Netbook Evolution May Alter Technology Industries

Leading netbook manufacturers Asus and MSI confirmed recently that they are developing netbooks powered by ARM processors. The machines will likely be unveiled this June at Computex 2009 in Taipei. Earlier, Asus announced its intention to develop an Android-based netbook (optimized for ARM processors and touch screens). If they find broad consumer acceptance, these innovations could impact the traditional market leadership of Intel and Microsoft in the PC industry’s strongest growth category.

The introduction of ARM processors and an operating system created for smartphones pushes the debate over whether netbooks are indeed a unique product category, or just a lower-cost, lower-function notebook. Currently, most low-cost notebooks are powered by x86 chips and run a Microsoft or Linux operating system. But ARM processors dominate all other mobile electronics product categories, including nearly all smart phones. And ARM processors are produced by a collection of companies (e.g., Texas Instruments, Qualcomm, Freescale and others ) eager to bite into Intel’s 90 percent market share in PCs. Indeed, one analyst predicts that 55 percent of netbooks will be running ARM processors by 2012. In anticipation of changes to come, Intel is working to make Android function well on x86 processors, and Microsoft may have little choice but to port Windows 7 to ARM processors.

A shift to ARM processors or alternative software platforms could present an opportunity to companies willing to challenge industry giants. Technology companies that have had to play by established hardware and software rules could take advantage of netbook manufacturers’ new openness and see real traction in certain product categories and market segments. If netbooks begin to resemble oversized smartphones rather than small notebooks, there may also be an opportunity for “netbook apps stores” – the netbook equivalent of Apple’s hugely successful app store for the iPhone. A wide variety of industry players could claim this prize, including Apple, Google, Microsoft, PC companies, or even telecoms operators offering subsidies for netbooks purchased with a data plan.

Mobile Services May Act as “Customer Glue”

In the two weeks since the Mobile World Congress, there has been surprisingly little coverage of an important research initiative by GSMA and CGAP (the World Bank’s independent policy and research center) on “Mobile Money for the Unbanked.” Some accounts focused on the Gates Foundation’s promise of $12.5 million to promote mobile banking among the world’s poor. But Vital Wave Consulting attendees wonder whether the writers of these accounts missed the Mobile World session in which GSMA, McKinsey and CGAP representatives discussed the preliminary results of their research on the nascent mMoney industry. According to their study, mBanking will grow to a $5 billion industry within 3 years – a noteworthy figure that got some attention. But one of the most intriguing findings was that mMoney services may increase “stickiness” among mobile customers.

Mobile carriers in all markets are concerned with churn (i.e., customers who leave their service for another). “Stickiness” is that elusive quality – part pricing, part quality of service, and part brand loyalty – that all carriers desire. The idea that a particular service may convince consumers to stick with a particular operator is not new, but evidence that this is true for mBanking customers in emerging markets is particularly important. After all, there are around 1 billion people in the world (nearly all in developing countries) who own a mobile phone but do not have a bank account. Among these consumers, churn is a major problem, exacerbated by a liberalizing mobile industry with new carriers and lower prices, as well as the introduction of new, multi-functional handsets and stronger networks. According to CGAP, when a subscriber is also a user of mMoney services provided by the operator, client stickiness goes up considerably and churn goes down.

Though the GSMA research focused on mobile financial services, it may be safe to assume that stickiness will result from other mobile services as well. This presents a critical opportunity (or perhaps an imperative) for carriers, service providers and application developers. As new subscribers become harder to find and emerging markets reach saturation points on par with mature-market countries, client retention will be the name of the game. Distinct mobile services and unique functionality will be the glue that binds customers with a particular operator (and/or handset). Telecommunications companies that invest now in the relationships and technology required to expand the utility of the common handset will attract and retain more customers as the market around them grows to maturity.

Can MacGyver Finagle Emerging Markets?

TV.com, an Internet media streaming company backed by CBS (and Viacom), announced last week that they were beginning to serve overseas customers, beating rival service Hulu (backed by NBC and Fox) to the international table. TV.com will not offer its entire menu, however. For the time being, only short clips of current shows and full episodes of older series like Beverly Hills 90210 and MacGyver will be available..

Put aside for the moment any discomfort you may feel about exporting these particular shows to the rest of the world, and consider the market entry strategy from a more clinical business perspective. Is this a case of simply designing a service for mature-market consumers and offering it to emerging-market consumers, or is it a clever and inexpensive way to test the waters? If media companies are testing the water, are they being too tentative? According to the Netsize Guide, mobile TV and video revenues have increased steadily each year in all of the emerging-market countries surveyed, and China was ranked 4^th in the world with a mobile video market value of $117 million in 2008 (before the broad rollout of 3G). Further, media and broadcasting companies are safe to assume that entry barriers such as limited bandwidth and reliable broadband will decrease as PC and smart-phone ownership spreads and network infrastructure improves, particularly in emerging-market cities. Other barriers, such as international licensing rights and local regulatory environments, can be overcome through partnerships and revenue-sharing agreements.

Media companies and their networking and device-manufacturer partners have an excellent opportunity to deliver compelling, high-demand content to growing sub-segments of emerging-market consumers – PC owners with broadband, and smart-phone owners with 3G connectivity. Localizing services for certain regions is not a particularly difficult technical challenge, nor would it require major product or business-model innovations. And there are plenty of advertisers (e.g., Coke, Western Union, Johnson and Johnson, large local hero brands) with an interest in selling to comparatively wealthy emerging-market consumers. Near-term incremental revenues are attainable for media companies, ISPs, computer and smartphone manufacturers and mobile carriers, as long as they treat these new markets thoughtfully and with business rigor (rather than finesse them MacGyver-style with pen cap and a hairpin).