Wireless Informatics Blog

WIF attended the Mobile Breakfast Series (www.mobilebreakfastseries.com) in Seattle, WA on Wednesday, March 10^th. The Mobile Breakfast Series is a quarterly event that brings together thought leaders and visionaries from the global mobile industry to interact and share ideas, insights, and best practices with Pacific Northwest entrepreneurs, enthusiasts, and others who are passionate about mobile.

This quarter’s speaker was Rob Glaser, Founder & Chairman of RealNetworks.  If you’re unfamiliar with Rob, here’s a short bio:  Rob Glaser, Founder, Chairman and CEO of RealNetworks, Inc., has long been intrigued with the nexus of media, computing, communication and the Internet. Since founding Real in 1994, Mr. Glaser has played an integral role in the transformation of the Internet into the next great mass medium. In 1995 under Mr. Glaser’s direction, Real introduced the groundbreaking RealAudio. Followed by RealVideo, RealPlayer and the systems to distribute audio and video including the Helix technologies, RealNetworks has continued to innovate and bring technologies to market. Additionally in 2000, RealNetworks began offering aggregated premium content online directly to consumers in a subscription service. In 2003, RealNetworks purchased Listen.com and built the Rhapsody music service into the leading music subscription service. With the combination of technology and business systems for monetizing media, RealNetworks and Mr. Glaser are at the forefront of the Internet media revolution. Prior to founding RealNetworks, Inc., Mr. Glaser worked for Microsoft for 10 years in a number of executive positions, including Vice President of Multimedia and Consumer Systems.

The following were some of the more interesting comments made by Rob during his presentation.

• “Numerous independent trends in the mobile industry are coming as there is a major shift in connected computing devices – by 2013 there will be more smartphones (1.82 billion) than PC’s (1.78 billion).”
• “Consumers have very different ways in which they use their devices – such as purchasing, queries, social media, status updates and status check-in’s”
• “Social media is driving the current media explosion as evidenced by Facebook adding 2 million people per month and over 20 billion photos being posted.”
• “There is also the huge growth in rich media consumption.  The market is approaching a tipping point – behavior and technology are converging to drive a digital media revolution – fast anywhere/everywhere connectivity, plethora of devices, hardware that enables the high quality capture and playback of media cross all devices, consumers are psychologically ready for digital virtual libraries.”
• “There is a tremendous proliferation of opportunities because of consumers’ digital persistence, universal access across all devices, making discovery easy, empowering social expression and engagement, and leveraging the global nature of these trends.”
• “The current challenges include delivering solutions that scale with variable bandwidth and device capabilities, creating commercial models across an extremely complex value chain, vertical versus horizontal industry structure, media industry adaption of new business models and educating users on privacy and social implications.”
• “In summary, the next mobile revolution is both a huge opportunity and a massively disruptive force.  It will ultimately be bigger than the PC or Web 1.0 or 2.0 revolutions.  However, industry collaboration while complex is essential.”

APPU not ARPU

ARPU must surely be the wireless industry’s most ubiquitous acronym. For years those four letters have been used as the measure of a carrier’s success.

ARPU (Average Revenue Per User) simply expresses the revenue generated by each individual subscription on the network. It has long been used to demonstrate a carrier’s growth and market position and is often quoted not just by the carriers themselves but by industry analysts and the media.

But is generated revenue still a valid measure of success? The cost of acquiring and managing subscribers on a network has risen dramatically, eroding the profitability of consumers who, when measured on ARPU alone, seem to be model citizens. In addition, traditional ARPU calculations don’t consider the impact of multiple subscriptions, heavily skewing the figures. That’s why 2010 is the year of APPU (Average Profit Per User).

Take the Apple iPhone as an example. It’s often quoted that iPhone users generate significantly more revenue than non-iPhone users. However, some carriers report it taking them twice as long to return a profit on an iPhone than a non-iphone. Why? Simply because smartphone devices are more expensive for the carrier to subsidize and support. And smartphones will be the fastest growing handset sector in 2010.

Handset innovations such as touchscreens and faster processors have pushed up unit prices, forcing carriers to heavily subsidize product to appease the consumer appetite for more sophisticated devices. On top of this, the cost of supporting a smartphone is notably higher than that of a feature phone. No wonder then, that the breakeven point for the average consumer now sits somewhere between 12-24 months.

As the industry tries to regain ground in 2010 following a couple of bleak years of stagnant growth across the global economy, we’ll see increasing focus on managing the profitability of consumers during their lifetime within a network.

$50 price plans

We haven’t seen the last of the unlimited $50 price plan that gained popularity, and a certain amount of notoriety, in 2009.  Offering unlimited voice and data, including messaging and web access, $50 plans have been something of a game-changer in the US market, but will they start to give global wireless carriers and subscribers heartburn?

The majority of low-cost, unlimited plans are currently served through Tier Two and regional carriers. As a land-grab exercise this has paid off. These are carriers typically not offering a wide selection of data-centric devices nor offering services via high-speed next generation networks. In other words, there is built-protection against much of the strain that an influx of unlimited data subscribers would otherwise place on a network.

But what of the Tier One carriers? In response, a handful have started dipping their toes in the water; dramatically slashing prices and even launching their own $50 unlimited plans. But with access to the latest data-centric devices and high-speed Tier One 3G /4G networks, how long before data-savvy consumers run their cell sites into meltdown?

On top of this, an unlimited plan effectively caps the potential revenue of a subscriber; which means that costs will need to be cut elsewhere. Carriers may then struggle to balance the consumption they encouraged with the care and support needs of customers. This will be compounded by the need for customer care and support environments to respond to a greater (and more costly) volume of calls relating to more sophisticated devices and services.

The carriers appear confident that they’re able to handle the increased demand and preserve quality of service through capacity improvements in the form of, for example, HSPA+. However, the relative immaturity of such networks in the mass-market means that the desire to compete on low-cost price plans today is a huge gamble, with customer satisfaction and brand equity at stake.

SMARTPHONES FOR THE MASSES

During 2008/09, growth across the global handset market stalled for the first time in history. However, one segment continued to shine; smartphones.

While shipment volumes for non-smartphones dropped, new product launches in the smartphone sector still managed to sell out in days. The expectation is that by 2013 such devices will account for 20-30 percent of all global handsets.

Smartphones are no longer just for enterprise users or early-adopters. Supported by an ecosystem of consumer orientated applications, smartphones have become desirable across geographies and demographics. For the Facebook generation who expect, and are expected, to be connected at all times they have become a necessity. Even RIM, the road warrior’s OEM of choice, has spent millions of advertising dollars convincing Joe Public that they need to stay connected with a BlackBerry.

Spurring further growth, 2010 will see increasing price-drops as both manufacturers and carriers drive open platforms such as Android and Symbian. This will move smartphone devices into the $100-$150 dollar price bracket; the traditional home of the feature phone.

A key challenge, however, will be the need for carriers to protect their smartphone investments through better consumer education and support channels. Heavily subsidized, a smartphone limited to just voice and text becomes just an expensive paperweight. And an expensive one to support.