The rapidly changing mobile content landscape

Of all the developments in the wireless industry in this very eventful 2008, none is greater than the way mobile content is being developed, priced, sold and consumed. This is a net positive for subscribers, operators and many players in the value chain, but it is also causing a shake-up in the traditional mobile content "world order."

The major changes fall into three categories. First, is evolution of the app store concept, led by Apple, where we have seen, in four months, more than 200 million mobile content downloads. The combination of superior user experience, elegant integration with the PC (and overall Apple ecosystem), and compelling content--from a trusted resource--has changed the mobile content world overnight. Google has introduced a similar concept, the Android Market, as part of its introduction of the G1 phone; and storefronts are on the way from RIM and Microsoft. At the same time, every major operator is refreshing their own content storefronts for traditional (non-OS) phones, either replicating the "app store" concept (T-Mobile) or introducing significant improvements to the user experience (such as Sprint's One-Click).

The second major change is the improvement of mobile browsers and the introduction of affordable, all-you-can eat data plans by the operators. The great browsers on the iPhone, the G1, and other high-end devices are eroding the distinction between mobile and the Internet. This is leading users to extend what they do on their PCs to their mobile devices: Google Maps, YouTube, MySpace, The New York Times, etc. all look pretty good on a mobile phone. The improvements are filtering down to feature phones too, where nearly half now have a very capable open browser. Third, "widgets" for mobile devices also are becoming an important companion to the mobile web, leading to a quicker, easier way to get to relevant content and a zippier overall device experience. Promising companies here include uLocate (widgets for location-based apps), Zumobi and Hiplogic (which just announced its SDK this month). The needle on the mobile web experience has rather quickly moved from "pretty lousy" to "pretty good."

Not everyone in the mobile data value chain is prospering, however. Despite the overall velocity of mobile data growth, the off-deck content market is stagnating--with some components even shrinking. Some of this pain is self-inflicted, as the actions of a few bad actors (slamming customers into ringtone "subscriptions," for example) have led to a series of high profile and expensive litigations. In another unseemly practice, affiliate marketers buy up key words in volume, skewing content searches toward what are often less trustworthy sites. Wireless operators are very frustrated. Verizon Wireless' threatened imposition of a 3 cent mobile terminate fee, under the auspices of needing to recoup its "costs" (read, customer support), was a shot heard 'round the mobile content world.

We are also seeing a shift in the balance of power in mobile data. The "walled garden," often associated with the operators, applies to devices and operating systems, as well. You need an iPhone, an Android phone, or a Blackberry to get content from their respective "app stores." Customers who might have been frustrated that they had to choose operator X or Y to get certain devices, features, or content in the old mobile data world might now be frustrated that they have to choose device X or Y. What we're seeing in parallel is a bifurcation of the operator business model: on OS-based devices, it's more of a PC/Internet model. Not necessarily a bad thing, but different. For the other 80 percent or so of devices, operators are strengthening their on-deck offerings, negotiating more in the way of exclusive content deals, and working to improve the user experience.

An ongoing concern of mine on the value chain evolution is fragmentation. While all the talk about "open"--OSs, APIs, downloadable stacks--is a positive development, there are some ten different platforms, or versions of platforms, that developers could potentially "develop" to. This is forcing them into some difficult, expensive, and by no means sure-bet choices. On the consumer side, wireless might start to look more like console gaming--i.e., this title is available for the Nintendo DS but not the Xbox--than the Internet.

We are also entering a new "experimentation" stage with mobile content business models, and there are some dangers here. First, there's a lot of free stuff out there--great if you're a consumer--but I'm not sure how a lot of these content publishers are going to make money. Many talk about an ad-supported model as a form of value exchange, but I can't see this becoming the primary means of monetization over mobile in the near future. For paid content, the revenue splits are all over the map. AT&T receives no incremental revenue from App Store content sales and can't sell its own MediaNet content. Perhaps the share gain and ARPU lift from iPhone customers is sufficient? With Android, the split is 80 percent developer and 20 percent operator. In this case it is less clear to me here how Google is making money.

With regard to browsing, some of the all-inclusive data plans are awfully inexpensive. Given the numbers I have seen on overall per month MB consumption, I don't see a lot of room for downward movement on price. Finally, as a broader issue, mobile web and mobile content are still in the "nice to have" category, competing with the individual or household's overall budget for consumer electronics and digital entertainment. This discretionary spend is vulnerable if the economy continues to be challenging.

So, here we are, nearing the end of 2008 with this triumvirate of developments in the wireless industry: more exciting content and a better user experience than ever before, a business structure and ecosystem undergoing significant change, all juxtaposed against an uncertain economy. The plot thickens.

Mark Lowenstein is Managing Director of Mobile Ecosystem. Click here to subscribe to his Lens on Wireless newsletter.