced cost software platform (e.g. Android);
3) Proliferation of the Software as a Service (SaaS) and other internet based on-demand applications (e.g. facebook, salesforce.com, ...);
4) Broadband internet services unbundled from cell phone service;
5) Wireless VoIP.

Wireless Service Providers would be faced with this scenario:

a.) The dilemma. Offer unbundled WAN wireless internet (3G) to the hand set, and cannibalize your voice customer base as they adopt S/W wireless VoIP (Skype) or hold out and see your customer's switch to provider who sells unbundled high speed WAN internet service.
b.) Loss of cell service revenue to software based WAN Wireless (3G) VoIP.
c.) Loss of a la carte service revenue (e.g. IM, Txtmsg,etc) to 3rd party Internet/On-Demand services.
d.) Increase revenue to firms with healthy Wireless WAN infrastructure and first movers to unbundled internet service to the hand set.
e.) New revenue due increased internet service as a substitute for home wired internet.

Handset OEMS would be looking at this environment:

a.) New entrants, such as IP wireless phones providers (Netgear, Linksys)
b.) Decreased product lines proliferation, handsets are less locked into service provider.
c.) More capable handsets (e.g. memory, speed, screen, camera density,..)
d.) Lower cost handsets due to higher competition and adoption of low/no royalty platform (android), and OS (Linux).
e.) Direct to consumer sales model, versus through cell phone service provider.

Software Providers would have this platform:

a.) Explosion in providers and software based feature sets, based on platform (android).
b.) Increase in VoIP and other IP based services or on-demand (SaaS) applications.

Auxiliary Service Providers would have this potential:

a.) Increase of software based VoIP service providers (e.g beyond Skype), as well as growth in Skype.
b.) A La carte service offering large and low cost due to higher amount of providers and direct to consumer channel through internet versus through cell service provider.

To get a bit deeper into how this will happen consider these events likely unfolding:

1) Low/no royalty platforms, such as Andoid and its open model will cause a ground swell of software based applications.
2) On-Demand mobile offerings will proliferate, making the wireless handset a real business tool.
3) Handset OEMs who already have Wi Fi based wireless terminals will provide a mobile computing platform that will run Andoid, to tap into the expanding software customer base. Wi Fi based software based VoIP will initially provide a limited substitute for cell service.
4) The customer base gets to critical mass, and a cell service provider will sell unbundled internet, to gain more customers, but lose some revenue to VoIP.

Now....again to go deeper. The "Why" is much easier than you'd think.

Advertisers want access to users. Already there are way more phones being sold than PC's. It stands to reason advertisers want access to their potential audience through any means possible.

Furthermore, the "big lug" PC's are on their way out as everyone's weapon of choice for general internet access. For most people, the phone can do it all. Email, Agenda, even simplified word processing, Instant messaging...are just a few applications now fairly common. The phone (probably better termed 'handheld' in this scenario) is completely taking over for the general populous.

You should know that you, I and the internet geeks that roam online services today have a slanted image of what it means to be online and of the services you generally need. Most people are not power users. The PC will be marginalized.

For an example: check out the iTunes store application included on the iPhone. Imagine this for ebay, facebook and for any of the most used applications out there.

So advertisers will follow where the people are.

What's the real "How" in this picture?

There will always remain essentially three basic models of advertising:

1. The unavoidable ad from businesses who don't care about being annoying. The "there's no bad PR as long as they spell your name right" crowd. They just want major exposure and are willing to fill your screen for seconds while you try to find ways to click them away. This will be even more annoying on smaller screens. The ads will be more interactive, perhaps, but they'll certainly be very present.

2. The immersive ads. These are usually paid content like games, movies that have little or nothing to do with the service that's being offered. "Brought to you by" Businesses are hoping that by getting their name out there in this way you'll remember them and feel more attached to their brand. This is no different from much of today's advertising but the immersiveness of "casual gaming" (remember your phone is always with you) may have greater appeal than on your PC.

3. The personalized ad. Advertisers generate ads based on your profile and the content of the site you're looking at. Inclusion of GPS on your phone adds another ingredient to this personalizing. The small size of the screen and the "always with you" aspect of the phone will give way to completely new models of advertising. What many may like to call "ads you want". Companies will work towards getting real "fans" who install special applications on their phone a la facebook applications, including the viral aspect.

You could say that the open social play of Google is as much of a mobile move as Android is. As far as many can see, they're in a great position to become a big player for mobile. Facebook could be too if they move NOW. Microsoft could be the netscape....they're pretty big with windows mobile but it's too developer centric right now. Can't wait for Mobile 7, then we'll know if they "Get it".

All in all everything is in place and indeed moving in the direction of the "Mobile Phone As The Next Internet Platform". The "why and "how" may change some during the journey ..... but it appears the destination will still be the same.

To search what is available today .... and compare phones, providers, and calling plans .... I suggest using this free online resource: Cell Phone Comparison

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