No Line on the Horizon: U2 As a Case Study for Leveraging Free

[Posted by Mark Mulligan]

follow me at Mark_Mulligan

This week, ahead of their forthcoming release ‘No Line on the Horizon’, U2’s label Universal Music streamed the album for free on MySpace in the US and on Spotify in the UK. That’s right, the world’s largest record label gave away the new album by one of its biggest artists, for free, before you could even buy it in the shops. This sort of thing would have been unimaginable a few years ago. What has changed is that the record labels are rapidly realizing the power that lies in harnessing free.

This was no scattergun strategy: Universal selected two of the highest profile streaming music destinations available and granted them exclusive, fixed time streaming access. The exclusivity ensured that the partners would heavily promote the deal and with their marketing clout and user support would ensure that this would in itself become an event. A lot of those listeners will now go and buy the album or tracks off it. But Universal know that a very large chunk (possibly the majority) of U2’s fans aren’t on either MySpace or Spotify. The streaming initiative reaches those other U2 fans via the great media coverage of the streaming initiative and at the same time directly engages with an audience which is largely complementary to the core album buyers.

But Universal are astute digital strategists and know that albums sales is only part of the equation. They’ll see the other key benefit being leveraging some revenue out of listeners who are unlikely to buy the album or even pay to download single tracks off it. Streaming services like MySpace Music and Spotify are among the label’s better available tools to monetize consumers’ shift away from purchasing units, to on demand consumption. They aren’t yet a direct alternative to illegal file sharing, but they certainly strike a blow in the right direction. Right now, they are a means of monetizing file sharers: streaming music fans are more than twice as likely as other Internet users to use file sharing networks.

So the equation is simple: as many MySpace and Spotify users are never going to buy the album, at least get some revenue from them listening to it over streaming before they can download it from Bit Torrent. Heck, some of them might even decide to go out and buy it.

Universal are showing here that sometimes the best way to fight fire is with fire. Free is what file sharers understand, and right now it’s the only large scale viable way of making money out of them.

Mobile World Congress 09: a wrap-up

[Posted by Thomas Husson]

It is often difficult to step back from the flow of news coming out from Barcelona but here's a quick take on the main announcements.

- new handset makers such as ACER are entering the mobile space highlighting the fact that boundaries between computers and mobile phones are being blurred. Toshiba, HP are already here and Dell or Lenovo could well follow. Will they succeed? Well they need to master not only the hardware but also the software, offer scalability/economies of scale, negotiate with operators and revamp their brands. This will not happen in one night but some of them have bold long-term objectives

- As always a great autumn/winter device collection from the usual suspects: Nokia E75, SE "Idou", LG Arena or Smasung Beat DJ. Despite few announcements (2 devices with Android OS), Google and Apple cast their shadow over the congress though. Apple because most phones were still compared to the iPhone even though the device was announced 2 years ago. If many visitors were disappointed not to see more Android handsets, one should bear in mind this is still the early days and that there is a strong support from the Open Handset Alliance. No doubt this is a long-term play and that Android is here to stay.

- Appstores are the new retailing/merchandizing paradigm. Many handset/OS vendors announced their own "vertical" solutions but operators also joined the dance such as Orange with its Application shop. The parntership between T-Mobile and OVI is one of the most interesting announcements at it shows that operators can also offer an "horizontal" layer and offer a large reach/distribution to developers. Not everybody will succeed but it is likely that both types of stores will co-exist.

- there are plenty of other very interesting announcements such as the Nokia/Qualcomm truce, the good momentum of LTE vs Wimax (manufacturers I spoke to do not plan to release LTE handsets before 2011 though), the GSMA mobile metrics survey results, and the flow of innovation around location-based services and mobile social networks.

With disruptive technologies ahead, the MWC congress is an amazing glimpse of what the future of mobile services could become. Despite gloomy expectations of a tough year to come, the industry is confident in its future and will come out ahead of the recession because of its constant innovation. Internet players and new entrants are leading the innovative path and forcing traditional telecom stakeholders and particularly operators to reinvent themselves.

If you want to have more details about these announcements, Forrester clients can read this brand new report published today: Mobile World Congress 2009: At the Heart of a New Ecosystem

You can also register to this teleconference taking place next Monday (March 2nd) where I will come back on these announcements and discuss key mobile consumer trends.

HP's WMC netbook announcements - a step in the right direction.

In my most recent report  'What Makes A Netbook?' , a number of impending problems for the category (whatever it ends up being called) were surfaced -- two key issues were (a) how to differentiate netbooks and similarly priced notebooks and (b) whether those European telcos giving the things away were really thinking this through.

This week at MWC in Barcelona HP (amongst others) made a couple of strategic announcements which go some way to addressing both of these issues:

- The first fruits of the HP & Orange strategic relationship: Orange selling the Compaq Mini 700 in retail. Probably the first of many such hardware deals, shows Orange looking beyond just giving away the cheapest, any-brand netbook to drive mobile broadband uptake.

- T-mobile ALSO offering the Compaq Mini 700...but also in an HSDPA/UMTS embedded version -- making this netbook a different proposition to the 'get the mobile broadband dongle + netbook' crowd.

These announcements show that telcos have recognized the shortcomings of the ‘buy mobile broadband get a cute netbook free’ model – stock control, support issues, and little upside revenue wise – and want to build out more sustainable offerings.

 HP is in a good position to do this – while later to the netbook market than ASUS, Acer, MSI and several others, the worlds largest notebook provider has quickly caught up in terms of devices (the 2133, the 2140, the Vivienne Tam designer edition etc) and is bringing their expertise in logistics, support, and UI design to bare here to help telcos get over that bump of unfamiliar hardware models.

The T-mobile announcement does raise one interesting additional question though: after a slow start and some reticence on Microsoft’s part, Windows XP has become the dominant OS for netbooks – largely down to the need to run PC apps and mimic a familiar UI. With telco provided netbooks featuring embedded connectivity, do we see a device which is closer to the smartphone world rather than the PC world – and if so will HP reconsider its decision to focus on Windows netbooks in Europe, and put more emphasis on the MI Linux editions instead?

Does this mean even MORE disruption in the PC marketplace? Can netbooks become the 'killer' delivery device for mobile telcos rich media ambitions? Thoughts appreciated

Tectonic Shifts in Content Value Chains

[Posted by Mark Mulligan]

follow me at Mark_Mulligan

From a content strategy perspective, one of the most interesting developments that came out of Mobile World Congress was Nokia’s refinement of their Ovi strategy, with the announcement of the Ovi store (see Thomas Husson’s post for more details).

The Ovi Store might just look like another me-too App store, and in many ways it is. But the strategy goes much further than that. This is part of Nokia’s attempt to develop stronger, deeper relationships with the end-consumer with an ambitious content and services strategy. But the real audacity lies not in the breadth of the services portfolio, rather in the disruptive, even disintermediative, threat to Nokia’s channel partners. However inclusive Nokia may try to appear, selling content and services such as ring tones, music, games and other applications compete directly with mobile operator offerings.

The walled-garden operator portal strategy may be a short sighted one, but the operators are already having to compete with the established Internet brands without having to worry about one of their historically trusted partners. It is true that the operator relationship is more important in markets with strong subsidies, but even in those without, the operators are at the very least a strong potential ally, at most a crucial partner.

And yet the Ovi strategy remains key, because Nokia needs to own more of the value chain. Even before this years’ expect global handset sales decline, markets were getting saturated and replacement cycles being stretched by 24 month contracts. The emerging markets will have finished emerging sooner or later. This is Nokia planning for long term growth when its core handset business will be mature. It’s a high stakes game, and if they pull it off, all of the damage to channel partner relationships will become an unfortunate but ultimately tolerable price to pay. It’s classic sacrifice move, gambling tactical loss will bring strategic gain.

On the other side of the value chain equation we’re beginning to see some content owners trying to extend their share. MySpace Music, the joint venture between the major record labels and MySpace, is an astute move for all parties.  There is upside for both sides, however tortuous the negotiations might have been (and indeed there’s a case for terms being revisited when this thing’s been in the water for long enough to just how well it floats).  MySpace now have a much more workable revenue and cost model for pursuing an ambitious on-demand streaming strategy whilst the majors now have more meat in the game.  MySpace Music’s success will be theirs also. In traditional licensing models labels would have profited more only as streams increased.  Now they profit more both from increased streams and if MySpace gets better at monetizing its ad inventory. 

The MySpace JV is also a bet on the future for the labels. As they journey through the transition from historical reliance on distribution towards the consumption era, they get to own part of the consumption infrastructure.  If MySpace Music was to ‘do an MTV’ the labels would profit this time round. And it’s not an isolated move: all the majors also of course took stakes in YouTube immediately prior to Google’s acquisition and Sky entered into a JV with UMG to launch a music subscription service. 

JV’s aren’t a panacea (cf Warner’s current dispute with YouTube and Sky’s current failure to draw in other partners) but they are a means of taking a stake in an uncertain future.  But someone’s value chain gain is typically somebody else’s loss.  Value chain evolution is a messy process and the path will be littered with the battered and bruised. Nokia of course will be hoping it won’t end up as one of those.

Is Hulu Winning the Mind Share Battle?

[Posted by Bobby Tulsiani]

I was watching 24 on Fox last night, and even though I was fast forwarding through commercials I noticed the Hulu ad from the Superbowl was on again.  We'll save the discussion if brand recall works during fast forward mode for another day, and instead focus on Hulu's brand awareness campaign.

The Hulu folks have been gaining momentum - Nielsen recently blogged about how Hulu generated a fair amount of buzz after the Superbowl ad ran, increasing brand mentions online by 259%.  In conversation, I do hear people mentioning - oh "I'll Hulu that later" (granted I hang out with a pretty dorky TV crowd).  All of it got me wondering is Hulu winning the early mind share battle - and does it matter if they do take the early lead?

To play devil's advocate, here a couple points why a big awareness campaign may not matter:

• Ask Pets.com about big Superbowl campaigns to generate awareness.
• First mover mind share may matter less for full length TV online compared to categories like auctions (eBay) or video uploads (YouTube) that have far stronger network effects.
• Hulu may build category awareness for full legnth TV online, but have competitors (Joost, Sling, etc) draft off that free publicity.

Even without the splashy ad campaign, I think Hulu is defintely out in front due to a relentless focus on its end users.  But the race is far from over, and its a topic I'll be covering closely this year.  Would love to hear your thoughts.

Mobile App Stores Represent the new Battleground

By Ian Fogg (bio, recent research)

At MWC, multiple companies have launched mobile application stores that seek to build upon Apple's iPhone success (Microsoft, Nokia, Orange, mPortico, Surfkitchen, Adtonic, PocketGear and others). These join existing announced app stores (including RIM, Google Android, Palm).

These are more than simple me-too initiatives.

Mobile app stores are not new. Palm, Handango and even Nokia with their Download! service pre-date Apple. Like the iPod, Apple was a follower -- rather than first mover -- that succeeded due to terrific execution and a clear strategy and market position. Apple benefits from the ease of commercial iPhone application distribution. Developers now prosper in a virtuous circle:

• iPhone application store is easy to use on phone or PC. It offers consumers reviews, user ratings, reliable download & install and low price points. Developers benefit from reliable content protection.
• Developers sell more applications and so prioritise more r&d for iPhone over other phones. This leads to a greater catalogue of applications.
• The greater wealth of third party support increases the benefit for consumers of owning an iPhone, thus driving iPhone sales.
• A greater installed base of iPhones increases the audience of potential application buyers, leading to increased application sales.

To succeed, owners much ensure that their store's convenience to consumers is high. Superb execution will be critical.

OVI Store: the fight for the home screen

[Posted by Thomas Husson]

One of the first announcements made at Mobile World Congress this morning in Barcelona is Nokia's answer to the Apple AppStore.

Historically, Nokia has offered various channels for developers or publishers to retail their content/softwares to end-users: from Download! to Mosh or even Widsets. None of them was really available on the home screen. Despite having been made available for years (anyone remembers Preminet?) and for many devices, those channels never gained the traction of the Apple Appstore. The latter saw roughly 500 million downloads in 6 months time. Of course, the store is not only available to the roughly 11M+ iPhones sold during Q3 and Q4 2008 but also to iPod Touch devices. Nevertheless, Apple set the bar quite high due multiple key success factors: a simple-user experience where content is immediately accessible on the home screen, a wide catalogue with more than 15,000 applications with lots of free content, a direct billing relationship and an interesting revenue share agreement (70% for developers).

Nokia announced today the launch of OVI Store, "the next generation personal media network". It is more than a store but the key idea is to integrate previous services in one single integrated channel. Music and games will continue to be offered separately (with an intergated experience for Nokia Music Stores and for the N-Gage) but under the OVI store, consumers will be able to find 5 interconnected service areas: messaging, maps, games, music but also media (a new category).

Expect, many other staheholders from operators to other handset manufacturers and to OS players to make announcements on Applications Stores in the coming days. AppStore will be one of the buzzwords of MWC 09. Not only because everyone wants to replicate Apple success, but also because it reveals the need to take control of the home screen. Beyond operator deportalization, AppStores represent a new distibution and merchandizing paradigm for mobile content and services.

So is it a me-too approach or can Nokia really differentiate here? It is obvioulsy too early to say as it will depend on a few unknown issues: the quality of the execution, the strength of the OVI brand, the reaction of operators, willingness of Nokia to establish direct relationships with operators.

- the quality and speed of execution will be critical: how easily can the content be accessed, how large is the catalogue of content, how simple is the new merchandizing approach? Internet giants tend to be react very quicly and to offer compelling user-experiences. Will Nokia follow the rhythm? Shifting from a hardware to a software company is Nokia's toughest cultural and organizational challenge but the company is used to re-inventing itself.

- It will also depend on the way the OVI brand is perceived. OVI is the glu that will sticks together very different content and services (from maps to games). As far as OVI is concerned, the press/analyst/industry community should bear in mind the brand does not really exist yet in consumer's mind, despite having been announced a while ago. I read too many analyses of OVI services and how consumers may or may not react to them. Few services have been made available under the OVI umbrella brand and a huge work of integration and marketing still needs to be done. Once this will be done, Nokia will probably really start promoting the brand. However, due to the importance of user-generated content, I think it will be difficult to predict yet how it will be perceived by consumers, what the attributes will be and the extent to which it will nurture the Nokia brand itself. Key here will be Nokia's ability to establish OVI as a personal social media brand.

- In the long run, operators' support will depend on the traditional client/supplier bargaining power. Operators have the possibility to promote part of their own catalogue and to co-brand the store. They will also benefit from micro-billing revenues and may prefer to rely on this new channel. That being said, many of them could perceive a direct threat here and it could hurt Nokia sales particularly in countries where subsidies are high. It might be very different in emerging countries where Nokia can go direclty to consumers.

- to which extent is Nokia ready to embrace a D2C strategy to interact directly with consumers? That's a big challenge and a key success factor as well.

One of the main advantages for Nokia will be the potential large scale of mobile devices developers could tap into. It will thus be critical to upgrade Download! OTA on legacy devices. I had the opportunity to preview a demo of the store that will be launched in May when embedded on the N97. This looks great particularly with very nice "social discovery" tools.

Let's stay tuned; the fight for the home screen is only beginning! 

Amazon's Kindle Strategy & the Mobile/Wireless Market

By Ian Fogg (bio, recent research)

Updated Tuesday, February 10 - Apologies to readers for a draft post ending up live on the site. The version below is now the correct, finished, version. Because of the publishing problem that hit me yesterday here, I posted this entry on my personal blog first. You may wish to subscribe to that blog as well although it normally has a different focus.

Today, Amazon announced a new Kindle, as the company continues its transformation from a retailer of physical goods to one that is a major digital content (music, books, video) and Internet service (e.g. S3) company.

Few notes:

Amazon's strategy is extremely US-centric, unlike their traditional retail reach. By choosing to include a US-specific mobile phone radio under the bonnet -- the so-called Whispernet that is used to download books without a PC -- Amazon limit their global presence. If Amazon wished to create a foundation for a global strategy then Amazon, like Apple, should have used a GSM/UMTS mobile phone radio. Now, Amazon must release different hardware if they want to offer Kindle in Europe or most of Asia. For consumers, this decision decision hits the product's convenience: Kindle will only download books in the US, and in the future perhaps a few select countries that happen to use the same mobile technology, such as South Korea and parts of South America.

Kindle demonstrates how mobile strategy is not just a telco thing. Mobile is like the Internet, every company should have a vision for where they are going and how to embrace, partner, or compete, with the mobile market and players.

Amazon has become a device company, and is no longer purely a content play. Kindle is a combined content / hardware business models. What Amazon is selling is content: The latest books, supplied for the relatively low cost of $9.99 for bestsellers. But to sell that content they have become a device company.

Surprisingly, Amazon have not leveraged other ebook companies that they own. Mobipocket supplies both free ebook software and sells ebooks protected by DRM. But to date, Kindle ebooks are not compatible with Mobipocket software. If Amazon does offer ebooks on mobile phones, which was reported on Friday before the Kindle announcement, then Mobipocket will be a core part of Amazon's toolbox. Syncing reading position between multiple devices -- Whispersync, announced today -- will certainly help Amazon in offering a great complementary service, i.e. a consumer will be able to use both Kindle and a mobile phone in tandem. Additionally Amazon own Booksurge, which is a an electronic self-publishing company, and yet are not fully exploiting Booksurge via Kindle.

Amazon's exclusive on a new Stephen King story will test the robustness of Kindle's DRM content protection. As the content is only available on Kindle, if it suddenly appears online on one of the piracy websites then that DRM has been broken. It will only take one person to break the DRM for numerous people to download a pirated version.

Mobile World Congress, Barcelona, D-7

[Posted by Thomas Husson]

Next Monday the mobile/telecom industry will gather in Barcelona for the Mobile World Congress. With 60,000 delegates expected, the Fiera is the largest European Congress and a bigger event in importance than CTIA. There will obvioulsy be discussions about the impact of the crisis but no doubt that the flow of innovation will overcome skepticism. If you want a wrap up of the three previous conferences, you can have a look on my personal blog here (for 2008), here (for 2007) and even here (for 2006; when the Congress moved from Cannes to Barcelona).

As always, the focus will be on new devices to be announced (not only by the usual suspects but also by the likes of Acer, Toshiba, or Hyundai) and on technologies (such as LTE, NFC or Femtocells). As per last year, Apple won't have a booth but the iPhone will probably be in most conversations. Most visitors will queue to have a demo of the G2 and other Android phones while stakeholders are waiting for Microsoft answer to Linux and the new Symbian Foundation.

My guess is that two of the hottest topics will be location-based services and mobile social networking. The convergence of these two trends will also attract lots of interest with the recent launch of Google Latitude or Nokia's concept of social-location.

Forgetting the hype around Wimax or Mobile TV, the industry will probably focus this year more than ever on the user-experience. The buzzword this year will be around application stores, widgets and user-interfaces. Android Market (Google), Skymarket (Microsoft), Rim Application Center need to detail their environments while Nokia has no choice but to give an answer to the Apple AppStore. Many operators will also announce widgets and application stores, as well as extended partnerships with UI and on-device portal vendors.

This is all good news as usually the show is too technology-centric. This year, the word "convenience" will also emerge in the mobile industry. For more information on Forrester "convenience quotient" approach, see the post of my colleague James McQuivey here.

I will also be covering the event live on this blog and via twitter

My colleagues covering the mobile/telecom space will have a very close eye on announcements, whether from a consumer product and strategy perspective: Michelle de Lussanet, Julie Ask, Charles Golvin, Ian Fogg, Paul Jackson or from a technology / B2B / Enterprise perspective: Ellen Daley, Benjamin Gray, Phil Sayer, Brownlee Thomas, Mike Cansfield.

If you are press and would like more information before, during or after the event, please email PRESS AT FORRESTER DOT COM.

Otherwise, watch this space and share with us your thoughts and your expectations on the event in the comment section below.

Verizon Hub - Bad Timing Or Bad Strategy?

[Posted by Doug Williams]

On February 1, Verizon Wireless (VZW) debuted its new Hub VoIP phone. I had the chance to meet with some of the guys at VZW who developed the Hub to see a demo and play with the device.

The product is a 7-inch touchscreen display and a single cordless handset that is designed to be the center of communications for the home. It goes for $200 after $50 rebate (with a two-year contract), and additional cordless handsets are available for $80 each. You can connect to the Internet using any cable or DSL broadband service via an Ethernet or wireless connection. While the Hub is carrier-agnostic for broadband, it is only currently being made available to VZW customers (although that may change in the future).

Once connected, users can place and receive unlimited local and long distance phone calls to anywhere in the US, Canada and Puerto Rico using the “unmanaged” over-the-top VoIP service for a monthly fee of $34.99. That’s $10 per month more than leading over-the-top provider Vonage, but roughly on par with bundle-discounted “managed” VoIP service from most cable MSOs.

I could go on about the interesting features and functionality of the Hub device, such as visual voicemail, photo viewing, and directory services with mapping technology. I could describe in great detail the integration with Verizon Wireless services like VZ Navigator (sending turn-by-turn directions to your mobile phone from the Hub), VCast (watching video clips in the kitchen while making dinner), and Chaperone (to easily track the location of your kids’ cell phones). I could also note the drawbacks, such as the “walled garden” approach to content, the inability to access the Internet itself even in a limited manner, and the lack of a Chumby-like open platform for developers to build their own widgets. But at this point in time, I don’t think those things matter.

What does matter in today’s economy is cost. A majority of consumers claim their financial situation has gotten slightly or substantially worse over the past 12 months, and an even greater portion believe their financial situation will remain the same or become worse over the next 12 months. As I have discussed in a couple of recent reports, our data indicates that fixed voice service is particularly vulnerable to cost-cutting measures. (If anyone is aware of the impact of cord-cutting, it would be Verizon and Verizon Wireless.) To charge $200 dollars for the privilege of acquiring the device, and another $160 to $320 to obtain 2 to 4 more handsets to outfit the (targeted) busy family household is simply asking too much from today’s consumer. And adding $34.99 per month on top of that means chances are high that a customer switching from their fixed voice service to the Hub may result in very little or no actual savings in the monthly budget. Oh, and there is an early termination fee to boot.

Sure, there is added value with all the interesting things the Hub can do. And the Hub arguably improves the overall end-user experience of fixed voice by improving the convenience of managing communications in the home. But the adoption curve of the Hub will remain particularly shallow in the current economy until such time as the up-front cash outlay for the device and handsets is reduced. Dropping the monthly recurring fee to bring it in line with other over-the-top VoIP services and below the going rate for cable voice service wouldn’t hurt, either.

I agree that service providers need to look for ways to enhance the value of landline to stem the loss of subscribers (see this report published in the fall). But consumers are cutting the cord to save money and increase convenience. Service providers need to keep both of those criteria in mind when positioning any enhanced landline product in the market.

What do you think?  Will the Hub succeed or fail, and why?  Would you buy one?