Global Economics

Why Vodafone Should Welcome Googlefone


If operators focus on core services, allowing outfits like Skype, Google, and Yahoo! to provide Internet features for handsets, everyone will benefit

Around the turn of the millennium, mobile operators tried to mount a challenge to their most important partners, the handset manufacturers whose products deliver wireless services into the hands of consumers.

Operators had long been concerned that mobile users associated mobile service primarily with the handset brand rather than with the operator. When the leading handset vendor, Nokia (NOK), tried to further strengthen its relationship with end users by launching a mobile portal called Club Nokia, operators said enough was enough.

Bowing to pressure from big operators, Nokia scaled back its Club Nokia plans. Meanwhile operators tried to enhance their own customer relationships by developing custom handsets branded with their names and special features, and by launching their own mobile portals, such as Vodafone Live!

Mobile Customers Hang Up on Operators

Seven years later, it's clear that operator-branded handsets and portals have had only a marginal impact on the mobile market. The Nokia brand is stronger than ever, the trend of mobile users getting their content from sources other than their operator's portal is growing fast, and most mobile users still associate their mobile service with the handset instead of with a network operator.

Mobile operators had asked themselves, "How difficult can it be to design handsets and run portals?" It turned out to be very difficult.

Indeed, operators broke the age-old business rule of staying within one's core competency by going beyond their expertise in running networks and billing subscribers. Nokia, on the other hand, boosted its success in handsets in large part by staying focused on what it does best: manufacturing handsets and keeping an ear to ground for the latest tremors in consumer trends.

Now mobile operators are facing a new, even more interesting challenge, the entry of Internet giants such as Google/YouTube (GOOG), Yahoo! (YHOO), AOL (TWX), and Skype (EBAY) into the mobile market. As with their handset experience, operators have learned the hard way that these players are better positioned to satisfy user needs for Net-based services such as search and chat. Hence, one of the most talked about recent launches is the new X-Series phones from mobile operator 3, which come with pre-installed search, chat, and messaging services from strong Internet brands such as Yahoo!, Google, and Skype.

Internet Players Deliver Services Best

This is just the beginning of Internet influence over the mobile market and industry. Fortunately, mobile operators looking for direction on how the Internet will change their role don't need to look far. Long before the Net started to affect mobile operators, it changed the role of fixed operators—many of which are the same companies that offer mobile services.

They certainly tried to resist the change, too, by launching their own portals and providing content, but they discovered that they couldn't keep up with the speed of change and innovation on the Internet. Today, fixed operators have refocused on supplying broadband access and have mostly abandoned portal and content businesses. In so doing, they have left it to the Internet players to deliver services and content to their users.

What they have discovered is that the Internet players are doing a pretty good job. With services and content from Skype, Yahoo!, Google, YouTube, Second Life from Linden Research, and Vivendi World of Warcraft, broadband users are spending more time and money on their PC or laptop every year. And there are attempts from thousands of startups to build new Skypes, YouTubes, and Googles every day. We can be sure that ultimately some of them will be successful.

Where the Apps Are

Here is the big difference between mobile operators and broadband operators: Growth for mobile operators is, to a large extent, dependent on innovations from a few handset manufacturers, while growth for broadband providers is dependent on services and content developed by thousands of Internet players, both big and small. The result is that the mobile market is struggling to grow, while the fixed broadband market is struggling to keep up with growth.

I often get asked by my mobile industry customers what the next killer application will be. I actually know the answer: If we open up our industry to Internet players, we will have new killer applications every week.

Bengt Nordstrom is a vice-president in VeriSign's mobile division, formerly InCode Telecom Group. He co-founded Stockholm consultancy Northstream, which eventually became InCode.

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