Wednesday, October 31, 2007

Google's Phone Keeps Everybody Talking

Google is characteristically silent, but rumors about the "Gphone" have people talking. According to Forbes Magazine, Google plans to enter the smart-phone market with a high-end handset subsidized by targeted advertising. Brian Caulfield, the article’s author, suggests that Google’s ad-supported mobile phones may best fit consumers in emerging economies. An effective advertising model could reduce the price of the handset and/or service, appealing to this price-sensitive market. Caulfield points out that a mass-market approach fits Google’s business model, and suggests China Mobile and Orange are possible partners.

Google certainly knows how to monetize advertising volume, but a foray into hardware would put the company well outside its comfort zone. While Google has entered partnerships in the past, it has never been as dependent on those partners as it would be with telecommunications partners in this new scenario. A phone with a great user interface and cool applications may get the market’s attention, but the ability to scale will be largely in the hands of Google’s partners. Google’s strength is its ability to abandon traditional business models. A mobile phone that makes money on something other than voice or data transmission may fundamentally disrupt the market, but is Google in the best position to capitalize on the opportunity

An ad-based revenue model presents an opportunity for a host of other technology players. Yahoo! and AOL are also chasing emerging-market eyeballs through acquisitions and partnerships that integrate their services with newer handsets. Larger phone manufacturers and operators are exploring an ad-based interface, trying to secure revenues without giving too much away to content providers. Microsoft software is available on 140 mobile phone models, so it has well-established ties in the telecommunications industry. Perhaps a (long-rumored) partnership between Yahoo! and Microsoft would pave the way for an ad-based mobile OS. Ultimately, the winner in this race will be the company that offers the most compelling deal to developing-country operators without losing focus on the real opportunity - access to two billion eyeballs.

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Thursday, October 25, 2007

Western Union Joins Mobile Remittance Market

Western Union has been so slow to respond to the market impact of mobile-phone based remittances, the company risks losing decades of market leadership in the money transfer business. The recent announcement of a partnership with the GSM Association (GSMA) may be an attempt to catch MasterCard, which announced a similar initiative at the 3GSM conference in February. According to Reuters, Western Union and GSMA will help operators let customers transfer funds from a mobile phone to a Western Union location and vice versa, and enable mobile-to-mobile transfers. A pilot program of the service will be available by mid-2008 and Western Union expects to see a material contribution to revenues in 3-5 years.

Western Union’s slow rollout of a mobile remittance program opened the door for companies like Visa, MasterCard, banks, and local service providers. Mobile-to-mobile money transfer programs are already generating revenue for more nimble players like Smart in the Philippines and Safaricom in Kenya, among others. By 2012, the number of recipients of international remittances could reach 1.5 billion and the size of the remittances market could total US$1 trillion, according to GSMA.

Non-technology companies like Western Union are being drawn into the telecommunications market by the increasing utility of mobile phones. The GSMA, its members and other mobile technology companies will benefit from new partnerships with global non-technology companies like Western Union. They provide valuable assets such as global brand and new services that can now be delivered via mobile technology. Association with a strong brand like Western Union can allay customer fears associated with accessing services and executing transactions via mobile phones. And, the added services present opportunities for additional revenue sources for all involved partners.

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Thursday, October 18, 2007

India’s Broadband Drop Surprises Analysts

This week’s nugget was unearthed in an Economic Times article that claimed, to everyone’s surprise, India’s fixed broadband subscription rates fell last quarter. The total number of Internet connections dropped to 9.22 million between April and June from 9.27 million the previous quarter. The article and related blogs speculate on the possible causes for this drop: unstable connections, poor service and bandwidth constraints. It may be that Indians are turning to their mobile devices to access the web. According to the Economic Times, 38 million people, or more than a fifth of India's 200 million-plus mobile subscribers, access the web via their handsets.

This drop in broadband Internet connections is small for a country the size of India. However, the lack of growth and the strength of mobile Internet access are notable. Fixed broadband availability and usage rates have often been used as an input for measuring a country’s technical maturity. The increasing sophistication of mobile devices may change that. Historical growth trends would have predicted that India’s broadband rates would continue to increase and certainly not slow, let alone fall. This demonstrates a weakness in historical-based approaches and confirms that new markets require new methods of evaluation. Applying developed-country adoption trends to developing-country markets leads business managers to design inappropriate strategies in emerging markets.

Technology is being adopted faster in emerging markets than in mature economies. Moreover, adoption and usage patterns may differ considerably. Consumer cash flow constraints, the stability and availability of a local infrastructure, technology awareness, and access to various technology devices all impact adoption curves. Therefore, historical growth trends are only one input among many to credibly forecast emerging-market growth. In a market like India, these factors can help project dramatic shifts in technology usage patterns. The increasing use of mobile phones for Internet access is yet another sign that IT and telecommunications strategies can no longer be considered in isolation, especially in emerging markets. Both industries will be competing more and more for access to the limited disposable income of developing-country customers.

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Friday, October 12, 2007

Africa Says "Call Me Back"

Reporting in their “oddly enough” section recently, Reuters noted that one-third of all cell phone calls made in Africa are “missed.” While odd to Reuters, “missed” calls are a generally accepted method of communicating in Africa. The practice of “beeping,” which involves phoning someone and hanging up so the burden of the return call cost is on the receiver, was created by cost-conscious users. (In most markets outside the U.S., cell phones charges are billed only to the calling party.) Frustrated local phone operators, whose lines are tied up with non-income generating exchanges, are actively seeking methods to generate nominal revenue from this practice including offering a limited number of “call me back” text messages for free with accompanying fees for increased use.

“Beeping,” while unanticipated by wireless operators, is a smart adaptation of technology to better suit user needs and is currently under study by Microsoft Research. Cash-strapped users can continue to use their phones to communicate with friends and family as long as someone else foots the bill. This practice comes with a host of etiquette rules like not beeping a romantic interest and the one with more wealth pays. While such rules help to make “beeping” more socially acceptable, it is still considered nominally intrusive by receivers and demonstrates the degree to which users are willing to inconvenience or be inconvenienced in order to communicate with one another via cell phone.

Wireless operators have the opportunity to benefit from users' willingness to suffer minor inconveniences in return for service. With emerging advertising models, operators allow users to make a phone call for free or at subsidized rates in return for viewing (or listening to) a short ad. Operators can sell ad space to corporations interested in reaching the emerging mass markets of developing countries. Skeptics may question whether cash-strapped cell phone users are an interesting target market for advertisers. Vital Wave Consulting research demonstrates that cell phone users, even those earning less than subsistence-level income ($2 per day), have funds available for the purchase of goods and services. For instance, in Nigeria alone, individuals earning less than $2 per day represented a $40 billion market last year. Add this to other large markets and the African continent begins to represent a significant growth opportunity for consumer companies that face saturated or low-growth markets in developed countries. With advertising in exchange for free or lower-cost phone calls, former “beepers” could be the next billion pairs of eyes and ears to corporations seeking such growth opportunities in emerging markets.

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Thursday, October 4, 2007

NComputing Gets a Leg Up in Low-cost PC Space

Recent articles praised NComputing, a company specializing in multi-user PC solutions, for its deal to provide every k-12 Macedonian student with one-to-one computer access. Prior to this, NComputing’'s customers were mostly suburban, developed-world school districts and government offices. The company has sold over 500,000 seats in less than two years. The Macedonia deal demonstrated that developing-country ministries of education may be a receptive market. This is the second foray into challenging the computer industry for NComputing’'s CEO, Stephen Dukker, who founded and led eMachines,– often credited with driving down the price of personal computers (PCs) worldwide.

NComputing’'s success shows that perhaps the needs of a suburban school in Dallas are not that different than those of a Macedonian school district. Both customers were looking for a solution that could stretch their existing technology budgets to accommodate more students. Capitalizing on existing PCs in under-equipped computer labs, NComputing’'s technology turns one CPU into individual computer access for up to seven students. NComputing built upon existing technology and previously-tested solutions to address a fundamental need to increase one-to-one computer access in emerging economies. Like many emerging-market solutions, the beauty is in the simplicity. The education market agrees. In a recent roundtable discussion with Vital Wave Consulting, Dukker explained that NComputing’'s biggest limiting factor is not demand but rather a robust enough channel to distribute the technology.

Research by Vital Wave Consulting suggests that NComputing'’s approach of adapting current technology for emerging-market needs has merit. (Indeed, the company has had more success to date than other high-profile, low-cost PC initiatives.) Vital Wave Consulting favors this approach as one of the key strategies for success in emerging markets. With straightforward technology adaptations like NComputing'’s multi-user solution, corporations could penetrate developing-country markets without undue disruption to current industry and technology processes.

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