It is a truism in Broadsight Towers that according to Planet Mobile, "Next Year Will Be The Year of Mobile Internet" - every year. A combination of short sighted strategies, long winded self delusion, overestimated market growth projection and underperforming devices have bedevilled it so far. However, the Economist thinks that the winds of change are now
truly in the air:
As handsets slowly turn into computers, the mobile industry will at last undergo the shift that has been predicted for several years: from being vertically integrated to being sliced into distinct, horizontal technology layers, such as networks, devices, operating systems and applications. The vertical “sausage” that was the industry is becoming a layered “hamburger”, says Carl-Henric Svanberg, the boss of Ericsson, the largest maker of mobile-network gear.
This will transform the economics of the industry. Historically, network operators have been in the strongest position, explains Ben Wood of CCS Insight, a market-research firm. They owned the radio spectrum, built the networks, maintained the relationships with customers—and then grabbed most of the spoils. But in the new world, predicts Mr Wood, they will have to share revenues and profits with providers of software and services, such as Apple, Google and Facebook.
Well, yes - but this has been predicted for at least the last 5 years, so what has changed? The financial predictions are as fanciful as ever....
there is the question of how big the new hamburger will be. Informa, a market-research firm, projects revenues from content and data services of $240 billion by 2012. Although most applications on Apple’s App Store are free, consumers spend some cash there: a sixth of American iPhone users spent over $100 in the past year, according to ABI Research, another market-research firm. It remains to be seen whether this promising new source of revenue proves sustainable. But despite the economic turmoil elsewhere, the industry seems justified in its confidence that the smart-phone is finally emerging as a powerful, innovative and lucrative new computing platform.
....but we've been here before - jam tomorrow is always the clarion call today for the industry - a piece of analysis we did a year ago for a client showed that dividing the analyst projections of Planet Mobile by about 1.5 for 2 years hence was a remarkably consistent predictor of real outcomes (and the industry hardly ever shows how much of the growth is cannibalisation). Cometh the crunch I see no reason why this will change, as Planet Mobile is still bedevilled by 4 growth-crunching problems:
- Too many standards, operating systems, handsets etc that won't interwork for anything much more than a voice call or sms text. Just rendering a graphic Ad across any operators' handsets is a herculean - and uneconomic - task.
- Too much money (outside of Japan, Korea and a few other countries) still goes to the operators, thus reducing incentive to enter the market by innovative players. This is exacerbated by (carefully guarded) regulatory lockup of many potential points of entry.
- Where there is a smidgin of surplus it is glad-handed off to other leviathans like Google, so startup innovation is small compared to the Internet ecosystem
- A need to wean itself off the (declining margin) telephony teat onto data services that it is by and large culturally incapable of doing without major restructuring and personnel changes.
In fact its indicative of the industry's malaise that Apple made such a big splash by making a phone that merely "did" the 'Net easily, loaded applications quickly, and had a decent size screen. Hardly revolutionary technology, but they came as a shock to the mobile industry. Putting the user's need first - how totally innovative!
What can we predict for 2009 - yes, smartphones will rise from their small penetration to a larger, but still "dial movingly" unimportant one, call margins and operator profits will decline, industry consolidation will occur while standards don't, and major content and services revenues will remain a pipe dream.
In short, we don't see much change in 2009. Wake us up again in 2010, for the next "Next Year Will Be The Year" stories.
