A night at the Opera won't do Zuck any good

As Facebook's shares continue to decline (they closed at $28 on Wednesday) rumours have begun to circulate about a takeover bid for browser software maker Opera. This, like Instagram, would be a puzzling move.

I definitely think that getting into mobile in a serious way is the only way for Facebook to generate the returns that investors hope it will. But Facebook's biggest issue is its lack of a compelling business model.

The same could be said of Opera, which, despite expanding market share in both desktop and mobile browsing, is hardly a cash generating machine. Despite a nearly $900Mn market cap, in a good year, its EBITDA from nearly 200mn users probably won't cross $20mn. Annual per-user revenue was about $0.6 in 2011, tiny even when compared to Facebook's $4.7 per user per year.

There's also the difficult issue of cannibalisation. 60mn Opera users are PC based and about 200mn use its Opera Mini mobile browser. I'm not sure that the former would become more valuable if sold together with the browser content.

I suspect the latter are almost entirely feature phone users and therefore represent a useful add on to Facebook in emerging markets.

But what happens when those users convert to smarter devices? Well, Symbian has traditionally licenced Opera as the browser on its devices and Nokia have ambitious plans in $40 smartphones for emerging markets. Even so, white label only makes up about 20% of Opera Mini's installed base. The rest should be considered at risk if the prices of Chinese branded Android devices continue to fall and their market share continues to increase. I'd expect Chrome to dominate on those devices. This is why Opera's market share has shrunk markedly over the last 2 years.

What Opera would bring is engineering expertise and relationships with operators and device manufacturers beyond what Facebook has today. But it isn't a credible operating system choice and it doesn't offer Facebook the ability to do what Apple can do and use a great core product to generate huge returns across an ecosystem of devices.

A lot has been made about Opera's ability to use HTML5 and CSS3 technologies to vertically integrate Facebook's offer across multiple platforms via web apps. I don't see how that's possible without an operating system. Opera is never going to be the default for the mass market operating systems - Apple, Google and Microsoft will see to that. Very few users know that Opera is a better browser than what's pre-loaded and infront of them on the home screen.

So my opinion remains that if Zuck wants to play in mobile, he needs to play in operating systems and hardware. And that means RIM or HTC. Best get them while the share price is still in double figures, Mark.

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 an

Value drivers for telecoms retail

I've been doing a really large number of driver trees recently - we've taken to using them on every project to get really into the guts of value creation for businesses and thus decide where to focus initiative development (How To Win, if you're keeping score). Anyhow, I had to pause for thought recently to work out how to represent the subscription aspect of telecoms retail for a client. Since it took me a minute, I thought I'd share... its lack of elegance suggests that its not quite right, although it was enough to demonstrate that there was a certain lack of coverage in the initiatives that my client was pursuing and thus spark a debate. Enjoy.

Chief Strategy Officers II - Career Development

Here's a follow up to my earlier post on the starting point of Chief Strategy Officer (CSO) careers in the FTSE 100 and S&P 500 companies - a visualisation of two steps in their careers: their first employer or job and the job they had before they got their current position. Lots of work went into this... so any insights that you glean from the visualisation would be great to hear about :). The CSO is a crucial strategic role on the executive (!) and the owner of the tone and philosophy of decision making across much of the business, knowingly or unknowingly. Scrutiny of their experience in defining the process and language of strategic management is therefore appropriate not just amongst their executive peers, but in my view amongst shareholders. The days when being very smart and able to analyse large amounts of data were enough to be a CSO are basically gone... has the profession moved on enough to cope?

Versatile Amphibian

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