Wednesday, 1 December 2010

Future touch screen interface

I came across this video of a home made touch screen interface for the home: http://www.youtube.com/watch?v=2vOvDFxn76g. I'm sure it's very bespoke and not easy to replicate elsewhere (not to mention a little bit geeky), but it also demonstrates to me what is possible with today's processor, screen and networking technology.

Tuesday, 30 November 2010

Wikileaks

So I'm a bit undecided about the whole "cablegate" thing. In concept, I should be ecstatic, this is a wholesale example of the democratisation of information. However, I find myself somewhat shocked at the naivity of Julian Assange and his cronies. The publishing of so many secret documents is the action of an anarchist, not a democrat.

Why? Because there is no apparatus in place for the public to act upon such information. All it serves as is a tabloid insight into the machinations of a governmental system that keeps information secret to enable international diplomacy to function. I read with horror the exposure of China's willingness to discuss a unified Korea - in a stroke making such a thing impossible in our lifetime. What was the benefit of this to humanity?

I think that there's an important lesson in this for social network engineers within companies. Free exchange of information is only useful when it is done within the boundaries of a strategy and with a clear means to execute the lessons it creates. Without such it is at best value-less, at worse, ruinous.

Thursday, 28 October 2010

Degrees of freedom for subsidiary businesses

I've talked to several large US technology companies over the last couple of months about their product and go-to-market strategies in Europe. The common theme running through these discussions has been how to maximise the effectiveness of their regional operations. This is a complex question to answer as it covers all aspects of the business, from broad brush strategy down to staff incentivisation. It's also very possible that there's no best practice that applies to all companies in a sector.

What struck me, however, is that there's a dearth of methodologies for establishing the correct strategy for subsidiary businesses. To that end, I've started developing such a methodology. The first component in my view is defining the dimensions that promote or restrict freedom of action for a subsidiary company. These aren't hugely different from the dimensions of any business at the macro level - I see them as freedom to act on:
  1. Brand and marketing strategy
  2. Portfolio strategy
  3. Product development
  4. Go-to-market strategy
  5. Organisation structure
  6. Operating processes & systems


1-4 represent strategic degrees of freedom, 5 & 6 are executional degrees of freedom. In the picture below, I've used the framework to compare the typical subsidiary strategies of three companies:

This is interesting and fun, but I see the most value being in comparing the success of different regional operations in an enterprise with their freedom of action against the degrees of freedom. That'll mean interviewing heads of regional operations and getting into the financials in some detail. My next step, therefore, is to refine my strawman scoring system with some colleagues who are expert in this area before going out and finding a guinea pig.

While I'm doing that, any thoughts on the categorisation would be greatly appreciated - I reckon this could be an interesting area of study in FY11.

Monday, 4 October 2010

Why I think NBCU are right to turn Apple down

Jeff Zucker has been getting some press for saying NBCU are unlikely to go into Apple's scheme to rent popular TV shows for 99c an episode (link). Personally I think he's right to keep out of it.

Why? I'm increasingly of the opinion that even premium TV is somewhat commoditised. How much would you pay for your favourite show? And how much for your 10th favourite or your 20th? Besides live, I think the answer would be pretty much the same for 1, 10, 20...

And therein lies the issue. NBCU makes a lot of money selling its channels into the bouquet packages of cable networks. If it enables customers to buy a la carte then it risks the cable networks reducing the price they will pay for those bouquets. And that would be bad, because even if Apple TV really takes off and gets massive penetration in the home, replacing the lost bouquet, NBCU's revenues would become rather variable.

A la carte is fine if you're guaranteed to have success after success, but it seems unlikely that enough hedging of programs can be done to replace what is effectively a constant revenue stream from the networks. Yes, if NBCU persistently fails to produce hits, then the networks could turn around and negotiate prices down, but that seems highly unlikely. Or at least less risky than poking them by supporting a model that threatens the networks' core business (through cord cutting).

In my opinion Zucker is right to wait and see - I don't see an obvious first mover advantage in this case.

Friday, 1 October 2010

HBO's strategy in Central Europe

Linda Jensen had some interesting things to say at IBC about HBO's strategy in Central Europe, which I thought were worth noting down.

HBO's biggest CEE markets are Romania and Poland. Initially they just brought US content over into Europe, but now they’re making country specific versions of US formats e.g. In Deriva – a Romanian version of ‘In Treatment’. This corresponds to the strategy of many premium content producers – use great local content as a hook into imported fare

An interesting characteristic of the business is that they have certain freedom to develop their own technology and product lines. They're launching HBO Go shortly – a broadband OTT product developed in-house, before the joint venture was bought out by HBO. This seems to fit with Linda's world view on content: “a subscribe once, use anywhere” model that is day and date independent and her view is that Europe is underdeveloped vs. US in online:
  • eSell thru’: $580M US vs. $67M EU
  • Online VOD: $100M US vs. $20M EU
  • Spend per home on TV: $1035 US vs. $332 EU


That said, the reality of the world right now is that “the content industry of the near future is dependent on maintaining the business model of the past for as long as possible”. This is a global issue and there are additional challenges in her markets:

  • In Central Europe, credit card penetration is between 5% and 25%, depending on the market (vs. 80% in the UK, 60% in France)
  • Piracy is rife, although traditional platform subscriptions are up 6-fold in 5 years, demonstrating demand for premium content at a fair price

To summarise her view on the key factors if premium is to survive and thrive:

  • Strong brand
  • Investment in original content production
  • Ability to be on multiple platforms to extend reach, avoid disintermediation
  • Ensure no straying into models that turn analogue dollars into digital cents
  • Remaining local – key to selling premium

I was very impressed by Linda and the HBO strategy. She talked practically about how to make money in content and the real prospects for - and challenges of - digital. My belief remains that digital will increasingly become a significant part of the media mix, however it is not a 10 minute apocalypse - the change will be gradual enough to enable savvy organisations to respond in a timely and successful manner.

Thursday, 23 September 2010

Three paragraphs on smartphones and personal monitoring

I found this Intel press release on the use of smartphones for personal monitoring interesting as it tallies with some work we've been doing recently on application stores. The concept is that handsets can do far more than simply tell you where you are and what's around you, they can also take measurements from your body and determine your health, mood and general wellbeing.

This is nothing new, of course. I understand that Apple has a number of patents that relate to extended sensing of device users. What the article misses (and perhaps Intel have too) is that handsets are already well capable of making these measurements today. A few weeks ago the istethoscope application was the top selling app on iTunes - demonstrating the growing understanding of how to exploit smartphones for health and wellbeing. Heartbeat monitoring is a basic diagnosis tool, but has many uses in personal monitoring - level of exertion being the most obvious example.

Smartphones have taken off big time in the last two years and their penetration is extending further into the customer base as 'semi-smart' devices come into the mid-range, typically running Android. Smartphones entering the mainstream is important as I suspect that many people interested in personal monitoring are older and not necessarily early technology adopters. Tackling the effects of an aging population and the obesity epidemic seem to be key foci for the EU in the coming decades and personal monitoring may offer a way of providing early warning of issues and rudimentary triage that will reduce the cost of providing primary healthcare.

It's also clear that we're only starting to exploit the capabilities of smartphones. Their integrated accelerometers, cameras, microphones, GPS and even pedometers, combined with high speed processing and open development environments make them excellent mobile sensor platforms. Add temperature sensors, or ultra-low power remote sensors to them and the capability - and potential marketability - of devices will expand still further. All it'll take is a bit of vision - something I'm working on with a current client.

Tuesday, 21 September 2010

Impressions from IBC 2 - Sony and DECE

With apologies for the time lag (work has been particularly crazy recently), here's the second summary of my conversations from IBC. This time the interviewee was Spencer Stephens, SVP of Technical Services for Sony Pictures Entertainment and the topic was Google TV and DECE.

Stephens believes that there are two key game changers for IP - connected TVs and the move from physical to digital content 'lockers'.

With regard to the first, Google TV is a game changer. Stephens wasn't a fan of Apple TV as it's just an add-on to the TV, unlike Google, which is a hybrid of TV and the Internet and enjoys some of the benefits of both. It integrates EPG, DVR, purchased content and so on. Personally, my concern with Google TV is that it disintermediates broadcasters by focusing on content brands. Consumers are more likely to search for 'Top Gear' than for 'BBC 2'. Branded channels are a way round this, but I feel that they immediately restrict the value of Google search - I can find stuff using the EPG search equally easily. The only upside I can see is if Google TV can search across multiple devices attached to a home network. If so, that would be a genuinely cool feature for the mass market.

On the move towards digital content lockers, Stephens predicts that in 2012, 20% of the content sold globally will be delivered digitally (12% of revenues), up from 1% in 2008. At the moment, the limitation on e-sell through is the walled garden silos that limit consumption to a single platform. This is the rationale for Ultraviolet, supported by the DECE consortium. In DECE's opinion, there are 6 roles in the content ecosystem that will enable the transformation to a single digital content locker:
  1. Content Provider
  2. Retailer
  3. Locker Access Service Provider (which streams the content)
  4. Digital Service Provider (provides order fulfilment for the retailer)
  5. Client (device) implementer (I guess that means Sony and Cisco, looking at the partner list)
  6. DECE co-ordinator (which manages access to the locker)
In this ecosystem, I can access my content on any device, at anytime and from anywhere. Me, I'm a cynic. This is one of several DRM schemas out there - Disney's Keychest being the other notable example. The trouble is that they've just created a larger silo, locking everyone into another stiffling closed ecosystem where a consortium generates innovation. And again, there's a prisoners' dilemma, because unless everyone goes into the consortium, the best place to be is outside as having different technology could easily swing the game in your favour. Chances of Apple ever being involved? Zero. Likewise Google, I should think.

As for the six part ecosystem, it's yet another attempted carve up from the companies that have hitherto failed to capture value out of the digital content ecosytem. Good luck with that.

Monday, 13 September 2010

Impressions from IBC 1 - Seesaw

I've spent the last few days at the International Broadcasting Convention in Amsterdam, so my next couple of posts will cover some of the more interesting takeaways from interviews and stand visits I carried out at the event. First up, my notes from a talk by Matt Rennie, Commercial Director of Seesaw, the UK online video site that came out of the wreckage of Project Kangaroo.

First up, some numbers:
  • Since its launch in February, Seesaw has averaged about 3M unique visitors a week, from a current UK online video market of 10M-11M visitors
  • It currently has 3,500 hours of ad-funded and 1,500 hours of paid-for content available for streaming
  • Seesaw appears to be addititive to other online portals. 78% of their users are unique vs. 4OD and 96% are unique vs. Demand5

Next, some key factors that have made Seesaw a success:

  • It is based on robust and scaleable technology - a result of large investment by the Kangaroo partners and latterly by new owner, Arqiva
  • The user experience is fantastic, both due to a 'beautiful' UI that gets people into content in 2 clicks and because all the content categorisation is done by human beings, not algorithms. I find this an interesting point - Seesaw is being run like a TV channel on the Internet, not like a traditional aggregator
  • Above all, Seesaw is broadcaster friendly. This is absolutely key in my view. The key things that are vital for a broadcaster are control of their brand and control over their ad sales. Seesaw lets them do both, through skinned broadcaster 'channels' and direct control over sales (they also have an independent sales house to sell for indies)

Finally, key foci for Seesaw going forward:

  • Get onto more devices - Canvas, Apple/ Android and connected TVs were all mentioned
  • Leverage the technology and above all, the business model into other markets
  • Drive forward the UK business by bringing more PSBs (I presume this means ITV...) onto the service

All in all, I thought this was an interesting session, not least for confirming some of the key competitive factors that influence the success of online video services. The reality is that it is content supply that is king in this market and without the support of producers, these services cannot succeed. For all the talk of technology, the rules of the old TV world very much apply online.

Tuesday, 31 August 2010

Open source car manufacture

One of my core beliefs is that participation in a market is the key to understanding it. Outsourcing is fine by me, so long as the outsourcer is close at hand as letting skills and business migrate offshore is a sure way of creating a tragedy of the commons for the 21st Century.

You could summarise this world view as a strong preference for local research, development and manufacturing. With this in mind, I thought it was worth sharing an initiative I've been following for some time: Local Motors. In essence, the business democratises the manufacture of cars. Concept creation, detailed design and manufacture are all achieved through contribution and voting in the first instance, small local enterprise in the later stages.

I'll leave the detail to their excellent website and forum, but it's worth pointing out that at the time of writing, Local Motors have succeeded in constructing 108 cars for around $50,000 each. I'd be interested in seeing their financials, or whether the concept could work in more regulated markets, like the UK, however as a demonstration of the wisdom of (expert) crowds and of local enterprise it takes some beating.

Wednesday, 4 August 2010

Bidding for mobile spectrum not high on the agenda for BT

I just read this story about Ian Livingstone's comment that bidding for Digital Dividend spectrum was not high on BT's agenda.

I find this astonishing! Fibre rollout is all very well, but in my opinion BT desperately needs to find some engine for growth in its business. With its fixed network assets it would be perfectly positioned to deploy an LTE network rapidly and efficiently, not to mention bundle mobile services into its fixed packages.

Selling Cellnet was a necessary evil back in the day, but to pass up an opportunity to re-enter the market seems madness. With Orange and T-Mobile now merged and Three a pauper, there is spectrum waiting to be acquired at a price that is surely far, far below that achieved in 3G (if the pattern seen to date in Europe continues).

I do hope this is a bit of casual game theory from Mister Livingstone as a non-LTE capable BT Retail should be easy prey for the mobile telcos and Virgin.

Thursday, 29 July 2010

New Shapes and Sizes

With apologies for the shameless self-promotion, my latest paper has just been published (link). It reflects on what we've learnt about the best organisational structures for TMT organisations as they emerge from the downturn and look to grow in future. Any comments/ opinions/ experiences greatly appreciated!

Library of Congress review and its impact on the mobile VOIP threat

In my thoughts on the threat of mobile VOIP a couple of months ago, there were a couple of capabilities that I thought were blocking widespread adoption and hence reducing the threat to operators. Now both of those blockers are showing signs of moving away.

First, the iPhone 4 launched, bringing multitasking to millions of consumers and hence enabling VOIP applications to run in the background, enabling permenant presence. Second - and vitally - the Library of Congress has made it legal for iPhone (and therefore all) smartphone applications to crack the devices core capabilities (link). Now it is simple for VOIP application providers to enable users to utilise cellular data connections and increase the persistance of their presence as they move around.

Neither of these are mass market capabilities yet, but even so, if I were a mobile Telco they'd represent flashing warning beacons!

Tuesday, 15 June 2010

Do we really need to transcode video in the cloud?

I hear a lot of talk in the market about the challenge of format proliferation in streaming video delivery. The thinking goes that the number of devices that can stream video - phones, TVs, set top boxes - is growing and so content distributors must transcode into an increasing number of formats to service them. This creates a mare's nest of connections and formats to service consumer demand.

I wonder whether we should also consider another world, where devices increase in processing power and application platforms become standardised across categories of devices (e.g. Android on TVs). In this world, distribution becomes a trial of bandwidth at the edge and possibly also in the core and the devices shoulder the burden of making viewing a rich experience.

A similar thing happened when the mobile web was young. Operators spent tens of millions on hardware and software to enable web pages to be viewed on phones. It didn't take long, however, for phones to gain the processing power to repurpose pages, standards to be developed for designing pages and browsers to reach the handset. It seems to me that telecoms always try and answer emerging demand with big, centralised technology and the answer almost always turns out to be light-weight software that consumes their bandwidth!

For me, the same seems likely to happen with video. There will always be new devices. Creating new 'cloud based' format transcoding regimes for each is just dumb. Right now, if I was a retailer or broadcaster wanting to service non-browser-based demand, I'd be thinking very carefully about how much capital I was going to commit to it. If someone else is willing to do it in the short term, for opex-only outlay, then best to consider it. On a short contract!

Monday, 14 June 2010

Amateur analytics

Reading an article on Microsoft putting Office into the cloud brought 'Directions on Microsoft' to my attention. I'm very used to the idea of analysis firms pointed at particular market segments, but had never encountered one aimed at a particular company.

The more I thought about it, the more this made sense to me. It occurs that the market of today is akin to science at the turn of the 20th Century. There is so much to discover in so many fields that the traditional 'expert' commentators on a field cannot hope to see everything, let alone consider the resulting implications. This effect is becoming more marked as (particularly technology) companies continue their acquisition sprees, bringing many more divisions and products into their portfolios.

Perhaps just as gentlemen astronomers provided great insights into the cosmos, small, pointed analysis firms can help us make sense of the hyper-dynamic, information-saturated market of the twenty-teens.

Something else that worried me about this line of thought was how difficult it must be for a CEO to keep track of everything his or her company is doing, let alone the moves and counter-moves of the competition. A colleague of mine has emphasised many times to me the importance of Management Information reporting and how neglected it is within businesses today. Perhaps the production of rich dashboards will become a key strategic business function in the next decade. Something I'll take up in passing with the clients I meet over the coming months.

Exploiting the intelligence of screens

I've just read the Pew Research Center's annual survey on cloud computing. As ever, it contains plenty of thought-provoking commentary from experts. One that really caught my attention was this quote from Nokia's Davis Fields:

"It's 2010 and I could already basically use only cloud-based applications on my computer. Local storage is already increasingly irrelevant – I have my all my photos stored on Flickr, my address book is in my Gmail and I've got all my emails stored there as well. Apple will likely move iTunes online in the next few years, and streaming movies from Netflix will eliminate the need to download movie files. I use Microsoft Office and Photoshop out of familiarity as my main two desktop apps, but good alternatives already exist online. I predict most people will do their work on ‘screens connected to the web,’ There won't be any sort of ‘computer’ anymore."

Now, I agree with the sentiment that every screen will be connected to the web and the experience on each will be interchangeable - each will be an extension of the other and a portal into data hosted elsewhere. The oversimplification is that each screen is, of course, a computer in its own right. Google TV's tie up with Sony and Intel to produce connected TV's is an example of this. The TV, like the mobile phone, is becoming an interactive computer that enables rich use (as opposed to the computers that perform operational tasks behind the scenes today).

I suggest that the next step in the dynamics of the cloud will be to aggregate up all this spare computing power and use it to form part of the flexible resource. The Seti project and similar initiatives started a wave of this in the early part of this Century, but I can't help feeling that a more market-based approach where resources are requested and drawn dynamically based on 'weather' could open up new opportunities. Could there be money to be made in enabling your spare processor resources to be fed back up to the 'grid' when the machine is idle? As with power generation at home, the actual revenue made is tiny, but psychologically it incents users to participate and may therefore add to the resources available at incremental cost.

Just a thought. Might be far fetched!

Monday, 24 May 2010

A realisation about the IPTV tech market

It struck me earlier today that the nascent market in unscheduled, IP-delivered TV is a bit atypical for a capital-intensive new product.

There are literally hundreds of different products that do the same thing. Each broadcaster has gone down their own path at great expense, and has been joined by aggregators and a few relatively small tech' players (Brightcove, ThePlatform and the ill-fated Maven Networks, to name three).

There is limited standardisation in technology or approach. I've talked to broadcasters, tech companies and Telcos - the future could be big, heavy infrastructure or a customer-centric interface with simple underpinnings. Even though the codecs are based on similar principles, they seem unique in flavour to each platform. The only thing they agree on is that 'on-demand' will one day be a larger proportion of viewing than linear. Incidentally, this is the only thing I'm convinced isn't true!


This has confused me for a while. Until today, when I talked to a big content creator, who explained it succinctly. The big players want to master the new form of delivery and monetisation themselves before they consider sharing or outsourcing it. Knowledge, it would seem, is worth more than industrial logic...

Friday, 14 May 2010

Lots of clouds, but what's the weather like?

I attended a live video stream of the Future in Review conference on Wednesday. Although the format was unusual (even with a cinema screen and surround sound), several comments made by the speakers caught peeked my interest.

During a conversation on the network implications of cloud services, it occured to me that the storage and processing of vast amounts of data in a central location is going to lead to significant latency problems. This in itself isn't great insight. Neither is the fact that network management is going to lead to distribution of content and processing around the edge of the network, based on statistical analysis of likely usage.

I started wondering, however, whether that distribution is going to lead to 'systems' of usage, similar to the weather systems in the Earth's atmosphere. The Brownian motion of particles in the atmosphere is in some ways analagous to the 'motion' of packets in IP networks, with rate shaping and the variable speed of networks acting similarly to the effects of thermal currents on land masses (in my head, anyway!).

The implication of this would be that congestion would build chaotically in certain geographic locations of the network as demand builds, causing localised speed changes and service degradation as resources are pulled from deeper in the network to cope with demand. Digital weather, if you will.

Predicting this weather could become an industry in itself. Organisations wishing to use the cloud in a particularly intensive manner (transfering large volumes of data, running complex simulations or applications) will need to forward plan in a more sophisticated manner than with a traditional utility. Suffice to say, predictions of this complexity are difficult to make at the best of times and may even require distinctly un-cloudy technology such as super-computers to execute in a timely manner... or perhaps the cloud itself can solve its own problem with utility computing. Time will tell.

Alternatively, I could have missed the point! Any observations greatly appreciated.

Thursday, 13 May 2010

Impacts of a handset leasing model on mobile telcos

Following yesterday's post, here's some related thinking on the impacts on operators of handset leasing.

Handset sales represent around 25% of operator revenues in a typical European market, but generate only around 5% of margin. It may therefore be the case that the scenario described would lead operators to a more profitable structural model than exists today. Oil companies are consistently and acceptably profitable, despite being (literally in some cases) the ‘dumb pipe’ that operators are so desperate to avoid becoming.

One of the reasons for the oil majors sustained profitability is clear focus on their role in the value chain – to supply the fuel that enables transportation, relying primarily on location, then brand and finally product innovation to compete. BP or Shell do not need to subsidise the purchase of a car in order to drive consumption of fuel because consumers are ‘hooked’ on it (it gets them from place to place) and there are many credible car manufacturers and dealerships that can serve every conceivable way that people want to travel. The same is now true in mobile devices.

Separation of the service business from handset retail enables operators to focus on the services that are driving the real value on their platforms and optimising the network that may come to differentiate them as data usage ramps up. Although losing the privilege of locking handsets to their network may be frightening, in truth it is no more impactful than number portability in enabling consumer choice.

Furthermore, there are operational advantages for operators in doing away with handset retail. Inventory management and store infrastructure could be streamlined, with a much greater proportion of customer interaction coming through self-service. Call centre interactions per customer are also likely to fall as handset-related queries are reduced.

Following the analogy, the one thing that operators should not do is lose the differentiation that the geographic reach of their network affords them by separating the netco from the servco. Although fuel stations are often clustered around points where there is a large amount of traffic, they do not share facilities as their strength in a location is a key competitive differentiator. This suggests that despite its cost advantages, network sharing may not be a good strategic move for mobile operators.

Moreover, the power of the new wave of handset manufacturers - exemplified by Apple - over the industry would be reduced. No longer would it be down to operators to sell customers on unpopular 18- and 24-month contracts in order to fund access to a handset. Instead, the manufacturer can worry about that retail and pricing aspect, leaving the service provider free to focus on obtaining a share of the increasing data market that would likely result from cheaper access to smart phones.

Wednesday, 12 May 2010

More on the parallels between personal transport and personal communications

I've been doing some more thinking about what the mobile industry could learn from the automotive. See what you think:

The parallel between personal communication and personal transportation

Although outwardly very different, mobile telephones and automobiles actually offer a similar consumer proposition, in that they provide a means of obtaining services, doing business and, most importantly, maintaining social contact. Both are a personal choice, as the vast range of styles available in each market demonstrates; moreover, both started out as niche, expensive fancies and have matured into mass market items.

If automobiles and handsets are analogous, then there are also clear parallels between the mobile network and the network of fuel stations that support car travel. Both networks are spread out to provide coverage over a wide area and both have economics that vary significantly from location to location. One could even suggest that the recent interest in wi-fi bypass to increase the efficiency of data supply is akin to the almost simultaneous development in hybrid automobiles, intended to increase fuel efficiency.

How handset manufacturers could become more like auto makers

Despite similarities in the underlying model, there are significant differences in the structure of the two industries. Mobile operators are still largely vertically integrated sell handsets direct to the consumer. Conversely, the automobile industry is split into manufacturers that build and sell their range through their own dealerships and oil companies, which sell fuel through their own channels, entirely separate from the auto-makers.

If the latter model were true in the mobile phone industry, then it would see Nokia shops on every high-street, competing for consumer attention with Samsung, Sony-Ericsson et al. Consumers would purchase a handset from one of these outlets, then choose a network provider. Handset manufacturers have attempted this business model before, but have met with limited success, principally because they have not included two key lessons from the auto industry in their consumer proposition – finance and trade-in.

The importance of finance and trade-in

Today, basic financing is built into mobile phone contracts to spread payments over a long period and hence enable the consumer to afford an item that, it should be remembered, often costs as much as a flat screen TV or personal computer. The auto industry is more sophisticated, offering leasing and balloon financing as well as spread payments. The former solutions may also be valid for mobile phone manufacturers, as they enable consumers to have a device from the most current range most of the time and offset the high initial purchase price that may have dissuaded consumers from direct purchasing in the past.

A crucial part of the success of balloon or lease financing is the retained value of a handset. Although it is rarely considered when they are superseded and put away in a drawer, handsets do have considerable retained value. It is true that depreciation is faster than it is for a car – a high end Nokia loses about 50% of its value in the first 2 years, whereas the average car loses 50% over 3 years. Thereafter car depreciation tends to slacken off, whereas the phone will plateau for a time, then drop precipitously. Even so, the secondary market for 1-3 year old handsets is strong in developing markets and is likely to remain so as a billion or more consumers come on stream in India and China.

To build a proposition around finance a manufacturer must understand and be able to control the lifetime value of the handset in order to set the lease price. By leasing the handset and offering an option to purchase at the end of the lease term, consumers are incentivised with a lower monthly charge compared to that offered by a mobile operator. Divorcing devices from the service that enables it also increases customer choice, particularly benefiting pay-as-you go customers who have limited access to high-end smart phones.

Using benchmark prices for handsets and retained value, we anticipate a manufacturer could offer a 30% discount on the cost of a handset and 12 monthly upgrades for a gross margin of around 50%. This is compared to today’s gross margin on handsets of c.25%.

Impact on the operating model of manufacturers

This model has significant impact on the business model of handset manufacturers, since it entails them becoming customer-centric retail organisations, able to manage a direct, long term relationship with their consumers. In such a business, consumer finance, credit checking, billing and collections will become major operational processes.

Two key challenges should be highlighted. Firstly, since the model depends on retained value of handsets, consumers must be helped to unlearn engrained behaviour around handset ownership and robust processes put in place to ensure handsets are returned.

Secondly, an apparatus would be needed to match supply and demand on the returned devices. This is akin to a commodity market and may function best in an environment where many manufacturers are using the same business model, thereby creating a rich platform for buyers and sellers. It should be noted that the WEEE regulations in Europe may mean that collection and recycling of devices is in fact compulsory for their vendors, meaning that such a trading platform has a place in the today’s market as much as in the scenario we present here.

Wednesday, 3 February 2010

Social search and personal brand

This morning, I have been mostly reading about: social search. A couple of links for you: Advertising Age and Google. The premise (for the time poor) is that your friends' opinions on topics you've searched for should be returned on your Google (or Yahoo, or Bing) search results so you can see what your 'tribe' think of what you're looking for.

It's a nice idea and gives the search engine a nice rich seam of personal data to mine for future gain. That gain, however, seems difficult to quantify for the advertiser. Precisely how Toyota (for example) should design, market and support its products differently because of social search is unclear. In my view, social search will further amplify the strengths and weaknessed of particular product lines, hence polarising success and failure and leaving little middle ground for mediocre, but acceptable merchandise and services.

I suspect that we will be seeing some interesting effects of this type of service in the next couple of years. For example, will the herd behaviour that drives equity markets also manifest in buying trends? Will people deliberately manipulate their position in the online social hierarchy in order to make themselves more attractive to marketers and PR execs looking for social alphas? The whole industry of search marketing has grown out of the latter. I guess the $10 billion question is whether social search is simply an evolution of this or something new and genuinely exciting.

Answers on a post card.

Monday, 1 February 2010

Symbian: the problem with crowds

I read an amusing article in Forbes last week about Symbian, the world's most common and least interesting mobile phone OS (link). The journalist's contention is that by 'crowdsourcing' (a repulsive management term that makes me flinch every time I hear it) Symbian produces an engaging and multifaceted product.

My opinion is the opposite. To me, the wisdom of the crowd is a con that excuses lazy or untalented product designers from their responsibilities. The great leaps forward in human understanding have almost all come from the inspiration of a few individuals, not from some loosely democratic design-by-committee. Even giant technological feats like the Manhattan Project were driven by a core group of smart people who had the vision and ability to see and accomplish their goal.

To take a more relavent example: Apple's design team consists of a small group, working out of California. Sure, they have great understanding of the needs of the crowd, but they certainly don't listen actively to their ideas or desires. Instead, Apple tells the crowd what they want and, invariably, shows them a new way of doing things and hence move the game on. Truth is that most of us are experts in one thing or another (however prosaic), but few of us can really envision a new way of using a handset or accessing the Internet or finding a Starbucks!

This, then, is the fundamental problem with the Symbian way of doing things and why, in my opinion it is the beige of handset operating systems. Inoffensive, but deeply flawed. Nokia's weak and weakening strategic grasp on the industry must be due in part to their continuing involvement with Symbian, which has damaged the usability of their handsets for no obvious gain. Meanwhile Apple and Google forge ahead with OS X and Android and Samsung, LG et al are capturing more and more share in the mass market.

Perhaps now is the time for the old guard (Nokia, Sony Ericsson, Motorola) to forget about the wisdom of the crowd and concentrate on good old fashioned product design. It worked fifteen years ago, so it might just work now...

Monday, 25 January 2010

All I want for Christmas is some functionality for my iTablet

I'll be clear up front, I'm not convinced that the iTablet actually exists - Apple are very good at mis-information and the online community sometimes needs to curb its enthusiasm! Anyway, here's my "Christmas list" for iTablet functionality:

1. At least 6 hours of battery life/ 1 week of standby
2. Integrated HSDPA and wifi
3. Reasonably priced books on iTunes!
4. Some mechanism to attach a keyboard and use it like a netbook
5. A decent GPU (iPhone games were my guilty pleasure in 2009!)

Not much to ask, is it? I think I'll be okay on 1,2 and 5. I think 4 is pushing it, as it'd cannibalise Macbook (Air) sales. #3 remains to be seen.

My view is that books have far less replay value than movies - I wonder whether a "books as a service" model similar to LoveFilm would be more likely to succeed than a straight up iTunes music model. I've forgotten how many times I've passed a paperback book onto a friend. The same simply isn't possible with eBooks because of DRM, so I suspect another model is required - a digital library for the twenty-teens? You heard it here first...

Wednesday, 13 January 2010

A conceptal operating model for future mobile Telcos

A colleague and I have been thinking about some of the developments in mobile and have come up with an idea about the structure the mobile industry seems to be heading towards and the strategic issues that could result from the journey towards it. Conceptual at the moment, but it might be interesting, so I thought I'd share:

  • We started with the premise that consumers have become ever more handset-centric, particularly post-iPhone. Operators have therefore moved from subsidising the expensive handset to enable consumers to access their service, to financing their access to devices;
  • We wonder whether this leads to a different view on the operating structure of mobile Telcos. The long anticipated netco/ servco model may be an intermediate state, but perhaps a more apt analogue of the operator’s future model is that of an automobile manufacturer;
  • Why do we say this? Well, the modern auto manufacturer is as more of an assembler of components into a product than a vertically integrated factory, just like the modern mobile Telco. Furthermore, the industry regularly finances the consumer’s access to an expensive product (the car), and differentiates itself not only by its product (which is a commodity to many buyers) but by the terms of access to the capability (mobility, via the petrol station), by retail experience and, moreover, price and terms of finance;
  • Similarly, the smart phone is a pure luxury item that is expensive for most consumers and offers access to increasingly vital multi-dimensional high end communications (via the network – as commoditised as the petrol station...);
  • Operationally, auto manufacturers have a shared, integrated supply chain. They are heavily consolidated into a small number of global groups and share many of the same suppliers. Notably, they also tend to run a finance arm as a separate business;
  • Some of these characteristics are already beginning to emerge in the mobile industry. For example, the growth in the service businesses of Ericsson, Nokia and the nascent throes of network sharing (not to mention ongoing consolidation within and outside core territories). We may also be seeing finance businesses developing, such as O2’s recent foray into retail banking in the UK;
  • Despite its scale, the industry is still very young – 25 years at most, whereas the automotive industry has been going for over a century and has trodden much of this ground before. A couple of lessons that we think are interesting from their journey are:
  • The importance of financial products as value generators in a commoditised industry – what is the difference between “handset subsidy” and “handset finance” – could the latter be used as a tool to ensure the return of the asset for resale or recycling, just as many cars are leased, not bought outright...
  • The importance of building an industrial commons, not simply “outsourcing” – endlessly squeezing suppliers to support margins has ultimately back-fired on the US majors, particularly as their Japanese counterparts did the opposite and are thriving;

  • Both of the above have significant implications on the structure of the operator, far more so than netco/ servco, which simply puts today’s functions into a separate business

That's about as far as we've got so far. Any thoughts then feel free to comment :).

Monday, 11 January 2010

Does Indian acquisition of iLab indicate dawn of post-outsourcing?

I thought the news that Reliance Mediaworks is to acquire iLab was worth sharing. The business case for this kind of acquisition feels very strong and it may turn out to be a shrewd move on Reliance's part.

In the short term there's the obvious benefits of linking the growing Indian-language production industry back to its biggest market. In thr future, however, the expansion of digital production capability worldwide and the growth in the extend of broadband infrastructure in India could lead to a lucrative business outsourcing metadata tagging, rough editing and the like, taking advantage of the low cost of file transfer in the digital production environment. Interestingly, this is something we suggested for the Digital Production Partnership (PDF), in 2008, hence I'll be watching its success or otherwise with interest.