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Archive for the ‘technology’ Category

What can be free will be free & Quo vadis Social Graph?

In technology on July 12, 2010 at 9:15 pm

As mobile distribution platforms grow, cost of smartphones drops (Mediatek/Android targeting $70 smartphones!), and competition for paid apps increases, mobile advertising will eventually gain the critical mass needed to fund more and more mobile apps. Like on the desktop, once there is enough advertising money to cover the opportunity cost of charging for apps, what can be free will be free. By 2014, Pyramid Research predicts 80% of mobile apps will be free compared to 30% in 2008.

Similarly, as the capabilities of web browsers increase to match fully capable desktop browser, the bar for what can be charged for on mobile goes up.  Media companies that are able to charge for their content on premium platforms like iPhone or iPad, will need to evolve their apps to offer functionality and services that are uniquely tailored to the mobile use case, and that deliver value beyond an optimized, high-touch display of the same content they make available for free online.

This should unleash a new wave a innovation in paid mobile apps, both by traditional and new media companies.  Magazines whose print revenues are under pressure can retain their consumer base and monetize it both by extending the value they provide them on mobile through extra functionality particularly designed for the mobile experience and by maximizing the distribution of their ad-supported content on the web accessed by mobile browsers.

Similarly, new media companies extending to mobile must go beyond delivering a mobile optimized version of their site in their mobile apps and mobile web sites.  There is still a lot missing in enabling social networking in the context of the mobile experience (ie not being in front of a desktop, meeting new people or looking to socialize in a mobile context).  And speaking of which and fast forwarding a little – how far away can a “Facebook phone” be?  Will the Social Graph do for Facebook what Android is doing for Google? It may just be the mobile app marketing engine needed to navigate the coming onslaught of mobile apps.

UPDATE:  Interesting article on BBC deciding that paid apps will be challenged by the mobile web here


Mobile app economics: native apps vs. the mobile web, developed vs. emerging markets

In technology on July 11, 2010 at 5:13 pm

This question has come up in quite a few conversations recently. Coexistence is the obvious easy answer… but begs a closer looks at the trends currently shaping the industry.

Mobile OS platform fragmentation is increasing, developer economics are reinforcing the perceived winners’ positions as the pecking order is still in flux.  There are wide variations in relative strength by geography, as well as varying degrees of influence of operator portals vs. vendor stores.  While North America and MEA are expected to see 70%+ of downloads thru vendor stores by 2014, in APAC operators will continue to account for 60%+ of downloads, while in Latam operator portals are expected to drive over 50%, and perhaps more if cross-vendor platforms like Qualcomm Plaza are deployed by mega-operators.  Also in largely prepaid markets that are not distorted by high subsidies like the US,  there is a limit to the reach Apple can have with its current premium strategy – and where Nokia and Google have a much better chance to have significant reach, after mega-operator platforms.  Extrapolations of the US market dynamics to other regions of the world can only go so far.
Developers will likely choose the top 2-3 platforms available to them in their respective region, based on reach and monetization opportunities.  However, as mobile browsers on mobile devices evolve (like Nokia N900 powered by Maemo running a full Mozilla browser) and start supporting Html5, some of the reasons for having dedicated apps (such as access to GPS, video, etc.) go away.  Looking for example the site in a browser supporting Html5 proves the point. Of course there will continue to be specific apps such as games, that will always work better as native apps as opposed to web apps, but as powerful browsers will be widely available in smartphones by 2014, the mobile web will definitely provide the broadest reach of any platform, taking some of the heat off the current “who has more apps” race between the various app stores.  (N.B.: Not to be underestimated here is the discoverability / marketing element app stores and operator portals provide – this will continue to be an important role they play, even as mobile web broadens its reach and app download volumes explode, from 5.7B in 2009 to an estimated 41B in 2014 or 6.5 apps/user/year.  A flurry of start-ups like Flurry, Yappler, etc. have already sprung up to capitalize on the app retailing opportunity and provide recommendations, voting systems, etc.  Attracting and targeting consumers will become increasingly important as multiple app stores will likely coexist on the handset together with a fully powered mobile web – Mobile operators could play a key role here as marketers of apps and solution bundles with data !)

So to skate where the puck is going, mobile web apps and their promotion, discovery and monetization, particularly mobile micropayments should be the next area of exploration, in addition to the much discussed mobile advertising opportunity which will finally deliver on its high expectations. And there, operators, particularly in emerging markets with low levels of credit card penetration, will continue to play a key role, not only as distribution partners but as mobile payment providers.  It is a pretty safe bet that between the growth in emerging markets and the growing power of the mobile web, mobile app economics 5 years from now will likely be quite different from what they are today.

Mobile services in an increasingly prepaid world

In economics, technology on June 28, 2010 at 5:41 pm

Prepaid accounted for 71.9% of total subscriptions in 2009 and it is expected to grow to 75.7% by the end of 2014, with growth driven mainly by developing markets in Asia-Pacific.  The most notable exceptions to this are the US, where prepaid penetration is only 11%, Japan and Korea where prepaid is virtually non-existent.

However, even in the developed markets where prepaid is not as prevalent, as the price of handsets is falling, the relative value of a post-paid contract subsidy decreases. This, combined with what appears to be a prolonged recessionary environment, can only further boost the penetration of prepaid in both emerging and developed markets, making prepaid the predominant business model behind mobile services for years to come.

Given that in emerging markets more than 75% of all transactions are cash-based, and that operators in those markets have developed a very extensive network for converting physical cash into virtual currency in the form of prepaid mobile credits, it is likely that mobile and prepaid mobile credits will be for emerging markets what the fixed web and credit cards have been for developed markets.

Furthermore, consumers in those emerging markets are far more comfortable with SMS and are likely to adopt SMS-based services much faster than any other mobile internet based services, which is far more appealing to consumers with a much longer tenure on the fixed web and who are trying to access that same experience over the mobile.

Utility focused services, such as bill payments, P2P transfers, etc. that solve a daily need and help the consumer avoid high transaction costs, whether in the form of money or time spent, delivered over SMS, are far more interesting for these markets than entertainment focused services, as the alternatives for these services are far more scarce as they are in developed markets, and in much more dire need of innovation.  And judging by the above mentioned statistics, SMS-based mobile services geared towards the prepaid consumer, this is a far larger business opportunity than the often frivolous iPhone apps that much electronic ink is currently being spent on.

Good presentation on this, albeit slightly dated, from Warid Telecom, here.

ebooks and amazon publishing

In technology on April 27, 2010 at 12:08 am

One of my favorite journalists Ken Auletta of the New Yorker and author of a great book on Google, wrote another well-researched article on ebooks. He gets beyond the superficial iPad vs Kindle debate and looks at the dynamics the 2007 Kindle launch  has set in motion in the publishing industry:

1) Cost efficiency

The economics of traditional publishing are enlightening:

A simplified version of a publisher’s costs might run as follows. On a new, $26 hardcover, the publisher typically receives $13. Authors are paid royalties at a rate of about 15% of the cover price; this accounts for $3.90. Perhaps $1.80 goes to the costs of paper, printing, and binding, a $1 to marketing, and $1.70 to distribution. The remaining $4.60 must pay for rent, editors, a sales force, and any write-offs of unearned author advances. Bookstores return about 35% of the hardcovers they buy, and publishers write off the cost of producing those books.”

With no more returns, warehouse fees, printing expenses, or shipping costs, ebooks generate obvious savings.

2) Access to the long tail / back catalog of books

The Kindle, much like Netflix or iTunes, has enabled backlist titles to be sold. For example in a 3 months period, online vendors typically sell copies of 2,500 Simon & Schuster titles that bookstores don’t stock.

3) Amazon publishing

Some best-selling authors are choosing to publish directly thru Amazon, in exchange for 50% of the net proceeds.

“What Amazon really wanted to do was make the price of e-books so low that people would no longer buy hardcover books. Then the next shoe to drop would be to cut publishers out and go right to authors.” said a close associate of Bezos

Amazon has been willing to sell some ebooks at a loss in order to capitalize on the strong network effects enabled by proprietary standards to make Kindle the platform of choice.  Recently, it offered authors who sold electronic rights directly to Amazon a royalty of seventy per cent, provided they agreed to prices between $2.99 and $9.99.

Apple with the iPad has wooed publishers with an agency model which lets them set the price of each book, with Apple taking a set percentage. This led to a well publicized stand-off between Amazon and Macmillan, a large US publisher, which ended with Amazon raising prices on some of its ebooks and acquiescing the agency model.

Clearly both Amazon and Apple have the same goal. Apple is wise to take a different approach from both a hardware and biz model perspective to challenge Amazon; it will be interesting to see whether Amazon’s current 80% market share in ebooks can be substantially challenged. To that end, one has to wonder how much longer the Kindle app will continue to be available in the AppStore?