Saturday, July 08, 2006

Fat Kid Wants All The Sweeties

Vodafone recently summed up the attitude of operators to all content passing over their networks - they want to have the cake, eat it, and charge the bakery for the privilege of making it in the first place and allowing Vodafone to be seen with it. At a panel discussing mobile TV, Voda couldn't resist a jealous slight of JV partners BSkyB:

Chair: "So who owns the customer, Vodafone or BSkyB? Who deals with customer care and funds the spectrum purchase?"
BSkyB: "It’s a joint venture so we have to sort it out in our back office. As to who funds the spectrum investment, well that’s the million pound question."
Vodafone: "The thing that the operator has is the customer. I think fundamentally it’s our customer... (snip)"
Chair: "So he thinks you’ve got a joint venture, and you think you own the customer!"
Vodafone: "I think we have to recognise that we have responsibility for the customer."

This sounds like the behaviour of a jealous insecure child, publicly undermining a friend. The vastly overhyped failure that will be mobile TV is the subject for another post, but if you had two brands like Voda and Sky trying to really make mobile TV work you could do all sorts of innovative stuff leveraging the Sky digital STBs and on-handset services to tie mobile into the living room TV experience and vice versa; instead, you have a dysfunctional relationship where everyone gets protective about money that isn't even there yet, hardly a recipe for success.

Growth in the games market has stalled for a number of reasons: content discovery has to be the biggest barrier, but the ~50% average revenue share taken by operators (on top of aggregator revenue shares etc) makes it an unprofitable business for all but the largest. This will lead to the same dearth of innovative content currently worrying the mainstream games industry (read any issue of Edge to get a palpable sense of it). Developers run for the big name brands and produce formulaic rubbish because they know operators will put it on the top of the content decks and it will sell for now, at the cost of downstream poisoning of the industry.

Music is another area where a potentially great service is being stifled by operator greed. I have never understood why people would pay £2-3 for a ringtone, especially when often it's just a 30 second MP3 with an abrupt fade-to-silence at an inappropriate moment; this screams of utter disdain for the consumer when a full track can be downloaded for 99 cents on iTunes (and even that is steep). But in the short term it has made some money, so it will continue. Operators brought up on this then want to price music accordingly - I'm sure at some meeting between the innumerable layers of bureaucratic dross in Vodafone someone keeping a consistent pricing strategy and charging a tenner for a full song. In China piracy has forced the operators to keep down at the 15% revenue share level for music, but they are also looking to change that by forcing themselves into a larger role in the "value" chain.

Writing this article vividly brings to my mind the description of the mining industry in Jared Diamond's book Collapse: an industry which gouges everything it can with no thought for others leaving huge problems for everyone else. Even the oil industry is slowly waking up to the advantages of sustainable responsible development, but mining has basically wiped itself out in the US because of the way it conducted business.

Whilst Vodafone pride themselves on being the biggest - largest number of non-Chinese customers in the world, most expensively hyped content portal, biggest UK corporate loss, largest failure in the Japanese mobile market - ultimately it needs to get over the billions European governments extorted for 3G licenses and become a data pipe with added benefits. They have a solid role to play in all of the content markets, eg. providing payment infrastructure at acceptable rates, but not at . Making this transition whilst still providing growth will be hard - but strangling every new potential market that grows up around the mobile phone just ruins the party for everyone. DoCoMo have managed to build a functioning ecosystem by leveraging their near monopoly to deliver compelling new features to a Japanese market isolated from the rest of the mobile world, but this will largely be a voyage into uncharted territories where innovation and agility will suddenly be useful again.


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