Morgan Stanley Web 2.0 Summit Presentation

After noting good comments on the Web about Morgan Stanley (MS) Internet analyst, Mary Meeker’s Economy & Internet Trends presentation, I had a look at it. It’s worth a flick through. For those not so interested in financial data, can I suggest you start on slide 28. Main points of interest are:

• Mobile Internet usage is and will be bigger than most think (i.e they agree with Cisco’s forecasts).
• Telcos will face serious challenges in managing incremental traffic.
• The mobile applications development ecosystem has disrupted the walled garden carrier portals.
• Improvements in social networking and mobile computing platforms are fundamentally changing the ways people communicate with each other and ways that developers/advertisers/marketers reach consumers.
• Location information changes everything: where we shop, who we talk to, what we read, what we search for, where we go – they all change once we merge location and the Web.

Eric Schonfeld’s posting on TechCrunch is also worth a read. Worth noting in particular is that “She [Meeker] singles out the mobile industry as the one where both the most opportunity will be found and disruptions will occur over the next five years. Moreover, she suggests that the U.S. is poised to lead the transition in mobile to a Web-centric model. (I totally agree). Interestingly, she points to the introduction of the first Android phone by T-Mobile, not the launch of the iPhone, as the key inflection point for the coming era of the mobile web.”

While I agree that the mobile ecosystem in the U.S is moving to a Web-central model, I am not sure that the U.S. can claim leadership in that transition. For example, Japan is about eight years ahead of the rest of the world in mobile commerce (slide 48).  Australia is also a witnessing a similar transition to a mobile Web era, particularly in the way people communicate with each other.

The Genie is out of the bottle – and is driving convergence between computing, communications, media and devices

The subject line of this posting paraphrases the heading of a paper on telecommunications/communications recently published by Oppenheimer, US investment bank (HT: David Isenberg). To those who have not been tracking ICT and telecommunications trends for a while, David Isenberg coined the term “stupid network” in calling the transition from the ’smart networks, dumb terminals’ Telecommunications Age, to ‘dumb networks, smart terminals’ of the Internet Age. Basically the message is that applications running over-the-top of underlying networks do not need “smarts” in the network provided by telcos. Just high bandwidth connectivity will do. This is the “dumb pipes” nightmare outcome that telecommunications vendors and network operators fear the most.

Indeed, a battle has been raging between telecommunications and computing industry interests for some years now. The telecommunications sector has a dream: “next generation networks”. Meanwhile, networked computing interest have lived their dream: the open Internet – or has Oppenheimer calls it, network-centric (NC) computing. NC is described as “….networking and sharing computer processing, storage and data, which can be accessed over the Internet using thin devices at the edge of the network” (page 25). Oppenheimer is calling the victory for NC computing. Oppenheimer summarise their analysis by saying “The migration to NC computing will…eventually lead to the break up of vertically integrated service providers along horizontal lines”. They support their case by pointing to the success of the iPhone, which in terms of its applications is separate to the cellular network.

Under a network-centric (NC) computing age, applications and smart devices have the advantage of global economies of scale. Applications and services innovation and deployment can happen much more quickly than services that are coupled to underlying network configurations. So these two forces at work – global economies of scale and rapid innovation development – are the most important dynamic that telecommunications service providers are likely to face over the next few years.

Oppenheimer point to a few examples of applications innovation in VoIP over mobile, such as Fring and Truphone. Fring makes it easy to connect to your favourite VoIP, social network or messaging application and WiFi hotspots. Truphone is a London-based but global provider of mobile VoIP – you can connect to Truphone’s social networking presence on Twitter, Facebook, YouTube and flickr. Later this year Truphone is expected to launch a ‘Local Anywhere’ service where customers will be able to make and receive calls via a local number and at local rates wherever they are. Great for overseas travel! According to Oppenheimer, developments like that could potentially cannibalise telecommunications industry voice revenues (fixed and wireless) and text messaging revenues. Oppenheimer expect that the explosive growth in data traffic would provide some good news to network operators, but that in the longer-term carriers might be better off being transport wholesalers. Oppenheimer assume that carriers could anticipate a healthy share of applications and advertising revenues.

In other respects the NC value-chain is expected to evolve into a horizontally segmented structure with the three main layers being 1) service providers; 2) software companies; and 3) devices. Interestingly, Oppenheimer anticipate that software companies and telecommunications network providers will strive for an open mobile Internet to avoid being dominated by a monopoly operating platform.

Oppenheimer also expect carriers to continue with a strong presence in the enterprise market, providing integrated security, mission-critical execution, dedicated customer service and integration with other data systems.

Participation Divide

I gave a presentation on the social web to a professional services firm yesterday. My two key messages to them were about:

• the fast pace of change; and that
• massive networking changes everything

On the first point I looked back to the early 1990’s – before the public internet and in the days where the few people that had mobile phones carried around what looked like bricks.  Today, there are over 1.6 billion people connected to the Internet and over 4 billion mobile phone users. And we are on the threshold of fundamental change in how people communicate, work and how organisations operate. With the “Participative Web” (Web 2.0) now mature we are moving toward the “Personalised Web” (Web 3.0) where context rather than content is more likely to be king.

The mobile internet space is growing rapidly. Take iPhone for example, with over 1 billion applications downloaded in the last nine months. As I recall, the Skype app is the most popular, helping to spur the Skype user base past 400 million. Such is the ubiquity and potential utility of smart phones, some expect that 80% of Internet connectivity will be through mobile devices.

There are now over 5 million Australians using Facebook at least once a month, half of them using Facebook everyday. Internationally there are over 200 million people on Facebook with 500,000 people joining every week. Then there is MySpace, Bebo, Orkut, Goofy2 and many other social networks and bulletin boards around the world. Part of my presentation yesterday was The Conversation by Brian Solis that shows how many apps there are and their diverse use, all based around that very human activity of conversations. Twitter growth has been just amazing over the last quarter. FriendFeed appears to be on a winner with the introduction of real-time multiple person conversations. During my presentation I spoke about the benefits of the social web to productivity. I spoke about a re-balancing of power between institutions and distributed groups of people.

Now, I had a mixed reception to my presentation. Most of the younger people present were nodding their heads. Some of the older people just shook their heads. They have choosen not to participate, perhaps just regarding the social web as a fad, preferring to assume it will not make much difference to them. Perhaps they just don’t realise that having conversations – that very real and powerful human activity – is happening online as well as offline. It is better to integrate the two, far better, than to assume online conversations are not hear to stay.

Now that is a serious issue. This participaton gap may well be looked upon as a productivity gap, and sooner rather than later.

Convergence – getting your business model right

Telecom TV has a good panel discussion of convergence and business model implications for telcos from over-the-top applications. The panelists are Alan Meehan, CEO of INQ, and Alan Nunn, Head of Services, Intelligence, Applications BT Innovate.

I guess there were four things that stood out to me, that:

• the walled-garden approach is not sustainable (not that I needed convincing of that)
• there is a clear drive to “make the Internet real” for mobile users
• we can expect continued innovation in communications from applications development
• innovation and growth is happening in the web and a lot of the focus is shifting to mobile connectivity.

From the INQ perspective, “making the Internet real” is in making it easy to use what their target market wants – Facebook, Instant Messaging and Skype. Now, what these applications have in common is that they are used to keep in contact with people. I suspect that Telstra’s “phone mum” advertising campaign actually resulted in a lot of those connections being over Skype or Facebook, not a phone call. In short, connectivity for many people these days does not involve making a traditional phone call.

Alan Nunn spoke about some going innovation, such as converting speech to text, arising from BT’s acquisition of Ribbit, an IP phone company.

There is also some interest insight about mobile network investment decisions such as stringing out HSDPA & deferring optic-LTE roll-outs, and the anticipated roll-out of femtocells. Nonetheless, the end-game is expected to be LTE, taking IP to the edge and cutting through the remnants of mobile operator walled-gardens.

It’s all another sign of the de-coupling of content from underlying infrastructure – a market-led separation in fact, driven by what the consumer is doing.

Internet use and culture in China

For some months now I’ve been taking more interest in scanning Internet use trends in China. Intuitively, I feel that China will be a centre of innovation and influence in the emerging Internet culture globally. The latest stats reported in the China Web2.0 Review reinforce my view.

At 253 million users, China now has more Internet users than any other country. Internet users with broadband amounted to 214 million. Sure, there is some way to go in terms of penetration overall, but the growth rate remains high (43 million new users were added in the first half of 2008 ) and the number of mobile Internet users now stands at 73 million. Mobile Internet growth rates exceed PC rates.

Overall use figures in themselves are of considerable interest. But it’s the social change indicators in the use stats that are more fascinating to me. 107 million users (or 42% of all users) have blogs or ’spaces’ online. Many users write posts on social networking sites. 70 million updated their blogs or spaces in the last six months. Over 80% of users listen to music online, use IM and read news online.

To me these figures say that Chinese Internet users have taken to the Participative Web in a big way. I have no doubt that innovative Web applications like Goofy2 foreshadow much more innovation from China downstream.

Media and Advertising Trends, United States

One of the most viewed postings on Media Post this week was this one on the shift in advertising from traditional to digital media. This posting provides an overview and I delve somewhat further into the reasons and implications.

Key points are that the low growth rate for the first quarter 2008 of 0.6% is only partly attributable to the cyclical economic downturn. Another contributing factor is the accelerating shift of advertising budgets from the ” expensive and highly inefficient” traditional media to the more cost-effective digital media.

There are some useful stats in the posting:

• TV + 1.7%
• Magazines +0.8%
• Newspapers -5.2%
• Radio -4.5%
• Internet Display +8.5%

The outlook seems particularly bleak for newspapers and radio. The positive result for TV is largely due to subscription TV (+4.1%). Overall, advertising revenue growth rates are forecast to lie in the 0 – 3% range, down from the 3 – 5% level the industry is used to.

Why is the Internet more efficient? Let me ‘count the ways’ as it were:

1. Search is the obvious starter here (and as noted in the Media Post article). On the horizon is sophisticated location-based marketing enabled by the geospatial web and the integration of GPS and mobile broadband and other forms of pervasive computing and advances in display technologies
2. Even more important to grasp though is in understanding and using the huge scale and reach of the Internet
3. Distribution costs are negligible
4. Behavioural targeting/data mining/profiling: particularly the connections between people and their interests
5. Participation – customers can do their own thing, whether that is branded TV or video, interacting with consumers via social networking or blogs or other Web 2.0 style interaction
6. New applications are being developed for video search and interpretation
7. Strategies and campaigns can be revised or amended speedily and at low cost

Not an exhaustive list I’m sure, but enough to start with.

Now to the implications. Traditional techniques, strategies and skills suited to mass marketing do not map neatly to the digital migration. So there is an adjustment period…but one that may be shorter-lived than some expect.

From what I can see, a similar trend is underway in Australia in the formation and implementation of digital media strategies by newspaper, radio and television operators – but it is not so noticeable as the US situation. However, the current economic downturn might accelerate the shift to the more cost-effective digital media.

The Mobile Internet

Here is an interesting posting by Joi Ito. The open, innovative and competitive nature of the internet is compared with the closed ecosystem of the mobile phone industry (an industry that is operated by comparatively few players). Joi essentially questions the ‘fit’ of the internet with the mobile sector.

In a world that has over 3 billion mobile phones as against 1.3 billion internet users, there is no question that the mobile phone and the internet are highly valued respectively. While the open nature of the internet has generated so much growth in the communications and media industry, people love the convenience and usefulness of their mobile phones. It will be very interesting to see how these two stand-out forms of connectivity will evolve over the next few years, and what  will come from the influence of one on the other.