Monday, March 30, 2009

Mobile Beyond Carriers: VoIP and the Web are Here, But Are Content Companies Ready?

Skype Limited

As CNET reports along with others the launch of voice over Internet Protocol (VoIP) phone services via an iPhone application from Skype the world does not seem to be shifting on its axis, yet it's a significant step towards a new era in mobile communications. Already the introduction of Web capabilities on Apple's iPhone became the cornerstone of the appliance's widespread appeal among mobile content enthusiasts, fueled by the iPhone's Web browser that works pretty much as any Web browser should and by the iPhone AppStore's content applications that make use of Web communications. Now that VoIP is available on the iPhone - presumably with Apple's tacit blessing - one wonders who is eating whose lunch in the battle for the future of mobile services.

Image representing AT&T as depicted in CrunchBase

Certainly in the U.S. you can give the opening round of mobile battles to AT&T, which inked an exclusive deal with Apple for the iPhone's launch similar to exclusives that Apple negotiated elsewhere in the world. But as part of that deal Apple got AT&T and other global carriers to subsidize a huge chunk of the iPhone's retail price, enabling it to spread like wildfire amongst the "gotta have" gadget crowd. Now that VoIP services are beginning to make their debut on the iPhone - followed soon by emerging voice services by Google via their Web sites and, quite soon, via their Android mobile platform - the question becomes, have the mobile phone carriers been subsidizing the emergence of cross-network voice communications that will break their voice and content pricing strategies?

If this is the case, then I can't say that I can offer them much sympathy. AT&T happens to be the carrier for my local telephone service, which still has me guessing virtually every time whether a call to the towns next to us will be a local or "long distance" call. If I didn't need a copper-wire circuit for my home's burglar alarm I'd be done with them altogether. While VoIP is hardly a perfect voice medium, for eighty percent of our communications is just fine. Moreover, for many younger people spending more time texting than speaking on their phones it may be more than enough most of the time. In the meantime we're stuck with voice and data plans on most mobile carriers based on the premise that voice is a doggone hard service to provide. Well, that's good for the tech players such as Apple who want someone to subsidize their push into mobile services, but it is at the expense of a broader iPhone-less marketplace that is in effect subsidizing the upper end of mobile content comsumption.

This is not a scenario that is likely to change gracefully for the communications carriers. Web and VoIP-based services are going to start dominating mobile communications far more quickly than many imagine, especially as Google Android's cross-platform mobile operating system offers struggling communications companies some alternative pricing and marketing strategies. In the U.S., for example, Sprint is moving to lease out some of its underutilized mobile bandwidth to device and services vendors other than smart phones. How long is it before a number three or number four mobile carrier begins to smell the coffee and begin to offer pricing that reserves traditional mobile voice communications as a "just in case" or high-quality backup to a predominantly Web-based communications plan? Not long, by my estimate.

Content companies should bear in mind this more-rapid-than-expected shift towards Web-biased mobile carrier pricing when contemplating their own mobile pricing and marketing strategies. Already with the iPhone AppStore publishers and other content suppliers see the outlines of a premium content strategy that emphasizes functionality as a key part of their services as much as information. But as the Web and VoIP push in at an accelerated rate to drive more competitive carrier pricing, it's likely that revenues from these applications are going to be the icing on a much bigger cake of content services for the greater marketplace that will resembe more the Web as it is today than any return to a Compuserve-like "walled garden" era of application-enabled services.

The iPhone AppStore is a model for the emerging electronic newsstand era, but the content that will power the most successful of those applications will not come from a particular branded content producer oftentimes. The subsidization of iPhones by the carriers makes the prospect of endless premium content revenues enticing, yet as those subsidies fall by the wayside and the broader marketplace turns to mobile Web content it's doubtful that the novelty of mobile content applications alone will be enough to power publishers' mobile revenues. In short, the mobile Web has arrived and is going to drive publishers to have to confront the same issues of commoditization and increased competition that it faces today via desktop and laptop content consumption. Most publishers may look at Skype's move as little more than a bird flying by, but for those that know it's the canary in the coal mine of old-era mobile communications content pricing.
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