Telefonica Driving Innovation

The rise of the open mobile web presents new opportunities for carriers to regain greater influence in the industry after the launch of the iPhone reshaped the market but they need to innovate. Traditionally, carriers have been unable to compete with Silicon Valley based companies due to their inability to advance new technologies and attract mobile developers. The failure of WAC and the closing of carriers sponsored app stores such as Verizon’s recent app store closing are typical of operator efforts to play a significant role in the application economy.  One company that is bucking the trend is Telefonica and its Telefonica Digital business division. Since its launch in September 2011, the operator has made significant moves to drive innovation and create a more open mobile ecosystem:

• ·         In February 2012 Telefonica Digital partnered with Mozilla, to bring to market the Open Web Device, a smartphone that runs an operating system based on HTML5.
• ·         In May 2012 the company launched TU ME, an Internet based all-in-one communications app that runs over the top of carrier networks.
• ·         October 2012 Telefonica Digital bought TokBox, a service that lets developers integrate group video chat into their web applications.
• ·         September 2012 Telefonica Digital cuts a deal with Aurasma to integrate its augmented reality platform into its media services.
• ·         November 2012 Telefonica Digital made a strategic investment in Everything.me, a technology platform that is improving the mobile experience by creating a new approach to mobile search.

Any one of these moves is somewhat uncharacteristic of wireless operators but all these bets on unproven technology show Telefonica’s ability to really innovate instead of just giving it lip service. Each of these technologies also has the potential to significantly disrupt the current ecosystems, but together and with backing from the deep pockets of a global wireless operator business, Telefonica is well positioned to drive change in the market.

• ·         Everything.me has the ability to change how users discover and use applications and content on their mobile phone. The app searches the web and presents results in the form of icons or apps. The application is also able to search the open web as well as multiple app stores.
• ·         TokBox is the first to market with a platform that leverages the new WebRTC standard providing developers the ability to integrate video chat and conferencing capabilities into their websites. The company helped pioneer WebRTC technology that enables video calling from within a mobile web browser or web app with no plugins.
• ·         Aurasma is a computer vision based augmented reality platform that can create an augmented reality experience anchored to an object that the platform is able to recognize. This technology is much more advanced than browser or location based augmented reality technologies such as Layer or Wikitude.
• ·         TU ME is an OTT messaging app that competes directly with SMS messaging, a significant source of revenues for carriers like Telefonica. By bringing to market this type of IP based messaging service, Telefonica shows its ability to get in front of new technology participating and shaping the market instead of protecting aging yet profitable services.

With consolidation in the industry gaining momentum and large players acquiring innovative and successful companies, the opportunities to invest in these technologies and provide scale will help bring them into the mainstream. The problem arises when large companies acquire innovative teams; risk adverse executives tend to squash the innovation that they acquired. By separating Telefonica Digital physically and potentially spinning the unit off into its own entity will help negate these risks. 

If Telefonica is successful in supporting and advancing innovative teams and technologies, they will be in a strong position to affect significant influence on the industry and drive adoption of the open web. This is particularly true in Latin America where they already have a strong presence, economies are growing quickly and markets are not dominated by one or two mobile operating systems. This trend could lead to much more innovation in the mobile web originating in countries like Brazil where more opportunities will exist to experiment with new technologies and business models.

Implications of HTML5 in mobile applications

The arrival of HTML5 is expected to have significant impact on the mobile application ecosystem. A number of new features will be incorporated into the standard but a few particular improvements will have the most affect on the mobile software market. The ability for web applications to store data on the device, standardized API's to access location data, and easier control of video and audio content without plug-ins will make it easier for developers to create robust applications that are easily ported across devices. While developers' jobs will get a lot easier with HTML5, demand for browser plug-ins and native applications will remain strong, especially in high end devices.

Work on HTML5 began in 2004 to standardize technology that was cutting edge then but is now more main stream. Running video and audio on the web and accessing location data on devices are technologies that have evolved over the past six years and incorporating it into the Web standard is overdue. As we gaze into the future and innovators dream up new user interfaces, HTML5 seems to be standardizing yesterday's technology.

The ability for web applications to store data on devices and access location API's will allow these applications to compete with today's mainstream native applications but innovation in device UI's will provide plenty of opportunities for native developers. Only native applications will be able to leverage device sensors such as gyroscopes, accelerometers, digital compasses, and cameras, components that will be key to applications that create a differentiated user experiences. These differentiated experiences, among other things, will incorporate gesture commands and improved location accuracy through dead reckoning.

Emerging technologies such as augmented reality will drive continued demand for plug-ins and provide plenty of opportunity for companies such as Adobe and Microsoft to provide add on capabilities to standard browsers. Innovative companies will continue to develop new plug-ins that support computer vision technology that dynamically meshes data from the real world with the internet. This may be the new way we interact with the web, providing opportunities for new technologies which will eventually make their ways into new standards.

HTML5 will have a much larger impact on lower end devices that run proprietary operating systems and do not include sensors. The new standard will allow developers to manage platform fragmentation which is much more prominent in the non-smartphone market. As applications built using HTML5 move into mass market adoption, mobile advertising will become a more popular way for developers to generate revenues. Users of lower end phones are also less willing to pay for applications limiting subscriber based business models.

Developers that are looking to compete in the ultra competitive smartphone application market should not give up on plug-ins like Flash or native platforms as they will provide support for the most differentiated experiences. Media companies and developers targeting mass market phones with advertising based business models should be focusing on HTML5.

 

Mobile Widget White Paper

As part of our research of the mobile widget market we recently released a white paper providing an overview of the market and presenting a business case. You can download the paper here. http//www.arcchart.com/reports/widget_wp.asp

Could Google Buy Motorola?

Now that Google is in the device business, could they be looking at Motorola's handset division as an acquisition target?.... Don't laugh it could happen. Here's why.

1. Google gains hardware expertise– While Google has great software developers they do not have a clue about how to build a great mobile phone. Some of the limitations of the HTC 1 emerged due to Google's insistence on dictating all the hardware specs to HTC. The Nexus One is reportedly very fast and designed by a 3^rd party design shop so it seems that Google has learned their lesson. Regardless of Google's increased self awareness, competitive pressures emerging between Google and hardware manufactures will restrict the integration of the best hardware and best software technology to create industry leading devices. An integrated hardware & software company can freely exchange IP, leading to more innovative and efficient offerings. A combined company will also provide Google complete control of all implementations of the Android OS on Motorola devices reducing fragmentation.
   

   
   

2. Google competitors are device manufactures – Nokia is competing against Google with OVI, Microsoft has the Danger hardware business, and Samsung is increasingly competing with Google through its app store and new proprietary operating system. And of course there is Apple and Palm. Apple's acquisition of Quattro Wireless last week unmistakably signals that Apple is gearing up to go head to head with Google.
   

   
   

3. Device manufactures may abandon Android – The launch of Nexus One is a clear indication that Google is not afraid to compete with its partners. Motorola's recovery strategy is based on Android and Google has torpedoed this strategy by launching the Nexus One. The new Google device is based on Android version 2.1 which will compete with the Motorola Droid based on Android 2.0. This puts the Droid at a diminished competitive position. It is becoming clear that if Google keeps the most advanced Android code for its own device experience, Motorola will have a hard time competing with a consistently inferior OS. Other leading OEM's are not taking the bait and are investing in their own software platforms so they can differentiate their offerings. Samsung has announced "bada" and Nokia is overhauling S60. HTC also announced today they are launching a Smartphone based on BREW of all things which may be anther indication of waning support for Android. Without major device manufactures launching compelling Android devices, Google looses influence in the market and will not have to power to change it. Google's ultimate goal.
   

   
   

4. Google can afford Motorola and it is for sale-For more than a year Motorola has had the for sale sign out side the handset business which is probably worth $ 1-2 billion USD. Google has over $21 billion in the bank.
   

I think Google would rather not be in the hardware business but it seems they are already in it, why not go all in.

Droid May Compromise Android's Long Term Success

Next year will be a pivotal year for the Android platform. Between 50 and 75 new Android phones are expected to be announced at the Mobile World Congress in February and version 2.0 also has some exciting new features. While the platform is gaining traction, some troubling developments are posing real risks to the long term success of Google Android. These risks are exemplified in the aggressively promoted Motorola Droid phone. The Droid OS is an enhanced version of Android, which leads the platform down the fragmentation path. Also, the device launched on the Verizon network includes a Google navigation application that puts Google in direct competition with developers…..developers they are trying to attract to their platform.

Fragmentation is not new to the mobile software industry and has kept many a mobile executive up at night. Google has taken steps to manage fragmentation but market forces are driving vendors like Motorola to enhance the platform to differentiate their products. Motorola has wrapped their entire strategy around their Android handsets and will make sure these products are well differentiated from other Android based phones. Further more, the OHA licensing terms do not require Motorola to contribute their IP back to the association, opening the door for multiple distinct Android operating systems battling for market share.

Along with the Droid launch, Google announced "Google Maps Navigation," a turn by turn navigation application which the company is offering free of charge. Turn by turn navigation applications have been some of the most successful in the mobile application market. TeleNav's announced IPO filing on Monday just shows how successful these 3^rd party developers have been. Google seems to want in and has launched a free application that is a direct competitor to existing navigation developers. The folks at Networks in Motion are particularly upset by the Google Maps Navigation launch on the Verizon network. NIM is the software developer behind Verizon's successful VZ Navigator application which it gets $9.99 a month for; of course Verizon gets its share. In an interview last week, Steve Andler of NIM points out the difficult position the new Google app puts developers in and how they are jeopardizing the growth of the Android ecosystem. Steve correctly points out that if developers create a very successful application on the Android platform, Google is in the position to build competitive functionality into the core of the Android platform and give it away for free. This makes it very risky for developers to create innovative applications on a platform whose core code is controlled by a company that can and will destroy partners' business models. And, more importantly, VC looking for the 10X return will not invest in applications built on Android.

Over the years, Research in Motion has been very deliberate not to compete with developers within their ecosystem. By only incorporating commoditized functionality into its platform, RIM is not providing cutting edge applications that compete with their partners. This strategy reduces the risk to developers and provides economic incentive for them to create robust and advanced applications that help sell BlackBerry devices. Google is not in the device business but the advertising business and has not pursued the same strategy. Google Maps Navigation seems to be a very innovative application that will present stiff competition to mobile navigation developers.

It is quite interesting that TeleNav has announced an IPO filling as its market is threatened by such disruptive forces. The company does have an Android version of its application, putting them in direct competition with one of their platform providers. I am not sure I would want to be the investment banker selling that story.

UI's of the future - Mixed reality...sooner than you think!

Technology enthusiasts have followed mixed reality technology for years but the more relaxed technologists will soon become aware of the technology as it moves into the main stream. What makes mixed reality so interesting is its potential to rewrite the rules of how we interact with mobile computers and the world around us.

For those non tech enthusiasts, augmented reality and augmented virtuality are the two technologies that comprise mixed reality, which integrates the real world with the virtual world. Augmented reality layers data on top of real-time images, similar to a heads up display in a fighter pilot's helmet or the first down line superimposed on our TV during a Sunday afternoon football game(that's American football for the international crowd). Augmented virtuality is the ability for users to interact with a virtual environment using hand gestures. The Nintendo Wii is a good example.

Mixed reality may be more fit for sci-fi movies than today's cell phone market but the potential is very compelling. Imagine using real hand gestures to manipulate virtual data projected onto the real world. It might look like the "SixthSense" project from MIT labs.

Four technology and industry trends are converging to make breakthrough user interfaces more plausible:

1) Advancements in low level software on chip-sets is allowing visual inputs to be processed much closer to the hardware, improving performance.

2) Video cameras on phones have seen tremendous penetration and are becoming standard features. Ubiquitous video cameras provide inputs for mixed reality applications.

3) Accelerometers, compasses, and GPS radios are also becoming more standard on smartphones providing support for hand gestures and situational awareness.

4) Pico projectors, or miniature projectors, are beginning to be integrated into phones allowing users to project virtual data onto the real world.

The growing popularity and advancements in Adobe Flash may make Flash the software platform that fosters innovation. Flash on mobile devices provides an open source cross device platform that provides a foundation for developers to create visually intensive applications. Flash 10.1 also has features to allow accelerometer inputs providing data for more dynamic applications. Also, Adobe's announced partnerships with Nvidea and Qualcomm will get flash decoding accelerated directly on the chip-set, another development that will lead to improved performance and more compelling experiences.

While the building blocks seem to be coming together to create an innovative environment, the real breakthroughs will come from creative developers who will invent useful applications and compelling users experiences.

Verizon Joins the Enterprise Party

Interesting news from Verizon yesterday regarding the announcement of their mobility management solution aimed at the enterprise. I am not sure this is a huge surprise as AT&T and Sprint Nextel have been offering mobile IT services to the enterprise for years. What is surprising is that it took Verizon so long to enter the market.

The explanation is in the segmentation. Large enterprises have not been the sweet spot for Verizon who has chosen to focus more on the consumer market. What I think this announcement signals is that the demand for mobile applications has migrated into the small and medium sized business segment. Smart phones are now everywhere including in the hands of small and medium size firms trying to compete with the big guys. Demand from SMB's must have hit the tipping point presenting a money making opportunity for Verizon. The selling costs associated with small deals has always been a barrier to entering the SMB market and the economics presumably have change enough for Verizon to partake.

What will be interesting is to see who Verizon chooses to partner with for applications management (as of yet they have not announced a partner for this portion of the service). Verizon did have a relationship with Dexterra, who had supported Vodafone's (one Verizon Wireless's parents) enterprise application service. Dexterra has since been sold to Antenna which has been supporting AT&T's enterprise services business. Pyxis Mobile also is tied to AT&T with an exclusivity agreement. Regardless, Verizon will have to build a team with industry expertise to support the business.