Opportunities for Content and Digital Distribution Alliances

Pearson, the publishing company responsible for numerous textbooks, fiction and non-fiction books (including the popular Penguin brand), and publisher of the Financial Times, announced this week optimistic growth figures for their first quarter of 2009. The company had a neat $1 billion in revenues, representing 26% growth over last year, and strong continued demand for their products. Of interest to technology and telecoms companies focusing on emerging-market growth is Pearson’s plan to re-invest these profits in long-term growth opportunities in digital businesses and emerging markets.

Pearson is representative of a number of companies in the publishing, healthcare, tourism, education, entertainment, media, and financial industries that have seen their potential market expand broadly and rapidly due to the phenomenal growth of digital technology in the last decade. As computers, mobile phones and Internet connectivity become more and more accessible in developing countries, the challenge has shifted to delivering appropriate content at the right price and with the right business model. This results in a powerful and potentially lucrative alignment of interests for content owners and companies that manufacture devices or manage networks.

Mobile operators, software companies, and PC or handset makers looking to bundle content into segment-specific devices all have much to gain from companies that create and own content with a strong brand and proven market value. In addition, many of these companies possess critical market knowledge in several key verticals – health, education, publishing, finance, and the public sector to name a few. The potential benefits of such an alliance are also clear to the content owners. Hardware manufacturers, operators and software companies can speed market entry, assist with product development and help solve the riddle of distribution and monetization of content. Partnership also offers a distinct competitive advantage for multinational corporations in both the technology and “content” industries. Local competition in most countries is small and fragmented, and effective technologies and business models that multi-national firms create in one country or region may transfer well to other emerging markets, further accelerating growth for both parties.

Who Wants the African PC Market?

Computer Aid International (a non-profit supplier of computers to developing countries), ZDnet UK, and a trio of African universities just released the results of a comparative study of low-cost, low-power computers for the African market. Few media outlets reported on the study, and those that did provided a somewhat inaccurate conclusion: Asus Eee is more suitable than OLPC’s XO machine for Africa. Other devices reviewed included Inveneo Computing Station, Intel’s Classmate PC and NComputing’s X300.

In fact, the full report is more nuanced in specifying which solutions are more suitable for individual users (Asus Eee) and which are better for school computer labs (NComputing X300). Computer Aid International (CAI) and its partners deserve credit for raising some important issues about the African PC market, including infrastructure challenges that can impact the suitability of computing solutions, particularly for rural areas. The report’s emphasis on power consumption and the changes they made to methodology (e.g., playback of downloaded rather than streaming video) is necessary for an honest evaluation of computing solutions for many developing countries. However, some critical issues were buried or not addressed in the study. For example, the Asus Eee tested by three of the four evaluation teams was the 701 model running a Linux operating system, a product that has been essentially abandoned by Asus in favor of models with Windows XP and a larger keyboard and screen. Similarly, the report promises to shed light on the total cost of ownership (TCO) for each of the evaluated devices, but estimates of critical cost factors such as maintenance, training, and replacement from theft or damage are not included in the analysis (see Vital Wave Consulting’s report, Affordable Computing for Developing-country Schools, for a thorough consideration of TCO for school computing solutions).

Though the CAI study is certainly welcome, it is perhaps most remarkable for what is not said – the competitive field vying for the African market is pretty thin. Their champion, Asus, has turned its attention to mature-market consumers, and neither OLPC nor Inveneo have the needed financial backing to rapidly scale in a market as diffuse and challenging as Africa. Intel’s Classmate PC (and other machines based on its reference design) is still around, but Intel’s focus on the low-end processor market may be waning. Of the 5 companies represented in the CAI testing, only NComputing (not yet one of the giants) seems committed to aggressively pursuing the education segment in emerging markets. These efforts may not be able to meet the steady growth in PC usage and private ownership in Africa. The completion of several large undersea cable projects could cause a spike in demand for all kinds of computing devices from Cape Town to Cairo over the next few years as a result of the imminent increase in low-cost bandwidth coming to the continent this year. CAI’s study suggests there’s ample opportunity for companies to step up and meet that demand.

US Mobile TV Initiative May Point to Opportunity in Emerging Markets

A consortium of television networks announced recently the launch of a free mobile television service in Washington, DC. The “mobile DTV” service, supported by the local CBS, NBC, PBS, Fox and Ion affiliates, will provide free access to local television broadcasts for anyone with a device equipped with a special receiver. Receivers can be built into cell phones, laptops, GPS or other mobile devices, and viewers will not need a data plan or Internet connectivity. Not surprisingly, mobile carriers are unenthusiastic about the new service, preferring to capture revenues from subscription-based, on-demand mobile content through their own networks. Nevertheless, equipment makers like Dell, LG and Samsung are building the DTV receivers into netbooks and handsets in anticipation of wider availability this fall. By year end, broadcasters will expand the service to two dozen other US cities – home to almost 40% of the US population.

Mobile TV could be considered the killer app that hasn’t killed anyone (yet), Early attempts to deliver TV content sputtered due to a poor viewing experience or resistance to high subscription fees, but new technologies and alternative service models such as DTV are gaining momentum thanks to the transition to digital transmissions in both mature and emerging markets. Indeed, Cisco and research firm ABI predict robust growth in mobile data traffic globally, with anticipated viewership jumping to 500 million by 2013.

Dell, LG and Samsung are smart to stay ahead of their rivals on this technology. They can maximize the opportunity by working with market-leading broadcasters in select emerging markets to extend the service to these countries. There is ample evidence that demand for all kinds of mobile content is growing rapidly in key developing countries like India and China, and a free service will have great appeal to cost-conscious consumers. Cisco estimates mobile TV viewers in the Asia-Pacific region (excluding Japan) will exceed viewers in Western Europe or North America within four years. Frequent power outages may also cause developing-country consumers to see a higher perceived value in such a service. Imagine the crowd around the netbook when a blackout interrupts the big cricket match.

Technology Giants Ramp up Wireless Health Investments

Several of the largest technology companies in the world announced last week that they are planning to increase their research efforts and investment in wireless healthcare solutions. GE and Intel announced they will co-invest $250 million over the next 5 years to develop remote patient-monitoring devices, a market they think will grow to $7.7 billion in three years. Similarly, Qualcomm will sponsor a healthcare institute in San Diego to support the development of wireless sensing applications. The announcements were likely timed to coincide with the government’s plan to invest $20 billion in healthcare modernization, and to reassure investors that the companies are keeping an eye on long-term growth opportunities despite the chorus of bad economic news.

Vital Wave Consulting notes that the announcements by Qualcomm, GE and Intel (as well as earlier initiatives by Microsoft and Google) are curiously confined to mature markets. Government investment in these markets is designed to address skyrocketing healthcare costs, an aging population and care for chronic conditions. In emerging markets, the drivers of remote healthcare are also significant, but not necessarily the same as those in mature markets. Emerging-market governments hope to provide better healthcare to remote areas, and initiate (rather than fix) comprehensive and efficient health records systems.

There are near-term and long-term revenue opportunities for a variety of health technology companies in both mature and emerging markets. In China, for example, the government recently detailed a massive $120 billion injection to their healthcare infrastructure, and the Indian healthcare industry is expected to grow from $17 to $40 billion by 2012. This increase roughly equals the US government’s planned investment in healthcare systems over the same period, but represents a 17% CAGR, or double the anticipated rate of economic growth in India. The paths to realizing opportunities in the US and India (or any other combination of mature and emerging markets) will be different, and require distinct rhetoric, strategies, and product development efforts. The companies that achieve the most mileage out of their healthcare investments will be those that consider mature and emerging markets in tandem, and if necessary develop specific solutions for each market.

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).