Next-generation consumer products mobilized with 3G capability

Editor’s Note: Welcome to our weekly Reality Check column. We’ve gathered a group of visionaries and veterans in the mobile industry to give their insights into the marketplace.
Collecting a soggy newspaper from the end of the driveway in one’s pajamas is familiar to many of us. As newspapers and magazines pile up on the counters and in the recycling bin, we wonder if there couldn’t be an easier way. Technology is about to deliver. New 3G-enabled mobile handheld devices with super thin dynamic high-resolution screens – ideally suited for reading newspapers, books and magazines – will begin appearing later this year. This handheld will automatically receive content in its various forms overnight, and by the morning’s first cup of coffee today’s newspaper will be waiting on your device. These “e-readers” present a new category of mobile-enabled consumer device. Amazon’s Kindle, launched last year, delivers entire books via digital files over Sprint’s 3G network. Amazon has already sold an estimated 500,000 Kindle units; demand has been so high that the company ran out of inventory during the past holiday season. Kindle users swear by the devices, and vow never to buy a paperback again. Not only is this new form of digital distribution advantageous environmentally, it also presents a unique opportunity to significantly reduce printing and shipping and stocking costs – the same way that digital music delivery did via MP3 players.
Next-generation 3G mobile-enabled devices will also expand into cameras, MP3 players, mobile Internet devices (MIDs) and gaming consoles. Imagine the ability to share your life experiences in real time. Visualize snapping a picture with your new 3G-enabled high-resolution camera, and then instantly uploading the picture to your favorite photo sharing site while you’re still at the event. No longer will you need to return from vacation and tether your device to a PC to share photos. Mobile broadband will allow all of it to happen instantaneously – anywhere, anytime.
Who will deliver?
So, who will bring these next-generation devices and services to market? Many companies are vying for position in this space – a combination of branded companies and new upstarts. Sony’s e-reader is on the market already, although it’s not wirelessly enabled. Others include Plastic Logic, ire Technologies Iliad device, Natrona/Aztec’s Mentor Easy Reader, Polymer Vision Reads, and First Paper. Some of these devices utilize wired and/or Wi-Fi access and others will likely have a 3G chipset. With this emerging category comes an entirely new ecosystem, including device manufacturers, wireless carriers, content providers and retailers. Each player in the value chain will bring forward a critical market component.
Device manufacturers (OEMs) bring the innovative IP and thin touch screen brilliant displays with e-ink technologies and innovative form factors. These new configurations will allow the devices to be rolled or folded to easily slip into a suit pocket. Device OEMs will likely be asked to provide exclusive “IDs” or form factors for specific time periods to ensure market differentiation.
Content providers and publishers will deliver content, and leverage exclusivity relationships to differentiate devices. Kindle may look to lock-up book publishers by leveraging pre-existing business relationships. Yet, other opportunities also exist. College text books, for example, could present an area of untapped opportunity. Additionally, some newspaper and magazine publishers are seeking alternative digital distribution models, each targeting a different demographic, market segment and even geographic area.
The next critical piece in the value chain will be broadband access – including wired, Wi-Fi or wireless. With a wireless mobile broadband connection such as 3G, content delivery will be fast, and take place overnight or during off-peak hours while network capacity is more abundant and wholesale data rates are lower. Mobile access allows users to avoid attaching these devices to a PC or docking station, and enables the consumer to bring the device anywhere. Larger wireless carriers such as AT&T, Verizon, Sprint and T-Mobile all have wholesale reseller groups (a.k.a. MVNO groups) that negotiate access rates with third-party providers under white label arrangements. AT&T has taken this one step further and created an Emerging Devices group led by new President Glenn Lurie. AT&T is committed to bringing these next-generation mobile consumer devices to market in a similar way as they did via partnering with Apple’s iPhone.
Today, Sprint provides wireless access for Kindle, and its large wholesale group has been around for years. They are also the carrier behind Virgin Mobile. Carriers will seek to gain device exclusivity arrangements in exchange for competitive wholesale data rates, marketing, promotions, and retail shelf space in their carrier stores. For U.S. carriers faced with a market nearing 85% wireless penetration, a great need exists to diversify mobile products beyond just mobile phones. Next-generation consumer mobile devices provide an excellent opportunity for market differentiation, greater bandwidth consumption and the ability to drive incremental foot traffic to carrier owned stores – the predominate channel for wireless gross additions.
Electronic retailers, the last major component of the value chain, represent the second largest channel for subscriber acquisitions behind carrier stores. They are a compelling partner for consumer device companies for several reasons. Retailers such as Best Buy have significant foot traffic, knowledgeable sales staff, and experience in wireless and provisioning new subscribers. These attributes bode well for selling next-generation mobile-enabled devices as they are already a leading provider of mobile post-paid activations, camera sales and PC sales.
Early users of these new technologies will likely be technology early adopters, the financial services industry (similar to how they were the first to widely adopt the RIM Blackberry) and 18-34 year olds. As such, products and services must be tailored to various segments to meet individual needs. Estimates vary on likely subscriber ramp change based on device type. If Kindle is any indication of market potential – imagine the possibilities across multiple physical and on-line retail channels, carrier stores and content partners.
The question of the business model
Key to the success of these new technologies is the underlying business model. Once providers offer 3G wireless access, a subscriber business may be created with the potential to replace an advertising support model. Under the subscriber model, no longer is the sale a simple off-the-shelf purchase. Rather, now the device must be purchased, provisioned and billed on a monthly basis. The advertising-based model may support this, but it remains to be seen if that will be enough to sustain ROI thresholds for subscriber economics.
In addition, as is the case with mobile phones in the U.S., devices are highly subsidized so that purchase cost is more attractive to the consumer, thus driving adoption rates. This type of activation may require a credit check or credit card as part of the sales process. Who will own this customer – carrier, device manufacturer, publisher or content provider or retailer? Each player is striving to deepen customer relationships and stickiness, increase customer revenues and position themselves as leading new product innovation. Launching new subscriber businesses is incredibly complex, requiring robust billing and back-end systems, effective distribution channels and a truly differentiated experience. Cool products and services alone won’t lead to sufficient scaling of these new businesses. The true winners must leverage the full value chain to ensure a higher probability for success – including product, content, sales and marketing, distribution, customer care a
nd billing, just to name a few.
Contact Michael Grossi at mgrossi@altvil.com. Contact RCR Wireless at rcrwebhelp@crain.com