The "magic blue circle"

[Posted by Thomas Husson]

I recently came accross this quote in the Financial Times from the former Vodafone CEO on November 19, 2007: "The simple fact that we have the customer and billing relationship is a hugely powerful thing that nobody can take away from us". Would you still agree with this operator statement written in golden letters at the forefront of any "smart pipe" operator strategy? 

Since then, new entrants such as Google and Apple have shaken up the value chain. I have two examples in mind showcasing the tectonic shifts happening: 1) Apple imposing a direct billing relationship via iTunes/App store and 2) Google managing to create its own location data base (via cell ID or Skyhook's wireless technology) without relying on operators' network.

As early as in July 2007 (before the 3G iPhone version embedding a GPS chip), Google Maps on iPhone (the combo of Google's and Apple's strengths) started offering the "magic blue circle" experience. You could benefit from a compelling user experience like never before, with instant localization without any GPS chipset. Of course, the accuracy may not be good enough if you are looking for a pure turn-by-turn navigation, but honestly this is so simple and useful if as a pedestrian you're looking at the streets nearby.  

 

Location is at the very heart of the mobile value proposition.

This seems quite obvious but despite having being launched by operators for more than a decade, location-based services never really managed to gain huge traction. In the last two years, a lot has happened as highlighted above because of significant changes in the mobile ecosystem.

Location-based services are finally emerging as one of the most promising new mobile services categories in the mobile industry.  

Thirty percent of European online consumers with mobile phones are interested in using mobile GPS/navigation services, while 52% of smartphone owners with unlimited mobile Internet packages already do so!

 

Beyond navigation services and mapping, a range of innovative location-based services (LBS) for mobile phones is emerging. Coupled with consumer interest are significant changes in the value chain, with Nokia’s acquisition of NAVTEQ and Web developers’ interest in the mobile platform being key drivers for LBS.

 

Location identifiers help filter and search for information, facilitating interactions between people. If consumer product strategists manage to build a compelling user experience and reassure consumers about privacy and pricing issues, location as a service will become obsolete — and will instead become a core enabler of mobile activities.

 

 

If you want a synthetic view of this topic, check out our latest European research on this theme: the future of location-based services.

$299 Kindle 2: Amazon Hears Footsteps, Drops Price

[Posted by Sarah Rotman Epps]

Amazon dropped the price of the Kindle 2 today from $359 to $299. Are we surprised? No. It's predictable that prices decrease for consumer electronics as manufacturing volume scales up (just ask those poor saps who paid $499 for a 4GB iPhone in 2007). But there's also some pricing pressure specific to the eReader category that Amazon is responding to. In particular:

• The barrier for entering the market is dropping. Taiwanese manufacturer Netronix is cranking out stripped-down, less expensive eReaders for companies like Interead and Borders UK. Interead's Cool-er Reader retails for US$249; Border's Elonex retails for £189. Neither has wireless connectivity, but they each expand consumer choice for a lower price. What's more, they were developed and brought to market rapidly--the Cool-er Reader took only 6 months from concept to retail.
• Smartphones and netbooks put a ceiling on how much eReaders are worth. If you can buy a fully-functioning netbook for $300, it makes consumers think twice about shelling out even close to that much for a single-function device like an eReader. In addition, Forrester data shows that in 2009, 83% of US adults own a mobile phone, and they're using these multifunctional devices for reading, too. There have been more downloads of iPhone eBook apps than there are Kindles and Sony Readers combined. Undoubtedly that's why Amazon bought Lexcycle, whose Stanza iPhone app was downloaded 1 million times in 2008, and leading Canadian bookseller Indigo has launched Shortcovers, whose apps for the iPhone, BlackBerry, and Android had more than 300,000 downloads in the first 120 days.

We have some really cool new survey data on what consumers are willing to pay for eReaders (we used a Van Westendorp Price Sensitivity Meter, for all you data nerds out there, to gauge optimal pricing for different customer segments) that we'll be publishing soon. Here's what you can expect to see on the eReader space from Forrester in the coming months:

Forrester Teleconference, "How Big Is The eReader Opportunity," July 15, 11am
Forrester report, "Who Will Buy An eReader?" (July)
Forrester report, "The eReader Price Crunch: How Much Are Consumers Really Willing To Pay?" (August)
Forrester report, "The Content And Features Consumers Want From eReaders" (August)
Forrester report, "Convenience Quotient: Reading On eReaders, Smartphones, Netbooks, and Print Books" (September)

Good stuff--stay tuned!

The media meltdown - why we are all media companies now

 

[Posted by Nick Thomas]

Analysts as a breed have a tendency to create new buzz words and phrases, neologisms that capture emerging trends and themes. But what we are now calling the media meltdown — where traditional media business models based on scarcity and control are fundamentally challenged by the new realities of digital media consumption — is not some abstract economist notion.

For many of our clients, including media companies that create and distribute content to users, the media meltdown is already a painful reality. Users want more and more content for free, while advertisers are struggling to engage fragmented audiences.  The old business models aren’t working, and the new ones aren’t yet in place.

 But while the media meltdown equates to pain for many companies, it is also creating opportunities for non-media companies — including telcos, hardware manufacturers, and FMCG brands — to increasingly use content directly to engage users. In other words, we are all media companies now — and, as such, have to embrace new ways of thinking.

 You can expect to hear more about the media meltdown from me and my fellow Forrester analysts in the next couple of months. We believe this is a seismic shift that has huge implications for marketers, advertisers, content managers and product strategists across a whole range of companies. We also believe we can help our clients negotiate this challenging period.

Clients can read more about the media meltdown and the opportunities it presents for brands in particular in my latest report here. I look forward to your feedback.

 

Portable Audio 30 Years After the Walkman

[Posted by Mark Mulligan]

follow me at Mark_Mulligan

This summer saw decade anniversaries of two of the most important events in the modern music business: June was the 10 year anniversary of Napster and yesterday (July 1^st) was the 30 year anniversary of Sony’s Walkman (though for the pedants out there this is the anniversary of it coming to market, the product was actually first built in 1978).

Both, in their respective ways, fundamentally changed the shape and direction of the recorded music business but both are also transitory technologies.  My colleague Moira Dorsey recently presented a concept at the Forrester Consumer Experience Forum on how new technology imitates old technology when it first arrives on the scene.  She used the example of the history of the car to illustrate the point: emerging first as a steam powered horseless carriage in the late 18^th century, taking its first major step forward with the Benz 4 stroke engine car in the late 19^th century, finding something close to its true form in the 1920’s and eventually ending up with the likes of the S Class Mercedes Benz now.

The Walkman fits neatly into this evolution.  It was at inception, though groundbreaking, essentially no more than scaled down version of the cassette tape player, just as the CD Walkman was a scaled down version of the home CD player years later.  These were the steam carriages of portable audio.  It wasn’t until Sony launched the MiniDisk that we started to see a step change, though this was still physical media, it was high-capacity, small-form factor, user recordable digital media.  This was the Benz 4 stroke of portable audio.  Then, 11 years ago came the first ever MP3 player, and though Rio’s PMP3000 (launched in October 1998) often claims this mantle it was in fact the MPMan, which was launched a few months earlier.  The reason Rio’s player has the higher profile is because of a law suit brought by the RIAA that argued the device encouraged illegal copying of music.  Rio eventually won, using the Betamax case as precedent, but the technology that now lies at the heart of the digital music revolution was nearly killed off at birth.   It survived and the Rio goes down as the equivalent of 1920’s cars: it presented a mass market, reasonably affordable device to consumers that let them take more music with them than ever before and consume it in ways that tape and CD were not capable of.

Of course it was the iPod which really changed the game, coming to market in October 2001 and followed by the iTunes Music Store in April 2003.  Apple's new product was a masterclass of early follower benefiting from the mistakes of first-to-market innovator.  The iPod perfected the genre, gelling great form factor with an equally compelling user experience.  The iPod is in so many ways the  Mercedes Benz S Class of portable audio.  But just as the S Class is a moment in time, so is the iPod.  Though Apple have pushed innovation to the limit, continually raising the standards to which the competitive marketplace aspires, we are only 30 years after the launch of the Walkman.  It would be foolhardy to suggest that it took 30 years for portable audio to find its optimal development.  Another 30 years from now the iPod Touch will look just as cumbersome to a teenager as the Walkman does now to the iPod generation. 

What is inescapable now though, is that the Walkman started the revolution that has in the last decade fundamentally transformed how we consume music and our expectations of what we can do with it, where and when.  Without the clunky Walkman of the late 70’s we wouldn’t have the iPod of the late 2000’s.

The Importance Of Having Content

  [Posted by Nick Thomas]

The news that Joost is scaling back its plans for world domination to focus on developing white label services is not a surprise. But it is a marker of sorts, given that back in the day Joost was a poster boy for a new kind of mid-form online video destination that would flourish in the perceived gap between YouTube, with its skateboarding cats and ad-unfriendly farting fratboys, and the old media dinosaurs wedded to distributing their prized content on TV.  Sadly, the game moved on.

So what lessons can be learnt from Joost’s experience? First of all, it took the wrong decision by asking users to download client software. As iPlayer discovered in 2008, users want streaming: it turned out the appeal of YouTube wasn’t just the content, it was the instant click and play experience. Joost changed to a streaming model – eventually -  but too late to engage the audiences who had already discovered iPlayer and Hulu.

The media business is still about content, and those who have spent millions of dollars creating and acquiring it are not inclined to let someone else distribute it online. The likes of ABC, NBC/Fox and the BBC (as well as smaller brands) built their own online video platforms to deliver content direct to consumers. At the other end of the spectrum, YouTube started to clean up its act while experimenting with longer-form content. Joost got squeezed out.

But it was mainly about the C word – Content. Joost just couldn’t get the content users wanted, so they couldn’t get a scaleable audience, which mean they couldn’t afford the content, and so on. They struggled to persuade rights holders to give them the killer content brands users wanted, and clearly found the world of international rights to be a circle of hell.  To which older heads in the media business might have said, welcome to our world.

 

Convenience Quotient As Applied To Customer Service

[Posted by Doug Williams]

In my last post, I mentioned that I would soon be publishing a CQ document of my own about convenient customer service. That day has come!  Here is the executive summary from "Enhance Your Product Strategy With Convenient Customer Service":

Customer service has become an integral part of product strategy, and, as such, it should now be a primary concern of consumer product strategy professionals. Customer service has also grown more complex: Consumers used to simply bring the product back to the store from which they purchased it or call a toll-free number to obtain service. More customer service options now exist, including email, IVR, and online chat. Moving customer service online is a double-edged sword — it's expensive to provide effective online solutions, yet the more customers move to them, the lower the costs. We apply our Convenience Quotient methodology to various forms of customer service and find that nothing beats having a live person on a phone line available for troubleshooting. Other methods offer their own mixes of benefits and barriers to consumers. Consumer product strategists should think of customer service, in whatever guise, as a critical product attribute and weave their choice of interaction directly into their overall product strategies. I evaluated a variety of channels by which customer service issues can be resolved, as well as some indirect alternatives such as leaving the issue unresolved ("do nothing") or buying a new product or churning to a different service rather than working with the company toward resolution.  Here's a "sneak peek" at how the results came out:

There are a few key points I'd like to raise with regard to this report:

• The report crosses all B2C industries. Unlike other CQ analyses we have conducted, this one addresses a horizontal business issue that affects all businesses with a consumer-facing product or service. CQ is not just for tech products or industries!
• The scorecard and the results are relevant but also generic. We did not assume any particular industry, company, or customer service issue when applying the CQ methodology in the report. We expect the barriers and benefits for the various customer service resolution modes to vary by company and by industry.
• This is a JupiterView report. Our JupiterView clients now have access to a CQ document, with plenty of background discussion to bring them up to speed on this new research series.

Take a look at the report, think it over, then set up an Inquiry so we can figure out how it applies to your business and what actions you can take to assess or improve customer service from the perspective of consumer convenience.

Scribd: The Future Tunecore of Publishing?

[Posted by Sarah Rotman Epps]

I spoke with Scribd.com yesterday about their partnership with Simon & Schuster to sell 5,000 eBooks in the recently launched Scribd Store, as well as their future plans for where they're taking the business. There are great articles in BusinessWeek and the WSJ on the Scribd/Simon & Schuster deal, so I won't repeat what they cover, but I'll add a few of my own thoughts.

Scribd is tapping into unaddressed needs in the eBook/eContent market by:

• Expanding content beyond books. Scribd content runs the gamut of reading material, including things like sheet music, resumes, and recipes in addition to more conventional long-form books, both professional and user-generated. There isn't anything else quite like it on the Web, and nothing like it in an eReader device environment. (Currently, you can download Scribd content into PDF format and sideload them into your Sony Reader, but they don't yet have more streamlined device integration.)
• Enabling social interaction around reading. One of the major shortfalls of Amazon's Kindle and Sony's Reader is that they don't support the social behavior that accompanies reading books, like recommending books to others and buying books for a friend. Scribd doesn't take sharing this far, and it isn't yet integrated into any eBook/eReader devices, but at least on the Web it has introduced a social norm around sharing content that eReading has lacked so far.
  

As Scribd pursues future opportunities to make its content easily accessible on more devices (an iPhone app is in the works, as are conversations with device manufacturers), it faces some significant challenges:

• Channel conflict. Notably, Scribd lets publishers set their own pricing, so there could be some potential conflicts with partnerships with companies like Amazon--if Scribd content were available on your Kindle, there could potentially be two different price points for the same content.
• Scalability. Scribd was started by a Harvard student who graduated in 2006; the company launched in March 2007and now has 28 employees. It's venture-funded and profitable. Scaling a startup is always a challenge, but don't underestimate Harvard students! Where would the world be without Mark Zuckerberg...still blinging out their pages on MySpace, no doubt.

But there's also tremendous opportunity for Scribd.We think Scribd could make a play as the Tunecore of publishing. Tunecore is a service consumers can use to distribute their user-generated music and videos to channels where others can purchase them, like iTunes, Amazon, and Walmart.com. It's easy for authors to self-publish works on the Web, but they don't have any easy way of getting those works into all the stores and devices where others would want to read and/or buy them, and Scribd could fulfill this need in the market.

By the way, we just got some great new consumer survey data back on eReaders and eContent, so look for more reports in the coming weeks...

Digital Britain and Music Piracy: First Take

[Posted by Mark Mulligan]

follow me at Mark_Mulligan

Tuesday’s Digital Britain report covers a lot of ground and I’ll leave it to my colleagues to cover much of it, but I’ll focus here on the parts which refer most directly to the music industry.

The interim draft was a master class in nuanced, caveat-drenched civil servant speak that carefully avoided making a definitive call in any one direction.  The final report thankfully takes a more direct approach but many music industry executives will feel that the tone is struck firmly in the favour of the ISPs.

The report starts off with reaffirmation of the interim report’s assertions that the current digital market place is struggling and needs a framework of support to protect and uphold Intellectual Property (IP) in the digital domain, stating:

“The content industry faces a significant challenge. At its heart the current model is not working.”

And goes onto recognize the difficulty of monetizing consumption and the need:

“to turn a strong user base into hard currency.”

It even takes a very strong line on IP violation:

“The Government believes piracy of intellectual property for profit is theft and will be pursued as such through the criminal law.”

Though this statement will find support in areas of the content industries I think it is problematic.  The rights owners own the right to monetize the content, and when they sell that content to consumers they are actually selling them a license to use a copy of that content within predefined terms.  So the product is technically the license and any physical packaging.  When people download tracks illegally they are infringing copyright and terms of original license, and they are impeding the copyright owner’s legal right to exploit those works.  But they’re not stealing. But that is a technical aside. 

Then the report restates a previously bold commitment:

“…addressing this problem [digital piracy]….needs to result in a reduction of the order of 70-80% in the incidence of unlawful file sharing.”

That’s an ambitious target and one that requires equally ambitious measures.  Indeed the report even goes on to talk about a ‘Graduated Response’.  But just as music industry readers started to get their hopes up the ground beneath their feet is progressively chipped away.

The term ‘Graduated Response’ has become the industry language for the ‘Three Strikes and You’re Out’ pioneered in the troubled French ‘Hadopi’ bill, that provides for termination of Internet accounts of repeat file sharers.  As the then Culture Secretary Andy Burnham made clear at a music conference a couple of weeks ago, ‘Graduated Responses’ were off the agenda, because broadband access was considered to be a basic consumer right.  What the Digital Britain report has somewhat disingenuously done is appropriate the term for their own solutions that explicitly do not include terminations.  So the music industry is shorn of its more media-friendly term and left with the much more emotive ‘Three Strikes’ label.  An accident of language in the report?  Not in the slightest.

Andy Burnham also stated his preference for ‘technical solutions’ over the ‘unworkable’ ‘Graduated Response’ approach (that’s the old Graduated Response, not the new one by the way.  Confused? Mission accomplished by Digital Britain me thinks).  What we have in the Digital Britain is the provision of a series of ‘Technical Measures’ as indicated by Mr. Burnham. He even suggested Ofcom – the regulator – would be empowered to compel ISPs to use such measures and that is exactly what is suggested here, with a vast array of specific measures including:

“Blocking (Site, IP,URL), Protocol blocking, Port blocking, Bandwidth capping (capping the speed of a subscriber’s Internet connection and/or capping the volume of data traffic Bandwidth shaping (limiting the speed of a subscriber’s access to selected protocols/services and/or capping the volume of data to selected protocols/services); Content identification and filtering– or a combination of these measures.”

This is stern and comprehensive stuff that should result in a significantly poorer end user file sharing experience and will make downloading larger files such as movies a painful process.  So why, you may ask, would the music companies be so discontent, given that they have at least got these firm measures?  The answer lies in the work flow of the report’s own ‘Graduated Response’.  All of these measures are “backstop powers” that Ofcom, can use only as a last resort:

“Initially for Ofcom to have a duty to secure a significant reduction in unlawful file sharing by imposing two specific obligations: notification of unlawful activity and, for repeat-infringers, a court-based process of identity release and civil action. “

So labels will still have to resort to court action to get details of infringers from ISPs (an affirmation of the status quo which the ISPs had lobbied for) and no proactive responsibility on behalf of the ISPs to assist in the policing.    And even then, when they have been to the courts to get the details they simply get the right to send a letter to the infringers to request them to desist.  Stern stuff eh?

The ‘backstop powers’ only come into effect if

“…[these] main obligations have been reasonably tried but, against expectations, shown not to have worked within a reasonable but also reasonably brisk period.”

Throughout the government-brokered Memorandum of Understanding (MOU) discussions leading up to this report, the ISPs have consistently argued their inability to tackle individual file sharers.  Whilst the music companies believe that ISPs can use their Deep-Packet Inspection (DPI) technology the ISPs argue that this is designed for network level action, not subscriber level.  The Digital Britain ‘Graduated Response’ effectively forestalls testing these issues for the indefinite future.

But, you may ask, didn’t the report previously state it wanted to cut digital piracy by 70- 80%?  Indeed. So how does it intend to square the circle of hugely ambitious targets with ineffective measures?  The answer is by fudging the way the problem will be measured, relying upon measuring within the base of file sharers that are sent repeat letters.  Remember these are simply the ones that the labels have been able to proactively identify and then, after resorting to the courts, got the contact details of and sent letters to.  So a very small subset of a much larger installed base.  In the increasingly familiar masterful use of civil servant speak the remit of measurement is narrowed even further:

“Proportionate Notification Response trigger that we propose, should be focused on measuring the efficacy of the scheme involving a notification procedure, legal action and other measures as set out above in relation to achieving the 70% target for reduction in unlawful sharing. We therefore believe that the trigger should be calculated by (a) taking the number of unique individuals notified and (b) assessing what percentage of those notified have stopped unlawful file sharing, either voluntarily or due to prosecution. If that percentage does not exceed or is not significantly close to 70% the mechanism will be triggered (As an illustration: if the baseline unlawful peer to peer universe identified by Ofcom was 100, and notifications were sent to 50% of that universe with prosecutions against serial repeat offenders, the benchmark would be met if there was a 35% reduction in unlawful file-sharing i.e. 70% of 50%).”

So not only is the 70-80% just talking about testing a small subset, it's defining some very specific and, at best, arguable parameters, using an enforcement methodology (i.e. letter sending) that is at best unproven. In short, the report authors have given themselves a back door exit from their prior commitment to reducing file sharing by 70-80%.  It won’t need to mean reducing the installed base of UK music file sharers by the best part of 6 million, but instead be a semi-hypothetical sample based measure.  This is a shame, and smacks of backing away from the issue.

The interesting post-script to all of this is that Universal Music on Monday announced a ground break unlimited MP3 service with major UK ISP Virgin Media (see my post here for more details).  What makes it so relevant to the debate is that Virgin - in return for the holy grail of digital music licenses – agreed to implement their own voluntary Graduated Response solution.  Though there are significant caveats (e.g. no permanent disconnection, no use of DPI for enforcement) it sends a very clear message from Universal to the UK government: if you won’t give us what we want via legislation we’ll achieve it via commercial solutions.  Which is actually the best bet all round and exactly what Andy Burnham advised when saying

“Sort out the problems yourselves, don’t wait for the heavy hand of legislation”. 

Indeed the experience of the troubled French Hadopi bill illustrates that relying upon the legislative and judicial systems to help you meet your commercial ends can be a risky business.

New Convenience Quotient doc just published

[Posted by Doug Williams]

If you haven't seen it yet, I encourage you to check out Paul Jackson's latest report entitled, "The Convenience Quotient of Portable Computing."  Here's the abstract:

We're finally seeing consumers embrace computing on the go — whether it's experimentation with Net access and application downloads on the iPhone or trying out inexpensive netbooks, the past 18 months have seen an explosion in activity and functionality. As is always the case with new consumer product opportunities though, mistakes have been and will continue to be made; a Convenience Quotient analysis of portable computing platforms shows how the various feasible options stack up. Tellingly, laptops still just squeeze out the competition overall, but smartphones and the next generation of netbooks threatened to steal the crown — particularly when focusing on specific consumer scenarios like high mobility or engagement with social media.

 
It's an intriguing report, but don't just take my word for it: James Kendrick over at jkOnTheRun posted a nice piece about this report as well, and other media outlets have been banging on our door.

Clients: Paul would welcome the opportunity to discuss this report with you -- just follow the normal process for setting up an inquiry.

Also: We've got other CQ docs in the works, and we'll be sure to let you know when they publish. CQ isn't just for tech products, either.  My forthcoming CQ document applies the methodology to customer service, by examining the consumer benefits and barriers associated with various modes of resolving a customer service issue (live phone, email, online chat, etc.).

Do you have questions about Convenience Quotient, or need help understanding how it could be useful for developing your own product strategy?  If so, please reach out to me, James McQuivey or J.P. Gownder.  We'd be happy to help you figure it out.

Google Selling eBooks: A Bold Step But Not The Last For The Search Giant

[Posted by Sarah Rotman Epps]

I'm a few days late on this one but it's been a busy week!

Google announced Monday that by the end of the year it would allow publishers to sell eBooks directly through Google. Google was already involved in the eBook/eReader market through its patented book digitization efforts and through a partnership with Sony that offers 500,000 public domain books for free in the Sony Reader store.

We expected that Google would move more aggressively into the eReader space, but the move to sell eBooks directly is surprising. Sure, there's Froogle, and Google Checkout, but Google doesn't really sell anything but ads. Even when it could have moved from displaying search results to selling products--like airline tickets--it hasn't, until now.

This move directly threatens Amazon as an eBook seller, but more importantly, it challenges Amazon's whole proprietary approach to the eBook market. Google eBooks will use open standards and can be used on any reader, unlike Amazon's Kindle format. Google will also let publishers set their own pricing, unlike Amazon.

What's next for Google? We wouldn't be surprised to see an Android-operated eReader, one that syncs with Google docs and is optimized for reading business documents in addition to books and news. In addition, specialized eReaders are seen as a potential enabler of paperless hospitals; Google's involvement in digitizing health records could put Google in a central role in the health eReader space.

And of course, if anyone can figure out an ad model for books, it's Google...