Nav

Mobile communications opening up

I believe that this week’s announcement of Verizon exclusive bundling of Skype into its mobile phones is a significant milestone in the inevitable march towards a world of open mobile communications.

What I mean is that carriers will increasingly become value added internet service providers.  They are currently the old AOL.  Providing access to the internet but also providing a highly controlled and managed service experience where they decide what services become available and under what conditions.  That model didn’t last long in the desktop internet.  People decided that they wanted a fast internet access, but they wanted to control what service to use for email, where to find content, information and entertainment and so on.

I remember 7 or 8 years ago listening to an analyst describe how the wireless carrier industry was a different animal.  That wireless carriers controlled their infrastructure all the way to the phone that the consumer was using and that they could therefore avoid being bypassed and commoditized.  While I don’t think that it is an issue of commoditization, I think that comment was a little shortsighted.  What the carriers control is important, but another key and important factor is what consumers want and desire.  When there is strong demand for open and innovative services, someone in the industry will step up and try to offer them.  Because that is a way for them to get ahead of the competition.  This is exactly what happened with Verizon.  They had shocked the world a year or so ago when they announced that they would abandon their “walled garden” approach more in favor of an open internet environment.  This week they move a step closer with the deal with Skype, a company whose services undercuts their voice revenue.  Verizon realized that the growth potential in data revenues and competitive marketing advantage outstrips their potential cannibalization of already declining voice revenues per consumer.  It’s unclear whether Skype had to kick any share of its revenues back to Verizon for this deal.  No matter what, it signals a new wave of thinking among the carriers.

Off course this all started with Apple and its deal with AT&T.  The iPhone’s app strategy allowed the collective innovation of the app development community to show consumers what they can suddenly do with their phone.  And consumers loved it and now want more.  (While Apple opened up the carrier “walled garden” it now became the gatekeeper of what consumers can access, a more benevolent gatekeeper but still a controlling force, but that’s another story).  Follow some of the debate here, from a panel at the Mobile World Congress:  Telstra’s CTO get it; the GSM Association’s marketing chief doesn’t.  The die is cast and the only way to move forward is to give consumers more of what they want.  Access to more innovative services on their phone.

This is exciting for consumers.  Imagine a world where you can sign up for carrier internet access, but then choose the way you want voice services are delivered. It’s coming.  Innovative companies like Skype and services like Google Voice have shown us what is possible.

This is not neccessarily bad for the carriers.  Being the access point to a fast internet is important and requires capital and operational excellence that needs to be rewarded.  It also gives them the obvious first entry point in order to sell additional services to consumers.  But if they want to win those consumers over, they need to innovate or partner with nimble smaller companies (By the way the answer for carriers does not lie in the recent announcement of a wholesale app store, which is simply a pipe dream).  Consumer demand it and are willing to pay for it.  Carriers can also benefit from additional revenue sharing from companies like Google that know how to monetize search and can kick some of that revenue back to carriers (that’s a nice enticement to work with Android).  Or they may decided to spread their bets on multiple ecosystems because Google is already too dominant.

Finally, this trend is promising for innovative young companies.  We funded a couple of mobile companies in the past that had to sell through the carriers.  One, Mobile365, was very successful and is now a large division of Sybase, who bought it.  But at any point in time, its future was highly dependant on the whims of the carriers doing business with it.  An open mobile network levels the playing field and allows the best companies to win because they are chosen but consumers directly.  I think Skype is an exciting company to watch.  They have a chance of becoming the global voice services provider, a sort of 21st century global Ma Bell.