Why wireless apps are tough

As you know, it is no secret to look to Europe and Asia to understand the future of new wireless services.  As I mentioned in the past, having a hit wireless app can be a big play, but the chances of making it happen are far and few between, especially since business success hinges on relationships with the carriers.  Look at what happened in China recently for what a change in mobile carrier policies can do to its partners.  China Mobile recently made some changes in how their customers subscribed to wireless value-added services changing per-message fees to monthly fees and making its partners offer the first month of service for free.  Granted, this was done to make sure that customer satisfaction is improved for its user base, but this one change gave many public wireless service plays a beating in the market.  According to an article in China Daily, several analysts outlined the near-term impact of the changes.

"We believe service providers would likely see significant revenue volatility over the next one to two quarters," JP Morgan analyst Dick Wei wrote in a research note.

"We expect roughly a 10 percent to 20 percent revenue impact across the second quarter of 2006 to the third quarter of 2006."

Piper Jaffray analyst Safa Rashtchy also expected "major impact" on wireless service providers.

"We believe the total impact of these services will be severe and could reduce revenues by 20 percent-30 percent in 2007, with potentially much more near-term impact," Piper Jaffray wrote.

While there is always a tradeoff of how to get your wireless app in front of millions of users with the  revenue share and loss of control to the carrier, I just hope that the wireless walled gardens will crumble to give many of us the freedom and opportunity to use new applications like Google Maps on our devices. Whle this carrier policy shift was meant for the good of the customer, it still shows us how vulnerable a wireless service provider can be to its carrier partner.  As I have seen in other situations, the wireless carriers could have just as easily changed the percentage on the revenue share leaving its partners with less of the pie. The allure of creating a hit wireless app is compelling but reliance on the carriers can make life extremely difficult.  If you go it alone you will have more control but there will still be significant barriers to market your app to potential users, get them to download it on their phone, and finally to actually have it work on their device.  We are still far away from making open access a reality, but when it happens, there will truly be tremendous growth in the use of new wireless services.

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This post was written by who has written 358 posts on BeyondVC.

6 Responses to “Why wireless apps are tough”

  1. Peter Cranstone Jul 11, 2006 at 2:49 pm #

    Ed,

    I believe the walled garden is about to crumble. Microsoft’s Windows Mobile 5.0 for the first time delivers a useable TCP/IP stack and with the right connectivity e.g. broadband gives users access to the entire internet. The real opportunity for wireless app vendors is to dramatically improve the user experience on both the client AND the server side. (The AND is critical you have to solve for both sides not one). For instance one of the most frustrating experiences is the one where I have to continually type in information being requested by the web server. And then when I visit another web site it asks me for the same data all over again. Our company has solved this problem and others. If you’re interested I can send you some information regarding how we did it. My background is one of the inventors of mod_gzip (real time data compression for Apache servers).

    All the best,

    Peter

  2. simon Jul 12, 2006 at 12:03 pm #

    two things,

    first, the per message charge applications that you mention exist here in the US as well, they are generally launched to rip people off since it charges a $0.50 per message and the companies aim for the high spenders and do what the can to generate more messages. Most US carriers ban new chat-application on per-message charge basis. There is nothing strange with that – you dont want customers who spend $250/month without fully understand what they are doing.

    The Second thing about the walled gardens. The walled gardens have three legs, billing(mainly PSMS), marketing (Carrier deck) and Tech(restrictions on running/installing apps). The first two will remain for a long time but both are already being challenged. A marketing for WAP-ads have emerged and several companies are currently selling ads as alternative revenue stream on and offdeck that will make some companies less dependent on PSMS. The deck is already challenged, mainly from the web and according to late qpass figures about 40% of all PSMS transactions were initated off-deck. The tech leg is already about the break. On the open-platfrom handset makers you can install and run any J2ME application without carrier interference. If you run the traffic on HTTP is easy, if it’s over sockets it usually works…

    Finally, remember that the customers of the companies that do wireless apps but are not endorsed by teh carriers are ALSO customers of the carrier…they cant just cut off a service big enough to generate 10.000 CS calls

    This landscape is already changing

  3. Shawn McCollum Jul 17, 2006 at 2:50 pm #

    Another thing that might make carriers think twice are phones that switch from the carriers network to VOIP when in range of a wifi connection.

    More here link to usatoday.com

    People might wonder why you can’t access off-deck sites when your connected to the carrier.

    I’ve gone the wap-ad route for my site becuase I want to allow users to use the main features of my site but pay for more advanced (future) features later if they choose.

  4. Sandy McKinnon Jul 18, 2006 at 7:13 am #

    Ed

    Interesting to watch the evolution from the UK side of the pond… You can see the hegemonies of the operators floundering… the tensions between the handset vendors/innovation/and jury rigged price fixing… as a case in point, it you look at Vodafone live (a 3G services here in the UK – the prices for premium content/services are astronomical… $5 for a lousy song – picture – $10 for a game… no wonder Voda are hemorrhaging cash…

    I am an investor and on the board of a company (truly a mobile 2.0 company whatever that might be ;-) who have some really interesting stuff we are taking to the whole ad – supported premium content stuff… our “innovations in assembly” and active provisioning have all but cracked the device specialiation porting piece limiting Java’s nirvana of “write once, deploy everywhere” – allowing us to put together some really exciting free2consumer transaction applications (which can be ad supported…)

    Watch this space… all done outside the wall garden’s – but ultimately wanting them to let us in… the icing requires that but the cake doesn’t… ;-)

    – your VoIP man should look at Jajah… really disruptive…

  5. Arthur Goikhman Aug 30, 2006 at 2:11 pm #

    Cellufun decided to be off deck from the very beginning. You simply can’t let carriers play the role of programming executives.

    The key is not only that the walls of the garden are crumbling — it’s that wireless is a truly worldwide phenomenon. Our games have been downloaded in more than 200 countries over 170 carriers, and we serve as many games as any major wireless carrier.

  6. Etesh Mangray Oct 7, 2006 at 8:35 pm #

    In the non-wap world where users can buy games, screensavers, music etc – the economics don’t change that much if you go off-deck. In the on-deck world the carrier keeps about 50% on average. In the off-deck world the carrier keeps between 40-60% depending on the retail price and you have to market your services. Some off-deck companies spend upwards of $0.5M per month to market to customers.

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