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A Small Crack in Apple’s Asia Tablet Story

June 27, 2012 By
Image representing iPad as depicted in CrunchBase

Image via CrunchBase

IDG Connect – Kathryn Cave (Asia) – The Tablet Security Conundrum.

Hutong West
Here a week and not a second on my porch
1947 hrs.  

Kathryn Cave at IDG Connect offers a snapshot of her company’s research on how and why Asians are using tablet computers like the Apple iPad, the Samsung Galaxy, and the Motorola XOOM. While Asians trail the world average in tablet use, they are more likely to buy a tablet in the coming three months and are more likely to use the tablet daily for work.

While iPad dominates the market, more Asians than anywhere else in the world believe that Apple’s leadership is unsustainable. 51% believe Android will become the global market leader in tablets within 12 months.

This is important because it offers more evidence that Asians view Apple rather differently than their U.S. and European counterparts. IDG does not delve into why that is the case. My theory has been that Apple has long treated Asia beyond Japan with a degree of benign neglect. By contrast, Apple invested in evangelists, user groups, and a legion of specialized resellers in North America, Europe, Australia, and Japan, who together sustained enthusiasm for the company and its products even in the wilderness years of the mid-1990s.

Tablets have been the category that Apple has ruled most strongly over the past 30 months. What is more, Asia is regarded by punters and competitors alike as the company’s largest font for growth in the coming years. Research suggesting that Asians are less enthusiastic about the future of Apple tablets should send up red flags in Cupertino, and green ones at Samsung and the Googleplex. This is the closest thing we have seen to a strategic vulnerability for Apple.

While the company focuses its efforts in Asia on production and distribution, treating marketing and customer relationship-building as an afterthought, the competition is getting wise. Bet on Samsung and Google targeting this rip in Apple’s chain mail armor. Asia has been Apple’s escalator, but unless it is handled with more than a backhanded marketing effort, it could become the company’s downfall.

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Filed Under: Hardware and Silicon, Mobile and Devices Tagged With: , , , , , ,

Apple’s China Strategy: Venturing to the Edge of Coolness

February 13, 2012 By

 

Apple Inc.

Apple Inc. (Photo credit: marcopako )

IPhone Scarcity During Chinese New Year May Give Samsung a Happy Holiday – Bloomberg.

 

Right before Chinese New Year, Bloomberg’s Ed Lococo interviewed me for this story, asking me how much I thought iPhone sales would be affected by the company’s decision to sell the newest version of its handset via online channels only. The quote in the story is a good one, but there is more to what I told Ed.

First, I do not expect Apple unit sales to suffer severely from this shift in distribution. When the Chinese people want a product that is difficult to get, they tend to find ways to get it, as evinced by the huge gray market in iPhones that existed long before they were introduced in China. The Chinese consumers who can afford these devices are net-savvy, and the online store will not present a major obstacle, and they should continue to be available through China Unicom’s retail outlets.

I also expect Apple will see a jump in iPhone sales through Apple’s channels in Hong Kong and other major Chinese New Year travel destinations for outbound PRC tourists. However, I noted:

A large portion of Chinese New Year sales are about having the gifts in hand right now, so I expect that Motorola, HTC, and Samsung, all of whom offer Android devices competitive with the iPhone, will benefit among buyers who are ambivalent about the brand of their device or who were on the fence about Android.

Ed also asked me whether I thought Apple would use this as a justification to expand its distribution in China, adding carriers or retail outlets. I imagine Apple will continue to expand its stores, albeit slowly, but I also think they walk a fine line between stoking demand and burning its mojo.

Apple owes much of its profitability in China to the perception that its devices are highly desirable yet difficult to obtain. The company is likely loath to tamper with that aura by significantly broadening its distribution, and that doesn’t even address the engineering challenges of creating an iPhone that will work on China Mobile’s TD-SCDMA network. Apple’s problem is that once two or more carriers offer the device and the phone seems to become ubiquitous, the mystique falls away and Chinese consumers will look elsewhere for their desirable device.

Make no mistake: most of Apple’s recent converts in China are much less emotionally vested in the Apple ecosystem than their counterparts in Japan or the United States. Apple is making a valiant effort to change that, but it needs more time, perhaps years, to develop in China the devoted following it enjoys elsewhere. Until then, it needs to remain in the business of making pretty, hard-to-get devices for prosperous people.

Filed Under: Mobile and Devices

Hello, Alicloud

July 30, 2011 By

Hutong West
Last moments before Sundown
1950 hrs.

Rushing to finish up before I am obliged to go offline for my weekly sabbatical, the news from Alibaba about Aliyun, its new mobile operating system, is out. It is too early for a detailed evaluation of the operating system, but three articles you might find interesting include: my post from May 3rd about the rationale behind an Alibaba mobile OS; this pithy PDF analysis from Deutsche Bank laying out the challenges it will face; and my take on the coming mobile OS battle in China.

 

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Filed Under: Mobile and Devices, Software

Alibaba’s Upcoming Mobile Operating System?

May 3, 2011 By
Jack Ma, Founder of Alibaba Group

Image via Wikipedia

In the Hutong
Sifting through the intel
1656 hrs.

Going through my notes while writing my report on last week’s Global Mobile Internet Conference for Warc.com, I am starting to realize that GMIC was one of those conferences where I wish I could have cloned myself. I’ve just fired a request for more materials to Edelman, the PR agency for the show, and I’m hoping they come through.

One of the better tidbits of the show was a speech by Wang Jian, Alibaba‘s Chief Architect and the CEO of its Cloud Computing group. Originally billed as a “Keynote and Product Launch,” the presentation was just a speech. Or, as I noted to myself at the time, a launch without the product.

All Foreplay, No Payoff

In his speech, Wang acknowledged the power and advantages of the app-based mobile phone operating systems, Apples iOS and Google’s Android, but he noted that even these most modern of mobile platforms had a failing. Apps, he noted, cannot replace the web, and a mobile browser does not adequately deliver a web experience on the mobile phone. More important (to Alibaba, especially), the web economy on the Internet has yet to be delivered onto the mobile phone.

Wang called for an open mobile platform designed and optimized to help people run their businesses on the web, and told the assembled 3,000 delegates that the web economy (not the app economy) is the future of the mobile internet.

This raised all kinds of red flags. The rhetoric and the way the speech built sounded like he was going to announce just such a product, and then he ended abruptly just as the speech reached a high point: “Think about a platform OS that allows you to make your web business bigger by definition.”

I could almost hear the music and see the scantily clad girls walk out with mobile devices running just such a platform.

And then Wang thanked the audience and walked off.

Waiting for the Genie

You don’t write a speech like that just to put a flag in the ground and issue a clarion call for the industry to do something. You write a speech like that when you are ready to launch the very product for which you are calling. The conclusion I’ve reached, sitting here in the Hutong after the intervening long weekend, is that Alibaba has something in the works, but either could not or would not announce it last week.

Apart from the launchus interruptus keynote speech, here are the five most important reasons why I think Alibaba has something in its lamp.

1. Baidu did it. The degree of rivalry and one-upsmanship between Baidu and Alibaba should not be underestimated, a rivalry that dates at least as far back as Alibaba’s partnership with Yahoo! in China, if not further. Baidu has announced a mobile operating system, albeit one based on Android. Alibaba would be compelled to respond, if for no other reason than to keep from being locked out of mobile commerce by a Baidu operating system that pushes users to Baidu’s chosen commerce site (instead of Taobao) and payment site (instead of Alipay).

2. Alipay. Creating their own mobile operating system would allow Alibaba to integrate Alipay, their popular electronic payments system, into the phone. An Alipay-based electronic wallet could be integrated into the device, at the very least allowing encrypted transmission of payment information for anything purchased on the Internet, from e-books to stuff ordered on Taobao.

But that would only be the beginning. Alipay could also integrate near-field communications so that you could use Alipay to pay for a taxi ride, for your lunch at McDonald’s, for your movie tickets, and for that cute pair of shoes you saw in the store downstairs from your office. You could pass money to a friend or relative by an SMS (or an MMM -  mobile money message.) With an Alibaba system, Alipay would become the default means of making every payment with your phone, regardless of what you were doing. No need to even open an app.

This could substantially expand the volume of business Alipay is doing in China, and even secure its leadership as the payment method of choice for consumers in the PRC, making it the VISA of the 21st Century in a way PayPal still dreams about.

3. The Enterprise Hole in Mobile. While it is interesting to think of running a large e-commerce enterprise on a mobile phone, concerns about security and logistical challenges seem to inveigh against it. On the other hand, using a mobile device to help conduct a physical inventory, tie into a complex enterprise management system for order entry, CRM, or other enterprise functions would extend enterprise IT to mobile in a way that iOS and Android are only starting to address.

And of course, there would be an Alibaba enterprise e-commerce system integrated into the device, making it a simple matter to log onto your Alibaba page and buy, sell, update inventory, etc.

4. Taobao. This is even more compelling in the near term than the enterprise. Selling what would essentially be a Taobao phone would allow you to buy a mobile device, sign it into your Taobao account, then use the built in camera to take a picture or video (with voice-over description) of what you want to sell, add in pricing and details, and with the push of a button upload that to your Taobao store.

You could monitor your store in real time, make purchases, and handle all of your payments via your phone. In effect, your phone becomes your store.

This would be a convenience to those already selling or buying on Taobao. And for those who aren’t, it would make doing so much easier and much more accessible, possibly tripling the addressable market for the company. And that’s in China alone.

5. Global. If Alibaba succeeds at crafting an alternate web-based mobile phone operating platform, this would be an important opportunity for the company to take its platform – and itself – global. Despite the company’s phenomenal success in China, it has limited recognition among consumers abroad, and this could change the equation radically. At that point, all Alibaba properties could be taken global, or at least to those markets without strong online platforms for small business and consumers and mobile payment systems. That would cover something like 3/4 of the planet. A tempting opportunity.

6. The Time is Right: As I noted in my earlier post about Baidu’s bid to become a mobile OS provider, it is still early days for the mobile internet, especially here in China. Conservatively, some 3/4 of the nation’s mobile users have yet to upgrade to a phone that offers much more than a bare-bones online experience. That is set to change, but it won’t change overnight. Timing is still good for Alibaba to get in on the game.

All of the foregoing is, of course, little more than thoughtful speculation. I would not be basing any stock purchases or investment decisions on the basis of the above. But it does suggest reasons why a bid by Alibaba to enter the mobile platform race should not be taken as a prima facie bad thing.

If Alibaba does decide to jump into the fray, they will gain little by doing so before they design a superb experience. In that sense, the company’s failure to launch anything at GMIC is heartening. It suggests that Jack Ma understands the challenges Alibaba faces in offering a whole new way for people to use the mobile internet.

Watch this space.

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Filed Under: Internet Business, Mobile and Devices

A Hint of How Bad Things Are at Nokia Product Development

April 10, 2011 By

In the Hutong
Re-wired
1904 hrs.

In the January edition of WIRED magazine, in an article entitled “Shanzhai,” Frog Design‘s Jan Chipcase takes writer Bobbie Johnson on a tour of Shanghai’s electronics markets. If Chipcase’s name does not ring a bell right away, you may have encountered one of the articles that were written about him when he was Nokia‘s leading human interface designer and wandering cultural anthropologist.

The Invisible Competition

Chipcase makes great copy. In the course of perusing the fetid underbelly of China’s mobile phone industry, he offers entertaining pearls of insight. Of particular interest was this little chestnut:

Although some shanzhai phones are obvious imitations, others are harder to spot as fakes. Pausing by a stall, Chipchase rolls one example around in his palm, feeling its weight and examining it. Counterfeit phones usually have surprising features: unexpected video cameras, extra ports or unusual connectors. He notes that it’s worth checking for a spare SIM-card slot: many pirate handsets are targeted at consumers who run a second line to get cheap calls by switching between telecom providers.

“Dual SIM is probably the most easy to spot,” he says, pointing to the extra slot. Whereas legitimate mobile companies have shied away from second slots, shanzhai manufacturers were quick to spot consumer demand. “They met it, while the incumbents had trouble meeting it because of their existing relationships.” (emphasis mine)

Indeed?

Motorola, whom I think could be classified as a “legitimate” mobile company, began offering dual SIM phones, MING A1800 and the VE-75, three years ago, and has been selling dual SIM devices in China ever since. One example: Motorola’s XT 800, launched in December 2009, is a dual SIM Android device. (Full disclosure: Motorola is a client.)

We could chalk this up to the reporter not fully understanding what Chipcase meant, or to Chipcase not knowing what the competition was up to (he is, after all, an interface designer, not a sales, marketing, or strategy guy.) Until we read this, anyway:

Shanzhai has shown that there is consumer demand for more than one SIM-card slot. So last summer Nokia announced the introduction of two dual-SIM phones, the C1 and C2. The launch tallied with Chipchase’s vision: manufacturers borrow from each other and quickly iterate, responding to local tastes, while also improving products. Rather than cheap knock-offs, shanzhai represents a radical new model of business innovation.

Whoops.

Out of Touch, or Just Broken?

So, here is the score: either we are to believe that both Nokia and one of its most important, globally plugged-in designers were ignorant of the fact that a global competitor had beaten them to a major design feature by over two years in the world’s largest mobile device market, or that they are being willfully ignorant of the facts.

If the former, the most benign way to read these quotes, this serves as prima facie evidence that Nokia was, as of nine months ago, seriously out of touch with its markets, and it had been for at least two years. The implications are alarming: the people hired to bring essential market intelligence of this nature back to the designers and executives in Espoo were unaware that the competition had already gazumped them on a critical feature.

But even if Nokia and Chipcase knew they had been beaten by a competitor and tried to hide it behind PR spin (apparently effective as far as WIRED was concerned), the dual SIM matter suggests that Nokia’s product development problems go deeper than a smartphone operating system. Even when Nokia is copying innovations from others, it is unforgivably slow in doing so. Think of it: Nokia was two years behind Motorola, whose mobile phone division was distracted at the time by its most tumultuous  upheaval in at least a quarter century.

The Platform Isn’t Just Burning: It’s Structurally Unsound

It is possible that Nokia CEO Stephen Elop understands how deep his product development problems go, and that he is already trying to fix the problem. He may realize that Nokia needs to create an entirely new approach to – and infrastructure for – more market-centric product development, and to stop assuming that simply doing business somewhere and occasionally sending your designers there to take pictures puts you in touch with the market.

Sometime this fall, Nokia will launch a new generation of smart phones to answer the four year old challenge of iPhone and the three year old challenge of Android. The success or failure of those devices, based on Microsoft’s Windows Phone 7, will determine Elop’s future, and possibly Nokia’s. Elop knows this, so we can expect Nokia to unleash an expensive global sales and marketing blitz to support the launch (as will Microsoft.) No doubt, the sheer volume of noise will help initial sales figures.

So if nothing else, Nokia is buying itself some time. The company’s true test will come later, probably in late 2012, after the market has taken the measure of Nokia’s partnership with Microsoft, and, critically, whether Elop will have built a product development team that can get the company back up to the front of the industry. Or, at least, not 2-4 years behind it.

But it won’t be easy. Apple, Samsung, RIMM, LG, Motorola and the shanzhai guys all have a running start.

Filed Under: Mobile and Devices, Software

China’s Mobile OS Wars: Insanity or Calculation?

March 30, 2011 By

Peter’s Tex-Mex, Beijing
Country Music and Alka-Seltzer
1317 hrs.

Last week Baidu confirmed that it has begun developing an operating system for smart phones. There was a lot to the announcement that invites comment, not least of which was Baidu CEO Robin Li’s remark that he wants to create a universal interface for all computing applications, and that the goal was “to let people become increasingly dependent on the Baidu box.”

I know. If such words were to emerge from the mouth of an American CEO, they would invite either ridicule or an anti-trust investigation, depending on the company. But coming from Baidu’s Li, they simply bumped the stock price.

Leaving to the Twitterverse the debate over whether Li is being realistic, megalomaniacal, or both, the matter that concerns many of us who are involved with China’s mobile communications business is whether China – or the world – needs yet another operating system for smart phones.

Hang On, Here Comes Another One

The quick-draw answer would seem to be “no.” The mature and developed personal computer universe gets away with three operating system families: Microsoft Windows, Apple OS X, and the various flavors of Linux. Indeed, the mobile phone industry already has seven smart phone operating systems: Apple’s iOS, Google’s Android, Palm’s webOS, RIMM‘s BlackBerry OS, Microsoft’s Windows Phone 7, the mature Symbian, and the infant Meego.

In China, the list gets even longer, with at least three parallel development efforts underway in addition to Baidu’s. China Mobile introduced its OPhone OS in late 2009. Not to be outdone by its larger competitor, in late February China Unicom launched the Wophone operating system, and Kai-fu Lee’s Innovation Works is known to be supporting its own Android-based smart phone OS, Tapas.

Not only is this OS cornicopia confusing for consumers, it is frustrating for developers. While many of the operating systems are based on a common Linux core, or “kernel,” there is palpable angst about the potential for significant differences to emerge among the Linux-based systems (an event colorfully termed “forking”). Having to write an app and then either port or re-write it for iPhone, Android, BlackBerry and Windows raises development costs an pushes profitability (and uptake) further into the distance.

This is not an idle concern: as Baidu’s Li was all-too-willing to point out, the value of operating system ownership is the potential to lock people into using your service. Apple gets that, and so do China Mobile and China Unicom. The mere prospect of consumer lock-in is enough to make technology executives and their investors embarrassingly emotional. Robin Li is one of a very few CEOs with enough honesty/confidence/hubris to come right out and admit that owning the consumer is at the heart of his plan.

The Hidden Hand

Be assured that the tech companies are not the only ones with ulterior motives in this battle. Throughout its recent history, the central government has been openly uncomfortable with allowing China to serve as the battleground for rival foreign technologies and standards, especially those that are critical to the nation’s physical or virtual infrastructure. China continues to try, with varying degrees of success, to displace foreign-developed technologies with its own, in wireless (WCDMA, CDMA-1X with TD-SCDMA), local-area networks (WiFi with WAPI), microprocessors (Intel X86 with Longson), computer operating systems (Windows with Red Flag Linux), and commercial aircraft (Boeing 737 and Airbus A320 with the COMAC C919), among others.

So whether or not they have incited the disparate efforts to create Chinese mobile operating systems, the nation’s regulators cannot be unhappy with them. Displacing iOS and Android with domestically-created alternatives fits nicely into the government’s modus operandi, and with the Party’s stated goal to incite “indigenous innovation” as a means to counter foreign dominance of key technologies.

Of course, lest we forget, more than China’s domestic market is on the table: at stake is also the opportunity to capture overseas markets, especially in developing and emerging economies, with Chinese-made handsets running Chinese-made operating systems. This outcome would mesh elegantly with the government’s desire to offer competitive products that carry the added value that comes with having been designed and invented in China, not just assembled here.

The End of the Beginning

It is tempting to condemn the China Mobile OS Wars as an ill-advised, self-interested collusion between the Chinese government and local enterprises. Yet there is evidence to suggest that China’s expanding mobile OS wars are a response to a genuine market need, not just cynical corporate bids to lock in subscribers or a national effort to squeeze out the foreigners.

As of this writing, less than 7% of China’s mobile subscribers yet uses a smart phone based on one of the currently-available operating systems. The iPhone has been officially available in China for sixteen months, and unofficially much longer; Android devices have been available for over a year. When you consider that the average mobile phone user in China changes devices every 15 months, we logically should have seen much higher penetration rates by now.

Yet after nearly a year and a half, advanced smart phones are still in the “early adopter” phase in China, with some 93% of current subscribers still uncommitted to an operating system. To companies like China Mobile, China Unicom, Baidu, and Innovation Works, this suggests that there is still an opportunity to create a new and perhaps better, more Chinese mobile operating system. The fields, indeed, are still green. Why not give it a go?

The Real Challenge: Making “More” Mean “Better”

A final but more fundamental factor to consider is that despite seeming parallels between the two worlds, we may see mobile ecosystems developing in a manner far different than those for personal computers. What is likely to happen – especially in the near- to medium-term – is that multiple mobile operating systems will evolve in parallel to deliver different kinds of experiences to different users.

The market is easily large enough globally to support a range of operating systems, each offering an experience designed around a certain type of user, and it is growing daily. I would argue that we see the early signs of that already, with Android, iOS, Windows Phone and BlackBerry all appealing to certain types of users, with less percieved substitutability than others might think. If you disagree, try using each of the different operating systems for a time. You will quickly discover that the philosophies underpinning their designs are so different as to create significantly different experiences.

In fact, I would argue that the survivability of a mobile operating system will be determined by whether it offers an experience that appeals to a distinct subset of the world’s (or China’s) subscribers. If a mobile OS is not noticably different from its competition and perceived as qualitatively better for that group, it will succeed.

We should, then, expect to see more entrants into the mobile operating system race before we see less. Whether any or all of those survive will depend, in the end, on whether the goal behind their creation is to try to create the mobile operating system for all the people (doomed to fail), or to create an experience for a certain kind of people.

Baidu Understands The Most Important Thing

One implicit aspect of Baidu’s vision that strikes a true chord is the idea that we shouldn’t need to distinguish between a “mobile operating system,” and OS environments on other devices. Operating systems should be device-neutral, with user interfaces crafted to match the device or environment.

Hardware developments already anticipate this evolution. The processing power available to mobile devices is growing at a higher rate than that on computers. We are already seeing devices in the market – the iPhone, the iPad, the Motorola XOOM and Atrix, the Samsung Galaxy – that have power that is comparable to computers. When you carry as much processing power in your pocket or tablet as you do in your gaming desktop, why bother to use different operating systems?

Apple took the first step in meshing operating systems when it scaled down Mac OS X for the iPhone, and it will move one step further later this year when it introduces OS X 10.7 Lion (and, as I anticipated in 2007, starts adding touchscreens to its laptops and all-in-one desktops.) Longer term, we’re going to see the barriers between computer software and mobile software blur, and then dissolve completely.

I expect Linux to lead the way in this evolution, but it will not be alone. If we take anything away from what Baidu announced, it should not be that the company is trying to create a mobile operating system. It should be that Robin Li has seen the future of the computing software, and he wants Baidu to take the first step toward becoming a player in that game.

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Filed Under: China Rules, Mobile and Devices

Sony-Ericsson Will Not Do Cheap

December 2, 2010 By

In the Hutong
Recovering
1408 hrs.

One more case to prove volume and share leadership is overrated in the mobile device business: Sony-Ericsson CEO Bert Nordburg explained to The Wall Street Journal why the company doesn’t make cheap handsets. From the WSJ:

After several fiscal quarters of net losses, Sony Ericsson became profitable earlier this year, thanks to a restructuring and successful releases of Android-based smartphones.

Mr. Nordberg said analysts have been too focused on sales-volume declines in the July-September period. Sony Ericsson could easily increase sales volume by offering more inexpensive phones, but profitability is more important, he said. “We do no phones under €50 ($68.43), because we won’t make money,” he added.

You need scale to make money in that business, and SNE does not have that scale. Nor, apparently, does it want it.

I wonder if Nokia is at all worried that the rest of the industry is prepared to cede the low end to the Finns and a growing host of low-cost Chinese manufacturers?

Probably not: I think we are still a year or two away from Nokia realizing they really don’t want to be the cheap phone provider to the world. That will only happen when one or two large Chinese (or Indian) volume handset producers start beating Nokia with The China Price.

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Filed Under: Mobile and Devices

Market-Share is Bunk: Why Apple is Leaving Room for Android in China

November 24, 2010 By

In the Hutong
Minding my own Business
1011 hrs.

In the October Vanity Fair, the magazine offers us its list of “New Establishment” leaders. In the entry on Steve Ballmer, the magazine whacked the Microsoft CEO for what it felt was a bad call:

BROKEN CRYSTAL BALL: Three years ago Ballmer proclaimed, “There’s no chance that the iPhone is going to get any significant market share. No chance.” (The iPhone is now the No. 2 smartphone, with a 28 percent market share.)

Meanwhile, Outside the Manhattan Vortex…

Not defending Ballmer, but the editors at Vanity Fair would have done well to ask “market share of what, exactly” before taking the Head Microsoftie to task. Assuming Mr. Ballmer was talking about global handset market share, Vanity Fair‘s editors are wrong to spank the Monkeyboy. For if said editors would teleport themselves ever-so-briefly off of the island of Manhattan, they would find that the world is not made up of iPhone-toting fashionistas.

Take a single, very large example. In China, the largest mobile phone market on the planet, a mere 400% larger than the U.S., smartphones make up well under 10% of the market, and as of Summer Apple’s share in China was less than one half of 1% of the total installed base even after three years of grey-market and nine months of “legitimate” iPhone sales. In China, at least, Ballmer is right.

But does Apple really care about market share? What Vanity Fair and Steve Ballmer both missed is that even if Apple owned only 5% of the global mobile handset market, at a retail price of $300 per phone that’s something like $15 billion per year.

They are not alone. What many people miss in the growing battle between Android and Apple is that Apple, as it did when it introduced the Macintosh in 1984, as made an implicit decision to capture and hold the high end of the mobile devices market, and ignore everything else. (Before we go any further, for the sake of full transparency, Motorola is one of my clients.)

Leadership is Overrated

In light of the evidence, one can hardly blame them. Ericsson watched its onetime market leadership wither as it failed to pace consumer tastes, leaving the company a shriveled rump of a joint venture with Sony. Motorola, once the leader of the market it created, watched its mid-decade quest to build market share on the foundation of a halo product founder as the halo (the RAZR) slowly tarnished.

And today, Nokia is finding that the demands of sustaining global share leadership are incompatible with the challenges posed by a changed industry. Nokia may sell more phones than any other company, but it has found the rewards of that title increasingly ephemeral.

And so Apple has decided not to try to be the largest mobile device company in the world, but the most profitable. We should not expect from Apple a line of iPhones so much as we should expect successive generations of innovative devices.

These Are the Droids You’re Looking For…

As a part of that decision, Apple has chosen to be a company that plays to developed, wealthy markets and wealthy niches within developing markets. The iPhone is not The People’s Phone. Never would the company consider the bottom or middle of the world’s income pyramids to be a market for anything it produces. Apple makes powerful, pretty devices for the prosperous. Full stop. (And there is nothing wrong with that: just ask an AAPL shareholder.)

For that reason, Apple’s “leftovers” constitute a growing market: legions of users who want access to highly portable, customizeable, low power devices that provide easy-to-use wireless access to the Internet, services, and entertainment, and yet cannot afford the cost of entry into the Apple ecosystem.

And I would argue that this market needs the power of an iPhone-type device more than the global Beautiful People who can afford one.

Enter the Androids.

Over the past year, Motorola, Samsung, LG, and HTC have already introduced Android devices that retail below RMB3,000, and once local manufacturers have access to capable yet inexpensive components, that price will fall quickly. Kaifu Lee, CEO of tech investment house InnovationWorks, predicts that Android devices will be available for RMB1,500 in 2010, and for RMB750 in 2011.

These are tipping-point prices that will begin to push mobile Internet-enabled devices into the hands of a far wider part of China’s population. They are not price points that Apple looks prepared to play in. In all likelihood that means that there will be many more Android devices in the market than Apple devices. That is going to be fantastic for the Android device makers, a life changer for China’s consumers, and it is going to be very, very good for Apple.

Amateurs talk about Share, but Professionals talk about Margin

So the argument over market share is banal and irrelevant, and predictions of Apple owning a share of the China mobile market comparable to its position in the U.S. is so much sky pie: through pricing and positioning Apple has strategically ceded a massive chunk of the market that it helped create, and is indeed seeding demand for Android products across a wider market.

For these reasons, the determinant of success for Apple or any of its competitors in the China smart phone market is not share, but rising profits, growing sales, and happy consumers. Those things are a lot harder to call and cannot be reduced to a single hard figure, but they are much more relevant, especially when the rate of market growth for smartphones continues to grow itself.

Remember that, Mr. Ballmer. And you, too, Vanity Fair.

Filed Under: Mobile and Devices

Handsets and Style

October 6, 2010 By

In the Hutong
Watching “The Man Who Would Be King”
1943 hrs.

Thomas Crampton points us to a Roland Berger report suggesting that trendiness is a critical factor for Chinese consumers in the purchase of a mobile phone, and in the speed in which they purchase new phones. I am certain Berger is not hawking such insights to mobile device manufacturers, because none would pay to learn what they have known for a long time, at least since the Motorola RAZR demonstrated that the mobile phone was as much fashion accessory as telecommunications hardware.

What is of value is figuring out exactly what “trendiness” means, to whom it means that, and being able to anticipate that trendiness six to eighteen months in advance. China no longer has a single mobile phone market, it has several, and in each of those markets trendiness means different things. A techie wants the latest version of Android. A fashionista might want something with some bling. Others want a few more features, an iPhone, or maybe just a simple handset with a cool color.

These groups are constantly changing, realigning, and splitting. What they want in a device changes as quickly as twice in a normal ownership cycle. Identifying those groups, and having a rough idea of what they will want a few months down the line, and why is the insight mobile device makers need.

Filed Under: Mobile and Devices

If You Are, You Don’t Need To Say So

September 21, 2010 By
View of the Nokia corporate headquarters in Ke...

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Harbour Point, Kowloon
Showering in Fanapi’s Tail
1506 hrs.

Motorola is a client, so I have tried to hold off commenting too much about the mobile devices market, and in particular what I think about Nokia’s current travails.

But this line about Nokia World in Fast Company tweaked my nose:

These events happened on the eve of the big Nokia World event, which has just kicked off, and no doubt cast a long shadow over the proceedings (despite EVP of Marketing Niklas Savander’s keynote speech noting how many units the firm sells, and his optimistic “Nokia is back!”).

Ignoring the specifics of Nokia’s case (wherein I am biased), let us stick to general principles: anytime a company stands up and tells the world, in so many words, that it is back, it is making a case for the rest of us to believe the opposite. If a company has completed a comeback, saying so would be unneccessary: others will acknowledge as much, and do so with far greater credibility.

So do what Nokia should have done: wait for the smartphone sales, stock price, analysts and other credible voices confirm that they have solved their problems and that they are back on track.

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Filed Under: Mobile and Devices

Six Ways to Help Zeebo Succeed in China

June 5, 2009 By

Oriental Plaza, Beijing

Hiding from the heat

1445 hrs.


A few days ago, I explained why I thought Zeebo is going to have a tougher time succeeding in China than we – or Qualcomm, the backer of the cellular game console – may think.

Today, my humble suggestions on what Zeebo will need to do to overcome those challenges.

1. Speed the Approval Process

Zeebo, the local carriers, and the game developers need to work together to create a fast-track process for game certification and local approval. Otherwise this is going to open the door for the first rival consortium that is able to put such a process together. Make a target of 30 days for game approval from the date of submission by the developer, leaving about three weeks of that time frame for the government to work through its part of the process.

2. Experience, Baby: Get Gamers Out of the Internet Cafe and Into the Living Room

Those much younger than I will probably not recall the days when the only place computer games could be played was in a slightly seedy joint crammed full of stand-up game machines. The one I hung out in was called Westworld (named after the 1973 Michael Crichton science-fiction film), two doors down from the landmark Fox Village Theater and a block south of the UCLA campus in Westwood Village.

Westworld started out pretty cool. And then, over time, it got seedy. It stopped being a wholesome hangout for the neighborhood pre-teens and it started to attract an element that was, well, incompatible with what our parents saw as a good crowd to hang with: creepy chain-smoking adult monomaniacs who blew their paychecks on beer, smokes, and Galaxian, and regarded us underage gamers on tight monetary rations as irritants or suckers. The management didn’t care.

It was this phenomenon – which I think parallels nicely what has happened in a lot of China’s Internet Cafes – that led to the emergence of home gaming consoles from Atari and Mattel, and eventually home computers (used heavily for gaming) from Apple and Commodore.

It took a while – the first generation or so sucked. But by the time we got our Mattel Intellivision in 1978, the experience was good enough that we never really missed Westworld.

This is the real opportunity for Zeebo – give parents an affordable device that will get their kids out of smoke-filled Internet Cafes, while giving the kids an experience that is as good as – or better – than what they would get in their local wangba.

The Zeebo presentation at the Game Developers’ Conference leaves us in a bit of doubt. We will know better when the first devices hit the market – in Brazil. But the experience will be critical

3. Mr. Jacobs, Tear Down These Walls

The initial Zeebo, as currently envisioned, uses its networking capacity only to discover, purchase, and download games into the box.

That’s not going to cut it. Many of us in the West may have grown up with discrete, solo gaming experiences. Some of us still prefer it that way (no crude comments, please.) But in China, online and multiplayer gaming is the rule, not the exception.

Yet just as important as offering a networked, multi-player gaming experience is offering the other major advantage of a truly online game: seamless cross-platform play. Play at home on your Zeebo, then when you leave the house, continue playing on your mobile phone, and maybe even continue play on a computer.

This is the gaming triple-play, the promise of a game that follows you wherever you go and is always ready for you to pick up where you left off. Zeebo needs to be a part of that mix, not the heard of a separate gaming universe.

4. Don’t Make Zeebo China All About Helping Foreign Game Companies

Success will come for the platform when Zeebo does more than give EA, id, Glu, and Digital Chocolate a way into the Chinese market. Sure, giving them market access is nice, and some people here do enjoy playing “global games.” But as with music, literature, television, and movies, we all want stuff that is relevant, not just cool.

Getting lots of local developers of all sizes on the platform has to be an immediate priority, even before plans are announced for China. Near-term Zeebo needs to think about splitting the offering 50% localized non-Chinese games and 50% locally produced. Longer term, that needs to shift to 25/75. That means getting busy. Now.

5. Staff Up

You may be able to develop a product with five full-time employees, but the time has come to start selling the sucker, and you will need reinforcements. Resist the temptation to scoop from Qualcomm folks (as smart as they are), and instead find people who understand how to market these kinds of devices globally.

6. A Brief Digression

Some years ago, I was speaking to a colleague in Hong Kong about the prospects of a major international game company here in China. He knew the guys inside the company fairly well, and there came a point in the conversation that I realized the company had a huge blind spot in its plans. Rather than look around at the market conditions, the culture, the economy, and the opportunities, they were determined to do the same kind of business in China that they did in the US.

What I suggested to my colleague was this: the company should give up on localizing games created for the American market and trying to sell them in software stores. Instead, the needed to go to the cable TV industry in China and work on a system whereby online version of their games could be delivered to cable televisions all around the country.

The cable operators had the bandwidth, were building digital systems that allowed for interactivity, and needed the revenue. Kids in China were used to playing online games but there were a lot fewer home PCs that there were cable households.

My colleague humored me, told me they’d never go for it, and promptly forgot my idea. And the company has now been chased out of China.

The big loser in all of that is going to be the cable operators, I think, because it looks like Zeebo is about to lead the telecom companies into the future of online console gaming.

If, that is, Zeebo and its guides can forget about what they think China needs, and start thinking about how to make Chinese gamers drool.

Filed Under: Games, Mobile and Devices

Zeebo and It’s Six Big Challenges in China

June 1, 2009 By

In the Hutong

Looking for a Snack

2020 hrs.


In case you missed it, one of the interesting developments coming out of the recent Game Developer’s Conference in San Francisco – at least as far as China is concerned – is an interesting item about a new game console called “Zeebo.”

Brought to you by Qualcomm, the people who invented third-generation wireless technology and the Eudora e-mail client (and many other useful bits of technology,) Zeebo is a game console designed for those of us who cannot afford – or cannot buy – an XboX, Wii, or Playstation. Created with the growing middle class in Brazil, Russia, India, China, and other emerging markets, Zeebo eliminates the need for game cartridges or discs by allowing you to select, buy, and download games directly to your console over a cellular telephone network – apparently even if you don’t have a mobile phone account.

There is much sexiness to the Zeebo idea, not least of which is the elimination of piracy as an issue for game publishers, , the use of an already-ubiquitous network for distribution, a local partner (the wireless carrier) to run the business, and other advantages that I’ll go into in another post.

From a business perspective, the device seems tailor-made for China. But Zeebo’s path to success in China is fraught with challenges.

Open a Window

Wireless devices inside the modern Chinese home face nasty challenges to what engineers call “signal propagation.” Most apartment buildings and free-standing homes in urban China are built of thick concrete reinforced by steel bars. These sorts of structures play hell on wireless signals.

In my home, for example, a wi-fi signal won’t make it past the next room over, and if I am more than 10 feet from a window, I lose cellular signal – even though we can see our carrier’s cell site form our windows.

Designed to be placed next to the TV set, Zeebo is not necessarily going to be next to a window within optimal range of a cell site. The value of the device, in other words, will depend on local signal quality. That’s going to create a few issues, and could conspire to give the device an unfair reputation among consumers.

(This is not an idle concern. For a long time, and for reasons having more to do with local conditions than problems with the technology, people in China used to joke about having to “open the window and let CDMA in.” That undeserved reputation has dogged the 2G and 3G versions of Qualcomm’s technology, a challenge Qualcomm has overcome only after considerable effort.)

Brand Power (Or Lack Thereof)

Buying a Zeebo – or any of the console gaming systems – is a tough decision for a consumer. They are, after all, not just buying a device, they are making a bet on a gaming ecosystem, committing to software, accessories, services, and upgrades to that ecosystem for years to come.

That’s a tough threshold to get consumers to cross. Just ask the XboX guys at Microsoft, or the Wii guys at Nintendo. If you want to get frugal consumers to place a bet on your new entertainment ecosystem, it helps if those consumers know you and trust you.

Zeebo, being new, has not yet cultivated this confidence, and Qualcomm has until recently placed little stock in building their brand with consumers. Why bother? The consumers, the thinking went, didn’t buy Qualcomm products. That lack of foresight is going to hurt the new console’s prospects in China.

A Brutal Approval Process

When it created BREW, Qualcomm established a rather involved certification process for the applications to be delivered over wireless networks. The reasoning was strong: given that these were applications that ran on the network as much as on the device, one bad line of code could not only crash the device, but potentially harm it and possibly affect the functioning of the network.

That involved process has come to the Zeebo. Apparently, first you need to become a BREW developer, then get Zeebo approval, then use the Zeebo software developer kit, then go through the approval testing firm NSTL, then reach the console.

In China, I can foresee two additional steps in that involved process. First, you would need to get approval from the carrier, who is going to want to have some say over what gets distributed over their network, and second, you are going to need to get approval from the General Administration for Press and Publications (GAPP), the government regulator with authority over games. And, if you’re not a Chinese company, you’ll probably need to find a Chinese distributor first.

And you thought it was tough getting your iPhone app approved.

That process will be time-consuming, costly, and for the last two bits in particular, frustrating, none of which endear Zeebo to already-overworked developers, nor will it help ensure a rush of new games to the platform. And that’s important, because regardless of what they may believe at Qualcomm headquarters in La Jolla, Zeebo will need more than Quake and World of Warcraft to succeed in China.

Local Developer Support

One of Zeebo’s advantages is that Qualcomm has already managed to corral the support of major game publishers and developers, including EA, PopCap, Capcom, Activision, Namco, and a host of others, giving the device 15 titles now and 30 within 90 days, with more to come.

Zeebo’s succesess in China, though, will depend on cultivating the support of popular local game developers creating games that Chinese people want to play. For all of the success of companies like Activision-Blizzard with Worlds of Warcraft in China, foreign companies hold a shrinking part of the pie. The majority of games played in China are locally created, and that proportion is growing.

The good news is that Qualcomm has some experience here, having built a healthy local developer community for its BREW mobile platform. The challenge, though, is going to be convincing developers to invest in this new platform. Already developers need to spread their resources among developing online games, PC games, half a dozen mobile platforms, widgets, and games on social networking platforms.

Shanzhai Nation

What Qualcomm has created is an inexpensive device with an ecosystem. Even if Zeebo enjoys only modest success, we can count on local companies duplicating the effort, creating a device for even less money and with the support of local game manufacturers.

It does not take much imagination to see the Chinese government supporting the creation of a TD-SCDMA based Zeebo clone, created in China, sold through China Mobile, and packaged with sales of TD-SCDMA networks overseas. I would be shocked if Qualcomm’s announcement didn’t set at least half a dozen such initiatives into motion here in the Middle Kingdom.

Unless Qualcomm cuts deals with all three mobile networks in China, we could see our own version of the Console Wars playing out among China’s carriers. Qualcomm would be faced with having to support an expensive marketing battle against a local champion (been there, done that, eh, Dr. Jacobs?) or bailing out entirely.

And if it chooses the latter, it opens the door for Zeebo competitors in its other markets as well.

It’s the Experience, Guys

In reading through the announcements and other supporting literature, it is clear that Zeebo’s primary appeal is how neatly it appears to solve several business problems in one fell swoop: piracy, affordability, and accessibility most prominent among them.

At the same time, I was amazed to see how Team Zeebo is playing down the importance of what is apparently an inferior experience. What is important, we are being told, is how inexpensive this thing is. So what if it is a little slow and the games are two generations behind the state of the art? What is important is that the games are in the homes.

If the average middle-class gamer had little exposure to what the world of games can offer, that would be one thing. But all you need to do to see an extremely cool, fast, and immersive game is walk into any Internet cafe in China.

The list of devices that have tried – and failed – in the PRC because they offered a low price but a downgraded experience should be enough to give the Zeebo folks pause. Just ask ASUS, or the One Laptop Per Child team in China. Or ask Microsoft. Anybody remember the Microsoft Venus Internet set top box?

Right. This is a place where workers save three months to buy a phone instead of one month because they want the best experience they can afford, not the cheapest.

Zeebo’s biggest challenge in the PRC is going to be delivering an experience that players will find more fun, more immersive, more addictive, and more appealing than what they can already get in a Web Bar. The battle is to entice them back into the living room, and Zeebo can only do it with a kick-ass experience.

Take a hint from Debbie Fields, Zeebos. “Good enough” won’t be. Not in this market.

A Step Back

None of this is to say that Zeebo won’t be successful in China. But the great thinking that has gone into the product’s design and the business model that will sustain it only address the most basic challenges.

But now comes the hard part: turning Zeebo into an awesome experience for gamers even as the company ensures it is a superior business for developers, mobile operators, and retailers.

Qualcomm’s hurdle is that as a company it lacks experience running a consumer-oriented business generally, much less a multi-sided platform in the ever-changing emerging markets. The company has to develop a whole host of competencies very quickly, all while gaining the trust of consumer it has all but ignored for over a decade.

But I hope they succeed. And I’m going to explain why tomorrow.

Filed Under: Games, Mobile and Devices

Four Handhelds, three computers, two email accounts, one little problem

May 20, 2009 By

Starbucks Pacific Place

Dreaming in Kodachrome

1412 hours


I’m about to spend a bunch of posts diving into the promise and reality of 3G in China, but before I do, a brief call to all of my friends in the information technology business.

Not Different, Just Extreme

I sit down at a table and lay them out: A Motorola ZN5 (phone and camera); a Blackberry 8707 (email); iPod Touch (PDA/games/vids); iPod Classic (the music monster.) And THEN I reach for one of two laptops in the bag. I’ll admit that I’m hardly typical (I mean, even Steven Lin, aka “Flypig,” calls me “the geekiest geek I’ve ever met.”) But after constant trial-and-error, this is the system that makes me more productive and keeps the information I need close at hand.

Yet I am hardly alone. As I spend chunks of my days watching Beijingers native and naturalized live their digital lives, I’ve found that I’m simply an extreme example of a growing trend. For a lot of people in China, the early promise of convergence – your whole digital life in one device – misses the point.

Blowing Divergence

What we are getting in its stead is something quite different. Sure, some people ARE converging: there are some for whom cramming more and more features into a single device, (the digital Swiss Army Knife), is still a practical idea. But I’m seeing a growing number of people here in China using several complimentary devices. Call it “divergence.”

The gadget and computer industry should be forgiven the error of predicting a single-device future. But now that the future is here, and the one-gadget-fits-all approach is a fit for only a small percentage of people, the hard work begins. The industry needs to help us recognize the challenge of living in a diverged world, and it needs to help us make the most of it.

Marketing is not going to be enough. Nor, for that matter, is complying with a handful of software and hardware standards like USB, Bluetooth, and Wi-Fi.

Harmonize my Gadgets…please

Instead, the industry needs to stop selling us “THE” device, and start showing us how these devices can fit into our lives and our personal information environments, and then giving us simple and workable building blocks so that we can store our digital stuff in different places and machines, and access all of it whenever and wherever we want to, and we want to do it without having to scratch our heads, much less read an instruction sheet.

(And before you roll out my beloved Apple as an example of a company that is making the personal information ecosystem a reality, I have one word: MobileMe. Serving to prove that enabling a personal information ecosystem is so hard that even Apple has a hard time doing it.)

Don’t tell me my phone is a computer. Tell me what it can do better than my computer, or tell me what it can do that my laptop cannot.

Don’t tell me your online document service can replace Microsoft Office. Tell me how well it works as an extension of my desktop software.

Don’t sell me a platform of one-size-fits-all online services. You have no idea what I need.

And take a lesson from companies like Evernote, who simply offer an online/offline application that is so mind-bogglingly useful that people will look for new ways to use it.

That process will be hard. It will be messy. And in China it will be especially difficult, because most of the country is still figuring out how to get on the information bus, making the place a moving target.

But it is the standard by which the information industry is going to be judged. If you want credibility, stop promising us info-nirvana and start delivering ways to let us design our own information ecosystems.

Stepping off soapbox.

Filed Under: Hardware and Silicon, Mobile and Devices

3G in China: ARPU as a Measure Doesn’t Measure Up

January 5, 2009 By

Jingmi Expressway, Inbound

Cold, but not like you’d expect

1010 hrs


Now that the Year of the Golden Calf Ox is shaping up to be the year when all three of China’s mobile operators – China Mobile, China Unicom, and China Telecom – will deploy third generation mobile networks, or 3G, it is useful to explore the extent to which 3G networks elsewhere in Asia are living up to 3G’s promise to raise average revenues per user (ARPU).

The short answer is “pretty good.” As the operators find ways to deliver new services for which users are willing to pay, the revenues are going up.

Nice revenue. Where’s the profit?

The problem is that for some operators, particularly those in competitive markets, those increases are not translating to profits. To give but a single example, one well-run operator in Singapore has watched average revenue per user rise 41%, from $41 to $58 as a result of adding 3G services. Leaving aside the sunk cost in the network, profits should have risen accordingly.

Not so, according to an executive of the Singapore operator speaking at a recent industry conference. That growth in ARPU is not coming with an attendant growth in profits, because so much of the increase in revenues is being offset by the cost of acquiring content.

Given that the executive was speaking to a room filled in party by content providers, I would bet he assigns an unfair portion of the problem to content. I would wager that increased marketing and management costs that come with building awareness and usage of the new systems are also digging into profits, along with other fun things like amortization of network cost.

Regardless of source of the costs, however, the issue is clear. If executives, investors, and analysts are using ARPU as a measure of success for 3G networks, we are all looking at the wrong number. Revenue only tells half the story.

Building a Better Yardstick

What we really need is a metric that captures both the additional revenue and additional costs attributable to 3G services, and that still describes the additional net gain for an operator from 3G.

Two measures would provide a more accurate – and more telling – yardstick. We can either look at average margin per user (AMPU) or average profit per user (APPU.)

AMPU would subtract the costs of acquiring the user, providing service to the user, and keeping the user from switching to another network from revenue. As such, it would be a better indicator of whether 3G services were living up to their promise to the overall operator business. APPU, which would subtract all operator costs, would help determine whether the health of the enterprise was improving or declining as a result of 3G adoption. The measure takes into account such things as investments in network and business development that margin does not take into account.

I like APPU somewhat less than AMPU, but I think the former is still useful because it would account for the different ways each carrier accounts for the different costs involved in the network and in service delivery. Either would be better than ARPU, and the use of both AMPU and APPU in some combination would give a much better snapshot of the business.

If tracked over time (as adoption grows, technology matures, and competition drives down the costs of services and content), the two measures would give an indicator of how the fundamentals are improving.

More than Accounting

Okay, I’ll grant that this seems like an esoteric question best left to accountants and others. In truth, though, this has a significance that goes beyond the ken of analysts and investors.
If we start using our two new metrics even alongside ARPU, we start getting a feel for how much the carriers are spending in order to get each additional dollar or revenue. While this sounds even wonkier, this little measure is going to be especially critical for China.

Chinese carriers tend to be more focused on revenues (for whatever reason) than on either profits or marginal costs. This revenue focus gets operator executives thinking “if I can keep a higher percentage of the revenue of a value-added service delivered on its network, I would rather squeeze out the outside provider and offer the service itself, even we have to bear the full costs of the service. That way I keep the larger share of revenue, and, after all, that’s how my success is measured.”

If, on the other hand, the operators were judged not only on ARPU but on AMPU or APPU, the pressure to deliver more services at a lower cost could force the carriers to evaluate whether offering a service themselves would deliver a higher profit, rather than whether it would increase revenues in exchange for even higher costs.

Once you start looking at the costs of delivering a service, rather than just the revenue, the best service provider is the one who can deliver the most dollars with the least cost.

In other words, you go with the guy who makes you money while you spend nothing.

Service Providers, Listen Up

What I suspect is that this kind of business analysis would be a good thing for independent value-added service providers (VASPs). It would enable them to make a business case for long term partnership, even when the service provider starts making a lot of money, to make the case that it is better to have a cash-cow than a cost-center, especially because network operators have enough cost centers as it is.

I also suspect that the operators will not come to these conclusions on their own, but will only be compelled in that direction when the investor and analyst community starts demanding it.

And that means that once VASPs have their business cases perfected, it behooves them to start making the case, individually and collectively, to change the way operator revenues are evaluated. If investors and analysts can see the wisdom of doing it the VASPs way, they can be a powerful ally in getting China’s carriers to stop steamrolling the VASPs out of business.
China needs efficient carriers, not just massive carriers. It serves everyone if we start measuring them accordingly. Otherwise the benefits of the government’s mix-and-match game with the nation’s telecom assets will produce little more than price wars and mutually-assured value destruction.

Filed Under: Mobile and Devices

Telecom Reform: The Sound and the Fury

May 28, 2008 By
On the Airport Expressway

Experiencing a tan-out
1445 hrs.

The government has finally announced the broad strokes of the long-anticipated plan for the restructuring of the telecoms industry, and a quasi-definitive time frame for the government to finally issue the coveted 3G censes. The business and industry media are having a field day with it, arguing about what it will mean for everyone in the industry, from China Mobile to Cisco to Nokia and, yes, even to Apple.

Here is what it really means:

Nothing.

Oh, don’t get me wrong. This edict, which treats some of the world’s largest telecommunications operators like so many LEGO sets, is going to have some major short-term repercussions. Analysts and investors will spend the next 18 months figuring out what effect all of this has on the valuations of the carriers, opportunities for equipment vendors, and challenges for management consultants. Economists, for their part, will nod sagely about the creation of “more competitive entities,” “a more rational industry,” and so on.

But in the end, these changes aren’t going to amount to much. And here is why.

First, the changes do nothing to alter the fundamentals of the market. No matter what sort of beasts this process creates, consumers and businesses are going to continue to suck up bandwidth, cellphones, and services about as quickly as they can be delivered. Wireline will continue to be a tougher business than wireless. None of the three merged firms are going to get instantly smarter about expanding overseas. Efficiency will continue to be a less important issue that keeping up with demand. The managers of these companies won’t automatically get wiser about delivering services.

Second, the changes do not address any of the really pressing issues the industry faces. How do we deliver more services for less money? How do we get mobile phones the billion or so Chinese who have yet to place a call, much less buy and own a mobile phone? How do we make money on IPTV? What role do cable operators have to play in delivering telecommunications services? How do we connect the unconnected? How do we deal with the growing pile of e-waste coming from the industry?

Third, the mergers are taking place in complete disregard for the customer, the consumers and businesses who depend on these carriers to provide the communications infrastructure of their lives and livelihoods. Apart from the fact that these changes will cause a disruption that will throw the customer into fourth place behind the government, employees, and investors for the foreseeable future, aspects of the industry plan look to be designed – if not to make life tougher on consumers – at least to ensure that they reap as few benefits from the changes as possible.

Just one example: we will not only have three different mobile carriers, we will also have three wireless networks operating on incompatible technologies – one on WCDMA, one on CDMA-1X, and one on TD-SCDMA. Such incompatibility not only means that roaming across networks will be more difficult – if possible at all – it also substantially negates the potential benefits to the consumer of competition among three carriers. If everybody offered the same network, switching would be easy. This raises churn for the operators, but it also forces them to be more customer-focused. Now, buying a phone locks you into a carrier for as long as you carry that device.

Nothing in the mergers is designed – or intended – to improve customer service, to lower rates, drop costs, or broaden the scope of services available to consumers or business. Now, it is conceivable that one or more of the companies will come across opportunities to improve service. But for the foreseeable future, each company will be engrossed in the simple effort of completing these disruptive changes without having the wheels fall off.

The fundamentals don’t change. No major problems are addressed. Not only are these changes not market-driven, they ignore customers completely.

At best, things are going to look a bit tidier as the Minister of the reorganized MII looks out his window.

Filed Under: Mobile and Devices
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