Mobile in Minute papers |
The Impact of Google Phone: The Mobile Operator Factors Most everyone has an opinion about the impact and implications of Google entering the mobile arena in a big way with the announcement of the Open Handset Alliance (OHA). Most of those opinions are generally positive. While we agree that there are positive elements to this development, there are also many areas of caution from the perspective of the mobile operator. Let’s start on a positive note. The OHA is most definitely seminal event for the mobile industry, supported by some of the most important and influential companies in the industry including NVIDIA, Intel, Texas Instruments, Synaptics, Marvell, Qualcomm, Motorola, Samsung, T-Mobile, Sprint, Skype, LG, HTC, KDDI, DoCoMo and China Mobile. It is anticipated that the OHA will not only affect the way consumers use mobile phones but even the way they think about mobility in terms of non-voice services and applications. The alliance will most assuredly accelerate the development of many types of yet to be conceived data and content applications that arguably would never reach the market if left to the current ecosystem. It’s important to ask the obvious questions:
The answers are not so clear and are certainly debatable. Clearly Google has demonstrated an ability to dominate a market and they see mobile as just another channel. Their stated objective to “index the world’s information” has evolved into a business model of contextual advertising that has no peer. They managed to parlay their original concept of a better search engine into a massive cash generating machine. The casual observer should not be fooled: mobile is not just another channel – mobile allows for geo-targeted advertisements at a level that is at least an order of magnitude more value than fixed network access. The trade-off of the smaller screen is overwhelmingly compensated by the spontaneity, immediacy, and location targeting of mobile. So Google’s motivations are clear. It’s not just about a huge channel for advertising – it’s about a higher margin business than they currently have, which is achievable through providing an inventory of highly targeted market for its advertising customers. Is this prospect good for localize advertising? The answer is yes. Is it good for Google and its alliance partners? The answer is most definitely? Is it good for mobile operators? This answer is dependent on many factors. Mobile Factor #1: The Walled Garden Factor Mobile operators have been accused for years of “circling the wagons” when it comes to value-added services including data, content, applications, and advertising. While operators are increasingly more open about breaking down the walls, they are understandably cautious to pick their battles. Mobile operators should indeed be careful to not allow themselves become a “dumb pipe” but balance that concern with the opportunity to allow third parties to help them leverage their large and mobile customer base. It will be important for the mobile operators to not lose total control over the customer experience, relationship, and value-added service differentiators such as location, preferences, and service delivery optimization. Mobile Factor #2: The Mobile Content Factor Mobile content and personalization applications such as ringtones, graphics, games and the like have been the major focus for mobile operators for the last few years. While the revenues associated with these applications pale in comparison to voice, the margins are great and allow the operators to branch into areas that allow them to be more value oriented rather than just relying on network usage. Mobile content will eventually become commoditized as end-users become both more sophisticated and expectations change in terms of value. It will become increasingly important for mobile operators to focus on content that is not necessarily mobile phone oriented. It will be important to focus on digital goods and services that cut across all devices, media, and networks. Content optimization, charging, DRM, and management will therefore become very important in the next 3-5 years. Mobile Factor #3: The Mobile Web Factor Smart Phones are increasing in popularity, but the majority of end-users still use non-html brower capable phones. WAP is interestingly trending positively, but hurdles remain in terms of awareness, reach, navigation, and spontaneity. The OHA represents the opportunity to change the mobile Web paradigm in a manner in which the common end-user can easily connect to the Web. The operators need to get more savvy about why people connect to the Web in the first place, what do they do when they connect, and how can the mobile experienced be optimized. If mobile operators do not capitalize on their unique position, the OHA Alliance will. Mobile Factor #4: The Mobile Marketing and Advertising Factor Mobile marketing and adverting means many things to many people including advertisement placement, search, and direct response. The most general and all inclusive definition is that that mobile marketing/advertising is reaching consumers via the mobile channel with some marketing message, promotion, or information. Mobile operators obviously have the relationship with the end-users for core services, but core services are becoming marginalized. Voice was the first victim – data and mobile content are next. Ironically, advertising is a major culprit in this evolution. Mobile operators can either embrace this or fight it. The key is to balance the need to embrace advertising and acknowledgement that mobile operators cannot go it alone with the consequence that voice, data and user-paid content become less valuable. Mobile operators need to develop a comprehensive strategy that involves advertisement placement, search and direct response. The strategy needs to be independent of the suppliers and should be executed in the best interest of growing the overall market and not reliant on the deployment of any specific handset, software, or application. Mobile Factor #5: The Free to the End User Factor Part and parcel to the mobile content evolution is the realization that the delivery of paid content services has baggage. The operators must deliver, bill, and provide customer care for paid services. On the other hand, subsidized (e.g. read advertiser paid) services, content and applications do not carry the same baggage. The key is to leverage the unique assets controlled by network operators including the customer relationship, user preferences and behavior, and location. Free to the end-user will be an important trend from this point forward, accelerated by the OHA and evolving consumer expectations about the value of various services. Summary and Recommendations Mobile operators have every right to be wary of Google. They should not simply sit back and wait to see what happens. Sprint apparently is not, but what are they doing? We don’t know if the rumor will be revealed to be true that Google is considering acquisition. What we do know is that Sprint will have active involvement in this alliance while other operators sit back and watch potentially at their own peril. Mobile operators need not join the alliance, but should track the alliances activities closely and make plans of their own. Google’s entire model is based on distributed intelligence while the operator model is based on centralized control. The operators could easily err in either direction. They should not allow themselves to become the proverbial “dumb pipe” in the former, but the walled garden of the latter just does not scale to enable content, VAS, and advertising to benefit the operator in a big way. The mobile operators should forge their own coalition of advertisers, content providers, media properties, brands, and third party intermediaries to offer network-based versions of what Google will most assuredly otherwise do with distributed intelligence on the handsets. There model will only benefit the handset manufacturers, chipset providers, advertisers, and Google. The mobile operators should consider partnering with someone like Yahoo! and other advertising aggregators as well as third-party middleware and service bureau providers to allow for improved mobile advertising and marketing. The operators have already dabbled with mobile search and display advertisements, but they have done little in the area of mobile direct response. The mobile industry does not seem to understand that the vast majority of the money spent in advertising is in the media buy for traditional advertising – broadcast media, print media, and outdoor advertising – and will be such for many years to come. The mobile operators need to find an efficient way to mobilelize direct response so that the billions of dollars spent on advertising in traditional media can leverage mobile as a channel in a pay-for-performance model (e.g. every mobile response to hearing/seeing an advertisement in traditional media is like a CPC in the online world). This would provide a much higher margin than the CPM’s that they get today for displaying banner advertisements in WAP sessions. If implemented using network-based command and control infrastructure, the mobile operators can provide a level of service that is unmatched by Google or anyone else. Interestingly, the mobile operators already have the tools they need. They do not need to wait for things like IP Multimedia Subsystem (IMS) or improvements to broadband such as Long Term Evolution (LTE) for UMTS. Mobile operators can leverage their existing SS7 and intelligent network systems such as Wireless Intelligent Network (WIN) and Customized Applications for Mobile Enhanced Logic (CAMEL) infrastructure to provide the centralized control necessary to provide mobilized direct response. In summary, the mobile operators should leverage what they uniquely own and control – their network – in a way that grows the pie for themselves and partners within an ecosystem where they have some control. Otherwise, Google and their partners will build their own ecosystem and the operators will be just an onramp to the mobile advertising and marketing superhighway.
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