It's been several months since my last post, because Skydeck has been all-consuming. (I have been blogging over there.)
But I'm glad to say that Skydeck is no longer a secret. Today announced that we're working on an online service which will help consumers take control of their cell phones and their cell phone bills.
For more, check out this blog post and the rest of our brand new site.
More about how we got here and what we plan to do next when I get the chance.
I was genuinely honored to be invited to testify before Congress on some of the issues surrounding open access and the 700 MHz spectrum auction in the US. More thoughts to follow when I have time; for more context on this piece, visit SaveTheInternet.
Update: more about this on the Skydeck blog.
As promised, I've stopped writing about the mobile industry here and moved that to Skydeck's blog. But there's an issue of public policy relating to the wireless industry that I'd like as many people as possible to know about it.
I believe that we'd all be better off if wireless carriers were required to let us use any device on their networks, so long as it causes no harm and we pay for the bandwidth. It's a very simple idea that has applied to landline networks for years. Without it, many inventions would never have come to market because the telcos weren't interested or it didn't fit their business models: the fax machine, the modem, the Internet itself.
Today on Skydeck's blog I wrote about a useful mobile device that does not exist, because of the rules of the industry. I call it the xPhone.
I recently filed comments in support of the Skype petition, together with my friend Ram Fish. He's written about that experience here and here. The xPhone was inspired by those conversations, as well as conversations with Tim Wu and Brad Burnham.
More urgent than the Skype petition perhaps is the battle over the rules for the 700 MHz spectrum auction. This is the most valuable chunk of spectrum that has gone on sale for years. If you support the principles described in my xPhone post, please sign the MoveOn petition.
As you can see, I have been busy building my new company.
OK, we spent a weekend with my wife's family in Oregon and my father-in-law let me dig big holes in the ground. Try it some time.
But I have been building a company. It has a name, a logo, a co-founder, a first employee, and a first round of financing, and naturally it has its very own blog, where I've been moonlighting for the last week or so.
The name is Skydeck. Like it? I do. It is almost but not quite a real word - widely used but not in any dictionary I can find. It means a high platform from which you can see a great distance: the Sears Tower, the roof of an Airstream. So it's aspirational. But those hard twin Ks make it sound dependable and familiar, like Kodak... I'll shut up now. The logo was designed by Summer.
My co-founder is Mike Wells, who quit Google in December to work with me on this. Our first employee is Jake Donham, who was either employee number one or two at my last company Vindigo, depending on whom you ask, and who thought Skydeck sounded more interesting than the PhD program he was in at Carnegie Mellon.
More details on our financing later.
Brash.com remains my personal blog, and this is where I will write about the trials and tribulations of being an entrepreneur, moving to the Valley, and digging holes in the ground. But I will be writing about the mobile market in general and Skydeck's plans in particular at our company site, and so will my colleagues. If that is what interests you, grab the feed here.
And finally, we're hiring. We will happily pay referral bonuses of up to $5,000, so don't be shy.
Guy Kawasaki calls Spinvox "utterly indispensable." Fred Wilson calls Simulscribe "life-changing." David Pogue says that about both of them. So why have so few people heard of them?
I've been using Spinvox for two months. Spinvox replaces my carrier's voicemail system. For callers there is no change, but Spinvox converts their voice messages from speech to text and sends the transcript to me via email and SMS. It is so good that I haven't listened to a voicemail since and with any luck I never will again. Now it takes seconds to check my voicemail, I can do so during a meeting, I know which messages are important, and if the caller leaves a number I can just click on it instead of scrambling for pen and paper and then typing it in. If voicemail is a big part of your life, then Spinvox is indeed life-changing.
So much for the iPhone's 'visual voicemail', the feature that allows you to see who has left voicemail messages and to listen to them separately. Steve Jobs claimed that this required tight integration with a network operator, justifying Apple's exclusive relationship with Cingular. Spinvox is far better than random access to your regular voicemail and far more deserving of the name visual voicemail. And like every other great idea online, it works just fine at the edge of the network.
Spinvox was founded in 2003, won several awards in 2005, and won a major innovation award at 3GSM last year. But they did not announce their first carrier customer - Vodafone - until 3GSM this year. Why aren't they bigger than Elvis?
The problem is that carriers charge us for voicemail by the minute. Lots of companies waste our time. It usually costs them money. Only mobile carriers charge us for wasting our time. In the US we spend almost 100 billion minutes each year leaving or listening to voicemail.
The European market is more complicated. Charges for voicemail vary from one carrier and country to the next. On average mobile phone calls are much more expensive. Only the calling party pays: incoming phone calls are free. Since it costs nothing to receive a call, but it costs money to return a voicemail, a lot of people would rather miss a call - betting that the caller will try again if it's important - than activate their voicemail and be expected to return messages. Hence fewer than 50% of subscribers activate voicemail.
It never seems to occur to zero-sum minute-pinching carriers that if voicemail were more efficient, we might make more phone calls. Since I started using Spinvox I return voicemail messages more often because I get to check them before they're stale. If everyone else had Spinvox, I would be more inclined to leave voicemail messages, confident that they were going to be returned. (Today when I reach voicemail I usually hang up and write an email instead. You pay to listen to the date and time that I called, a click, nothing, and then the sound of me hanging up.)
Maybe carriers won't make back from increased call and text message volume what they give up in voicemail minutes. Here's another idea: they should adopt Spinvox just to make their customers happy.
Sadly, that is not how the telecom industry works. Mobile carriers have no idea how to retain subscribers: they grew so fast that they didn't need to worry about it. If a new service doesn't pay for itself, it doesn't get launched. Don't expect your carrier to launch Spinvox or Simulscribe anytime soon. But you can sign up for either at the companies' web sites. Spinvox is offering a free trial in the US; Simulscribe charges $9.95 per month for 40 messages and $0.25 per message after that.
Your carrier will happily charge you for forwarding your calls.
Carry Two Phones Into The Shower? Not me.
One of the more interesting mobile startups in the Valley, Talkplus, went live today. (They had a private beta before this.) Talkplus makes phone numbers virtual, breaking the link between a phone number and a specific handset. Instead a phone number becomes more like an email address or IM account; just another online identity that I choose to adopt for communicating with certain people.
Let me stop speaking in Powerpoint and give some specific examples. Many people carry two phones, one for personal use, one for business. (In countries where extended families are very important, some people carry multiple phones for talking to different family members.) The main reason we do this is to separate our professional and personal lives, the same reason that most of us have at least two email addresses. But you don't need two computers to answer your email, so why do you need two phones to answer all of your calls?
The Chinese company whose booth I photographed at 3GSM in Barcelona is one of many that offers dual-SIM phones to solve this problem. But that's a crude approach, akin to having one modem in your PC for each email account. It makes the phone fatter and more expensive too.
Talkplus can assign multiple phone numbers to one mobile phone. You can have one number for work and one for your friends; a few disposable numbers for companies or people that you are not sure about; one number that your company reimburses you for, and another that is your responsibility; one number for life, and one for the weekend.
Soon Talkplus promises to let you spoof Caller ID from your mobile phone for other numbers that you control. A doctor, say, or a lawyer will be able to place a call to her client from her mobile phone and make it appear that the call is coming from her office. The goal is not to mislead; the goal is to keep the mobile phone number private and confidential while still communicating the identity of the caller.
See what I mean about phone numbers being separated from physical devices - both handsets and SIMs? Calls can be made to or from multiple numbers on multiple handsets. Talkplus goes further, promising a lot of the functionality that we take for granted online but that we never get on our phones. Right now they let me can screen calls automatically, blocking calls from some numbers, and sending others to voicemail.
And yet ... when I tried Talkplus tonight my experience was very disappointing. Setting up an account and choosing my first number was easy, but here's what I had to do to make a call from that number on my Sony Ericsson K800i:
Talkplus has great potential, but I hope that they are planning to offer a J2ME application for my handset soon. Right now I'd have to be desperate to conceal my phone number in order to use it.
A few months ago I wrote a series of rants about the future of the wireless market in the US. I devoted the last of those posts to my least favorite subject, regulation. Mainly I was surprised at how little attention had been paid to wireless during last year's debates about net neutrality, since wireless carriers block content providers and services all the time.
It seems that Columbia law professor Tim Wu was paying a lot of attention (to wireless net neutrality, not to me). On Valentine's day he presented a paper about it to the FTC. And yesterday Skype filed a petition with the FCC demanding that mobile operators carry Skype calls over their networks.
The head of the CTIA, the wireless industry association, was terribly upset:
"Skype's self-interested filing contains glaring legal flaws and a complete disregard for the vast consumer benefits provided by the competitive marketplace," said Steve Largent, chief executive of the CTIA in a prepared statement. "Skype's 'recommendations' will freeze the innovation and choice hundreds of millions of consumers enjoy today. The call for imposing monopoly era Carterfone rules to today's vibrant market is unmistakably the wrong number," Largent said.
"Unmistakably the wrong number." Now there's a ringing phrase. I wonder what he is so hung up about. Ahem.
It's been a while since my last post, but attending two conferences (one in Barcelona), moving to San Francisco, and starting a new company chewed up a lot of time.
I couldn't resist posting about this article in the Washington Post, an overview of the ringtone industry. For all the excitement around full-track downloads, mobile TV, 3D games and the rest, ringtones still account for roughly 70% of mobile content revenues. Yet the companies that dominated the business just a few years ago are all suffering, because the music labels are doing direct deals with mobile operators and cutting them out. I've written about Infospace's problems before.
This paragraph about my first company Vindigo jumped out:
Some, like Dwango, went out of business. Others reinvented themselves as technology and service providers. Zingy, for instance, merged in 2005 with Vindigo, which offers mobile information services like MapQuest and The New York Times. Personalization services like ringtones, video and wallpaper images now make up less than 50 percent of the company's revenue.
I knew that ringtone revenue had declined while revenue from Vindigo's products had continued to climb, but this is a surprise.
The writer missed what I believe to be the most successful ringtone vendor in the US today: Thumbplay. Thumbplay markets ringtones directly to consumers rather than through the carriers and has built an independent distribution channel that the music labels value. More mobile companies should be following this strategy.
Full disclosure: Thumbplay, like Vindigo (and Ztango, also mentioned in the article), is backed by iHatch Ventures, where I am entrepreneur-in-residence.
Another round-up of interesting posts about the mobile industry at this week's Carnival of the Mobilists,
hosted by TomSoft.
How Apple intends to keep you from installing software on the iPhone? (Photo by protohiro)
Watch Steve's demo of text messaging on the iPhone from his keynote address. The Mercury News has posted their bootleg version. It was shot with a camcorder over the heads of the Apple fanboys like a pirate DVD, but at least they indexed it, so you can jump straight to the bit about texting.
Forgive the crowd their cries of pleasure and awe. It's a packed house, it's the most anticipated product launch ever, he's had forty minutes to soften them up by now, and this Reality Distortion Field goes to eleven.
But come on, that's just iChat, Apple's instant messaging client, running over SMS. What's the point of that?
The point is price discrimination.
Steve typed "Sounds great. See you there." 28 characters, 28 bytes. Call it 30. What does it cost to transmit 30 bytes?
A nickel and a dime.
15c for 30 bytes = $0.15 X 1,000,000 / 30 = $5,000 per megabyte.
"Yes, but it isn't really $5,000," you say. It is if you are Cingular, and you handle a few billion messages like this each quarter. (1)
Short of launching your own private satellite network, on a per byte basis SMS is the world's most expensive way to communicate, and the most profitable product ever introduced by wireless operators.
On Tuesday, I found this part of the demo irritating, but assumed that I would be able to install iChat myself. Or better still Adium, which supports AIM, MSN, ICQ, and Jabber. (2)
But I will not be able to do that because ... it will not be possible to install applications on the iPhone without the approval of Cingular and Apple.
It could get worse. Cingular has 'not yet determined' service pricing.
Right now, Cingular charges $19.99 per month for unlimited data; unless you have a Treo or Blackberry or Blackjack, in which case the price is $39.99 per month. Why?
Just because.
Smart customers sign up for the cheaper plan, buy an unlocked smartphone, and install their own email app, saving $200-$300 over the life of the contract (depending on the cost of the smartphone).
What if Cingular introduces an 'iPhone date plan' and charges $59.99 per month? I will not be able to do anything about it, because ... it will not be possible to install applications on the iPhone without the approval of Cingular and Apple.
I will not be able to make free phone calls over WiFi on my home or office network because ...
I will not be able to install Skype because ...
I will be able to 'touch my music' - thanks Steve - but I will not be able to use my own music to create free ringtones because ...
It's not just about Jobs being a control freak (although that may explain why we have to use Safari, a browser that some major web sites do not support, and why we won't even be able to buy Java games). It's not about the ludicrous claim that a third-party app could take down the network. It's not about preventing other manufacturers from copying the iPhone. It's about the money.
Fair enough. None of this changes the fact that the iPhone is a remarkable new product. Cingular and Apple exist to make money, and if they can persuade consumers to pay this kind of premium, congratulations.
But as a consumer, I have a choice. And for now the ability to install any application that I want leaves phones powered by Windows Mobile, Symbian, Linux, RIM, and Palm OS with some major advantages over the iPhone.
***
1. Even if Steve bought the biggest bundle of text messages that Cingular offered and used exactly that number every month, this message would still have cost him $250 per megabyte. But he'd have to send 100 messages a day to keep his average that low. On the other hand if he signed up for one of Cingular's pseudo-unlimited data plans, iChat via GPRS/EDGE would cost him essentially zero.
2. Yes, I know that most people don't have IM on their phones, so I still have to use SMS to send them a message. And where carriers do offer IM, it generally runs over SMS. But this is circular reasoning. Other carriers refuse to offer IM-over-data out of the box for the same reason Cingular and Apple do: so that you and I have to pay a premium for SMS.
Uploaded by dotdean
And so the iPhone cometh. For a thorough overview, see David Pogue, Michael Mace, and Russell and Carlo.
Forget about the 'specs'; several phones already on the market beat the iPhone on paper. This is all about the user interface. Every advanced phone in the world today is an ugly compromise, the unholy union of an elderly cellphone and a PDA. But the multi-touch interface on the iPhone looks as if it may be better than an iPod, better than any PDA, better than any tablet PC, and maybe an acceptable substitute for a plain old voice cellphone ... if it performs anything like as well it did in Steve Jobs' keynote address.
You cannot go by the press reports, or even the animated demos on the Apple web site. Until you can play with the thing yourself you will have to sit through the whole damn 90-minute presentation if you want to understand what I am getting at. Sorry.
The concepts are not new. You've seen this stuff in movies like A.I. or in the work of Jeff Han, and Go Computer had gesture-based interfaces (with a stylus) on commercial devices in the early 90s. But Go is gone, and OpenMoko is still vaporware. Apple will be the first to put this technology into the hands of millions of people, and for that they deserve all the praise that they are getting.
Forget about the price. $499 with a contract is steep, but this is Version 1.0. Version 1.0 of the iPod was $399 in 2001 and did nothing but play music. This year Apple will sell its 100 millionth iPod, and the most popular model is half that price. For the same reason, forget about the lack of 3G, the 2MP camera, and most of the other shortcomings on the feature list. Remember the leap from Version 1.0 of the iPod to the Nano.
Don't blame Apple for going with Cingular instead of Verizon. Blame Verizon. Given Verizon's refusal to support Bluetooth (beyond headsets) or WiFi or simple desktop synchronization and their insistence on Verizon-branded proprietary software (like their $4-per-song alternative to iTunes) there is no way that Verizon could carry the iPhone. Why do you think Verizon doesn't offer any high-end phones from Nokia or Sony Ericsson? The iPhone and products like it will ultimately force Verizon open, as I have been saying for months now.
Why has Apple been able to leap so far ahead of Nokia with their first phone? Because Apple is the only company with the chutzpah to tell a major US carrier what a phone ought to look like. Nokia, Motorola, Sony Ericsson, RIM, and Microsoft have all bowed before them. So I think Tom Evslin is wrong; this is a revolution. And if Apple can really sell 10 million phones it will have even more control when it comes to Version 2.0.
As well as lamenting the Cingular deal, Fred Wilson thinks that the iPhone will have no impact on sales of the Blackberry and that the market was wrong to sell off RIMM. I disagree. True, the iPhone is highly unlikely to appeal to RIM's core enterprise customers - it's expensive, entertainment-focused, and won't play nice with Exchange Server or support Office attachments at first. But RIM's high valuation is a bet on their being able to break out of the enterprise market and sell to consumers. RIM's legacy business is secure, but Apple just took their future away.
Even if Apple makes it very difficult to unlock the iPhone, they will have to sell unlocked versions in Europe and Asia if they want to make their sales targets. I predict that more unlocked iPhones will be imported back into the US than any handset ever sold - not just for T-Mobile customers, but for Cingular customers who don't want to wait until their contract is up for renewal.
Similarly, it's a mistake to think that the iPhone is not important because only high-end customers will be able to afford it. For one thing, this phone will set the design direction for the whole market and it and phones like it will cost $200 or less in a few years' time. But more importantly, the high end is the most important segment of the mobile phone market, because it is the most profitable segment. Motorola and Nokia are selling more phones than ever but getting punished by investors because their phones are too cheap and their margins are collapsing.
Having said all that, Apple still has serious questions to answer:
Finally, I believe that Apple has made at least one deal with the devil, and it's in their implementation of SMS. But I will save that for another post.
***
Happy New Year ... Summer and I took a break to visit friends and family in Dublin and Brussels. Now back to work.
Via Tom Evslin
This is the last in a series of posts analyzing the forces that might break the hold that carriers have on the mobile market. See also parts I, II, and III.
(10) Regulation
I saved regulation to last, although not to build suspense. Like most entrepreneurs, I recoil from the subject. But wireless spectrum is a commons. There may be better ways of managing the commons than the frequency allocation chart above, but even in a world of open spectrum and software-defined radio we'd still need a licensing regime for new devices.
I'm interested in what kind of regulatory changes we might see in the next five years and their impact on my business.
Network Neutrality
I missed most of the kerfuffle over network neutrality while traveling this year, but now that Congress is in the hands of Democrats legislation seems inevitable. Partisan lines have been drawn.
The central issue is how to prevent a wireline carrier from deliberately degrading service to a content provider that refuses to pay a fee: is self-regulation enough or do we need an umpire? No one is even suggesting that a cable company or DSL provider should have the right to block access to a content provider completely. But wireless carriers do this all the time. Many mobile content providers in the US cannot get their content onto any network. The more people use the mobile web, the more this becomes a free-speech issue - a smart mob can't use other media to communicate. How long will regulators let this go, not just in the US but in Europe? Or will mobile operators offer network neutrality themselves in exchange for eliminating their liability for content that goes over the network?
Unlocked Phones
Carriers control the market because they control the phone. One way they do so is by 'locking' handsets to their network; they sell you a phone at a discount and one of the many strings attached is that you can't take that phone to another provider.
But what if there is no contract? What if the contract is up? Why can't I buy a CDMA phone directly from LG and demand that Sprint activate it on their network, so long as I pay for service? If I buy a phone from Sprint and switch to Verizon when my contract is up, I can take my phone number with me. Why can't I take my phone?
A few weeks ago the Librarian of Congress (regulators are everywhere) granted an exemption under the DMCA covering software for unlocking cellphones. So far only Tracfone is seriously affected, because they subsidize handsets without forcing customers to sign a two-year contract. But regulators could go much further. Nothing would do more to increase competition in the US wireless market than legislation requiring carriers to accept other handsets on their network. Right now GSM providers can't stop you; Verizon will allow it but makes it so hard that no one bothers; Sprint just says no. There is a clear precedent for change: the Carterfone decision.
Full Number Portability
Give someone control of a namespace and they will charge a rent for it. What would NetworkSolutions charge for a domain name if you couldn't switch to a different registrar? IM interoperability wouldn't be an issue if you could take your AOL screenname to Yahoo. But Wireless Number Portability is old news, right? Not in Japan, where it was just introduced. Not in Canada, where they are still waiting. And we are all still waiting for Full Number Portability, between fixed and mobile networks. FNP makes it harder for carriers to charge a toll for terminating a call on a mobile network, a big issue in Europe if not in the US, because the customer can't know in advance whether the number they are calling is mobile or not.
Restrictions on Subsidies
One way that carriers keep control of the handset is to lock it, but the way that they persuade us to give them that control is by subsidizing our purchase in the first place. Korean regulators have banned and encouraged subsidies at different times, to favor the adoption of certain technologies. Finland has always banned subsidies, to avoid favoring any. Neither country has a shortage of mobile phones as a result.
Banning subsidies makes operator pricing more transparent, and forces them to compete on price and service alone. If they use the savings to cut the price of voice and data, consumers are better off in the long run. If they shift the dollars into marketing instead, we just get more TV ads and expensive handsets. I don't expect to see a ban in the US, but regulators in other countries may try it.
New Entrants
Regulators play a large role in deciding how many operators there will be in each market, by granting new licenses and approving or vetoing mergers. In the US there is not much on the horizon. Clearwire is rolling out a nationwide Wimax network in the US and European regulators will start auctioning Wimax licenses soon; we have yet to see whether Wimax can match the performance of cellular networks for mobile voice, but dual-mode GSM/Wimax handsets should be more reliable than the WiFi versions, and so cut into the revenue of the incumbent carriers.
Open Spectrum
In the next five years? Not a chance. Be grateful that the FM gadget for your iPod is finally legal in the UK. Hope that somebody can make Bluetooth easier to use. And be grateful for WiFi. Until everybody on your block gets it.
Uploaded by Whatknot
Cameron Marlow writes about how many taps it takes to enter a URL into a phone, and he's written a tool to tell us. (Predictive text systems like T9 don't help for URLs.)
Meanwhile, depending on whether you believe Gartner or the GSM Association, either 2005 or 2006 was the first year in which the number of SMS or text messages sent worldwide passed one trillion. Since fewer than 1% of the phones in the world have a Qwerty keyboard and spam is not yet a major problem (because of the economics), almost all of those one trillion messages were tapped out on a 10-digit keypad.
Back in the days of the (first?) bubble, people used to talk a lot about network effects and the overwhelming competitive advantages that they created. The more buyers visit eBay, the more sellers show up; the more goods there are for sale, the more buyers visit and so on until it becomes almost impossible for a new entrant to displace eBay. This was one argument used to support claims of "first-mover advantage" and strategies like "grow big, grow fast, or go home."
Network effects are real and powerful - eBay itself was defeated in the Japanese market because it was too late to enter, and more recently MySpace and Skype and Google's AdSense (although not Google search itself) have demonstrated the power of networks.
However, during the bubble people made a much stronger claim for network effects: that a product or service could get 'locked in,' such that customers would still choose it over a new product that was clearly superior. Their favorite example was the Qwerty keyboard layout, which was supposed to be unassailable despite 'better' alternatives like the Dvorak layout.
Cute story, but it just wasn't true. No one has ever demonstrated that the Dvorak or any other layout offers a meaningful advantage over Qwerty.
The rise of SMS should kill this myth. One trillion messages were composed last year using a keyboard that is clearly worse than Qwerty by any standard measure - speed, ergonomics, error rate - because a regular phone is smaller and cheaper than a Qwerty phone.
'Smaller and cheaper' are so important for phones that even RIM has had to degrade the keyboard on Blackberry phones in order to broaden their appeal.
Network effects are real, and confer real competitive advantages, but there is no such thing as lock-in. There is no product or service that a customer won't drop if something better comes along. It's just not always obvious what 'better' means. That's part of the Innovator's Dilemma.
Thanks to Jake for sending me Cameron's post.
Update: A Citigroup analyst believes that 60%-70% of RIM's Pearl phones are being bought by current Blackberry subscribers. Not only does this mean that RIM is having trouble breaking out of its niche, it also means that existing Blackberry owners are willing to give up a full Qwerty keyboard.
Nicholas Carr writes about EMI's decision to release the new Norah Jones single as an mp3, as reported in the WSJ.
I see DRM as a futile attempt by a threatened industry to defend their existing business model, which for a hundred years has been predicated on manufacturing and selling some form of physical media (piano rolls, wax cylinders, LPs, or CDs) and earning a 'breakage' fee by selling people albums when most of the time they want singles.
What's interesting about this story - in the light of my own posts about the wireless business - is the immediate cause of EMI's move. It's not that some Norwegian kid has cracked another DRM code, it's that Apple's DRM strategy - for now - has proved too successful!
Apple has a near-monopoly over sales of digital music. More importantly, they have a lock on the market for digital music players. Music sold through any other DRM channel won't play on an iPod, so why bother? EMI's best hope of selling digital music outside Apple is to sell mp3s, which will play anywhere, including iPods.
And mobile operators? Mobile phones will compete with iPods as portable music players, but most people will load up the songs that they already own from their PC, and the carrier will make no money apart from the initial handset sale. ("The iPod makes money. The iTunes Music Store doesn't.") I can understand people downloading music over the air to their phone on impulse, and paying a premium to do so, but that will be a small business for the record labels and a negligible one for carriers. So why do they even bother? And why don't all the carriers collaborate on a DRM strategy and build a single channel to compete with Apple? The answer to both questions is that content is the cupholder.
By the way, 'Chris_B' in a comment to Carr's post says that unauthorized duplication of CDs is a much bigger problem than online file-trading. He is probably right for now, but I think that while the music business will survive the transition to digital content in some form, the CD duplicators will not. The only people who buy pirated CDs today are the ones who don't have Internet access yet.
Traveling all over South-East Asia this year, I rarely saw anyone selling music - a few stalls in the Khao San Road in Bangkok, some sun-faded CDs in a store in Hoi An, Vietnam. Why? Because all the likely buyers were Western tourists and backpackers. And all of us had mp3 players.
On the other hand I saw two Internet Cafes - one in Cambodia and one in Laos - that were charging for the right to download music.
This week the Carnival of the Mobilists, a round-up of articles from all over the web about mobile, is at Mopocket. Many thanks to host Justin Oberman for naming my recent posts as his personal favorites.
This is the third in a series of posts analyzing what forces might break the hold that carriers have on the mobile market. Part I is here and Part II is here.
(6) Open Standards
Well, obviously. Wide adoption of open standards will reduce the carriers' ability to control the handset and what you can do with it. The question is why will carriers adopt technologies that threaten their business models? Because they need to deploy those technologies themselves in order to reduce costs and launch new services. This means IP end-to-end, open operating systems, and a growing reliance on open source software. Vodafone has announced that all of their future phones will be based on Windows Mobile, Symbian, and Linux. It will be very difficult for Vodafone to prevent customers doing whatever they want with those phones; consider Cingular's efforts to cripple dial-up networking on the Treo 650.
(7) Demand from Enterprise Customers
If phones are going to be widely used for Internet access, enterprise customers need a lot more control over employees' phones than they have today. Remote access; provisioning of software from behind the firewall; the ability to wipe the memory of a lost phone; locating staff; companies like Ford and Citibank do not want to rely on wireless operators for these services any more than they want to let Google host their web applications. Above all they want 'fixed mobile convergence', the ability to treat a mobile phone as just another extension on their PBX, another node on their wireless LAN. Carriers can't deliver FMC without giving up control of the phone.
(8) The Southwest / Ryanair Strategy
Sometimes it seems like every major operator in the world has the same strategy: become the number one branded provider of wireless voice and data services in their market. MVNOs may focus on one segment (people with poor credit or heavy data users or immigrants phoning family members at home), smaller players like Alltel and Leap in the US or 3 in the UK may compete on price because they have no choice, but the major operators will all tell you that their target market is "men and women aged 18-34." Sooner or later one of the majors (perhaps T-Mobile in the US or Softbank in Japan) will give up and adopt a different strategy entirely: become the lowest-cost provider. And the best way to do that for data services is to offer customers unrestricted access to the Internet.
(9) Network Parity
Europeans can stop reading at this point. For them, the idea that one wireless network could offer better coverage than another is a quaint memory by now. Why in 2006 can people not get a wireless signal in many parts of the US? It is not simply because US carriers use a variety of technologies while Europeans standardized on GSM; the three biggest Japanese carriers use three different technologies. It is just that the US is one of the largest and least densely-populated countries on Earth. And local communities have a habit of objecting to new cell towers even while they complain about poor service. Nevertheless, one day there will be very little to separate Verizon, Sprint, Cingular, and T-Mobile in terms of network coverage, and at that point they will have to compete on price, handsets, and data services, just like carriers in Europe.
One more post to come.
This is the second in a series of posts analyzing what forces might break the hold that carriers have on the mobile market. Part I is here.
(3) Subsidies Lose Their Power
Almost 90% of people in the US buy their mobile phones from their carriers; now almost 50% of people in the UK do the same. This allows the carriers to control what people can do with their phones.
So why don't more people buy mobile phones and wireless service separately, the way they buy PCs and Internet service? Because carriers subsidize the cost of handsets, cutting $100 to $300 off the retail price of a new phone, provided that you sign a two-year contract.
(Why don't regular ISPs do this? I know of one that tried during the dot-com boom: Gobi. But the math doesn't work. A broadband ISP would have to keep you as a customer for four years just to earn back the cost of an entry-level Windows PC. A wireless carrier can earn back the cost of a free RAZR in four months.)
There are three ways that subsidies could go away. The first is regulatory change, but I'll leave regulations until a later post.
The second is that a carrier could decide to abandon subsidies and use the savings to slash the cost of service, betting on consumers switching to their network and bringing their old phone with them. A new European MVNO, Blyk, is taking this idea to the extreme: no phone, but completely free wireless service - in exchange for receiving ads.
The third possibility is that phones will become cheap enough to make carrier subsidies irrelevant. We almost got to that point in 2000. Every new phone seemed to cost less than $50, and pumping up the price took upholstery or goldplating. Then came color screens and games and internet access and cameras and music players, and average prices began to climb again.
I believe that some time in the next five years we will reach another plateau, similar to where the phone market was five years ago and where the PC market is today: smaller, lighter, prettier, cheaper, please, but no new features. The price of new mobile phones will head back towards zero without a subsidy, and carriers will lose their power.
(4) Operator Overload
With great power comes great responsibility. By insisting on controlling all the services that pass through your phone, operators take on huge costs and uncertain legal liability.
Imagine if Dell or AOL were to insist on approving every web site in the world before it went live: content, usability, features, legal compliance, everything. This is the one of the implications of a 'walled garden,' and some wireless carriers are still trying to do this. It is not possible. You can let everything through and caveat emptor; you can let almost nothing through and make no money from data; or you can burn millions of dollars searching for a technical solution, a third way that doesn't exist. Recognizing this, some operators have begun to allow consumers unrestricted access to the Internet. They still put their own sites and 'approved' partners out front, but for how much longer? 74% of Americans already go straight to the mobile site of their favorite portal.
What do I mean by unknown liability? Assume that you are Verizon: Are you responsible for faulty merchandise sold by a mobile commerce site? If you have to approve every site on your deck, how do you offer adult content? If someone downloads an mp3 over your network, are you liable for copyright infringement? The solution is the same for wireless operators as it was for wireline ISPs - become a bit-pipe and disclaim all responsibility for what passes over your network.
(5) Flat-rate Pricing
A lot of people seem to think that operators are bound to move to flat-rate pricing for data, and that this will lead to unrestricted Internet access. Yes to the first part, no to the second.
Over time, all communication technologies seem to move towards simplified pricing, such as flat-rate pricing for mobile data. Note that 'simpler' doesn't necessarily mean 'lower.' Consumers often pay a premium for simplicity.
But switching to a flat rate for data doesn't make your carrier indifferent to how you use the network. If you pay by the kilobyte, they want to maximize the amount of bandwidth that you use: streaming video, music downloads, multiplayer games. If you pay a flat rate, they want to minimize the amount that you use. Only when it becomes cheap to deliver all kinds of content do they cease to care.
UK operator "3" announced flat-rate pricing for data services a few weeks ago and were greeted as messiahs. I am reserving judgment until I hear what the flat-rate price is, what the usage restrictions are, and why a company that is promising unfettered access to the Internet still needs a partnership with Yahoo. (And since 3 has only 5 million subs, I still won't care.)
Another week, another laughable announcement from a major carrier: I will be able to watch a handful of videos from YouTube on my Verizon phone. Videos carefully screened by Verizon. If I sign up for their $15 per month VCast service. Wonderful. Meanwhile carriers have made it even harder to do something as simple as forwarding email alerts to your own employees via SMS, even if your company is paying for the phones.
Imagine if there were only four major Internet Service Providers in the US. Now suppose that most of the time you had to buy your PC from your ISP - even if you were General Motors or McDonalds or the US government. What kind of PCs would you expect your ISP to offer? What kind of services? And at what price?
The correct answers are 'crippled', 'Soviet', and 'too much.' It would be infuriating. But this is precisely how the market for mobile phones operates in the US and Japan today, and the rest of the world is not much better off. What will it take to break the carriers' hold on the market?
Most of my peers believe in some form of technological Manifest Destiny: that change is inevitable, that carriers will see the light or be swept away, that the brave warriors Linux and Ajax will march around the Walled Gardens seven times blowing their trumpets and lo, the mobile Internet shall be ours.
For my business, I care about when and if this is really going to happen, and so I am trying to think about the market forces that may lead to it. I'll break this up into several posts. Thoughts and comments very welcome.
(1) More Competitors. Please.
The more carriers the better. Competition has driven the cost of long-distance phone calls in the US to near zero. But that took a hundred years and unlike Skype two guys in a garage cannot launch a nationwide wireless network good enough to compete with a Cingular or Vodafone or KDDI.
'Mobile Virtual Network Operators' or MVNOs help a little. These are companies like Amp'd and Virgin that lease carrier networks and sell services under their own brands. They have shamed the larger carriers into improving services and trimming prices. But starting an MVNO is like sub-letting your apartment; tenants may prefer dealing with you but you will never put your landlord out of business this way. ESPN and easyMobile have already given up.
New technologies can enable new entrants. There are two WiMax networks planned in the US, but one of those is Sprint's, so that means net one new entrant this decade. (Estimated cost of building a nationwide WiMax network: $5 billion.)
WiFi? No one can live on WiFi alone. As Roger Entner from Ovum says in this New York Times article, “Everybody who tries a Wi-Fi phone will get down on their knees and thank the wireless phone people for the good job they’ve done on coverage.” As well as spotty coverage and calls that drop even when you are stationary, WiFi drains batteries faster. Hybrid WiFi/cellular handsets actually help the carriers - they get to offer better coverage indoors without building any new towers and they can shift traffic off their own networks. The best we can hope for hope is that customers in turn will shift to lower-priced plans, squeezing carrier revenues.
(2) Market Saturation
The good news is that even without any new competitors, there can still be increased competition.
For twenty years, mobile operators enjoyed continual growth; prices fell every year, but this drew so many new first-time customers that total revenue kept going up. Investing in the network and keeping suppliers and vendors in their proper place was never a problem. Carriers that were modestly successful got bought by carriers that excelled. Failure was rare.
Now in most developed countries there are at least seven mobile phones for every ten people, which means that pretty much every adult has a phone. In countries like Taiwan the ratio exceeds 100% - almost everyone has a phone and many have two.
This raises the cost of a marginal subscriber; operators have to steal customers from each other or persuade their current customers to stick around and buy more services.
Anything that cuts into revenues or margins forces carriers to rely more on their partners - handset vendors, software companies, content providers, Google. And that is good for all of us.
More to come ... stay tuned.
The Carnival of the Mobilists is a weekly roundup of the best writing online about the mobile data market. Each week it's hosted at a different site - like a traveling carnival. Thanks to C. Enrique Oritz for including my post "Content is the Cup Holder" in this week's Carnival. If you follow the mobile market, you should definitely read some of the other pieces, particularly Andreas Constantinou on operator strategy.
Photo by markisevil
Why do carriers care about content for mobile phones?
As eMarketer pointed out in an article last month, mobile content is a $20 billion niche in a trillion-dollar industry. That is more than enough to get entrepreneurs and investors excited, and a lot of people have already gotten rich selling ringtones and games. But from the carriers’ perspective, it is 2%.
True, the market for mobile content grew by one third last year. At that rate it might get to be 10% of carrier revenue five years from now, depending on how quickly voice revenue declines. How much time do you spend thinking about products that might represent 10% of your revenue in 2011?
“I thought that mobile data revenue was already much higher than that,” you protest. Yes, but:
mobile data = content + messaging + internet access
Messaging includes SMS (text), MMS (pictures), IM, email, video calls, and whatever is to come; internet access means means wireless connections for laptop computers. Right now messaging brings in three times more revenue than content and still has plenty of room to grow. 3G modems for laptop internet access are very new but the coverage is so much better than WiFi that some people have ditched WiFi altogether. Messaging and internet access explain how mobile data got to be 14.1% of total revenue at Verizon Wireless. Messaging alone explains how the Philippines just became the first country in the world to see data revenue overtake revenue from voice.
Mobile content (games, ringtones, TV, maps, music, location-based services, and everything else) is much less important. Moreover, content must be sourced; dozens of technologies are involved and hundreds of business relationships must be managed; and everyone wants a cut. That makes content far less profitable than messaging or access, for which marginal costs are negligible. So why do carriers care about content at all?
One reason often given is that some category of content is going to break out and generate a hundred billion dollars in revenue. Before the telecom bubble burst in 2000, this was how European carriers explained the prices that they paid for 3G spectrum. But those investments have long since been written off and forecasts for mobile content are today quite modest. Carriers no longer have to be seen putting a lot of effort into content in order to justify their stock prices.
In my view the real reason that carriers care about content is that content is to mobile phones as cup holders are to new cars.
27% of car buyers in America would consider switching make or model to get the perfect cupholder. And no, it’s not just Americans anymore.
This is rational behavior. Once you’ve decided that you want, say, a two-seater car for the city or an SUV, there’s very little to choose between the dozen models available except for details like cup holders, keyless entry, a telescoping steering column, or a power outlet on the center console.
Consumers choosing a wireless carrier care most about price, handsets, and in the US, coverage. But in most countries there is very little to separate the leading carriers. Enter mobile content. When a customer is standing in Radio Shack or Carphone Warehouse trying to choose a new carrier, one rock star, one new game, one favorite TV show might make a difference. Carriers use content to sell voice.
Why is this important? Because if you are in the business of developing content for mobile phones, this explains a lot of carrier behavior that otherwise seems irrational or unsustainable.
According to Gizmodo, Samsung has decided to exit the market for low-end phones, those old-fashioned devices that just let you make phone calls. They are unable to compete with the likes of Nokia. Meanwhile Nokia's earnings are down 4% even as revenues grow 20%. So who is winning?
Five years ago I had a conversation with Shannon Maher about the future development of mobile phones. At the time most phones in the US did nothing but voice calls; most American consumers had never heard of SMS. Repeating the conventional wisdom in tech circles, I claimed that Moore's Law would inevitably lead to ever more powerful and complex cellphones that would be like miniature PCs. Shannon surprised me with the first plausible argument I'd ever heard against this claim. [1]
He pointed out that for 20 years Moore's Law had been driving the development of desktop PCs and mobile phones in different ways. PCs had gotten more and more powerful every year while staying roughly the same price. Mobile phones on the other hand had gotten smaller and cheaper every year without adding any new capabilities. Why wouldn't this trend continue, he asked?
Shannon was right about the trend. But then two things happened. First, phones got so cheap that in the US, where carriers subsidize handsets to encourage people to sign up for long-term contracts, the price to the consumer reached zero. Second, almost everyone in the developed world who was ever likely to buy a mobile phone finally bought one.
If phones are essentially free and everyone already has one, there are only two ways for carriers to grow their businesses. They can keep cutting the price of phone service to take customers from each other, or they can persuade customers to buy more powerful phones and new data services. Handset makers don't have much room left to cut prices on low-end phones, so they too want to sell us more powerful handsets. Or they can sell phones for a few dollars each to people in the developing world and seek The Fortune at the Bottom of the Pyramid
As the largest handset maker, Nokia bet on its economies of scale and has come to dominate the low end with hundreds of millions of nearly identical handsets. Much smaller rivals like Samsung could not compete. But every disadvantage is a potential source of advantage; because of their small size, Samsung, LG and others were more willing to do small runs of experimental handsets in hundreds of different configurations, with various combinations of color screens, cameras, keyboards, thumbwheels, GPS receivers, Java, stored-value chips, music players, FM radios, music players, 3D graphics engines, and memory. This was exactly the sort of expensive Darwinian process necessary to find out what consumers really wanted, and it is still going on.
Samsung briefly overtook Motorola to become the number two manufacturer in the world, but Motorola fought back with weapons that Asian manufacturers still haven't mastered (and that a lot of people thought Motorola had forgotten): design and branding. Thanks largely to the RAZR, Motorola now has a ten percentage point lead on Samsung again.
Meanwhile Nokia still seems complacent about this vast middle of the mobile phone market. So do many of the entrepreneurs that I meet who want to develop applications and content for the mobile phone. Like Nokia, when they look to the future they look to smartphones, the $500 plus high-end devices powered by Symbian (or Windows Mobile), and they think that they just have to wait for consumers to catch up with them.
I am not so sure. While there are a lot of business customers for whom a smartphone makes sense as a low-cost alternative to a laptop, and a lot of rich consumers who just want to buy the most expensive phone on the market no matter what it does, the future of phones is being decided in the mid-market by Motorola and Samsung.
Despite their recent troubles - the loss of share to Motorola and the downward pressure on earnings caused by all that expensive experimentation - I think Samsung's approach to the market makes more sense than Nokia's. The future belongs to them. Or to LG, or Haier, or Motorola or whichever one of the dozen other players can best combine continuous innovation with design to own the mid-market.
And I see no evidence that what most people want is a miniature PC.
[1] 'People don't need that stuff' doesn't count. People didn't need the wheel.
When I read that Infospace's stock price had dropped 22% on reports that it has lost its largest customer, Cingular, and that analysts were calling for the company to shut down and return cash to shareholders, one word came to mind: oligopsony. (That is how my mind works.)
A monopoly describes a marketplace with many buyers but only one seller. The market for PC operating systems is effectively a monopoly, dominated by Microsoft. A monopsony is a market with only one buyer. This is rarer, so the word is unfamiliar. The market for tanks and helicopter gunships in the US is a monopsony.
An oligopoly is a market with many buyers but just a handful of sellers, and an oligopsony is a market with many sellers but just a few buyers. So few that they "can play off one supplier against another, thus lowering their costs. They can also dictate exact specifications to suppliers, for delivery schedules, quality, and ... pass off much of the risks of overproduction, natural losses, and variations in cyclical demand to the suppliers." (Wikipedia.)
The market for mobile content and applications in the US is an oligopsony. Four buyers dominate the market - Cingular, Verizon, Sprint (including Nextel), and T-Mobile - but there are hundreds of sellers like Infospace. Consequently the buyers have extraordinary power: power to dictate contract terms, to rein in suppliers that are too ambitious, and even to summon competitors into existence for suppliers who have none. Even if you get to be big and successful, when you only have four possible customers, losing one means losing at least 20% of your revenue overnight.
If you were checking Infospace's stock this week, you might have guessed that the ticker was INFO (it is actually INSP). INFO is the ticker of Metro One Telecommunications, which was until a few years ago one of the biggest providers of directory services to the US carriers - the original mobile content business. When you called 411 from your wireless phone, Metro One answered. Then the company lost its contract with Sprint, and began a long slow decline from around $150 to $2.50.
How do you make a billion dollars in this kind of market? You can grow your business as fast as possible into one of a handful of powerful sellers - an oligopoly to counter an oligopsony. This has been the strategy of almost every mobile content company to date, and so far none has succeeded. Or you can market your content directly to consumers. Not surprisingly, many new startups in the mobile content market are taking this approach. It will be interesting to see if any of them are more successful than Infospace.
The big news from CTIA this week was that News Corp bought 51% (why not 100%?) of Jamba from Verisign.
I took this photo a little over a year ago in a small town called Fethiye in the south of Turkey. It was market day, and stalls were piled high with t-shirts: Mickey Mouse, Britney Spears, Homer Simpson ... and Crazy Frog. Crazy Frog, one of a number of lunatic characters created by Jamba to sell ringtones, is not so well known in the US, but seems to be known in every corner of Europe. Jamba has done what no other 'mobile media' company has done - created original content that millions of people recognize and seek out. Even if it's incredibly irritating.
If you want to be a big, rich, standalone media company, you have to own your own content or your own distribution. (Owning both may be a disadvantage. Fear of piracy caused Sony Music to block Sony Electronics from developing an mp3 player until it was too late to catch up with Apple.) Tom cannot build a major media company based solely around licensing Dick's content and repackaging it for Harry's channel.*
In mobile, you can't own distribution, at least not yet. The carriers control what gets on to consumers' handsets, and even if you market directly to consumers online you still have to defer to the carriers if you want to be able to bill your customers through their phones.
So if you want to build a mobile media company for the long term - as opposed to selling out early - you have to own create original content. And so far no one has done this as well as Jamba.
Unfortunately, instead of investing more time and effort into developing new characters like Crazy Frog and new products to take advantage of them, Jamba seems to have spent all its time trying to extract as much money as possible from consumers through questionable marketing practices. I am sure that they did nothing illegal. But when regulators introduce new policies that are specifically intended to block your company's business practices, and nobody comes to your defense, you have probably gone too far.
Jamba/Verisign never made sense to me. Shortly after the deal Verisign execs talked about shutting down Jamba's direct-to-consumer business and concentrating on powering carrier-branded services. This would have been a better fit with Verisign's other businesses, but barking mad.
Jamba/News Corp. does make sense. But I hope they do not treat the creative team at Jamba as a job shop, destined only to execute on whatever ideas come out of Fox in the US or UK (a 24-minute of version of "24" without Kiefer Sutherland that costs $10?). Because Jamba knows far more about creating original content for mobile phones than Fox does.
* Caveats:
(1) It's a great way for Tom to start a media company - think HBO. But what made HBO big and rich was original content. (2) It's a fine way for Tom to build a company whose revenues or profits are too small for Dick or Harry to care about - think lunchboxes. (3) It's a wonderful way to build a big, rich company if Tom has a watertight patent on the process for repackaging the content. Gemstar tried this, but failed.
I got some feedback to my last post (and feel free to post comments, this is a blog after all) and have been doing some further research. Some new companies that strike me as 'interesting', because they have a novel product or a novel approach to the market or both include:
Obopay - a mobile payments system that people might actually use
Shozu - upload pictures from your cameraphone to your blog or favorite photo-sharing site, not the web site of your mobile operator
Admob - an advertising network for mobile phones that borrows from Google and Overture instead of Doubleclick
Musicgremlin - a music player that isn't tethered to a PC or to your mobile operator
Obviously these are all consumer-facing companies. Any other suggestions? Right now I am interested in companies with innovative products and/or strategies, not new ringtone download sites, new games publishers, or - least of all - new names for old companies.
I have been away from the wireless Internet market for a little over twelve months; three spent planning our wedding, nine spent travelling the world. I checked in on sites like Moconews every so often, and I took a look at the services available in many of the countries that we visited, but for the most part I kept my distance.
Catching up now I am struck by how little has changed in the last year. Where are all the new startups?
About a year ago Tim O'Reilly wrote an excellent essay, What is Web 2.0, in the course of which he mentions "9.5 million citations" of the term on Google to illustrate how popular it had become. Today I see 57.5 million citations of the phrase "Web 2.0" on Google, and the list of so-called Web 2.0 startups has gone from the unwieldy to the unbelievable to the ridiculous.
On the other hand the list of exhibitors at CTIA has hardly changed at all in the last year.
Web 2.0 may be a bubble. But better to have bubbled and burst than never to have bubbled at all.
For a long, long time we've been waiting for carriers to launch automatic location-detection for phones. In 1996, the government mandated that carriers roll out this technology for 911 calls. The commercial possibilities were fascinating; entrepreneurs and investors and analysts talked up the potential for a whole new category called 'location-based services', and Vindigo was one of dozens of companies founded in the last 10 years in anticipation of LBS.
The technology is ready. In most parts of the country, emergency services can locate a wireless 911 caller. And if they can't, it's probably because the local authorities haven't got the funds to link their systems to the carriers. But we're still waiting for commercial services ... 1997. 2001. 2005.
To cut a 10-year-long story short, with the exception of Nextel, the carriers just haven't gotten around to LBS. There's always been something more important to do: WAP, or Java, or ringtones, or push-to-talk, or 3G. And unfortunately, because the wireless Internet in its current form is closed and proprietary, the rest of us have to sit tight and wait for the carriers to decide when this application is important enough to bring to market.
Which makes Navizon very interesting. Navizon offers a small app for wireless (Wi-Fi or cellular) Pocket PCs. Download their app and in many places in the US they can provide you with a good estimate of your location, based on the co-ordinates of the Wi-Fi nodes or cell towers that you are within range of. But how do they know those co-ordinates? That's the interesting part. A small number of their users are GPS enthusiasts; people who have a GPS attachment for their Pocket PC. Navizon's app runs in the background on their machines and as they walk around it records the latitude and longitude of all the nodes and towers they pass. Given enough users in the right places, Navizon can collect and maintain this information for the whole planet - for free. In Web 2.0 speak this is called peer-produced content; folksonomic location-finding.
It's fun to think of the other data that could be collected this way. Volunteers with the right attachment for their phone could build up global maps of air pollution, air temperature, noise levels, or traffic, just by walking around. They could monitor biohazards or radioactivity. They could collect prices in stores (from their RFID labels), or sample music played in public. Or maybe they could just cheat at hipster bingo.
I don't know whether Navizon will be a successful business, but it's a great example of what will be possible once consumers are carrying true smartphones: devices with open operating systems and an IP stack. Most importantly, we won't have to wait for the carriers to decide which applications to prioritize, and which ones we have to wait 10 years for.
Cameraphones will change the way that news is gathered and reported. But they will also change the kind of news that we see.
On the southern shore of the Golden Horn there is a giant yellow balloon. Tethered in one place, it can hoist a basket of tourists six hundred feet into the air for a panoramic view of Istanbul. It's only a few years old, but it's become a minor landmark, a little Istanbul Eye. And it's managed by the family of Endam, whose wedding Summer and I were in Turkey to attend.
A couple of days after the wedding, there was a minor accident. A freak wind blew the balloon too close to a tree, where one of its ropes got tangled. I am sure it was a very scary experience for those on board, but the balloon was freed quickly and no one was hurt. And that would have been that, were it not for cameraphones and a slow news day.
At least two people - one on the ground and one in the air - had cameraphones capable of shooting a few seconds of video. The short, jerky, low resolution footage that current phones deliver may not be much good for home movies but it's perfect for TV news. Think Blair Witch Project; if the camera is bouncing around there must be something terrifying just outside the frame, right? That evening at least three network news shows led with the balloon story, running the few seconds of footage over and over, backed by some ominous orchestral music and straplines like 'Balonda Panik!'
There's a long tradition of citizen journalism. Amateur footage has played a significant role in the media at least since the Zapruder film of the Kennedy assassination. Then, as on 9/11 or following the Tsunami, amateur video made an important contribution to a major news story. At other times a major news story has been driven entirely by amateur video, such as the beating of Rodney King.
Far more often, however, amateur video has fed TV and now the web's relentless appetite for soft news: content that is new, scary, funny, new, sexy, dramatic, and new, regardless of whether it is in any sense important. In Istanbul it was 'panic in the air', but it could have been man pulled from raging torrent, kid doing pratfalls, or dog chasing hippo. I believe that amateur video makes up a much larger share of soft news than hard news, simply because the pros are not around to record this stuff unless it's staged for them or it happens at a public event. For every Citizen Woodward, there have been a dozen Citizen Weegees - people smart enough to know farce or drama when they see it, and to turn on their cameras.
Cameraphones will dramatically increase citizen journalism of both kinds. The first significant use of video from a cameraphone by the major media was just six weeks ago, when London was bombed. There weren't many shots, and the quality was poor. But five years from now, almost everyone will be carrying a phone with them every day that will be capable of shooting several minutes of broadcast-quality video. This will be by default; it's already getting difficult to buy a phone without a camera built in.
New businesses will emerge to aggregate all this content, tag it, identify what's most important or interesting, and broker deals with major media companies. Flickr and Scoopt are already doing this for still images.
While most people are thinking about Citizen Woodward and anticipating a pro-am Pulitzer, I am thinking about Citizen Weegee. I believe that cameraphones will generate far more soft news than hard news. There are often people with camcorders at theme parks, sports events, parades, and weddings. It's much less likely at the scene of a car crash, a burglary, a fire, a street fight, or every single time a celebrity goes out in public. But as I learned in Istanbul, somebody always has a mobile phone.
The problem is that soft news tends to drive out hard news altogether. Cheap thrills drive out stories about Medicare. Simple images and soundbites drive out complex, nuanced stories. Meetings where powerful people make decisions that affect all of our lives don't get reported at all, because there's no funny bit with a cat and a banana.
What happened to the yellow balloon was news. I don't believe that it deserved to be headline news, with saturation coverage, in a country of seventy million people. For me it's a very early example of how cameraphones will shift the balance of reporting even further away from hard news.
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