Get any size group of mobile media or application providers together and within minutes the conversation usually turns into a bitch session about carriers. Among the many complaints about carriers, this one comes up 100% of the time:
“Walled gardens are bullshit. Carriers should provide open access to their deck/billing/users.”
It appears to me that the number one complaint people who work at non-carriers have about the carriers with which they are trying to work is that they have to work with them.
But consider for a moment, dear mobile content provider, why our industry works the way it does. And consider the implications of your desire to change it, which could be very very bad for you.
Never mind that the wireless carriers have spent billions of dollars to deploy their networks so that they can serve their subscribers. Serving their subscribers means focusing on a certain QOS level for primary services. Voice is a primary service, and still represents the lion’s share of revenue. Spectrum is a scarce resource. By carefully metering the content that gets provisioned on their networks, wireless carriers are doing consumers a great service. We have seen the result of unchecked access on the internet. The result is spam. It would be bad enough to get unsolicited emails to my handset about porn, mortgage refinancing and Russian pharmaceutical providers. But network utilization is a bigger concern for me. There may be a time when I need to dial 911 from my mobile phone. When I do, I want that call to go through. I don’t want a busy signal because the network is overtaxed by kids downloading music to their fabled iPod phones or streaming mobisodes of the hit TV show 24.
Fortunately, I won’t really have to worry about that. DVB-H (or MediaFlo for us true believers) is a separate transport mechanism. But still, let’s consider the true implications of open access to wireless subscribers.
First, a working definition of Open: The ability to provision content of any size directly to subscribers from any source with no restrictions on the part of the provider or consumer as to how the content is accessed. The first thing we would see is Apple enabling people to download songs to their handsets. But handsets would be open, right? Openness means Verizon Wireless won’t cripple the bluetooth functionality in their handsets to limit it to working with the bluetooth headset. This means subscribers could transfer MP3 files from their PCs to their handsets, and it is their fair use right to do so without being encumbered by any DRM bullshit. So the second thing we would see is subscribers transferring songs to other subscribers via bluetooth. That’s when the RIAA and MPAA will get their panties in a bunch again. But it gets worse.
Here is my brief blueprint for a file sharing system on mobile devices in four easy steps:
1) Subscribe to cable television.
2) Download the (yet to be developed) mobile version of LocationFree or Slingbox to your mobile device.
3) Capture a stream of your favorite movie or music on your mobile device.
4) Bluetooth it to your friend or attach it to an email and send it.
The concept of watching your own TV signal remotely is protected by fair use. The problem with my simple blueprint is that there is currently no record button. But if walled gardens go away and anyone can create any application for mobile devices and users can readily download them, then how long will it take someone to build a Slingbox competitor in J2ME? Then how long will it take another programmer to add a record button?
BTW, I am all about the functionality I propose because there are very compelling non-infringing uses of such a system. Maybe I want to timeshift my favorite TV show and watch it later on my mobile device on the plane. This would require a record button. Then the issue would be locking down the device, as Sony did to my PSP. Right now I am streaming television to my PSP. Even if I could record it to watch later, the PSP is fairly well locked down so I would not be able to send it to another person’s device. But that’s what I call a walled garden. What we want is openness, right?
If you are in the business of selling content that has a discreet beginning and a discreet end, openness will punk your business. Most of the non-messaging mobile media revenue today is from discreet media: Games, ringtones, wallpaper and songs all result in a download. This means that open networks and open devices will provide a way around the most important aspect of the walled garden system, which is that content is forced through a carrier-controlled billing mechanism. The business models of all current mobile content providers rely on an environment that artificially suppresses the economically competitive force of freely available goods. This makes perfect sense. When you go to the music store, you expect to pay for music. This makes the music store a good place for music companies to sell their music. It is essentially a closed system – the only way to get the music is to buy it, and there would be no incentive for the music store to put aside some square footage for the music company that wants to give their product away. Now, when you want to steal music, you do it online. This makes the internet a bad place to sell your music. As an open system, the competitive force of “free” overwhelms the legitimate “for sale” business model because as currently deployed, the “free” music option is actually easier for consumers than trying to pay for it online.
So handsets are changing from black boxes with simple mechanisms like forward lock, so people cannot send ringtones to their friends, into white boxes with operating systems that enable users far greater flexibility in how they manage media with their devices. Networks are also opening. Dual-mode handsets are shipping. When your handset sniffs an open WiFi or WiMAX network nearby and automatically switches over to that network, what competitive pressure will this put on wireless carriers? You can buy a piece of content through the Cingular storefront, or you can simply download it from the internet for free or get it from your friend’s device. Which would you choose?
Make no mistake: This is going to happen. The existing business models of many mobile media companies that rely on a closed network environment are seriously threatened. It is already happening in other ways, too. I was at the fall CTIA show last year in SF and some crazy drunk girl whom I had never met before accosted me in the lobby of the W hotel saying I was traitorous and was going to ruin the ringtone business. Through her slurring nonsense I finally figured out that she was referring to my angel investment in Xingtone, a company that enables users to record a clip of a song and make it their ringtone. She was misinformed, and apparently just generally stupid on top of it, but she made a good point: When consumers have another way to get content, they will use it if it is easier/cheaper/better. (I would argue that Xingtone is cheaper and better, but not necessarily easier at this point, though it is the only tool I use for ringtones now.)
Future-proof Mobile Media
Are you convinced yet that the last mobile media business you want to start or invest in at this point is one that pushes media to consumers? Let me try to illustrate further. I even made a picture.
Start with Mobile TV. Is network-scheduled TV on my handset compelling? Let’s say for the sake of argument that it is. Ok, so would you rather pay your wireless carrier an additional subscription fee for it or get it for free via the soon-to-be-developed mobile Slingbox competitor? Slingmedia could kill the entire Mobile TV opportunity with a mobile client if they can get it to work correctly on the WAN the way it does over WiFi. Mobile TV, in its current incarnation, is simply capitalizing on a device trend that makes mobile phones another distribution channel for repackaged content. Without a walled garden, this business cannot be sustainably monetized. The same is true of all content businesses that push content to consumers.
To avoid this pitfall, shift gears and look at what people are spending money on that isn’t pushed content and try to make it better. SMS. People happily spend money to send messages to each other. Great, so how can you make it better and so much more valuable that people will pay you more than a nickel? Pictures. I am willing to pay up to a dollar to send a picture. Well, if I will pay that much to send a picture to another person, then being able to post it to my blog for the same amount of money makes it even more valuable to me, because the whole world can see it, right? Yes, sort of. I think the opportunity for moblogging and messaging-based mobile communities is far greater than network-scheduled pushed mobile TV. But context becomes a problem. The SMS communities I have used have too much noise and not enough signal. Most of the moblogging solutions I have seen enable users to post content to a web-based environment, which basically divides the user base in half – web users who consume data and mobile users who produce it, since the mobile user cannot consume it on their handsets. This opportunity is great because it capitalizes on both a device trend (mobile phones turning into Personal Media Devices or PMDs) and the convenience factor of having it with you all the time, so when time and place matters, consumers are properly enabled. The trouble with this in the long run is that the real value is convenience. Posting content from my phone to a website is not particularly mobile relevant because there isn’t an aspect of it that returns value to me at the margin. There is no connection made through my mobile device.
The LMNO is different. It’s focus is on interactivity between users and adds the Z-axis that is location and proximity. Match.com is a good example of an LMNO that does very well in the most open network environment, the internet. Match.com connects people via proximity in a geographically relevant environment through the media that users create. This makes them an LMNO. All internet dating sites are marketplaces where user-generated content (in the form of pictures, profiles and messages) is transacted to connect people. Match.com’s hundreds of millions of dollars in revenue are due to the fact that the value is in the network of people, not the content itself per se. It is the content’s role in the connection process that requires its presence, and it is very important in this regard, but it is the marketplace itself that makes people want to pay to join it. It is that interactivity that separates the LMNO, even though it is essentially media that passes through the system. It’s just that the media is created by users.
Match.com Mobile is doing very well, but that is just one application. There are hundreds of LMNO verticals that make sense in the mobile space, and they all have one thing in common: They are valuable in either a closed or open network environment because they do not rely on artificial barriers to support their business models.
You may or may not be convinced. (I may or may not be correct.) I just wanted to illustrate the incredibly valuable position the wireless carriers have in the mobile media space which is not only to their great benefit, but to the current benefit of the ecosystem that has been built around it. I also see that as an industry we are marching inexorably toward an open environment and wanted to argue that when that happens, the traditional media distribution value chain will be compromised. It is time to evolve. If you are one of the many smart entrepreneurs or investors looking at the mobile space, just consider what I have said before you decide jump in. We don’t need another ringtone provider. The gaming thing is covered. If you think I may be making some sense, please build an LMNO. In any case, look past today and think a little differently to build the mobile media companies that are going to be truly valuable tomorrow.
