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Winning: It's All About Distribution, Baby!

This industry pundit has strong opinions about what kinds of mobile apps will win and what kinds will lose. He also has discovered a hidden advantage to BREW that will guarantee it wins in the long run.


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Stewart Alsop gave an offbeat keynote at the BREW 2002 Developers Conference in early June. A onetime editor-in-chief of PC industry newspaper InfoWorld, an entrepreneur, and a longtime PC industry pundit, Alsop comes at the mobile industry in his current role as venture capitalist for New Enterprise Associates, where he has recently been making investments in this area. He gave his opinion about what mobile phone application areas would be likely to be successful—and which currently hot areas he thinks will fail. He also explained the overlooked reasons why BREW will succeed in the marketplace.

The fundamental issue, said Alsop, is successful convergence versus unsuccessful convergence. The printer converged with the fax machine; that worked. Some manufacturers have converged the cell phone with the camera—he thinks that will fail. In his own portfolio he has a cell-phone games company, and a cell-phone email company, because he thinks these are two of the most important areas of convergence you will see on cell phones.

The telephone is the most ubiquitous technology in the world, more so than the TV—there are two billion phones for 6 billion people. Why is it so successful? Because people like talking on the telephone. Everything that helps people talk on the phone creates more success. Cell phones are a hit because they add portability, which means more places you can talk on the phone. Better battery life lets them talk longer, better coverage lets them talk in more places. Pocket-sized phones let them carry the phones everywhere conveniently.



It's important to note that you can work statistics in this industry any way you like, but there is still one bottom line. For example, of the 900 million cell phones sold worldwide in 2001 (compare to 120 million PCs!), more than half were bought as replacements. But 100% were bought so people could talk to other people.

The key lesson: To most of your customers, a cell phone is first and foremost a telephone. Features and applications that help people make a phone call are playing into this key fact. Features and apps that get in the way of people talking on the phone are likely to fail.

So at the top of the list are features that enhance the telephone experience. His example: an integrated directory lookup service that can check any phonebook anywhere to find a phone number and dial it.

Next on the list are apps that fill time between calls—games, location services, chat—because they don't interfere with talking on the phone.

At the bottom of this list are apps that interfere with calls or compete for talk time. PC-type applications, productivity applications, mobile commerce, all get in the way of making a call. People just don't want to compute on their phones, he argues. And it's not just apps affected by these rules: They apply to the device itself as well. The Nokia Communicator, newly released in the U.S., is a nifty small computer, but you have to close the lid to use it as a phone. There is also the appropriateness issue; just because your gadget can play music doesn't make it a stereo—or a stereo replacement.

So the closer you can stay to the top of this list, the better your chances of success.

He thinks the music and photo boom in Japan and Korea may be just an early-adopter fluke. Video telephony, on the other hand, he thinks is cool—you can look at people while you talk to them.

More for Less, or Less for More?
This is a screwed-up industry, Alsop complained. Carriers seem only able to compete on price. The promised land of phone numbers for life, good coverage, and phones that work in all locations and on all networks, is far away. Carriers are hoping data services will save them because they can get customers to pay more, lots more. But for this to happen, the carriers and their data services will have to provide more value. And that's the hard question: What do customers want that we can provide?

Alsop also warned that customers won't engage in substandard experiences just for the joy of technical experimentation and for the benefit of the technology industry. Customers want useful stuff. Worse, they want to pay less for more; they want everything as cheap as possible.

Pricing will continue to be an issue. Carriers always charge high at first, even though a new service or feature doesn't work well initially. They want to raise ARPU (average revenue per user, which has been dropping, from around $34 to around $29), but they have to face reality: ARPU is not going to double—it could go up to $35 or even $40, but not more than that. Carriers should think of $40 as their likely upper limit, and figure out a way to make these services work profitably without going above that level.

The rollout of 3G is too slow—but then, broadband is always slower to roll out than advertised. Alsop called 3G "the HDTV of the business: All talk and no action."

Useless Market Statistics
Alsop ran through some slides containing what he admitted were "useless" market statistics—useless because he had trouble finding enough data so he made some of it up. Nokia is the biggest seller of handsets, with 36% of the market, followed by Motorola at 15%, then the next three makers at 7% each, and 28% divided among all the others. Who will be on top in 2007? Don't know—but one thing Alsop does know: It won't be Nokia. Not because Nokia is doing anything wrong, but because things change. It could be Samsung—they've come from nowhere and jumped to number three. How about Handspring? Motorola, which used to be on top and is now recovering, might well be number one again.

One more thing is certain, claimed Alsop: It won't be Microsoft. He stated that market share for Microsoft in 2010 will be zero. (The audience laughed at that one.) Alsop added, Symbian will also be at zero. (That stunned them.) The Palm OS labors under the disadvantage of not being a multitasking OS. Java as a client-side OS will find its home on cells phones, and be a big winner.

What about QUALCOMM's BREW? Alsop had an interesting take on this.

First, BREW will be a big long-term winner because it incorporates a distribution system that takes care of delivering, updating, and managing data applications both on the cell phone and on the network. It also manages billing, which is really hard. Nextel has a good system for delivery and billing, too, but it's their own system; nobody else has such a system, and nobody besides BREW offers one to all carriers. When it was founded, QUALCOMM and its CDMA system were seen as quirky. BREW today is also seen as quirky. But it will win in the end. "I'm beginning to think QUALCOMM is a pretty smart company," said Alsop.

BREW's Overlooked Advantage
Developers like Java, Alsop went on, because they know it. Handset makers like Java too. Carriers don't care—yet. But what they do care about is controlling the devices they sell. With Java, in principal any customer can download Java apps to their phone by linking to their computer, or by dialing into some random Java service. The carrier would have no idea this is going on, which is bad for two reasons. One, the carrier can't get a piece of the action. Two, just as serious: Who approves the apps being downloaded? Who tests them? Who makes sure the apps don't interfere with the phone's operation? What's to stop someone from downloading an application that ends up crashing the cell phone? When that happens, customers will start calling up the carrier for tech support—and that is Not Good.

With BREW, on the other hand, the carrier is protected from all that. The carrier gets a BREW server through which all its customers access, download, and pay for apps. Customers from Carrier A can't get apps from another server somewhere else, because everything is keyed to the carrier's own server and own handsets. The apps delivered through the BREW system are certified to work with those handsets, and the BREW delivery system can check the handset for proper configuration—so BREW-delivered apps are unlikely to crash the phone. And the BREW billing system gives the carrier a share of the commerce going through their system.

Not that the BREW system is competing with Java. Java can run on phones along with BREW (and Sharp recently said that in its tests, BREW doesn't slow down the operation of the JVM on its handsets). In fact, Java apps can be certified, delivered, managed, updated, and billed using the BREW delivery system just like BREW apps.

Think about it: In the end, because BREW offers irresistible advantages to the carriers who control the delivery system, BREW wins; and BREW wins if Java wins.

Alsop concluded with this dramatic prediction: "BREW will be the iMode for the rest of the world."

Originally published in the BREW Wireless Resource Center



   
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