The business of mobile Web 2.0

This has been a busy week, with a trade show, a seminar, teaching two courses and a small academic conference. So now I’m just getting caught up.

On Monday’s Smartphone Summit at CTIA, I moderated a panel entitled “Smartphone Interactivity (Social Networking & Personal Communications)”. This was a reprise of the same role I held back in October.Even more so than in October, we had an elite panel:

• Jason Ling: Senior Product Manager Mobile Products, MySpace
• R. Paul Singh: President and CEO, PixSense
• Bill Tam: CEO, EQO
• Jennifer Vancini: Sr. Director Market Development, Symbian North America
• Boaz Zilberman: Chief Architect, fring

Without canned presentations, we did a roundtable discussion on a series of key questions (suggested by my panelists) and (alas) only one or two from the floor. This is one of the very best panel discussions I’ve ever been involved in — we were really in the zone, with very little dead time, digressions, ”me too” comments or other problems endemic to panel discussions.

Obviously, being on the panel, I couldn’t take realtime notes, but below is what I captured after the fact.

What is “social networking"?
Bill Tam: “How are you going to communicate with people that matter to you”.

Is mobile social networking distinct from the larger domain of social networking?
Jason Ling: MySpace is platform agnostic, because it’s just another way to access the same information. You want to have the most possible devices.
Paul Singh: the idea of platform agnostic is mainly a US concept, because people in most of the world don’t have other access devices.

Is the future of mobile social networking in browser-based or native apps?
Boaz Zilberman: web apps are best for content, while native applications are best for communication — particularly when integration with other phone functions (e.g. the adress book) is required.

Do location based services matter?
Two biggest barriers to LBS are not technical, they are privacy concerns and fragmentation. Fragmentation is both carrier APIs, and also the fragmentation of national policy regulations.

Does ubiquity make mobile services more useful than PC services?
Again, not everyone has a laptop. But there are some applications (e.g. twitter) where constant availability allows you to really share with your friends what you are doing on an ongoing basis.

How does the US compare to elsewhere?
Interestingly, much of the technology is developed in the Bay Area, but even their main markets are overseas.

What do we do about spam?
Many Friendster “friends” are scams or commercial ties, as with blogging comments or search engine optimization. Where there’s money, people will abuse the system — as with telemarketers. The problem with social media will end the day that junk mail ends.

How do you make money?
The list was fairly conventional

• Mobile ads. Many teenagers (raised on Napster and Kazaa) expect free. Social media often has very good information on the user (or his/her ties) that inreases the value of ads.
• Intermediary/portal. Fring is reselling other services such as VoIP to PSTN) which provide revenues (at least until that gets commoditized).
• Royalties/licensing technology. PixSense sells services to carriers and others that want to offer this, but want to run their own services.
• Subscriptions. More common in other countries
• Transaction fees. People pay for ringtones, and will sometimes pay for other stuff.

Still, this list of ways of making money seems a bit like dot-com models of the late 1990s. Yes, Amazon and eBay collected a fee on every transaction, but others hoped to monetize via banner ads. Google was able to serve a very broad audience and bought code for targeting ads, and thus became the master of monetizing eyeballs, but many other companies failed to get enough revenues (which gave us the dot-bomb era).

Outside the session, one attendees speculated that the business model is exit via rolloup — get bought by some big firm that needs a portfolio of services to offer. In other words, spend your VCs money until you can convince Google (or Yahoo or MSN or Fox or AOL) to bail out the VCs.

Understanding the iPhonatics

At CTIA this week, Rubicon Consulting released a survey of 460 US iPhone users. The 35 page study is signed by Mike Mace, co-author of my iPhone paper.

A few key points:

• the most time is spent on e-mail, but the device increases browsing too.
• a third of the audience carry a second phone.
• the iPhone increased bills by $228 annually, half of the users switched to AT&T, and AT&T gained an additional $2 billion in annual service revenue.

About 40% switched from other smartphones — which in the US are not surprisingly Blackberry or Windows Mobile — and 50% switched from another phone such as a Motorola Razr. 75% of the customers either own an iPod or Mac.

The report listed two major challenges. First, the WebKit-enabled iPhone browsing doesn’t work on certain websites. (The report doesn’t mention it, but Nokia S60 uses the same browser technology).

Second, the iPhone has won the most innovative users,† but can it appeal to a broader market? This was a question for the iPod and Newton, too — one made it and the other didn’t — although the Newton never even got close to early adopters, let alone the “chasm”.

My rough reading is that Apple is roughly on track — it’s achieved its beachhead, but it has a long way to go to become mass market. And (as with any innovator) its rivals are not going to stand still.


† The report says “early adopter”, which is a technical term in innovation diffusion research that specifically refers to a market penetration of 2.5-16%, but is often misused by practitioners to mean anything in the first 15-20%. With a 17% share of new North American sales in 2007 (not installed base), early adopter (“visionary” in Geoff Moore terms) is a plausible categorization for the US. But in Europe, it’s clearly at the innovator (Rogers) or enthusiast (Moore) stage of 0-2.5%.

Smartphones: where we are

Monday I reprised my appearance at the Smartphone Summit, held in conjunction with the semiannual CTIA trade show. In addition to moderating a panel, I got to attend the rest of the conference.

The most new information came from the opening panel of mobile phone industry analysts:

• Mark Donovan - Senior Vice President & Senior Analyst, M:Metrics
• Pete Cunningham - Senior Analyst, Canalys
• Andy Castonguay - Director - Consumer Research, Yankee Group
• Bill Hughes - Principal Analyst, In-Stat
• Jonathan Goldberg - Senior Analyst, Deutsche Bank Equity Research

I’m used to having panels with stars and duds, but this was one of the largest panels I’ve seen at any show where everyone was first rate.

There were a lot of interesting presentations of data. One was the Canalys summary of the 2007 smartphone OS market share in North America and EMEA (Europe, Middle East, Africa):

	EMEA	N.A.
Symbian S60	34.8m	0.5m
Windows Mobile	5.0m	4.9m
Blackberry	2.3m	9.2m
Symbian UIQ	1.5m
iPhone		3.4m
Palm OS		1.4m
Other	1.3m	0.3m
Total	44.8m	19.7m

This gives more specific data about US vs. Europe and full year statistics that were not available in the Q42007 data released in February. Canalys is expecting a 50% CAGR for smartphones from 2004-2010.

There were other interesting comparisons between the two regions:

• Smartphones in the US are 2/3 enterprise while Europe is 2/3 consumers. Sales in the US are distorted by American addiction to handset subsidies: consumers don’t buy phones without subsidies. so cheap smartphones (think Palm Centro, RIM Pearl) sell but expensive ones do not.
• In the US, users (including teens) with PC experience want keyboards for e-mail and text, while European teens are quite happy with T-9. (At least one of the panelists shared my view that everyone wants good input and small form factor suspect others are like me and want both a small phone and a keyboard).

The In-Stat data on US users was also really interesting:

• Did users install any mobile phone apps (i.e. themselves, not their employers). The mean has creeped up from 1.54 in 2005 to 1.83 to 2007, but the histogram more interesting: none (30%), one (17%), two (19%), three (10%), four or more (25%).
• Phones are used as PC extension (53%), laptop replacement (17%), desktop phone replacement (17%). (The most interesting is that 30% of the users are just using it as a feature phone — the Smartphone OS is used by the manufacturer as a way to software-configure features, but the users don’t treat it as a smartphone.)
• Average ARPU per customer: $81 corporate-liable (company direct pay), $59 business-personal (reimbursed by company), $48 personal and unreimbursed business, and $26 pure consumers.

However, the In-Stat slide that got everyone's attention was the discussion of correlating platform strategies to vendor profitability. (I tried to grab my camera phone but was too slow). Hughes claimed that of the top 13 vendors, all of the vendors with simple platform strategies (2 or less) are profitable, and all those with complex ones (3+ platforms) are not. (For #14, it's so small that it doesn’t make money even though it has a limited number of platforms).

The first mention of the iPhone was Hughes asking if the iPhone is a “smartphone” — even with the recent SDK, the audience was evenly divided. (It is certainly a good web surfing device, extensible by web apps, so I think it would be silly to claim it is not “smart”). No one expects the iPhone to succeed in the enterprise, except perhaps in a few vertical markets like advertising.

Everyone agreed the iPhone is having a major impact on the industry. As Goldberg said: “In the U.S., consumers are suddenly interested in smartphones and aware of smartphones in a way they weren’t before.”

The crystal balls were otherwise cloudy. Are sales disappointing in Europe (France, UK, Germany, Ireland, Austria) due to the price? The form factor? (The lack of ITunes store penetration?) Or because it’s not yet 3G?

Still, I thought it gave a really good overview of where smartphones are today in the US. The one thing I’d add is the Rubicon Consulting iPhone study, which is being unveiled today at the main CTIA conference.