Mobile Industry

Social wrapped around everything

I haven’t felt very bloggy lately. Forgive me – it seems I have been living on an airplane for the past two months. I have been traveling around the world, visiting clients, planning for next year, etc., and I can...

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Posted by Shawn Conahan on December 18, 2008 at 11:07 AM

Mobile content demand inelasticity

How is your portfolio looking today? I suppose I understand as well as anyone at a macro level what is driving the global financial meltdown. I also understand what a lack of cash means to banks and what a lack...

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Posted by Shawn Conahan on October 13, 2008 at 09:44 AM

Nokia acquiring Oz

Today Nokia announced that it is acquiring Oz, the mobile IM and email provider. First things first: Congratulations to Skuli and team. Secondly, one must pose the question: Is there no stopping Nokia? In the midst of a worldwide financial...

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Posted by Shawn Conahan on September 30, 2008 at 09:49 AM

In Europe now, thinking about business models

My most recent RCR Wireless column is about mobile social networking business models. Here is a link to it on the RCR site, and since I think that link will eventually expire, the text is below. The point is that...

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Posted by Shawn Conahan on September 24, 2008 at 01:46 AM

Sizing the mobile social networking opportunity

I got an email this morning from Informa Telecom and Media about their latest report on Mobile Social Networking. It is called “Mobile Social Networking: Communities and content on the move.” Here is a link about it. Judging from the...

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Posted by Shawn Conahan on August 28, 2008 at 05:19 PM

The Rule of Three in the U.S. wireless industry

One of my favorite business books is Jagdish Sheth’s The Rule of Three – Surviving and Thriving in Competitive Markets. It basically states that markets mature to support three big “generalist” players, leaving the niche markets to more focused “specialists.”...

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Posted by Shawn Conahan on June 06, 2008 at 10:35 AM

Economics of the Dumb Pipe

**This is the full version of an article I wrote for this week's Reality Check column in RCR Wireless. To meet the character limit, the RCR version was truncated, and the last part of the conclusion was missing.** For the...

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Posted by Shawn Conahan on May 13, 2008 at 11:10 AM

“Social” is the next evolution of the mobile communication experience

I have not blogged in awhile because I just have not had time. We had a great week in Barcelona last week, announcing some important relationships as we continue to expand our footprint in mobile social networking. We will announce...

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Posted by Shawn Conahan on February 19, 2008 at 12:47 PM

Open is the new black

Open platforms. Open networks. Open devices. OpenSocial. Open APIs. OpenID. Do you think the term “open” is being used with some recklessness of late? Or perhaps if not recklessness, with a certain degree of definitional liberty? In case I haven’t...

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Posted by Shawn Conahan on November 28, 2007 at 12:17 PM

This whole mobile thing is a real pain in my ass

Hey everyone, Fake Steve Jobs here. Thanks to Intercasting Corp for allowing me to post to their blog as a guest. It is part of my initiative to reach out to the mobile industry audience and do a little damage...

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Posted by Steve on October 17, 2007 at 10:18 PM

CTIA parties

Available here: http://www.ctiapartylist.com/ That's a handy little resource. I thought you would find it useful. It doesn't even list ALL of the parties, either. I got an invitation today that says, "Don't forget to RSVP for the Only Exclusive VIP...

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Posted by Shawn Conahan on October 15, 2007 at 03:43 PM

Objectively In Support of Gary Forsee

I am looking at my email inbox. I have a folder into which I siphon the various trade newsletters and such. The recent subject lines: CTIA SmartBrief - October 5, 2007 - Reports: Sprint considers new leadership FierceWireless - |...

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Posted by Shawn Conahan on October 07, 2007 at 06:36 PM

The Sony CDP-101 and my new iPhone

I got my new iPhone last Saturday. I was in Denver for the weekend and I happened to walk by a store downtown. There was no line. They had 47 left when I bought mine. After a week, I must...

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Posted by Shawn Conahan on July 08, 2007 at 07:40 AM

The 386, Diamonds and Mobile Phones

This iPhone hype reminds me of the early days of the PC, when marketing centered around major breakthroughs. Remember the PET? TRS-80? Sinclair? Commodore 64? Apple II? IBM PC? They were all notable for certain reasons. Maybe it was “pre-assembled”...

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Posted by Shawn Conahan on June 28, 2007 at 06:24 PM

Does Amp’d bode ill for Helio?

Does Amp’d bode ill for Helio? I am seeing a lot of dancing on the grave of Amp’d Mobile. It is a pretty easy bandwagon to jump on: High-profile, cash-burning companies with hubris run by big-personality managers are fun to...

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Posted by Shawn Conahan on June 08, 2007 at 10:10 AM

Helio Ocean Review

I have a Helio Ocean. I got it on the first day it was available. I've used it as I would my primary phone, getting a sense for the UI, etc. I HATE it for these reasons: I cannot easily...

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Posted by Shawn Conahan on May 17, 2007 at 09:23 AM

Blocking and Tackling in the mobile space

We just announced we secured $12mm in B round funding. We are as quietly as possible executing on our platform strategy and will be rolling out this summer. The money will enable us to broaden our capabilities. Come be a...

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Posted by Shawn Conahan on May 09, 2007 at 10:17 AM

The future of mobile communication

I had lunch last week with some friends who all work at the same wireless carrier. The conversation turned to social networking, etc. There were two interesting discussion topics that I thought you might find relevant to what Intercasting Corp...

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Posted by Shawn Conahan on May 08, 2007 at 11:16 AM

Tragedy, alerts, scoundrels and social networking

Tragedy Wow, that Virginia Tech shooting was REALLY bad. Does a campus shooting seem anomalous to you? It certainly happens, but the majority of campus shootings are suicides. Here is a list of major campus shootings over the past 10...

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Posted by Shawn Conahan on April 22, 2007 at 09:28 PM

Helio Store (Field) Trip and my growing irrational love of the Ocean that isn’t any more ridiculous than your irrational love of the iPhone

A few Saturday nights ago we all went to The Field, my favorite pub in San Diego, for Mo’s birthday. We go often. I recommend it. Down the street is one of very few Helio stores, which I have been...

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Posted by Shawn Conahan on April 05, 2007 at 02:30 PM

CTIA 2007

Imagine a sultry nightclub filled with thousands of hip hop pimps with platinum grills wearing dark glasses, rappers iced to the teeth and bedecked in knockoff Burberry plaid suits and insanely hot women with navel piercings scantily clad in animal...

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Posted by Shawn Conahan on April 03, 2007 at 08:17 AM

Go to EconSM

I am in Seattle this week. On Tuesday night, I was working late with the TV on in the background and I turned on Showtime, which I don’t get at home. The L Word was on, which I had never...

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Posted by Shawn Conahan on March 22, 2007 at 10:46 AM

Microsoft buying TellMe?

I hear there’s rumors on the, uh, internets. It turns out they are just sort of for sale. This would be a brilliant acquisition by any company that wants (and has the resources) to be for the mobile space what...

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Posted by Shawn Conahan on February 27, 2007 at 08:29 AM

Airport security, handset technology and unhappy consumers

So far this year I have flown over a hundred thousand miles. I am therefore a frequent consumer of airport security services. It occurred to me today at New York’s Kennedy Airport that airport security could be staffed entirely by...

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Posted by Shawn Conahan on December 09, 2006 at 09:51 AM

Is Google Arrogant?

So, long time no post, but I was gone for most of November getting married and then there was the honeymoon, etc. (We are registered at Williams Sonoma. Please go buy us something. Since receiving the panini grill, ordinary sandwiches...

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Posted by Shawn Conahan on December 01, 2006 at 05:00 PM

Investing in the mobile space

Google is buying YouTube for $1.65 billion. (Oh, you heard that already?) That seems like a lot of money for a money-losing copyright infringement machine until you compare the value of that company today to its future earning potential as...

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Posted by Shawn Conahan on October 18, 2006 at 11:27 PM

Greg Clayman blogs now. Go read.

As co-founder of UPOC back in the day, Greg Clayman is a mobile data O.G. Now successfully heading MTV's mobile efforts, Greg has been at the forefront of mobile data innovation since 1999. That is about as long as the...

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Posted by Shawn Conahan on September 28, 2006 at 01:22 PM

A summary plan for InfoSpace when facing disintermediation in their core business

I haven’t posted in a while. I have been really busy. (And I am technically not a blogger.) For another purpose, I had pulled together a short overview of the mobile space with a view to the future and then...

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Posted by Shawn Conahan on September 27, 2006 at 11:04 AM

dotyawn

Dotmobi is available. Yay? The strongest pitch to register so far seems to be: “Better run out and register your current dotcom as a dotmobi to protect yourself from some cybersquatter beating you to it.” What does this do for...

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Posted by Shawn Conahan on September 26, 2006 at 11:37 AM

Is MySpace driving Helio subs?

I do not think so, just like MySpace isn’t driving Earthlink subs. I'll bet it is driving data ARPU on Cingular, though. I missed this when it came out, but Fierce picked it up this week: Helio drops contract requirements...

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Posted by Shawn Conahan on August 11, 2006 at 03:21 PM

Join the Mo list

The new media guys at the record labels used to be the red-headed stepchildren of that industry, then ringtones happened and they are the rising stars in their companies, plus mobile music and video is changing the structure of labels...

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Posted by Shawn Conahan on August 01, 2006 at 12:25 PM

The Mobile Ad Model

I just re-read this bit from Techdirt from a couple of weeks ago about eBay’s super-secret Skype plans. Techdirt contributor Derek Kerton was underwhelmed by the apparently small news that eBay buyers will be able to communicate directly with eBay...

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Posted by Shawn Conahan on June 28, 2006 at 01:14 AM

Moviso.com is live

I didn’t see any announcement about it, but go check out www.moviso.com, the off-deck portal from InfoSpace. Compare to www.yourmobile.com, also owned by InfoSpace, which, judging from the out-of-date content was abandoned by InfoSpace circa mid-2003. Functionally, moviso.com is essentially...

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Posted by Shawn Conahan on June 27, 2006 at 12:07 PM

WiFi Skype Phone

Via aving.net, the Belkin WiFi Skype Phone. We are starting to see the future of free personal communication take shape. I am not sure if I have mentioned it before, but Voice is going to free. In 4 years, there...

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Posted by Shawn Conahan on June 03, 2006 at 11:08 AM

Guelaguetza

“Guelaguetza” is an ancient custom among the Zapotecs of what is now the state of Oaxaca in Mexico. It is a sort of formalized exchange or barter among individuals or communities of “gifts” of work, animals, materials or food. When...

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Posted by Shawn Conahan on May 24, 2006 at 08:24 AM

CTIA was fun

I was going to write a detailed trip report, but I am going to a wedding this weekend and really won’t have time, and by the time next week gets around you will have already moved on to something else...

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Posted by Shawn Conahan on April 07, 2006 at 06:35 PM

Tip for your meetings at CTIA

Off to CTIA - no time for long-winded blogging this week, but I will have a trip report of some sort next week. If you are going to the show and want to see Rabble, stop by the Kyocera booth...

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Posted by Shawn Conahan on April 04, 2006 at 09:06 AM

Moviso an upcoming D2C brand?

Please forget what I said before about Moviso being a lame direct to consumer brand: I will know they have not shaken their infrastructure DNA and adopted a consumer marketing mindset if they announce a consumer strategy under the InfoSpace...

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Posted by Shawn Conahan on March 12, 2006 at 06:52 PM

You say potato, I say potizzle

Mobizzo launched, and it is a smart move forward. My phone's wallpaper now proudly supports Pedro. Lucy Hood is a key driver in this industry. With her pioneering efforts on American Idol and her vision for mobisodes, her track record...

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Posted by Shawn Conahan on March 03, 2006 at 08:34 AM

There’s a wooden horse building contest in Troy

Does the mobile industry view "WiFi Disintermediation" as a threat or an opportunity? From the deals being done, I would argue there is more support for “opportunity.” But the word “disintermediation” should be a hint to the contrary. Isn’t it...

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Posted by Shawn Conahan on February 28, 2006 at 08:48 AM

What I learned at 3GSM

My opinion on 3GSM is that it has jumped the shark: It is too big, too far to go and too much to spend to not get enough done, and 600 euros for an exhibits pass is ridiculous. I did,...

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Posted by Shawn Conahan on February 21, 2006 at 03:25 PM

FierceMoSoSoLoBaCoNews

Did you get the email from Jeff at Fierce Wireless on Friday announcing that they are starting a new sub-newsletter called FierceMoCo? Is it just me or is this a little confusing? There are two newsletters that everyone in our...

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Posted by Shawn Conahan on February 06, 2006 at 12:15 PM

Simplicity is key.

I am in Las Vegas at CES. I saw the “O” show, wherein dozens of nubile gymnasts perform impossibly complex and breathtaking acts of derring-do to the amazement of the very impressed crowd. It is the sheer complexity of the...

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Posted by Shawn Conahan on January 06, 2006 at 01:50 PM

MoMo SD at Intercasting Corp Dec. 19

We are hosting the Mobile Monday San Diego chapter event next Monday at the Intercasting Corp World Headquarters. Starts at 6:30. Clicky for details. I am told that they will be coming off the presses this weekend, and if so...

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Posted by Shawn Conahan on December 14, 2005 at 04:20 PM

JAMDIS

I got a call this morning from a buy-side analyst. They were smart guys with an eye on the space, just wanting to chat about where mobile media is going. I think our general agreement was that it is going...

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Posted by Shawn Conahan on December 13, 2005 at 02:35 PM

3GSM 2006 in Barcelona

Regarding 3GSM, I have nothing important to offer but this: You might want to start thinking about booking your hotel, as options are already thinning out. I just booked my travel, and I was reminded of a tip I have...

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Posted by Shawn Conahan on October 29, 2005 at 05:38 PM

There is more headroom for INSP

Like I said before, INSP is undervalued. Even with today's boost on yesterday's earnings call, this company is still only trading at roughly 2x cash on hand. I read Needham and Co.'s report this morning maintaining a Buy rating for...

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Posted by Shawn Conahan on October 26, 2005 at 10:42 PM

Tripping the Chocolate Fantastic

Did you see Trip's speech at CTIA last week? I wasn't there, but someone sent me this article about it saying it sounded similar to our vision. (It is good to see more people moving in the right direction.) "If...

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Posted by Shawn Conahan on October 03, 2005 at 09:45 AM

InfoSpace for Sale?

Sure, why not? Reuters ran a story yesterday that bankers are pitching InfoSpace as an M&A target. Of course, this doesn’t mean InfoSpace has retained an investment bank to shop them around. This week’s announcement of (their president) Kathy Rae...

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Posted by Shawn Conahan on September 30, 2005 at 04:18 PM

Get Your CTIA On

I am at CTIA, and it’s a good conference for us this year. More on our momentum in a future post, but generally speaking, things are looking good, planets are aligning, etc. We'll have a slew of announcements in Q4....

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Posted by Shawn Conahan on September 28, 2005 at 01:41 PM

Mobile Content World

I am off to Mobile Content World in London, leaving in a couple of hours. I will be speaking on the panel Reaching Out To Youth. If you will be there and would like to meet, please shoot me an...

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Posted by Shawn Conahan on September 13, 2005 at 08:24 AM

JAMDAT Soup

Investors punished JMDT last week and it continued today. I think this is an exaggerated response to the 3rd-quarter guidance. I have some broader observations about it, and like InfoSpace’s recently tanking stock, I foresee a ripple effect throughout the...

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Posted by Shawn Conahan on August 15, 2005 at 01:18 PM

More on InfoSpace

Analysts Sending Me Emails, Read This: Here are my answers to the four questions I am consistently getting from various financial analysts: Yes, there really is seasonality in the ringtone business. It is lowest in the 2nd and 3rd quarter....

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Posted by Shawn Conahan on July 29, 2005 at 10:26 AM

About InfoSpace

This Stock Price Does Not Reflect Their Opportunity INSP just plunged 30% to a new 52-week low of 24 and change on lower than expected guidance for the year. Sounds pretty bad, but don’t be too quick to judge. I...

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Posted by Shawn Conahan on July 28, 2005 at 07:08 AM

BREW2005 Recap

First of all, the Hawaiian Tropic girl was very hot. How do I compete with that? I pulled up my pant leg a little bit to show some leg in an effort to attract more attention to our booth, but...

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Posted by Shawn Conahan on June 04, 2005 at 10:15 AM

Qualcomm’s BREW Conference Is June 1-3

A post not about populist media I am writing this from Boston at the moment, having endured last week’s unseasonally cold nor’easter. I am therefore happy that the BREW conference next week will be in usually sunny San Diego. It...

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Posted by Shawn Conahan on May 29, 2005 at 06:04 PM

December 18, 2008

Social wrapped around everything

I haven’t felt very bloggy lately. Forgive me – it seems I have been living on an airplane for the past two months. I have been traveling around the world, visiting clients, planning for next year, etc., and I can tell you that next year is going to be awesome: There is a convergence of trends that we assumed would happen one day, and those trends are really starting to converge in a big way. Those trends are:

1) Social networking becomes a mainstream communication medium (check)
2) Mobile operators embrace the value of social networking in the mobile space (check)
3) Social communication becomes a feature of the native mobile device UI (soon)

That last one is the bit that is going to make 2009 so exciting for me. Underway now are the various projects at various carriers and OEMs to make mobile phones “social.” Derrick and I have been meeting with all of our clients to plan around their initiatives and our new functionality, and I have to say that what I see in general is really the most innovative thinking I have seen across the industry in some time.

Almost every carrier in the world has the following projects in various stages of development at this very moment:
- “Social address book”
- “One-click upload” camera
- Active UI
- Open app store

As a quick aside, I should note that most of the OEMs and some of the infrastructure providers also have the same projects defined, and it is going to be a zero-sum game among them; among large hardware companies, some move more swiftly than others. As the lines blur between hardware and software, everyone is swimming upstream. Who does the future belong to? Ask Verizon Wireless, soon to be the largest carrier in North America, how they plan to dominate their market. Then again, ask Nokia who they think the customer belongs to, as they continue to build their capabilities not just in handsets and infrastructure, but also in services now. Talk to companies like Alcatel Lucent, in the midst of a management upheaval, where they need to go to stay in the game. “Closer to the consumer,” is the answer for everyone. How to do it? PANDER to consumer whims as never before, give them what they want, and give it to them in the absolute best experience possible.

What do mobile consumers want? Ease of use, low cost and social interaction. And that is exactly what consumers are going to get starting in 2009. Imagine your cheap subsidized feature phone acting more like an iPhone, getting a simplified user interface that is easy and even fun to use, and wrap the word “social” around the most important features. Look forward to the following:

- Active UI: Get RSS feeds, friend feeds, alerts, notifications, messages and media delivered directly into your phone’s native UI. What is an inbox anyway? Can’t the idle screen work more like an active communication dashboard? Yes. And soon it will.

- More useful cameras: Why do only 10% of photos ever make their way off of the mobile device? Because it is really hard to send photos. And what is the incentive to send a photo via MMS anyway? Sharing? Is it more valuable to share with a million people versus one person? Yes. Tighter integration between camera phones and photo hosting and sharing providers is like wrapping “social” around your camera.

- Social address book: Communication is multimodal. You send emails, you use IM, you use Facebook, you send SMS, maybe you even use Twitter. All of your contacts are in different address books. Your mobile phone should be more multimodal than it is. Since it is the device that is with you more than any other, it makes sense that it should have a superset of all your contacts no matter where they originate, and no matter what mode of communication you wish to employ, your phone should be able to do it.

- App store for the rest of us: With all the hype around the smart phone market lately, you would think that everyone in the world had an iPhone. The truth is that Apple represents a small slice of the smart phone market, which amounted to no more than 120mm units shipped worldwide this year. Feature phones (the less expensive, lower-powered types) account for 1.13 BILLION units sold this year, and they are getting better every day. Those consumers will soon be able to pick and choose functionality and add applets that extend the value of their phones, and it won’t be a rev of the existing “download storefront” model. Look for something totally different and refreshingly simple.

As all of these initiatives make their way to market, consumers will end up winning big. The entire mobile communication experience is about to shift and just get…better. What it all adds up to is a personalized and frictionless communication experience. That is the power of “social.” It is a too-often used word that is ill-defined in the context of technology and communication, but nonetheless it is fueling a revolution in the way people communicate that is about to raise the bar in the mobile industry.

Posted by Shawn Conahan at 11:07 AM

October 13, 2008

Mobile content demand inelasticity

How is your portfolio looking today?

I suppose I understand as well as anyone at a macro level what is driving the global financial meltdown. I also understand what a lack of cash means to banks and what a lack of credit availability means to businesses and individuals. Perhaps most importantly, (to my business and our industry, anyway) I understand what all of these macro trends means to the typical mobile consumer: Nothing.

When it comes to the microeconomics of managing our business, I am keenly aware of even the slightest fluctuation in our daily stats. I can tell you when a carrier has done a promotion, put us in a “featured” category, changed a category, altered a naming convention, changed marketing language, had a problem with their storefront vendor, launched a new handset or, put simply, changed anything in any way whatsoever. This is because demand is constant for mobile content and communication, and it is other variables that affect consumption. I just looked at our daily new user stats, and yesterday we had more than 50% more new users than we did exactly 30 days ago. The global financial crisis evidently has little impact on purchasing behavior for products below the $5 mark.

Notice the line at Starbucks is as long as ever. Your triple grande latte is a low-price luxury good, and at the margin, cutting out your $3/day habit does not materially impact your ability to pay the rent. The perceived value of that latte is higher than the cost, because dammit, with the world crumbling around you, you deserve it. So it is with your $1.49 to access MySpace Mobile. (In fact, your barista will tell you that there is a statistically significant increase in demand for whip cream over the past month.)

There are few substitutions for mobile communication, and over the years, our industry has found the market-clearing price for most forms of mobile content. But price is not the most important variable because demand for mobile content and communication is inelastic: The percentage change in demand is smaller than the percentage change in price. This is why carriers increase the price of SMS even as volume increases – they know that increasing the price increases revenue at a higher rate than whatever drop off in demand the increased price might produce. Despite LNP, it is still a perceived high-cost proposition for consumers to switch carriers, even to a lower-cost alternative.

The greatest function of demand for content and 3rd-party communication services in the mobile space is not price – it is discoverability. If a carrier put a big red button on the home screen of every one of their phones tomorrow with a label that said “Press to pay $10,” and that was all the big red button did but it was the only thing on the home screen of everyone’s phone, they would have at least 50% of all subscribers push the big red button.

Preloading is a form of big red button: Where our interface is preloaded rather than offered as a downloadable app from a carrier’s deck, we see a minimum 20x increase in new users who have that handset vs. a comparable device in market. That is a significant multiple, and it has nothing to do with price – it is all about discoverability.

We have tested consumer price points from $10 to Free, and we have learned that all other variables being equal, Free does not increase adoption, and to some measurable extent, it increases churn because the consumer has made no investment in the experience. This is as true amid a global financial crisis as it was in more generally prosperous times. The most effective consumer offers for communication services are “finite day pass” and MRC.

The world is full of bad news, but at least one can take solace in the fact that the mobile consumer displays an attitude that rewards utility not just with usage, but with money. ;-)

Posted by Shawn Conahan at 09:44 AM

September 30, 2008

Nokia acquiring Oz

Today Nokia announced that it is acquiring Oz, the mobile IM and email provider. First things first: Congratulations to Skuli and team. Secondly, one must pose the question: Is there no stopping Nokia? In the midst of a worldwide financial crisis that has all sources of cash completely ferklempt, and even as its own stock price takes a beating, Nokia brazenly forges ahead with non-trivial acquisitions, confident in its market position, its strategy and its fundamentals. And why shouldn't they? NOK, like many telecom sector companies, (and one might even say all companies ex-financial sector) has strong fundamentals, and while the contagion of fear may certainly affect them as investors (who are all on some level speculators) run for the door, this is exactly the time when acting out of fear paralyzes companies. And so Nokia will probably pull farther out in front as its competitors succomb to fear at exactly the wrong moment.

But I digress - I am not a financial pundit, and what I really wanted to talk about is the Software and Services strategy in the mobile space and what the acquisition of Oz means for the incumbents competitive to Nokia.

Nokia bought Oz for an obvious reason: They have been sending out 200mm feature phones a year with no 3rd-party messaging capability. Baking consumer email and IM into those devices solves that problem, and serves well their Software and Services strategy. As devices become less “discreet hardware” and more “service-delivery platforms,” the importance of filling the void for consumers increases. Companies like Oz fill that void for IM and email very well.

In fact, there are a lot of platform companies that fill similar voids. One need only look at Nokia’s history of acquisitions to identify those voids:
Navteq – location services
Enpocket – ad serving
Plazes – social mapping
Loudeye – music
Twango – social networking
Avvenu – desktop sync

Now all they need is Search, Games, News, Weather, Sports, Photo Upload, VoIP and Contact Sync and they effectively become a mobile media company likely to rival, in the long run, AOL, Yahoo, MSN, etc.

I frankly expect to see no slowdown at Nokia and wouldn’t be surprised if they kept ticking off “need to have” verticals with more acquisitions. Of course, near and dear to my heart is the social networking vertical. Just as Nokia can now provide 3rd-party IM and email, so will they eventually provide 3rd-party social networking. (If consumer trends continue in this direction.) Twango became Nokia Share, which is not like “an Oz for social networking.”

But that means that everybody else has to continue, as well. Really interesting to me is what happens when Nokia makes an acquisition. There is a not-small universe of companies around Nokia that, to remain competitive, has to move in a certain direction whenever Nokia moves. Any competitor to their handset or infrastructure division has to now be looking at the Oz acquisition and planning a move into 3rd-party messaging, no? And which private companies are “Oz-like”? Certainly there are a slew of platform companies that provide vary types of similar services. It will be interesting to see what happens next.

Mostly, I am interested to see which companies rise to challenge Nokia during this generally fearful moment in history. I personally think Nokia is making bold moves and showing resolve to win at a time when other CEOs might be forced to pursue a more conservative approach.

Posted by Shawn Conahan at 09:49 AM

September 24, 2008

In Europe now, thinking about business models

My most recent RCR Wireless column is about mobile social networking business models. Here is a link to it on the RCR site, and since I think that link will eventually expire, the text is below. The point is that every participant in the mobile social networking ecosystem has a different strategy, and so there is no single business model that works for everyone.

I happen to be in London at the moment, then I'm off to Germany and some other fine countries, visiting customers, etc. Coming here is a good way to maintain perspective on business models, because the mobile consumer experience is so different compared to in the U.S. Flexibility is key when dealing with a worldwide customer base. One thing that remains constant across all of our customers around the world is the increasing importance of integrating 3rd-party communication service providers into the mobile communication experience.

Anyway, here is the text of the RCR article...

On social networking business models

I have a good vantage point of the mobile social networking opportunity: The largest social networking providers, wireless carriers, content providers and OEMs are using my company’s Anthem platform as the backbone of their mobile social networking strategies and roadmaps. I more or less know what everyone is planning in this space up to about 18 months out. Everyone is doing something similar, yet everyone is approaching it very differently, (if that makes sense) and the end result is going to be a very rich user experience.

Mobile social networking is one of the highest priorities among carriers, OEMs, social networking providers, and content providers because it essentially redefines the personal communication experience. It may be a bit difficult to envision, but as simply as you click on a friend in your address book or shoot off an SMS, the word “social” is being wrapped around the consumer experience in exciting ways. You will soon find that there is no “WAP site” or “application” per se in the mix. Rather, you will find access to your favorite social sites baked into the very UI of your device.

It makes perfect sense, of course, that wireless carriers would embrace what is essentially an evolution of their core business model, which is providing communication services. (And social networking is simply a communication service, on the same continuum as voice, SMS, email, IM and so forth.) It also makes sense that social networking providers would embrace the mobile consumer: Social networking was established and flourishes on the Web, which is limited to a 500-million-strong consumer base (roughly the number of PCs that are connected to the Internet). Compare this to the roughly 3 BILLION mobile consumers worldwide, and it’s no wonder the largest social networking providers in the world are rushing to the mobile space to grow their numbers.

But here arises the question of business model, which is the intended subject of this article. There is a natural tension between wireless carriers and social networking providers because the former has built a business around getting paid for providing communication services while the latter has built a business around providing communication services for free while advertisers subsidize the experience. That they are both basically in the same business of providing communication services, and are therefore on some level competitive, would only seem to add to the issue as the opportunity grows. However, the very size of the opportunity is the thing that is encouraging cooperation among all parties, and I am glad to see it. All that is left is the question of business model.

And here is where I am truly amazed at how differently everyone is viewing the future. The basic consumer-facing models being discussed are:

- Subscription.

- Day pass. (Typically for pre-paid carriers).

- Bundled with data package or tier.

- Paid via defined rate plan.

- Free and ad-supported.

- “Free” and indirectly monetized. (Such as through SMS and MMS).

- “Free” as part of an all-you-can-eat data plan.

There is no one consumer offering that will work across the board, because carriers worldwide operate under very different economic realities.

The presentation paradigms are:

- WAP.

- Downloadable application.

- Preloaded application.

- On-device portal (to the category).

- Integrated into the native UI.

On presentation, we are seeing a resurgence of focus on applications and on-device portal (ODP) supplanting the recent reliance on WAP. Ultimately, I expect for the paradigm to shift entirely to a device-integrated view of communication services, including social networking.

The dimensions that drive adoption are, in order of impact:

- Discoverability overall.

- Search marketing and slotting.

- Placement.

- Brand.

- Promotion (across the board, but cross-promotion in the store is most effective).

- Friction (lowering of).

- Functionality (more and more useful).

- Virality.

- Price.

In various combinations, the three lists above equal success or failure of the category. I would like to point out that contrary to popular belief, something that is free and ad-supported on the Web does not necessarily have to be free and ad-supported in the mobile space (IM is a good example of this). Remember that we are dealing with different consumers, (and 2.5 billion of them) many of whom have never seen MySpace on a PC because they don’t own a PC. For all they know, everything on the Internet costs a dollar. Be careful about your business model, because we have some carriers charging for the category but with superior discoverability that are outperforming others which provide it for free though it is impossible to find.

In the future, there will be one best presentation of social functionality, and it will pervade and extend the usefulness of the device. In many cases today, the carriers are essentially competing with themselves by offering two versions of a social networking site — a “free” WAP version and a paid-application version. For the moment, this is fine since the functionality differs significantly and appeals differently to various consumer segments. As active user interfaces evolve, we expect to see WAP fade in popularity because A) the interface will be transparent, and B) will offer far greater functionality than WAP ever will be able to. I can further predict that this pervasive functionality will drive the business model as well. All but the most cost-constrained MVNO will make social networking “feel” as “free” as SMS or even voice feels today — sure you know it is costing you something, but the thought of that cost does not stop you from sending the next SMS or making a call.

Lastly, let me say that while the advertising model in the mobile space certainly faces its challenges today, the basic dynamics of monetizing an audience have held true for centuries: Where there is a gathering crowd, there is a marketplace to sell them something. Carriers, OEMs, content providers and social networking providers are keenly aware of this fact, and with some hard work and cooperation, this space is going to flourish in a way that will satisfy all interested parties.

Posted by Shawn Conahan at 01:46 AM

August 28, 2008

Sizing the mobile social networking opportunity

I got an email this morning from Informa Telecom and Media about their latest report on Mobile Social Networking. It is called “Mobile Social Networking: Communities and content on the move.”

Here is a link about it.

Judging from the table of contents, it looks very comprehensive. There doesn’t seem to be a company in the mobile social networking ecosystem that they didn’t interview or include. We’re in there along with many companies we work with and others we just have respect for. I did not spend the $4485 to read it, but apparently someone did:

“This report is the first of its kind, to keep the hype to one side, and truly focus on what is under the covers of online communities globally. It explores the role of the different players, involved in the value chain of user generated content including the innovative software vendors, trusted operators, and the trendy social networks. This is a hot area at the moment; it is great to see such a comprehensive report that deals with the facts”

Source: Nagappan Arunachalam, Chief Marketing Officer, NewBay Software

The subject line in the email was “Mobile Social Network revenues could reach US$52 billion by 2012.”

Is calling out a $52 billion projection to keep the hype to one side? I don’t know. That’s a pretty big number. By comparison, the entire worldwide recorded music industry generated just shy of $30 billion last year. EADS, maker of the Airbus A380, generated $52 billion in revenue last year. So did Archer Daniels Midland, (supermarket to the world) Metlife, The Dow Chemical Company and Sears. China mobile made $49 billion last year, as did Chrysler.

So I understand if you are skeptical that the “mobile social networking” industry is going to be worth $52 billion in a few years. Without having read the report, I cannot opine on their methodology, though I am sure it is well justified. The few pages they made public were very well presented.

I think about the future of this space a lot, and as a leading mobile social networking platform provider, I have an enlightened self interest in doing so. I also see an entire ecosystem of players standing on the periphery of what looks like a potentially massive opportunity, all with a similarly enlightened self interest, wondering when the wave is going to hit and how big it is going to be.

Here is the simple truth: Mobile social networking today is nascent and small. Despite the white-hotness of the buzz term “mobile social networking” and the relatively significant amount of attention that it gets in the press and by analysts and by social networking providers who quote mobile user numbers in the millions, today we are only seeing the tip of the iceberg.

Think about how many people use social networking sites on the web. That’s a big number, right? The largest sites claim a hundred million registered users and more. Wow. That’s a big audience.

But consider that there are only about 1 billion PCs in the world, and that only about half of those are connected to the internet. The entire internet consists of about 500 million consumers. If MySpace and Facebook and Bebo and Hi5 and everyone else limited themselves to the internet, they could not reasonably claim more than their fair share of 500 million users.

Look, I understand that the worldwide user numbers of the largest web-based social networking sites are clearly nothing to sneeze at, and the universal appeal of social networking is obvious. But let’s say hypothetically that Facebook gets every person on the web to use their site. Great. That’s 500 million people. That would be awesome for them.

But what about the 2.5 BILLION other potential consumers of social networking services? For comparison purposes, did you know that there are roughly 1.7 billion worldwide users of Instant Messaging? Does that pencil to you? That is more than 3 times the number of PCs connected to the internet. Clearly, some non-trivial percentage of IM usage is via the mobile phone. 783 million of those 1.7 billion users are on QQ in China, and there are far more mobile phones than there are internet-connected computers in China.

The Informa study projects 562 million mobile social networking users in 2012 in its middle-scenario forecast. That’s less than 20% of all mobile consumers worldwide. I frankly think this is very conservative when you consider the following:
- Mobile social networking is an evolution of personal communication
- The mobile phone is the most personal communication device in history
- Social networking is replacing other forms of communication, including email and IM
- Competing carriers are driving consumer data costs down, and using the most popular data applications (like social networking) to attract users
- Device manufacturers are integrating social networking into the native phone experience

In a few years, every mobile device will be “social enabled,” and consumers will simply expect social functionality to pervade their mobile communication toolset.

Bizarrely, some of the largest web-based social networking providers have not recognized the massive opportunity in mobile and still require their users to register on the web. You may then be able to access the site from your mobile phone, but this approach presupposes that you have a PC. Thankfully, adoption of our platform (among other industry shifts) is helping to change this, as carriers and OEMs increasingly promote a more mobile-centric view of social networking.

But think about that for a moment: All of the hype you have seen around MySpace and Facebook and Bebo and all the rest of the entire category has been about the tip of the iceberg. Yes, it has been nothing less than a cultural revolution. It has changed the way we interact. It has changed the definition of such fundamentally well-understood concepts like “friend” and how we communicate and how and in what way we use our computers and internet connections. But it has been mostly about only a fraction of the opportunity.

Imagine you are one of the 6.1 billion other people on the planet who has seen a newspaper headline or a magazine story or a TV program about how social networking is the most powerful shift in personal communication in history, and you have no idea what it means because you have never created a MySpace page, and you don’t even have a computer.

Was that the way Bill Gates saw the future in 1975? Did he just see a fertile untilled field of then-nonexistent worldwide users to be grown and cultivated? I think he did.

Did Microsoft do it alone? No. They were part of a giant and very valuable ecosystem where a lot of companies created a lot of value, but at the beginning, it was small and nascent. Consider the players in the mobile social networking ecosystem:

1) Look at the mobile social networking opportunity through the eyes of the handset divisions of Nokia, Samsung or Motorola, which are all seeing “open” networks creating increased opportunity for them as consumer value shifts to the edge of the network, and namely into the devices themselves. They all have to offer a better and more compelling version of social communication than their competitors.

2) Or view social networking through the eyes of the infrastructure vendors like Alcatel, Qualcomm, Sun, Cisco or Ericsson, which are all evolving their portfolios to offer consumer-centric software and services. They all have to offer carrier-grade solutions that are optimized for a social communication future.

3) Don’t forget about the wireless carriers like Verizon, AT&T, Vodafone and Telefonica, all of which are looking for ways to increase data ARPU while managing massive subscriber bases that are demanding lower-friction access to their favorite third-party communication service providers, namely the brand-name social networking providers.

4) Or see “mobile” through the web-centric eyes of the market leaders like MySpace, Facebook and Bebo, all of which are under pressure to continue their historically unprecedented annual growth and to evolve their business models to show an increasingly difficult-to-show revenue story. Mobile is not anymore just a “nice to have” for these incumbents – it is their likely future.

5) Don’t think that “mobile social networking” is not on the radars of AOL, MSN, Yahoo and Google, all of which have to maintain their positions as the aggregators of an online audience that is increasingly going mobile and at the same time going social. I would not be surprised if in five years Google was primarily a mobile social search company.

My point is that the confluence of so many massive industries around a single concept that is at the moment barely a seed that has been planted is an indication of the massive growth that lies ahead. The organizational inertia behind such huge strategic initiatives is moving this "opportunity" into an "industry" in its own right. Communication is future-proof, and the word "social" is inextricably linked to the future of communication.

So tell me: Does $52 billion in 5 years seem plausible now? It does to me.

Posted by Shawn Conahan at 05:19 PM

June 06, 2008

The Rule of Three in the U.S. wireless industry

One of my favorite business books is Jagdish Sheth’s The Rule of Three – Surviving and Thriving in Competitive Markets.

It basically states that markets mature to support three big “generalist” players, leaving the niche markets to more focused “specialists.” The mid-sized generalists get forced out one way or another.

Mature markets end up looking sort of like the structure of the modern American shopping mall, with the big department store anchors at the ends and a bunch of specialized stores in between.

You know this intuitively across many industries:
American Airlines, UAL and Delta
Experian, Equifax and TransUnion
GM, Ford, and DaimlerChrysler

Sheth indicates the four forces that affect market evolution toward efficiency:
- industry consolidation
- government intervention
- establishment of de facto standards
- shared infrastructure

It is a brilliant book, and you should buy it and read it.

So, Verizon Wireless is buying ALLTEL, driven by a desire to further consolidate the industry. That leaves:
VZW, AT&T and Sprint
…as the three big generalists.

That leaves T-Mobile, which just crossed the 30mm subscriber mark, and U.S. Cellular as the mid-sized generalists. Virgin, Boost, (yes I know they are technically Sprint) Leap, metroPCS, Tracfone and a host of regional players are the niche specialists.

If the rule of three is correct, logic would dictate that T-Mobile and U.S. Cellular would now get pulled into play, with AT&T as the most likely suitor for T-Mo, and VZW or Sprint as the most likely acquirer of U.S. Cellular, given the respective GSM/CDMA standards. (I do not think Sprint is feeling spendy at the moment, though putting everything else aside, they almost have to buy U.S. Cellular.) Logic would further dictate that if those deals are going to get done at all, and if government intervention (or lack thereof) is a driving force in the Rule of Three, they are going to get done during the Bush administration. But whatever, that’s not what I want to talk about…

Let’s assume for a moment that the middle players do, in fact, get consolidated and we are left with three generalists. Then what? Maybe Starbucks. Let me explain. Quoting from Sheth’s book:

“In 1987, the Big 3 in coffee – General Foods, Procter & Gamble and Nestle – controlled about 90 percent of the U.S. Market. But Starbucks appeared on the scene, creating a market for upscale coffee that dramatically challenged the Big 3 and the commodity-like nature of their offerings. All three had produced canned, ground coffees that were made from the inexpensive beans of the robusta coffee plant of West Africa. Competition between the leaders was based strictly on price, since the tastes of their products were virtually indistinguishable.”

So who is the Starbucks of the mobile telecom space that will challenge the eventual Big 3? The sands are shifting, for sure, so it is not entirely out of the question that it could happen. Also, like circa 1987 coffee, basic wireless voice service is virtually the same among the various carriers, in as much as I cannot tell a difference when someone calls me from a particular carrier or phone. On the other hand, the competitive dimensions are certainly different in this case.

If “wireless service” today is the “West African robusta plant” of 1987, then what is the wireless equivalent of the “Peruvian-Sumatra organic hand-picked sustainable micro-farmed espresso roast”?

Some would argue that in the landline space, Skype (or VoIP, more generally) was the new coffee to challenge the incumbent long distance carriers. By that logic, maybe WiMAX/LTE will be peddled by a Starbuckian challenger.

Or maybe that aspect of the consumer experience is not where the opportunity lies. Maybe the future opportunity lies outside the network. Here are some thoughts:

With all the talk about “openness,” it is possible that wireless carriers start to look more like utilities, or maybe closer to the current internet “backbone” that is really a cartel of tier-1 ISPs. That structure is interesting to me because the cartel reinforces margins while keeping competitors out via tacit price collusion. (The consideration of connection to the PSTN clouds this possibility a bit, I know, but even without a true closed free peering arrangement, the U.S. carriers can certainly approximate “pipes” or “backbones” or whatever you want to call them.)

This structure will create the greatest opportunity for two major players on the consumer value chain: Device Manufacturers and Media Companies, and both stand to win big over the next few years.

Let’s start with Device Manufacturers, which are on their own path to consolidation, btw:
Nokia, Samsung and Motorola (generalists)
LG, SonyEricsson (middle players)
RIM, HTC, ZTE, Apple (niche players, and I should note these are some large and growing niches)

Nokia is embracing a Software and Services strategy, and the rest of the OEMs will be fast followers down this path. This makes perfect sense: As the carriers are ironing out their business models, functionality is shifting to the edge of the network. No wonder the smart phone market is finally taking off. The bigger the pipe, the more horsepower I need in my phone to process the data. Nokia could be the Starbucks of the mobile industry by shifting consumers’ expectations of what their phone is and does. No longer are the lines between hardware and software clearly defined. The discreet address book on your phone will soon be a “social address book” that maintains live linkages to your friends on MySpace or Bebo. Your phone’s camera, originally built for 1-to-1 transmission will soon include one-click and no-click upload to your favorite photo hosting or social networking destination. Location will finally be meaningfully integrated horizontally across services on your device, opening the door to new data services such as grid-based always-on directory. That a device manufacturer would endeavor to increase competitive advantage by presenting the BEST device-integrated service offering is a logical evolution of that industry segment.

The media companies also have a chance of being the Starbucks in the wireless telecom industry. Google has made no secret of the fact that it wants to own the wireless consumer, as does Yahoo, Microsoft, AOL, News Corp, Viacom, NBC Universal, Vivendi, CBS, and many others. As we move into the mobile media era, there is a requirement to redefine what “media” is and make sure that you have a strategy for capturing audience with the right media that people want to consume. For instance, I don’t think any traditional media company would consider “location information” to be “media,” but in the mobile space it absolutely is, making Nokia’s acquisition of Navteq a fairly brilliant stroke.

I know firsthand that many media companies have a sense of what the redefinition of media means for them and the critical role the mobile audience plays in their future. I just re-read The Highwaymen. People like Redstone, Murdoch, Turner, Gates, Malone and Diller are not likely to sit idly by as the mobile media opportunity grows to billions of dollars. Or I may be wrong and they will sit idly by and watch people like Yang, Schmidt, DeWolfe and Zuckerberg divide the pie. The very fact that the media collective as a whole comes from outside the wireless industry may be reason enough that any one of them could evolve into the Starbucks of the wireless telecom industry.

In any case, consolidation (perhaps counter-intuitively) has historically created opportunity for various reasons, and I think the coming opportunity in the mobile space is huge, particularly for those few companies that are positioning themselves early.

In summary, as the lines blur between hardware, software and services, creating a Venn diagram with a sweet spot in the center, I believe we will see each of those three dimensions collapse in toward that sweet spot. When subscriber growth stabilizes and consolidation commodifies the basic service offering, the value to the consumer will shift to complementary services, creating the next opportunity in the mobile space.

Posted by Shawn Conahan at 10:35 AM

May 13, 2008

Economics of the Dumb Pipe

**This is the full version of an article I wrote for this week's Reality Check column in RCR Wireless. To meet the character limit, the RCR version was truncated, and the last part of the conclusion was missing.**

For the entirety of my career in the wireless space, I have always worked for a small company selling something to or through wireless network operators. As such, I have made a good number of friends who work at these various carriers. I have observed that the most reliable way to get their dander up is to casually insert into the middle of any conversation, “Well, it doesn’t really matter because you are eventually just going to be a dumb pipe anyway.” Then I sit back, sip my mojito and watch the ensuing rant. Fun times.

Last week I tried this with a friend of mine who works at a carrier, and he said, “I prefer to think of it as ‘an open marketplace of ideas and innovation.’” Attitudes on this topic are changing. In fact, there is great enthusiasm for what most people agree will be a reduction of friction if we all embrace the word “open.” This got me thinking. First off, my friend is absolutely correct: When cast in a slightly different light and without the derogatory descriptor, a “dumb pipe” has the potential to be a very good thing. That simple realization led me to wonder how good it could actually be, and specifically from a financial standpoint. Could a major wireless carrier flip a switch to full “dumb pipe” mode and in so doing, take massive operational cost out of their equation and increase their value overnight?

What follows is an admittedly rough analysis of that possibility, so the conclusion may only be within spitting distance of the truth, but if it is even that close, I am very surprised by the conclusion.

BASELINE
I started by looking at the financials and structures of some of the world’s largest wireless carriers. There are certainly some differences between them, but at a high level, the structure is essentially the same. I could have used any of them as a model, but for my exercise, I happened to use Sprint’s publicly available financials from 2004 which I found to have a very readable structure and some useful details. (Also, I looked only at the wireless division, and not the consolidated financials.)

At the end of 2004, Sprint had 24.7mm wireless subscribers, 7.7mm of which were also data subscribers. Here is the revenue and margin analysis for that year: (numbers are in millions)

Net Operating Revenues $ 14,647 100%
Operating Expenses
Costs of services and products 7,096 48.4%
Selling, general and administrative 3,406 23.3%
Depreciation 2,557 17.5% (includes amortization)
Amortization 6
Restructuring and asset impairments 30 .2%
Total operating expenses 13,095 89.4%
Operating Income $ 1,552 10.6%
Adjusted Operating Income $ 1,577 10.8%
Adjusted EBITDA $ 4,140 28.3%

These are solid financials, and a 10% operating margin is quite respectable. Here is some other important data:
- 26,288 employees
- $557,000 in revenue per employee
- $2.5 billion in capital expenditure
- ~$62 ARPU
- ~15,500 retail sales outlets
- 800 branded stores and kiosks
- 17.5mm direct customer base

The gross add distribution mix is interesting and also an important part of the analysis:
Stores and kiosks: 38%
Alliance partners: 22%
Other direct: 18%
3rd party national/local: 22%

ANALYSIS
So now let’s make some assumptions and do some back-of-the-envelope math. First, I define “dumb pipe” as “branded access” with the closest analog being an ISP. I also roughly estimate the employee functions into four buckets, and used percentages based on anecdotal information from a few sources at different carriers:

Salespeople 20%
Customer Care 40%
Network Operations 25%
Management and HQ 15%

(The first time I heard that it is not at all unusual for a present-day carrier to have Customer Care represent 40% of their employee base, I was astounded, but it is fairly standard across the industry.)

Now then, how would turning a present-day carrier into what would essentially be an ISP change our key metrics? First of all, all the company-owned stores and kiosks would close. (Have you ever seen an Earthlink store? No.) This is not to say that all the salespeople go away, but there would be a shift to consumer commodity sales practices, relying more heavily on retail channels like big box retailers. Direct sales would be limited to large accounts and “1-800” ordering. Let’s say roughly half of the sales personnel go away. The effect to overall sales would be negative, and I will assume it isn’t effectively replaced. So that means 38% fewer gross adds, which shrinks the subscriber base.

A smaller base would obviously mean fewer Customer Service Reps, but how else might that cost be affected? I will assume a “Bring Your Own Phone” model, where all phones are unlocked, the consumer buys it at full price and chooses whatever carrier they want. It is reasonable that the large percentage of calls to Customer Care having to do with the device itself will go away, or more to the point that the carrier will make them go away through effective communication and education. Furthermore, our “dumb pipe” carrier will push “no-frills” plans for people who are smart enough to operate their mobile phone most of the time and don’t need to call Customer Care. Built into our marketing message will be that our customers are paying less per month for our “Do It Yourself” service. I will further assume the large number of all calls about the application they downloaded that won’t work will go away, because there is no storefront and no editorial function. Billing issues will still arise, so let’s say we cut our CSRs by 50%. This will also mean all the business development and product people who deal with application publishers and content providers will go away. So we can cut a few people out of HQ. Network operations basically stays the same.

The marketing expense of any current-day carrier is very large, and typically consists of an ongoing national television branding presence, an ongoing print presence and channel support. Given our reliance on channel partners now, I think I will keep the national television spend, kill the full-page newspaper ads and shift that part of the budget to in-store support, cutting a conservative 25% of our billion dollar budget in the process. I am also dropping the consumer price and killing the myriad incremental price plans. I like $50/month, all you can eat.

To summarize, we would lose 38% of our gross adds, bringing the total subscriber base down to 24.2mm. Total revenue obviously decreases given our new, lower price and smaller base. I lowered the COGS to reflect the historical 48% range then took our marketing savings ($250mm) off the top. I took our cost savings on sales, customer care and management (32%) out of SG&A. To be thorough, I upped our restructuring to $100mm to cover severance, etc. Here is what our new financials look like:

Net Operating Revenues $ 12,100 100%
Operating Expenses
Costs of services and products 5,558 45.9%
Selling, general and administrative 2,316 19.1%
Depreciation 2,557 21.1% (includes amortization)
Amortization 6
Restructuring and asset impairments 100 .8%
Total operating expenses 10,537 87%
Operating Income $ 1,563 10.6%
Adjusted EBITDA $ 4,126 34%

CONCLUSION
It really is not a compelling case. I shared this scratch analysis with a few friends who work at carriers, and they all agreed that it roughly made sense. I fully expected there would be more cost savings and more dramatically improved margins. The most interesting thing to me is that the bottom line is virtually unchanged in this exercise. Wireless carriers are generally very well optimized. The problem is that this is a very capital-intensive business. COGS and Depreciation are the big costs, and they are due to the high cost of spectrum, network equipment and operations.

For a final comparison, I took a look at Earthlink’s 2007 financials. As I mentioned earlier, as an ISP, they are the best example of a branded “dumb pipe.” At 5.3mm subscribers at the end of 2007, it is a much smaller business than some of the largest wireless carriers, but look at the leverage in their model. They generated $1.22 billion in revenue with just 996 employees. That is $1.2mm per employee, more than twice as much as our carrier example. Their COGS is 35%, so a little lower, but their total SG&A is higher at almost 50%. Operating income was a comparatively thinner 4.1%. Earthlink has swung to a loss in recent years due to the underperforming Helio investment, but even if you back that out, the “dumb pipe” model, even if it does create a vibrant atmosphere of innovation, is less attractive not least because such a company does not capture the value of that innovation itself. On top of it, the expected cost saving does not appear to materialize by handing the greatest driver of value – the services that consumers want to access – to 3rd parties. Lastly, if every carrier embraced such a model, I would also expect to see downward margin pressure as consumers perceive the commoditized “branded access” model as undifferentiated, which would increase competition on price, driving ARPU down.

Like I said before, this is obviously very unscientific, and maybe I missed something. But if the broad brushstrokes are about right, and the assumptions are close to reality, and the comparison to analagous industries is sound, then it is worth questioning whether the enthusiasm for “open access” is a catalyst for very welcome innovation in our industry or just a race to the bottom for the incumbents where the ultimate winners are today’s internet titans. Maybe it is both. Time will tell.

Posted by Shawn Conahan at 11:10 AM

February 19, 2008

“Social” is the next evolution of the mobile communication experience

I have not blogged in awhile because I just have not had time. We had a great week in Barcelona last week, announcing some important relationships as we continue to expand our footprint in mobile social networking. We will announce more on our international expansion this week.

But for now, I want to share how I am seeing mobile social networking become a “replacement” technology on many levels and how that is incrementally changing the mobile space.

It is a strange time in communication history right now. In the telecom sector alone, we have observed decades of expansion and growth that is now reaching saturation. Many countries are approaching 100% penetration in wireless. At the same time, the dizzying pace of technology is creating overlapping curves of technology that are sometimes complementary and sometimes not, but my key observation is that all the trends I see are toward “replacement” of the consumer communication experience.

I see three dimensions:
1. Micro level: consumer communication behavior is changing. When I look at the world and think about our business, I try to add a social anthropology filter. Like, WHY do we communicate the way we do?

One of my favorite historical examples of a communication trend is the fax machine – something that nobody needed before they had it, which everybody needed for awhile, and which is now rapidly becoming something that nobody needs. Did technology create the behavior? Or was there an unmet need to transfer documents immediately and so the technology rose to the occasion? It seems that the latter makes the most sense, but if the fax machine had never been invented, would the world have screeched to a halt? No. But here is the big question: What asshole decided it had to be on hard-to-use curly thermal paper and why do consumers put up with it? (I know there are a lot of plain paper faxes now, but still.) Raise your hand if you have ever received a thermal paper fax and subsequently photocopied it onto regular paper. Yes you have.

It is interesting to me how consumers will put up with a tool that is substandard for their purpose for so long. That there is a nearly universal threshold of sufficiency for all consumers about the same product fascinates me. I generally expect that 0% of my landline calls will be dropped, but I fully expect 10% of my wireless calls will be dropped. I put up with it for the same reason I sometimes use a butter knife in lieu of a screwdriver: It is good enough for my purpose.

This relates to social networking, which is a technology that was introduced (the same way the fax machine was) to facilitate communication. The same general questions apply: Why do we embrace the notion of “social” communication so strongly? Did we all universally desire to be connected to our friends and strangers but just lacked a tool before MySpace? And regarding the threshold of sufficiency, why are so many legitimate business contacts “friending” me on Facebook, a tool created by kids for kids, complete with a “poke” function that I find radically out of context for all of the people who find me on Facebook? That these colleagues will torture Facebook into a communication tool in a professional context means that there is clearly a desire, if not a need to communicate “socially” that transcends a particular demographic.

That is a vastly important point. The very notion of communication is evolving to include a social aspect. Hundreds of millions of consumers cannot be wrong. “Social communication” is replacing other forms of communication along the entire spectrum from a one-to-one experience to mass media. I only have so much time in a day, and I am spending it more on MySpace and less on talking on the phone and watching TV. That is a big deal.

Which brings me to the second dimension.
2) Intermediate Level: Devices and other tools are evolving to embrace social communication. The number and variety of handsets and other devices will continue to grow as OEMs attempt to identify every minute consumer desire and create a feature for it. As true as that might be, it is also true that there are key functions that every device must have. A camera is a good example of something that nobody thought needed to be on a mobile device until someone realized that the cellular telecommunications industry is not in the business of facilitating voice communication, rather it is in the business of facilitating all forms of communication, including pictures and video. Location awareness is another example. Along the same lines, in a few years, every mobile device will include a social communication toolset.

It makes perfect sense. The device manufacturers are the intermediaries that create the tools that consumers use to communicate, and an audience of hundreds of millions of consumers is something to pander to. What makes a consumer pick a certain handset off the shelf instead of the hundreds of others is that thing that enables them to communicate in the way they want to communicate. So if social communication is a replacement for one-to-one communication, then device manufacturers must embrace this evolution lest they create a market opportunity for some other company to fill the need.

And they are embracing the evolution in a big way. Every major OEM that we work with is integrating social communication tools into their devices, and you will start to see these devices roll out this year. Your address book will ingest your friends on MySpace or Bebo. Your camera will automatically background send to your Photobucket or Flickr account. The social communication experience is going to be brought closer to the surface for mobile consumers, and it is going to have ramifications because this is communication replacement technology: The things you use your mobile phone for today are not going to go away, but the percentage of your experience using traditional features versus these social tools will decline. Take the camera as an example. Just two years ago, nearly 100% of pictures sent from a mobile phone were sent via MMS to another mobile subscriber. Now, as much as 20% of pictures sent are going to a non-human recipient like Flickr or Piczo, and they are generally bypassing the MMSC and being sent via IP or email. This has a ripple effect for a long chain downstream, but the most important is the carriers themselves.

Which brings me to the third dimension I am observing as social communication replaces today’s communication standards.

3) Macro Level: The underlying enabling technology of mobile communication is changing, which is focusing efforts on superserving the existing mobile consumer base. I was in Barcelona last week, and it was amazing how many carriers I talked to that have abdicated their positions already and are totally happy with the notion of being “dumb pipes.” Also amazing was the much larger number of carrier representatives that had the exact opposite “over my dead body” attitude about it.

Of the former category, the general message was that competing air interfaces will force their hand anyway, so better to get ahead of the curve. Fair enough. Of the latter category, the spirit of competitiveness is very strong, and rightly so – I wouldn’t throw my hands up if I had 50 million paying subs. But I can say as a vendor serving almost every carrier in North America that there is an active drive toward consolidation of services and vendors. For so many years, carriers have been expanding the offerings on their decks (which has generally been good) that now there is literally too much on the deck to be useful for consumers. While I still think ultimate choice is the best policy and so do most carriers we work with, we are seeing a focus on core value drivers, and those are the services being meaningfully integrated into the native mobile experience. This makes perfect sense to me.

EVERY carrier is upgrading their camera and photo sharing experience.
EVERY carrier is upgrading their address book experience.
EVERY carrier is upgrading their data messaging experience.

And, (speaking from a position of certain insight) EVERY carrier is actively working to integrate social communication into their native communication experience. There is demonstrated high value in enabling consumers to communicate with their social networks seamlessly and frictionlessly. Some of the solutions are pretty amazing. We are fortunate to be involved directly in the plans of carriers and OEMs to see how this area is evolving.

The replacement strategy at this level is interesting because the carriers and OEMs are not looking at social networking as “an application that goes on the deck.” Rather, they view it as an obvious replacement for their core communication bread and butter (voice, SMS, email, IM, etc.) and are keen to integrate it meaningfully to capitalize on the massive opportunity it represents. While WAP is an important part of any service provider’s mobile strategy, any company focusing only on WAP will find the high ground is already occupied by the integrated few chosen to drive the greatest amount of value.

In summary, consumers’ changing personal communication habits are intersecting an industry that is very motivated to evolve to meet their changing desires and the result, while perhaps incremental compared to some of the advances we have seen in the mobile space in the past five years, is still a major shift in how we communicate. What is truly amazing is the number of moving parts required to be part of the same machine, and the fact that it is actually happening is great to see. I am very excited about 2008 and the changes that it will bring in this space.

Posted by Shawn Conahan at 12:47 PM

November 28, 2007

Open is the new black

Open platforms.
Open networks.
Open devices.
OpenSocial.
Open APIs.
OpenID.

Do you think the term “open” is being used with some recklessness of late? Or perhaps if not recklessness, with a certain degree of definitional liberty?

In case I haven’t mentioned it before, our award-winning ANTHEM™ platform is open. That means that any company, carrier, content provider, ad network, media company or OEM that wants to use our platform is free to do so. OF COURSE they are free to do so, because we are in business to make money, and the more people who use our platform, the better. But that isn’t what “open” means.

Our open platform works seamlessly with every other open platform because it is open. It interfaces to Google’s Android open platform that is going to run on Verizon’s open network, (as soon as someone creates an open device) and using our open APIs, any developer can build a widget for our widget that any user can put on their Facebook page that enables them to access any social networking site in the OpenSocial alliance right from their mobile phone.

The added value, of course, is that our open platform, due to the fact that it was architected with a superset of openness from the start, automatically interfaces to every other open platform on the planet.

And we wrote it in Erlang. So it is also massive.

So yeah.

I am wondering about two things:
1.) What is the definition of “open”?
2.) Is it really better to be “open”?

1.) What does “open” mean? It’s recent banality invites scrutiny.

Now, I know there is a definition of Open Source. The distribution terms of open-source software must meet 10 criteria to be considered truly open source. But that is pretty specific and is not necessarily what companies mean when they talk about their “open platform.”

How about an open standard?
From this wikipedia link:
“The terms "open" and "standard" have a wide range of meanings associated with their usage. The term "open" is usually restricted to royalty-free technologies while the term "standard" is sometimes restricted to technologies approved by formalized committees that are open to participation by all interested parties and operate on a consensus basis.”

There is apparently no concensus on the definition of “open standard” but there are no fewer than nine specific definitions, which is at least a valiant attempt to help. Ironically, if France’s definition differs from Spain’s definition, (and it does) that actually creates a more fractious environment and greater friction in the market.

To me, the best example of an open standard working for the greater good is the W3C. Here is their stated mission:
“The mission of the World Wide Web Consortium (W3C) is to lead the World Wide Web to its full potential by developing common protocols that promote its evolution and ensure its interoperability.”

Can you imagine having half of the internet using a competing standard to HTTP? Not good. So, yay the W3C, open = good.

But that is not the spirit of the current enthusiasm for openness. This is about accreting value using “openness” as a strategem. The best example from history I could think of is the .pdf format, which is an “open format.” It was developed by Adobe as a proprietary format and later provided on a royalty-free basis, though Adobe holds the patents.

Here is the history of PDF openness from an Adobe Technical Standards Evangelist:
http://www.acrobatusers.com/blogs/leonardr/history-of-pdf-openness/

More interesting is this interview from Adobe CEO Bruce Chizen from September 2003.

This quote sums it up:
“We realized that if we could provide more applications around the PDF as the file format and Acrobat Reader as the rendering platform, not only could we make many customers much more efficient and productive, but it could be a valuable revenue opportunity.”

The recent push by for-profit enterprises for opening everything is based on the desire to become a de facto standard around which an ecosystem of value can be built. The beauty of calling your system/network/platform/software/hardware/whatever open is that you push the cost of building that ecosystem of value to an army of enthusiastic developers, which has the added benefit of percolating the most innovation to the top. Or so the theory goes. But that brings me to my second question:

2.) Is it really better to be “open”?
Inside every entrepreneur is a monopolist. The more value he or she can consolidate, the better. As an entrepreneur, the ultimate accomplishment is for your product or service to become the de facto standard, which is a form of, and next best thing to, a legal monopoly.

How would you like to reap the value from the British East India Company, which you may remember was set up as a legal trading monopoly? How would you like to have built Standard Oil? Or pre-1980 AT&T? DeBeers? TicketMaster? TCI? Microsoft? Even the beloved Apple, so admired by so many Appleheads everywhere, was accused of creating a vertical monopoly with their closed music delivery value chain. (Which many devotees love.)

Let me answer for you: “Yes, I would like to own DeBeers.” (Owning all da beers in the world would rock. I kid.)

Like I mentioned about the W3C, there are plenty of examples where creating an open standard – say, XML – which did not financially benefit a single owner of the standard nonetheless benefited an entire industry of single owners as part of the ecosystem. In this way, the standard is the glue that binds the various parts of the ecosystem.

But if you are one of the parts of the ecosystem, can you effectively promote your standard as the glue just by calling it open? Or is your value naturally locked inside your four walls?

I just read an interesting post from Giles Bowkett that argues that “…social networking web sites aren’t platforms – they’re nightclubs… if you're building a Facebook app, you're building a sound system you can never take out of the club. Spending money on something which won't work anywhere else only makes sense if the payoff is immediate. It's not really an investment, because assuming any given social network will persist for any given amount of time defies history.”

Read the whole thing - it's good:
http://gilesbowkett.blogspot.com/2007/11/facebook-apps-facebook-trap.html

Facebook’s very non-secret strategy clearly runs counter to that notion – they appear to believe they will persist. They want to “own the social graph.” That is far reaching. It means they want to be the first link on the communication value chain, as in “the first place you always go to execute your personal communication.” If creating the Facebook “platform” and calling it “more open than your open platform” accelerates that end goal, then it is a reasonable ploy.

It’s like Google saying “we want to own search.” And, given their market share, they fairly do. Does that make Google a monopoly or a de-facto standard? Does it matter?

Not to me. I would just point out that where all this “openness” leads is ultimately to one company winning what they see as a zero-sum game because there is, after all, a finite number of consumers, and the goal of any for-profit enterprise is to maximize value by accreting more value to themselves.

My last thought on this, then, is that value accretes to utility, not to openness. Think about, for instance, how difficult it is to deal with wireless carriers as a vendor. If Verizon Wireless presents developers with an “open” network that isn’t really truly open, but it is “more open” than all other wireless carriers and thus comparatively reduces friction between developers and the Verizon consumers they want to reach, then they will have achieved their goal of accreting more value to their network. But even attracting developers doesn't get 'er done - ultimately what makes or breaks a company, open or not, is their ability to engage consumers, and consumers have proven time and again (I bought a very-closed iPhone) that they don't care what you call it as long as it works.

Posted by Shawn Conahan at 12:17 PM

October 17, 2007

This whole mobile thing is a real pain in my ass

Hey everyone, Fake Steve Jobs here. Thanks to Intercasting Corp for allowing me to post to their blog as a guest. It is part of my initiative to reach out to the mobile industry audience and do a little damage control. (I found out recently that, unbelievably, not everyone reads my blog. We are working on a fix for that, but for now this will have to do.)

Let me just be up front and say it: The mobile industry is a fucked up place to try to make a buck. Are you people masochists or what?

I know it must look like things come very easily for me, but that’s just because I am operating on a much higher plane of creativity than you. To put it simply, "I think different." (We ended up dropping the “I” from that campaign, but it still worked.) You think stealing the UI from Xerox PARC and building the Macintosh around it and then taking credit for being a genius was easy?

Well, actually that was pretty easy, but what about the iPod? YOU try making a white MP3 player and then convincing everyone that you created the category. That was hard, man.

My point is that being the custodian of perfect consumer electronics design and setting the standard for how everyone should interact with their electronics and on top of that making everything white – I am personally responsible for a worldwide shortage of white paint – is hard work. But I endure, because the world needs me.

But this mobile thing? This is harder than anything I have ever done. My plan, as usual, was perfect: First, I had to create the most beautiful mobile device ever. That part was easy, because I am me. Then I had to go sell a whole bunch of them, so I did a deal with AT&T, which worked out fine and life was good. I fired up the hype machine and we were off to the races.

Then the shit started to hit the fan. First, some people complained about the network connection being slow, as if this was my beautiful iPhone’s fault. Can I help it if nobody told me about this G3 thing or whatever you call it? It works fine in my hermetically sealed sterile underground bomb shelter office environment, every cubic inch of which is awash with glorious wifi. Who doesn’t have wifi everywhere they go these days anyway? Hell, these naysayers are lucky I even allowed it to work on a wireless carrier at all. Anyway, that wasn’t so bad – I am used to dumb people not “getting” my genius.

But then we got sued. Twice! First it was because we were conspiring to be a monopoly with our “locked” device approach. First of all, we’ve only sold a million of these damn things, and with 250 million mobile subscribers in the U.S. alone, you tell me how having less than a quarter of one percent of the market makes me a monopolist. Maybe I have a monopoly on the cool and beautiful mobile subscribers who appreciate having their cool and beautiful iPhone, but c’mon. Secondly, how easy do I have to make it to unlock the damn thing? Are you dumbshits so lazy that you cannot employ circa 1975 hacking techniques? My weimaraner could unlock this thing. Do I have to put a goddamn iUnlock Magic Wand in the package or what?

So while I am dealing with that nonsense, I get all these financial analysts blogging about how we’re not going to sell enough iPhones and that is going to hurt our stock price. To be honest, I planned all along to drop the price eventually anyway. I just wanted to see how many people would spend twice as much as it was worth. So then I drop the price in a gesture of magnanimity so that more of the world could enjoy the perfection that is the iPhone and what I do I get? Two things: 1) A bunch of whining customers, and 2) Another lawsuit!

Here I am on the balcony saying, “Let them eat cake for the low price of $299,” and what happens? A fucking blogospheric revolt of customers who were perfectly happy with their elitist touchscreen device they were smugly using just a week before to demonstrate their consumer electronic buying power and hipness. And all of a sudden I'm the asshole? What gives? So then I offered a store credit so these bitches could buy a bluetooth headset or some other sort of white plastic accessory or whatever. That sort of shut them up, but I still had the other lawsuit to deal with. This time, I was named personally along with my company and AT&T for “price discrimination, underselling, discrimination in rebates, deceptive actions, and other wrongdoings” all because I lowered the price because I was trying to be a nice guy. “Other wrongdoings”? Can you really sue someone for that? WTF? “Yeah, so, I am suing Bob for just generally being an asshole. Gretchen in the cube next to him totally agrees, so I think we have a strong case.” Seriously. They might as well add "mischief and buggery" to their list of asinine claims. Welcome to my world.

Oh, and the daily phone calls from AT&T aren’t helping, either. Now they’re like, “Hey Jobso, pure genius of course and we're totally committed, but so maybe this whole alleged monopolistic racketeering allegation is bad for business.” So then I have to bow to pressure again and announce a fully unlocked iPhone in France. I wonder how many days I have to wait for THAT to generate another lawsuit. What’s it gonna be this time? I can just see some dipshit alleging, among other things, “non-monopolistic normal business practices causing unfair competitive advantage,” and "other such atrocities." And perhaps releasing an SDK so people can write applications for the damn thing will result in another lawsuit, too.

Seriously, I am starting to rue the day I said, “Man, my cell phone sucks. I think I will bring my unparalleled genius to the mobile space.” And to think I put off the iPlanet project for this. By now we could have had the entire world painted white and every sign would be in a perfectly kerned tasteful silver font. But no – I had to go and dramatically improve the telecom industry first.

Whatever. Like all of my very important work, history will judge the iPhone with fondness and respect. I just cannot believe anyone is trying to make a buck in this industry of thankless consumers. It is very unApple-like. I’ll be glad to move on after this. In the meantime, go buy an iPhone and show your support.

Posted by Steve at 10:18 PM

October 15, 2007

CTIA parties

Available here:

http://www.ctiapartylist.com/

That's a handy little resource. I thought you would find it useful. It doesn't even list ALL of the parties, either. I got an invitation today that says, "Don't forget to RSVP for the Only Exclusive VIP Mobile Partnership Reception At CTIA." I don't know who is hosting the party or why I was invited. (God knows I am not on any "it" lists.)

A dozen of us are getting together on Monday night for dinner because it was the only night that worked for everyone. That happens to be the same night of the mocomixer, which is a real bummer, plus the Warner Music party, and also the INmobile reception. I wouldn't trade my Monday dinner for the world, but it got me thinking about what all the parties are for in the first place. It's goodwill, right? I invite you to my party, you get free booze, then you talk about how awesome my party was. It's a form of promotion.

Remember the MTV party in Orlando? That was seriously awesome. They should do that every year, and anyone else stupid enough to have a party on the same night cannot say they weren't warned: Everyone would rather go to the MTV party. Those MTV guys are top notch.

See? I am still talking about it.

While I was writing this, the mail came. I got an envelope from Transpera. Inside is a card that says, "Who says there's no such thing as a free ride? Avoid long taxi lines and crowded parking during CTIA. Enjoy a complimentary lift in a luxury Transpera town car." And there is a number to call to reserve a car anytime, anywhere. I just saved like $70 on a cab ride from Oakland airport. Now THAT is impressive promotion. With all of the free booze parties, trying to stand out with yet another free booze party is not a good strategy. But this. This is real value.

Have you seen Transpera's video solution, btw? Slick shit. Go see for yourself.

Intercasting Corp will not be hosting any parties, and we will not be paying for your cab fare. We will, however, be available. Do you want to see the new version of ANTHEM that will first be launching later this year in Europe? It is pretty cool. How about our super cool proxy messaging module or our OEM preload module? How about our localization engine that makes multiple language support a snap? Also, with full device and 3rd-party media service integration, it's like a whole different paradigm for communication and social distribution of media and services. I realize that isn't a very descriptive sentence now that I re-read it. Whatever. If you are interested in mobile social networking and want to see our view of it, please send me an email and we'll get together (for free booze at someone else's party) and I will show it to you.

Posted by Shawn Conahan at 03:43 PM

October 07, 2007

Objectively In Support of Gary Forsee

I am looking at my email inbox. I have a folder into which I siphon the various trade newsletters and such. The recent subject lines:

CTIA SmartBrief - October 5, 2007 - Reports: Sprint considers new leadership
FierceWireless - | 10.05.07 | New Sprint CEO by December?
FierceWireless - | 10.04.07 | Investors lose confidence in Sprint CEO
MocoNews.net - [Oct 4, '07] CTIA MocoMixer Opens Again; MySpace-O2; Sprint Leadership

It seems Sprint’s CEO, Gary Forsee, is under fire.

Here is an excerpt from the WSJ story:
Sprint Nextel Corp. is quietly seeking a replacement for Chief Executive Gary Forsee, said people familiar with the matter, just two years after he engineered the $35 billion purchase of cellular operator Nextel Communications Inc. to keep pace with rapid consolidation in telecommunications.
The combined company has been plagued by high customer turnover, merger hiccups and unhappy investors. Sprint, now the nation's third-largest wireless carrier by subscribers, has been lagging behind larger rivals AT&T Inc. and Verizon Wireless, a joint venture of Verizon Communications Inc. and Vodafone Group PLC, in the race to add new customers.

They further reported that the board wants to announce a new CEO by December.

Fierce posted this story:
Sprint Nextel's Chief Executive Gary Forsee is feeling pressure from activist investor Ralph Whitworth who told The Wall Street Journal that investors have lost confidence in the leader.

Since gaining a stake in Sprint earlier this year, Whitworth has rattled the cage with management regarding its investments in WiMAX as well as what he calls poor attention to the company's core mobile-phone business. He also asked the company to consider the potential sale of its fiber-optic-networking and long-distance operations. Sprint has been struggling with churn in its core mobile-phone business, its integration of Nextel and heavy spending on WiMAX.

Whitworth, however, isn't demanding Forsee step down, but places responsibility on the board. His company, Relational Investors, owns about 53.1 million shares, or 1.9 percent, of Sprint's shares outstanding. Whitworth has experience in ousters. He played a role in the departure of Robert Nardelli, former CEO of Home Depot, and the ouster of Sovereign Bancorp CEO Jay Sidhu.

I don’t know any details about the situation, and I do not know Gary Forsee. I do, however, question the wisdom of an activist investor calling for the ouster of Forsee based on “…high customer turnover, merger hiccups and unhappy investors.” If an activist investor is going to materially affect my stock (what little of it I own) I want it to be for the right reasons.

Have you read Marketing Myopia by Theodore Levitt? I re-read it at least once a year as part of my reading list. Here is a free .pdf of it. This classic Harvard Business Review article was published in 1960, and its simple truths endure to this day.

Levitt opens with a challenge to management:

Every major industry was once a growth industry. But some that are now riding a
wave of growth enthusiasm are very much in the shadow of decline. Others, which
are thought of as seasoned growth industries, have actually stopped growing. In
every case the reason growth is threatened, slowed, or stopped is not because
the market is saturated. It is because there has been a failure of management.

He continues with a relevant example from the period:

The failure is at the top. The executives responsible for it, in the last
analysis, are those who deal with broad aims and policies. Thus:
The railroads did not stop growing because the need for passenger and freight
transportation declined. That grew. The railroads are in trouble today not because the
need was filled by others (cars, trucks, airplanes, even telephones), but because it was
not filled by the railroads themselves. They let others take customers away from them
because they assumed themselves to be in the railroad business rather than in the
transportation business. The reason they defined their industry wrong was because they
were railroad oriented instead of transportation-oriented; they were product-oriented
instead of customer-oriented.
…
What the railroads lack is not opportunity, but some of the same
managerial imaginativeness and audacity that made them great.
…
It is impossible to mention a single major industry that did not at one
time qualify for the magic appellation of "growth industry." In each case its
assumed strength lay in the apparently unchallenged superiority of its product.
There appeared to be no effective substitute for it. It was itself a runaway
substitute for the product it so triumphantly replaced. Yet one after another
of these celebrated industries has come under a shadow.

This should give you an idea, but you owe it to yourself to read the whole thing anyway. It is fascinating to me because the lesson never seems to get learned. My favorites from recent history:
- The digital camera destroying Kodak’s film business because they did not realize it was a replacement product
- Napster cutting the record industry's value in half because they didn’t realize they were in the music business
- Skype decimating the long distance business because the telcos thought they provided “landline” communication and not “communication”

When I look specifically at the cellular telecommunications industry today, I see barbarians at the gate. Who do the wireless network operators compete with? It isn’t other network operators unless you think it is worth fighting over the shrinking available market of people who do not yet have a mobile phone. No, Levitt would argue that network operators facilitate communication. Then you have to define communication. It used to be “voice.” That was when it was easy to be the CEO of a telco. In a digital world, you have to add “data” communication. What is “data?” It is everything. Voice is data, and that’s why the VoIP companies are kicking ass. But so is music, video, messaging, location, etc. Google, and who knows who else, is going to bid on 700Mhz spectrum. Did they seem an unlikely competitor a few years ago? In the meantime, competing wireless technologies, including WiMAX, are threatening the very investment upon which the existing cellular industry was built.

Communication is increasingly non-voice, too, as a new generation of teenagers (who will grow up to be adult business people themselves) have stopped using email altogether, are about to stop using instant messaging, and prefer to communicate via their favored social networking site. That’s right – any social networking site, if properly focused, has a chance of disintermediating the network operators when a critical mass of users stop using their phone's PIM to originate communication and instead go straight to a social networking site (maybe via WAP?) and initiate their communication from that friend list. Today a network operator may think they are making decent data revenue on those SMS and page views, but they could be precipitating their own demise for a few million dollars if that same user finds a lower-cost alternative to access that server-based friend lst. A very strategic approach is required to give consumers what they want while doing so without shooting yourself in the foot. (Or worse, in the head.)

Anytime you want to rile someone who works at a network operator, talk to them about the inevitability of becoming a dumb pipe. “I just don’t see where you are adding any value other than QOS, and every carrier drops as many calls as the next,” you might say. “I’d rather have a wifi phone with a VoIP client on it and do all my business from Starbucks than pay a carrier $80 a month,” you might add, as you observe that you are indeed meeting said carrier employee over a triple grande latte. I have a lot of friends at carriers, and they don't even get offended by this conversation anymore - they already know it and are trying to make sure they don't help sink the ship. Every one of them hopes that their CEO isn't "a fucking idiot bell head who can't learn new tricks." (That is a direct quote from one such friend of mine, whose name, I hope you'll understand, will remain undivulged.)

Technology is game-changing. It isn’t clear to everyone what competitive pressures a telco faces today, but from where I am observing, it is apparently clear to Gary Forsee, who has made two critically important bold moves:
1) Content and distribution need each other, and to protect margins, you take inventory off the market. Further, to ensure a competitive stance in a consolidating market, you take inventory off the market. He did this by merging Sprint and Nextel. This established a sizable customer base that can later be converted to the new game.
2) He established a sizable market lead in WiMAX that will leave competitors a year behind. The price advantage of WiMAX has been estimated at as much as 1000x less than competing 3G technologies. Opinions vary, I realize, but CEOs are supposed to make bold moves, and this is what I am observing.

From his actions, I see a guy who recognizes that there is no reason for an incumbent industry to give its future away to a smaller and nimbler (and worse, unforeseen) competitor.

The traditional telecom industry is threatened by so many other challengers that it reminds me of the railroad example in Levitt’s article. The challengers to the railroads such as “cars, trucks, airplanes, even telephones,” bear a striking resemblance to the telco challengers such as "cable companies, the internet, WiMAX, and even social networking sites."

I am willing to sacrifice some short-term growth if it means there is at least a future to be secured. Measuring the success of these long-term strategies by their short-term returns is not wise in my opinion. But maybe that is the problem; Maybe the "unhappy investors" do not see that the future is threatened and are simply comparing Sprint to other telcos. I suppose you don't get credit for making an investment until it pays off.

The only CEO I would want at the helm of any telco, wireless or otherwise, is one who is thinking differently about the future and showing vision beyond reducing subscriber churn. Has Forsee not demonstrated a vision for the future beyond Sprint’s current business? He has to me, and as a Sprint investor, that is what I want to see.

UPDATE MONDAY 10/8/07: Gary Forsee resigned today, as some had expected. I maintain that Forsee's key initiatives while at the helm were not just opportunistic but necessary moves to position Sprint well for the future.

Posted by Shawn Conahan at 06:36 PM

July 08, 2007

The Sony CDP-101 and my new iPhone

I got my new iPhone last Saturday. I was in Denver for the weekend and I happened to walk by a store downtown. There was no line. They had 47 left when I bought mine. After a week, I must say I love it, though it is funny how quickly your expectations can rise. For instance, some other people in the office got iPhones last weekend, too, and on Monday we were all standing around talking about it. We commented that we felt like an iPhone should do something in the presence of another iPhone, like we were in some secret club and the devices would sense each other nearby and do something special like speak Furbish to one another. They do not.

The set up was annoying. As someone who does not care to build my digital life around Apple, I resented the requirement to download iTunes. I resented the fact that it snarfed my music and then shared it with everyone with an email (which it also snarfed) that also resides on their server. This is before I even set up my phone, btw - so I had to learn how to turn off all the invasion-of-privacy-ware before I even got to the activation part. Once that was done, set up was relatively simple, though I had to call customer support several times anyway because the rate plans available through iTunes did not include the advertised unlimited messaging plan.

Here is my quick micro-review of the iPhone: Compared to the iPhone, every other mobile phone on the market today seems like the last best cassette player in 1982. That's when Sony shipped the first CD player. At first, compared to the CD, rewinding a cassette seemed kind of quaint, didn't it? Then it seemed woefully outmoded. Now it is sort of embarrassing that we ever put up with linear magnetic media in the first place. Now your kid just looks at you with his or her head cocked to one side, puzzling as you try to explain the medieval technology of your youth.

This experience raised a few questions in my mind. How "mobile" is a mobile device that is more or less tethered to a PC from birth? And what does that mean for the growing divide between the technology 'have's and 'havenot's? Nobody wants to have this conversation with me for some reason. We know from experience that a large percentage of data sales come from people who do not own or have regular access to a PC. There are twice as many mobile phones in the world as their are PCs. The best argument I get on this conversation is that "those people" aren't buying $600 mobile phones. To this, I say that "those people" are buying $140 sneakers, $350 iPods and $175 jeans, so why not $600 mobile phones? Not having a PC doesn't necessarily mean not having disposable income. It could simply correlate to lack of a broadband connection.

Whatever. Even if you don't buy the "have not" argument, it still seems wrong to walk into a wireless store and walk out without an activated device. The same is true of mobile applications that require you to go to a website to register. A mobile phone is not another access point to the internet that exists in a PC-connected world. Rather, it is increasingly the primary access point to a communication network that happens to include the internet, a term that is rapidly devolving to mean a subset of the overall connected communication experience, particularly in the mobile space.

Yes, I love my iPhone, but this experience got me thinking about where I place my affinity, which I realized is tied closely to responsibility. The highest value I am receiving in a communication system that includes a device and a network connection is from the network connection. In an emergency, when I MUST make a call, they network is vastly more important than the device from which I place that call.

So I have higher affinity for the network provider. When something happens to my service, I will call AT&T. When something happens to my device, I will still call AT&T, because I know that they know that if they want to keep me as a paying customer, they will bend over backward to make me happy. The last person who received my dollars accepts the responsibility for making me happy, and six months from now when my July Visa bill is long forgotten, I will still have paid another monthly $100 to AT&T.

So how do you become more important than the network service provider? Make my personal data portable and accessible from any network.

This brings up an important point: I view AT&T as my communication service provider. As great as the iPhone is, I do not view Apple as my communication service provider - Apple is my device provider. I will be happy to receive software updates from them for my iPhone. But the thing about iTunes that I mentioned I hated is actually very cool and really useful. Transparent relationship management and externalized PIM and media makes a lot of sense, and I have to admit that I actually want that - FROM MY COMMUNICATION SERVICE PROVIDER. It feels excessive and mismatched to me that the company that sold me a device, and not a subsidized device that might entitle them to something extra from me, wants to own my data. But AT&T storing that data for me so that when I drop my device in the toilet (again) so that they can provide me excellent customer service by just restoring it to my new device? Awesome. AT&T allowing me to turn on certain features like automatic PIM snarfing that make my communication service more useful? Great. Apple automatically defaulting the same service to "ON"? Not cool.

The company that I allow to manage my data owns the relationship with me. This should be the company to which I am paying a monthly service fee. If it is not, then my monthly service provider just got disintermediated because my affinity will shift to the highest value provider.

It's funny that the iPhone is the current perfect device, and the more I use it, the more I realize that its great contribution is simply user interface. Even without the touchscreen, if the iPhone software were available on any other device, its simplicity and usefulness would still represent a major leap forward. But I also realize that that is just the tip of the iceberg, and the real revolution will come when AT&T (or Apple, if AT&T is myopic enough to let them) starts offering personal data management services that truly enhance my communication experience.

Posted by Shawn Conahan at 07:40 AM

June 28, 2007

The 386, Diamonds and Mobile Phones

This iPhone hype reminds me of the early days of the PC, when marketing centered around major breakthroughs. Remember the PET? TRS-80? Sinclair? Commodore 64? Apple II? IBM PC? They were all notable for certain reasons. Maybe it was “pre-assembled” or maybe it was an attractive price point or maybe it was color. Compare to mobile phones today: iPhone, RAZR, Sidekick, Blackberry. They are all notable for certain reasons. (Thankfully they are all pre-assembled.)

Over time, the PC became commoditized as it hit the mainstream consumer market. This was generally good for consumers because it gave them a