Lowenstein's 2013 predictions: A year of disruption
The wireless industry coasted along pretty well in 2012. Smartphones sales grew. Data traffic surged. 4G networks expanded. Spectrum position became even more strategically significant. We started seeing meaningful volumes of mainstream media--from the Olympics to on-demand TV and movie programming--being consumed on mobile devices. And the U.S. market is proving to be particularly vibrant, as demonstrated by the DT and Softbank investments in T-Mobile and Sprint, respectively.
But the biggest story of 2012 was how mobile has moved to the center of the tech economy. As evidence, "mobile centric" companies such as Apple, Google, Cisco, and SAP flourished, while companies whose mobile strategies faltered, such as Facebook, Yahoo, HP, Intel, and Dell, were punished.
For 2013, I believe there will be some important changes in the mobile industry value chain and prevailing business model, and in some adjacent industries where mobile plays a strong role. Hence, the theme of my annual predictions piece: 2013: Year of Disruption.
Wireless Services/Operators. This year, the focus was on the fallout of the failed AT&T/T-Mobile deal, which resulted in spectrum swaps, the Verizon-Cable deal, and a re-invigorated Sprint and T-Mobile, courtesy of foreign investors.
In 2013, the seeds of these investments will start taking fruition. If Softbank can shore up Sprint's spectrum position with either a Clearwire or Dish deal, it will be in a position to do something aggressive with data pricing. With more spectrum and the economics of LTE, there's ample opportunity to take a whack at the typical household's $200+ per month wireless spend. We could also see alternative pricing concepts, such as a service plan that relies on Wi-Fi connectivity, using OTT applications for voice and text, with "roaming" onto cellular networks.
With Dish and Clearwire in play, and spectrum auctions perhaps later in the year, I expect Google and Amazon to make some effort to become "masters of their own domain" in wireless services, likely through a resale deal.
There is also pent-up demand among the operators to wean themselves from the handset subsidy model, which is little more than a glorified financing scheme (at rather high rates of "interest"). Challengers such as T-Mobile have less to lose by firing the first salvo. In 2013, "BYOD" might start to mean, "Buy Your Own Device," not "Bring Your Own Device".
Finally, OTT services from companies such as WhatsApp and Viber are starting to have a significant effect in certain geographies. In Asia, Macquarie Securities reports that 335 million users in Asia are using OTT services such as Blackberry Messenger, Wechat, Kakao and Line, up from zero two years ago. This is substantial. These services will spread as long as they are cheaper and offer more functionality than incumbent offerings. I expect we will see an accelerated effort by U.S. operators--prepaid included--to get subscribers onto a data "access plan" where there are no longer distinct charges for voice and text services. This is part of the strategy behind plans such as Share Everything and Mobile Share. Wireless industry, meet the fixed broadband industry (with caps).
Mobile Devices. This was a year of continually-improved-and-still-fantastic-but-not-breakout iOS and Android devices, plus great NokiaSoft devices that still aren't selling well. RIM, Microsoft and Nokia--and even LG and HTC--cannot afford to tread water for another year. So there will be some OS and device OEM shakeout/merger/consolidation in 2013. This is as much about challenging the fact that Apple and Samsung control some 75 percent of the device industry's profits, as it is about supporting a "third" OS.
Also, with the growth of cloud-based services and spread of mobile broadband (cellular and Wi-Fi), I believe we'll see the emergence of cheaper, browser-based mobile devices--sort of a phone-based version of the Chromebook. People are going to start wondering why they can get a pretty functional PC that costs half that of a phone. Between cloud-based productivity services such as Google Docs, mobile-enabled Web sites, and super-apps that have either HTML5 or Web-based versions or widgets, the concept is not farfetched. The development of sub-$200 Android tablets for emerging markets is a catalyst. A challenge to readers: come up with a better name than: "Chromephone," "PhoneBook," or "Dumbphone."
Networks. Even as 4G services continue to get built out aggressively I see four "disruptive" possibilities for 2013. First, with all the Wi-Fi wheeling and dealing, the Ruckus IPO, and proliferation of public indoor and outdoor hotspots, Wi-Fi is assuming a more important role in mobile infrastructure. Not only for offload, but as part of HetNets and as an extension of broadband service plans. If the fragmented public hotspot ecosystem can be pulled together, we might even see some creative, "Wi-Fi First" service propositions in 2013. Second, we will learn whether small cells present a compelling way to boost capacity and coverage, given some large-scale deployments promised by AT&T and others. Third, we will have some important tests in 2013 of the shared spectrum concept being promoted by the FCC, using TV White Spaces. And fourth, there is some exciting work going on at some private companies I am aware of that could be fairly disruptive to the current network economics model. More will be learned about this through some important tests planned for 2013.
Mobile Commerce/Payments. Every year has to be "the year of" something. Mobile payments could be it for 2013. But the space needs to go through a cycle or two before it gets real. There are too many major entities--credit card companies, the Merchant Exchange, Google, PayPal, Isis, and so on--pursuing a market that has yet to materialize substantially. Consumers will not tolerate having multiple "apps" for payments, one dealing with X group of merchants, and the other dealing with Y group of merchants. There will be consolidation.
Also, a successful mobile payments play will be one that disrupts the high fees that the credit card companies extract from merchants, or expands the merchant base, which is why Square and LevelUp are two early success stories. I also believe the public sector has to get in the game, because micro-transactions that make things more convenient for the consumer--public transportation, parking garages, parking meters, etc.--are where mobile payments really add value.
Content. Despite all the talk about OTT, the story has been more about content extension, rather than disruption of the prevailing model. Ironically, it is the cable companies (including satellite/FiOS/U-Verse), and those like ESPN and HBO who distribute through them, that have driven the improved "multi-screen" experience over the past couple of years.
But a huge battle is brewing in content. Companies are spending big sums to procure content, such as the recent Netflix deal with Disney. Cable MSOs are pushing back on content providers for the escalating cost of programming fees. To me, Netflix, Apple TV, Roku, Hulu, and so on are substitutes for the neighborhood video store that no longer exists, rather than viable OTT options. As long as the best OTT options involve a compromise in content selection and the user experience, disruption in the current content model will be difficult to achieve. It is becoming more, rather than less, difficult to break cable's hold on TV content distribution, as long as the HBOs rely on the traditional cable distribution model, and the NFLs extracts a gazillion dollars in rights fees and garners huge live TV ratings.
App Market Matures. I believe we are in the midst of an App Bubble. With 700,000+ apps in the App Store and Google Play, I have talked to many app and content providers who have done wonderful work building terrific, useful apps but are struggling to stay afloat. Profits from apps are highly concentrated in a couple of categories, such as games. Many categories contain too many similar-looking apps.
We went through a "wild west" wave during 2010-2012 where it was relatively easy to raise $100-500k to develop and launch an app. I think we will start to see a maturing of the "app" industry over the next couple of years, and it will be disruptive. Some app providers will run out money and their apps will either disappear from stores or lie fallow. Some will successfully pivot to being a real business rather than an app.
The end result, I believe, will be a clearer roster of "Super Apps," or "Elite Apps." Many, such as an Evernote or a Yelp, will have an extensive Web presence too. A greater percentage of apps will have to be successfully ad-supported, like a viable online site. Or, users are going to have to be prepared to pay more to use marquee apps. There will be also consolidation within certain app categories. Example: wonderful as they are, can Flipboard, Zite, and Pulse all be viable, long-term businesses going forward? They will either combine or be acquired by a larger media company.
In all, ecosystem and business model changes will accompany the continued tremendous pace of innovation. Have a healthy and prosperous 2013.
Mark Lowenstein, a leading industry analyst, consultant, and commentator, is Managing Director of Mobile Ecosystem. Click here to subscribe to his free Lens on Wireless monthly newsletter, or follow him on Twitter at @marklowenstein.