In the final exclusive excerpt from their book, OpenGardens, Ajit Jaokar and Tony Fish examine the mobile device’s role as the focal point of digital convergence
n the previous articles in this series, we have discussed the co-relation between openness and innovation. Specifically, we have discussed innovation from ‘garage developers’ working with the mobile Internet.
To recap, in this context, ‘garage’ means any entity not having a strong negotiating position with respect to the mobile network operators — i.e. they do not have a strong brand, manage a large community or have access to significant funds. Also, as outlined in previous articles, openness implies ‘open platforms’, especially where platforms are hosted by the mobile network operator.
In this last article, we look at the wider issues related to openness, and the relationship between openness and digital convergence.
Here, we argue that
a) The mobile device is the focal point for digital convergence.
b) That digital convergence will lead to a virtuous cycle, where operators will be forced to open their networks or perish
The convergence concept
Digital convergence is a much-maligned concept, but its time may finally have come, driven by the rapid digitisation of content, greater availability of bandwidth, increased processing power, and the Internet.
Digital convergence brings four previously distinct industry sectors in to contact with each other. The media/entertainment, PC/computing, consumer electronics and telecommunications industries are all collaborating much more closely with each other than before.
But crucially, they are also now competing with each other by deploying products that encroach into each other’s traditional domains; a TV can now function as a PC and vice versa.
Applications based around the mobile Internet now have a great deal of competition if they are to challenge for a share of the customer’s wallet. The current strategy of the mobile operators seems to be to pen customers in to the ‘walled garden’ of content that they offer, but can the mobile Internet afford to remain closed in the hope that customers will stay within its narrow confines? If the network operators do open it up, can they hope that new entrants will not try to capture their traditional customer base? The biggest headache for the Mobile Network Operators is that ARPU will increase but not all of the extra income will come to them!
With all of the four sectors described above fighting for a greater share of the customer’s wallet, digital convergence has a direct impact on ARPU.
Why mobile?
Looking at consumers’ consumption of technology and media today, mobile appears to be only a small part of the wider digital convergence domain. When we wrote OpenGardens, we approached the topic of ‘openness’ from the perspective of the mobile Internet and the Mobile Network Operator. But, by its very nature, openness in mobility is a subset of the wider digital convergence across all sectors of technology and business. Thus it seems restrictive to confine ourselves to openness on the mobile Internet. So why do we say that an Open Mobile Internet (‘the open garden’) is crucial to the wider trend of digital convergence?
The answer lies with the consumer. Consumers do not understand ‘digital convergence’; they are more interested in what they can (or cannot) do! Though they wouldn’t describe it as such, what they see is ‘bi-centric’ convergence, i.e. convergence around two centres: the person and the home.
The impact of bi-centric convergence is that the consumer is exposed to a range of devices and technologies all around them, and these devices have considerable overlapping functionality. The consumer’s choice is between a specialised device (e.g. the ‘Stanley’ knife) or a generic device (e.g. a ‘Swiss army’ knife).
While specialised devices may provide the best solution for a specific requirement (such as taking a picture), the mobile device often provides a ‘good enough’ solution. And the mobile device gets better each year. For example, the Samsung D500 is marketed as a mass-market phone but has a 1.3 megapixel camera, state of the art for a small, dedicated digital camera just a few years ago. The mobile device is also ‘handy’; it provides an instant solution (‘capturing the moment’), which is good enough for most requirements.
With the mobile device becoming the digital ‘Swiss army’ knife, the basic functionality of a phone (voice calling) has been supplemented with an mp3 player, digital camera, radio, games player and even television. While the mobile device will never replace the specialised device, it will be the device most often used by consumers to access digital content, even though there are other devices that can provide a technically superior solution to a particular problem.
Thus, we believe that, starting with 3G, the mobile device will be the focal point of digital convergence purely because customers will use it most often to access digital content. It is this observation that makes the mobile Internet crucial to the wider digital convergence.
There is already increasing evidence to support this line of thinking: well above first estimates, the final count of cameraphones sold in 2003 was 84 million, almost twice the 46 million ‘traditional’ digital cameras sold. Nokia now sells more digital cameras on its phones than any camera brand. The estimate for 2004 is 169 million camera phones according to Strategy Analytics, meaning that in just three years, cameraphones will have surpassed the population of conventional digital cameras. (Sources: Business Week Apr 12, 2004 and TomiAhonen Consulting Estimates)
‘Openness’ — the impact of digital convergence
Given the importance of the mobile Internet in digital convergence, what impact will digital convergence have on openness within the mobile Internet?
The answer lies in understanding two effects of digital convergence:
a) The competitive impact of new entrants to the mobile Internet
b) The technical fragmentation from diverse and complex devices and standards
To examine the competitive impact, take the recent example of developments in the TV market. In the UK, mobile operators are running trials of TV delivery to mobile devices (including O2 in Oxford), and the fixed-line telecoms players are also trying to enter the television domain through high-speed DSL lines. There is nothing preventing someone launching a mobile-only or DSL-only TV station.
The new competition will most likely lead to a greater number of channels. Many smaller channels means more opportunities, and more pressure to create standards so that content translates across multiple channels and systems can speak to each other; an open garden.
A more diverse competitive ecosystem demands more openness. And a more diverse technological ecosystem — many players, various devices, numerous content types etc. — tends towards the uptake of open source. Unless operators and manufacturers open up at least a part of their platform solution, third-party collaborators will not come in to tweak content for multiple devices. If there are few or no third-party developers tweaking the source code to cover a large number of devices, we are left with a fragmented marketplace, much as we have now.
At best, this means a dumbed-down, lowest common denominator set of applications that may never achieve broad appeal. At worst it means a deeply fragmented marketplace with no chance of achieving the full revenue potential of the mobile Internet. We do not argue that there is no revenue on the mobile Internet. If that were the case, we would not have the numerous ringtone, games, and wallpaper etc. companies prospering as they are today. The problem starts when we explore the expansion beyond these traditional content types.
This fragmentation problem coupled with new entrants to the marketplace creates a pressure on the profitability of the entire industry. It affects the largest mobile operator and the newest entrant equally.
Coming back to mobile TV, anyone who has tried to deliver ‘polyphonic ringtones’ knows that there are multiple standards and devices that need to be addressed. This situation only got worse with the advent of MMS as screen sizes and data formats became even more diverse.
With mobile TV, the complexity increases by a further factor. So, rather than the service provider trying to cover every device, and every format on every device, would it not be better to release the API in open source so that developers could make the application work for the device of their choice?
Thus, the effects of digital convergence — competition from new entrants and technical fragmentation — will lead to more openness. Operators will be forced to open their networks, or perish.
In conclusion
The mobile Internet uses the same protocols as the fixed-line Internet, but that does not make it ‘open’. The lack of openness on the mobile Internet is not a technological but a commercial issue. As we have outlined above, we believe it is in the industry’s best interests to embrace the OpenGardens philosophy. The commercial implication of increased digital convergence is a ‘larger pie’ and thus a chance for all players to gain.
The forces that inhibit the progress of Openness are many and are driven by deep vested interests. We do not advocate a free-for-all, Napster-like environment, but the current ecosystem inevitably leads to a fragmented environment, which can only be overcome by consolidation to a single monopolistic entity — a situation almost no-one in the industry wants to see.
When viewed from this perspective, the move to an open approach becomes mandatory, rather than ‘nice to have’. If the industry is to move beyond the basic ‘song and dance’ applications that we see today, then an OpenGarden must be the future.
We welcome your views. Contact us through www.opengardens.net
