Carriers

Nuance Pays $100M for Swype, but Why Exactly?

I'm not a big fan of the Swype keyboard but many people are. Yesterday Nuance agreed to acquire Swype for $102 million, $77 million of which is up front. The rest will apparently be paid 18 months later:

The aggregate consideration payable to the former shareholders of Swype consists of $102,500,000, of which $77,500,000 was paid at the closing and the remaining $25,000,000 (the “Contingent Consideration”) is payable on the eighteen month anniversary of the closing. 

Numerous people have now reported on the deal but almost no one has penetrated the rationale except to say, in effect, "Swype is popular." (Read my colleague Dan Miller's interesting and somewhat different take on the acquisition.)

When I first read about the deal on Mike Arrington's new blog Uncrunched I was puzzled. Why would Nuance be spending $102 million for technology it already owns. The Nuance Flex T9 Android keyboard does speech and Swype-like tracing, among other things. It's the most complete Android replacement keyboard in the market.

In fact Nuance often favorably compared itself to Swype, saying that it effectively out-swyped Swype itself. As mentioned Flex T9 does more than Swype; it's more flexible (hence the "flex" part). So why would Nuance buy Swype? There are a few potential reasons:

  • Swype had a patent or patents that Nuance wanted or felt it would ultimately confront
  • Swype has stronger mobile carrier relationships than Nuance 
  • Swype has a stronger consumer brand than "Flex T9"
  • Swype offers a more accelerated path to a wireless consumer business
  • Nuance wanted the team behind Swype
  • Some or all of the above

Stil it doesn't entirely add up for me. I'll be curious to get Nuance's perspective and see where they're going to try and take their keyboard business.

Flex T9 costs users $4.99; so maybe there's a revenue aspiration in the acquisition as well (bolster the offering). It's not clear whether that $4.99 pricing will be extended to the otherwise free Swype or whether Nuance will will rebrand the Flex T9 as Swype and make it all free. 

You can see Flex T9's Swype-like capabilities in the video below.

Screen shot 2011-10-07 at 7.36.14 AM

iPhone Satisfaction, Sprint Unlimited Data

It's all but 100% certain that the iPhone will be coming to Sprint -- and maybe T-Mobile as well -- as soon as next month. The rumor is that Sprint will offer unlimited data on the iPhone as a differentiator vs. AT&T and Verizon. The pricing would probably be $99 (plus a $10 data supplement) in all likelihood.

By offering unlimited data Sprint believes it can lure customers from AT&T and Verizon. I initially thought that was a correct assumption but at $100 per month it may not be. With more aggressive pricing it would work. But probably not at $100 a pop; there's too much "inertia" against switching. 

There are also those who believe that Sprint would have to move to tiered pricing once really heavy iPhone data usage kicked in. I don't agree; Sprint has lots of Android customers (including me) whose data usage patterns are not substantially different than iPhone owners. And Sprint's network has considerably more capacity than AT&T for example. 

Sprint would probably see upgrading by many of its customers, from feature phones or potential switching from Android devices. I would qualify as one in the intended latter category. I've been reasonably satisfied with my Android EVO but have had pent up demand for an iPhone for about five years. I just haven't wanted to switch carriers. 

In a related bit of news, yesterday JD Power and Associates released its smartphone customer satisfaction rankings and found that the iPhone was on top for the sixth straight time:

Apple ranks highest among manufacturers of smartphones in customer satisfaction. Apple achieves a score of 838 and performs well in all factors, particularly in ease of operation and features. HTC (801) follows Apple in the smartphone rankings.

Samsung ranks highest in overall customer satisfaction with traditional handsets with a score of 718. Samsung performs well in three factors: performance, ease of operation and features. LG (717), Sanyo (716) and Sony Ericsson (709) follow Samsung in the traditional handset rankings.

US Seeks to Block AT&T-Mobile: What Will Happen Now?

As is being widely reported, and in a move that frankly surpised me, the US has filed an action to prevent AT&T's takeover of the US business of T-Mobile, worth roughly $39 billion. The government cites diminished competition and potentially increased prices for consumers. 

Here's an excerpt from the complaint, quoted by the NY Times:

“AT&T’s elimination of T-Mobile as an independent, low-priced rival would remove a significant competitive force from the market,” the complaint said. “Thus, unless this acquisition is enjoined, customers of mobile wireless telecommunications services likely will face higher prices, less product variety and innovation, and poorer quality services due to reduced incentives to invest than would exist absent the merger.”

AT&T wants the spectrum that T-Mobile now owns. The company has been trying to argue that consolidation of the number one and number four carriers in the US won't hurt competition. However the US obviously didn't buy it.

Bloomberg reports that should the transaction not take place AT&T will have to pay T-Mobile the equivalent of $7 billion in spectrum and fees: 

Should regulators reject the deal, which would create the biggest U.S. wireless carrier, AT&T would have to pay Deutsche Telekom $3 billion in cash. It would also provide T-Mobile USA with wireless spectrum in some regions and reduced charges for calls into AT&T’s network, for a total package valued at as much as $7 billion, Deutsche Telekom said this month. 

This suggests that AT&T will fight the suit, though a negotiated settlement may still be possible. Earlier AT&T was trying to sweeten the pot for the US saying that it would return 5,000 call center jobs, currently offshore, to the US if the deal were approved. 

Shares of AT&T were down and Sprint was up after the news came out. 

When I first heard of the intended AT&T-Mobile merger I wrote that there was a 50% chance that the deal would get blocked. That's because despite the obvious anti-competitive dimensions, the US doesn't have the moxie to oppose "too big to fail" transactions like this. This time apparently they do. 

Millennial: Windows Phones a Rowboat on the Android Sea

The iPhone vs. Android meme is getting very tired yet it persists. That's the thrust of the coverage surrounding Millennial Media's "Mobile Mix" report for July 2011. Among other data, it ranks handsets and market share on the Millennial network by device type and operating system. Here are the "quick facts":

  • iOS and RIM impressions were relatively flat month-over-month
  • Android impressions grew 31% month-over-month
  • Symbian impressions grew 11% month-over-month
  • Windows Phone 7 impressions grew 71% month-over-month

The Windows Phone growth is noteworthy for the fact that that there is growth/life. By contrast comScore shows Windows/Microsoft losing share month over month. However high percentage growth from a very small base is, in actual handset numbers, not particularly meaningful. Several months of such growth would be significant however. We'll need to wait for the first Nokisoft phones to appear to see whether Windows will "make it" as an OS.

Unfortunately Millennial doesn't put much historical context into its individual reports. So I always like to take a look at the data from several months or a year ago to compare the figures. Accordingly here are several charts from this month's report and July 2010:

Top handsets on the network (7/10 then 7/11):

Screen shot 2011-08-24 at 8.12.40 AM
Screen shot 2011-08-24 at 8.12.55 AM

The iPhone has maintained its top position and RIM is holding on with three handsets in the top 20 vs. four a year ago. But otherwise it's all Android.

Operating system share (7/10 then 7/11):

 Screen shot 2011-08-24 at 8.10.24 AMScreen shot 2011-08-24 at 8.09.51 AM

As you can see smartphones have grown from 49% to 68% on the network. In the US market smartphones are about 40% of all handsets now according to Nielsen. As you can also see, the relationship between iOS and Android has flipped in a year with Android handsets now representing 61% of all impressions. 

In terms of monetization and revenue, however, Android continues to underperform its share while Apple devices outperform their relative share. 

Screen shot 2011-08-24 at 8.11.14 AM

Finally, as PaidContent has pointed out, one of the more interesting pieces of data surrounds "carrier" usage. Over the past year WiFi access has grown from 26% to 33%. This is probably a direct result of the use of "connected devices" (e.g., the iPad) more than any other variable. 

Screen shot 2011-08-24 at 8.39.42 AM

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However as carriers eliminate unlimited data and throttle speeds on their networks, on the go users will increasingly seek alternatives that offer cheaper and/or faster access to their applications and the mobile Internet.

Are Carrier 4G Claims Setting Up Users for Disappointment?

All the confusing, and even deceptive, carrier marketing around data network speeds and "4G" may be setting mobile users up for disappointment. Earlier this month Retrevo found that there was considerable consumer confusion about 4G.

More than one third of iPhone owners and almost 30% of Android owners thought they already owned a 4G handset (in the case of Android some of them may be right). Of course there is no 4G iPhone available yet. 

Expectations of increasing mobile data speeds may be responsible for growing user expectations about mobile Internet page-load times.

A company called Compuware commissioned research to study mobile user expectations in several countries: US, UK, Germany, France, China, India and Australia. There were 4,014 survey respondents who had used a mobile handset to go online in the past year.

According to the survey, most people expect websites on their handsets to load quickly and, in some cases, even faster than on their PCs at home. They'd like to wait no more than 3 seconds but are willing to wait not much longer than about 5 seconds.

Screen shot 2011-07-21 at 12.58.38 PMScreen shot 2011-07-21 at 12.58.26 PMScreen shot 2011-07-21 at 12.58.12 PM

If mobile websites fail to meet these expectations -- if pages take more than 5 seconds to load -- users are likely to abandon. Beyond this there could be other fallout. Users may visit competitors' mobile sites or they might not try using the mobile site in question again. In the extreme, there could be some negative associations with the brand.

Publishers don't control network speeds of course. But it's up to them to build the fastest-loading sites they can that will work on 3G and even 2G networks to avoid some of the inevitable backlash that comes with being a slow site on the mobile Internet. 

Placecast Opens Up Geofenced Marketing to Self-Service

Placecast has introduced a self-service version of its SMS and MMS ShopAlerts marketing platform. The platform enables template-driven campaign creation, with extensive control over the radius of geofenced areas as well as the time and dates of message delivery.

This means that any merchant, franchisee or small businesses could potentially utilize the Placecast platform to deliver geographic-based push messages and promotions to opt-in consumers. It's going to be challenging for small businesses as a practical matter. But it's particularly well-suited to franchise businesses and can handle multiple locations with ease. Distribution is up to the business or entity, which would need to capture the opt-ins (similar to follow us on Twitter or Like us on Facebook).

Messages or promotions can be built around deals and offers but don't have to be; there are many other types of content that can populate these messages.  

Placecast works with O2 in the UK and AT&T in the US, as well as individual retailers. The O2 program has seen great success in the UK; the AT&T program is still in very early stages. Unless carriers are going to buy ad networks, the ShopAlerts/O2program is the model for carrier-based advertising -- although it's not apparent that the carriers see that clearly.

Screen shot 2011-07-21 at 11.15.11 AM

The original beta version of the ShopAlerts program, tested with selected retailers in the US in late 2009 and early 2010, yielded impressive results:

  • 60% of participants found the location-triggered messages to be cool & innovative
  • 79% said it increased their likelihood to visit a store
  • 65% made a purchase as a result of a ShopAlerts message (though not necessarily in real time after receiving the SMS)
  • 73% of participants would definitely or probably use the service in the future

Agencies and companies often neglect SMS as a marketing medium and CRM tool. Even with smartphone penetration nearing 40% in the US that still means that 60% of users don't have them. SMS penetration and usage are nearly 100%. 

Related posts on Placecast: 

UK Carrier O2 Seeing Success with LBS Offers

UK carrier O2 (owned by Spain's Telefonica) is seeing great success with its opt-in SMS marketing program O2 More. The location-based service is powered by Placecast, which also supports a similar but more nascent program in the US for AT&T. (It's not clear how much promotional effort AT&T is putting behind it.)

O2 not long ago announced it had more than two million subscribers for More. Consumers sign up for the O2 program, specifiy interest categories and recieve no more than a single text per day. The program sees very low churn. 

Earlier this month the UK carrier touted the success of a More campaign for gym Fitness First:

Fitness First targeted O2 customers with location-based messages offering a free two-day pass and details of the nearest club. This resulted over 1,100 recipients signing up as new members of Fitness First on four month and 12 month contracts.

With average membership costing just under £300 per year, this uptake generated increased revenue around £400,000.

The best responding target audience was 18 to 35-year-old smart phone using single Londoners, who enjoy engaging through social media.

US carrier T-Mobile recently got into the daily deals market with the launch of an app called "more for me." But with much larger competitors -- and so many competitors -- it's unlikely that T-Mobile will see great success with the program.

However daily deals could be converted into SMS messages for broader distribution and differentiation. Indeed, the O2-Placecast model is a stronger bet than an app strategy for carrier advertising, and can reach 100% of the carrier's customers potentially.

Many marketers and companies tend to look "beyond" SMS to in-app ads and mobile Web advertising because SMS isn't sexy. (Just like text ads in search aren't sexy.) However the reach of SMS is 100% and the response rates to opt-in text messaging programs can be huge. 

For example, in early 2010 Placecast found the following in its US beta test of ShopAlerts (the same kind of program run by O2): 

  • 60% of participants found the location-triggered messages to be cool & innovative
  • 79% said it increased their likelihood to visit a store
  • 65% made a purchase as a result of a ShopAlerts message (this sometimes occurred on the same day and sometimes later)
  • 73% of participants would definitely or probably use the service in the future

Will LightSquared and Sprint Save Us from Usage-Based Pricing?

As I listened to the Facebook-Skype video chat announcement earlier this week -- and the discussion about how it would move into mobile -- I was struck by the fact that consumers and services are moving in the opposite direction of carriers. Consumers don't want to have to ration their data usage and publishers are increasingly delivering services (e.g., Neflix) that are bandwidth heavy and data intensive.

As you saw earlier Verizon is the latest US carrier to end "unlimited" data pricing. Following AT&T and T-Mobile's leads, the company is moving to usage-based pricing. This is often sold as a consumer benefit. But carriers see increasing data usage and want more revenue. And at a time when voice minutes are declining carriers need to gain more profit from their data networks.

As an aside the AT&T-Mobile deal is now likely to approved with conditions. This will provide better coverage and service to AT&T subscribers but result in higher prices for consumers down the line. Higher prices will also come with usage-based pricing as consumers exceed data limits. Indeed, consumers have no idea what 2GB or 5GB or 10GB all mean, as a practical matter. To that end Verizon is introducing a number of tools and apps that will help consumers monitor and manage data usage. While this will be helpful tiered-based pricing is fundamentally not what consumers want.

Among the four major US post-paid carriers Sprint alone has true unlimited plans now. This creates a rare opening and opportunity for Sprint to seize upon, especially if Sprint gets the iPhone (as suggested by many) in the fall. Many of the pre-paid carrier plans will also continue to offer unlimited data but users will only gain access to "tier two" Android handsets, many of which are getting better. Rumor also suggests a pre-paid version of the iPhone may be on the way. 

Wholesale 4G-LTE provider LightSquared may also be a kind of white knight in the battle against unfriendly carrier pricing. Sprint has done a long-term deal with LightSquared and other secondary carriers or perhaps even new MVNOs could potentially emerge, using a LightSquared network, to challenge AT&T and Verizon's control of the market. That would be welcome. 

There are real differences in the quality of the carrier networks as well as customer service differences. But at the end of the day they're commodity providers of bandwidth. What most consumers really want is a good handset selection, reasonable network coverage and, perhaps most importantly, value-pricing.

PayPal Buying Zong for $240 Million to Bolster Carrier Billing, Digital Goods

The deal makes sense for both parties: eBay will buy Zong to strengthen and support mobile PayPal, gain access to a global set of carrier relationships and get deeper into virtual goods. Zong gets an exit as much bigger and more powerful companies threaten to marginalize them over time in the mobile payments space. 

The deal is worth a reported $240 million in cash. 

Zong has relationships with carriers around the world (approx. 250). PayPal launched a digital goods business at the end of last year. This will dramatically accelerate that effort.

Until very recently Zong's entire business was about paying for online virtual goods (e.g., gaming credits) with your phone and carrier billing. Transaction limits are small, sub-$10. The company moved last year credit-card based mobile payments

Here's what eBay said about the deal in its release: 

With Zong, PayPal will have greater ability to offer consumers even more choices in how they want to pay – virtually anytime, anywhere. Both Zong and PayPal help to enable digital goods merchants to increase conversion, because they offer a faster, easier way for consumers to pay without leaving the merchant’s site. 

Some stats on PayPal:

  • PayPal claims 100 million active accounts globally
  • 8 million customers are making purchases on their mobile phones through PayPal; $10 million in mobile payments per day
  • PayPal processed $3.4 billion in payments for digital goods in 2010  

Recently eBay has been on a bit of a buying binge and Zong is a very logical acquisition for the company's PayPal unit; its most dynamic division. It will need all the assets it can bring to bear on mobile payments as the market becomes increasingly competitive. However PayPay asserts that the digital goods market (via gaming) is already worth $10 billion -- an amazing stat. 

In that context $240 million looks like pocket change. 

See past posts on Zong: 

T-Mobile Becomes Daily Deals Aggregator

T-Mobile USA is becoming a deals aggregator, with a new Android app called "More for Me." It's available today for any Android smartphone running OS 1.6 or higher. LivingSocial is the only deal source mentioned although the word "aggregator" implies a broader array of sources. 

T-Mobile claims that the app is the first of its kind from any US mobile carrier. AT&T (the would-be owner of T-Mobile) similarly aspires to be a major player in the deals space and has a existing relationship with Placecast to deliver geo-fenced "shop alerts." That's not the same as "daily deals," but it's location-based discounts and offers nonetheless. 

 Screen shot 2011-06-15 at 4.56.23 AM

According to the T-Mobile press release:

The T-Mobile More for Me application is customizable, enabling consumers to find the most relevant deals, closest to their exact location. Users have the opportunity to see deals from a variety of retailers, in nearly any city, with many deals tailored to meet their specific interests and preferences.

“LivingSocial works directly with merchants in all of our 260+ global markets to craft great deals that drive our valuable members through their door,” said Jake Maas, senior vice president, corporate and business development, LivingSocial. “We are excited to bring our handpicked experiences to the millions of consumers who will enjoy T-Mobile’s new More for Me app.”

What's unique here is not that T-Mobile has built a deals app or even that it's created by a carrier. Rather it's the idea that a carrier is creating an app extending beyond the borders of its own subscriber network. Given the availability of branded deal apps from Groupon, LivingSocial and others, however, it's very unlikely that More for Me will see much adoption beyond T-Mobile subscribers. 

Too Many Mobile Payments Solutions Threatens Adoption

Just about everyone seems to be offering a mobile payments solution these days: credit card issuers, Pay Pal, Google, Intuit, mobile carriers and several startups. And it's probably only a matter of time before Apple and Amazon join the list.

The danger is that the market will become extremely "noisy" and consumers very confused -- not sure which platform or service to use. The growing array of choices for both consumers and merchants could, paradoxically, delay adoption of mobile payments across the board unless all the systems are built on the same infrastructure (which is not the case).

Late last week Verizon said that it's going to offer another mobile payments option to subscribers. The carrier is involved with the ISIS NFC-based effort that includes AT&T Inc. and T-Mobile. (I've characterized it as ill-fated.) However its own initiative involves Payfone and carrier billing. For more expensive purchases, apparently Verizon customers will be able to link their accounts to their own credit cards.

US carrier Sprint offers something similar already. 

According to the WSJ, "The Payfone capability is an evolution of Verizon's BilltoMobile service, which allowed customers to make some mobile online purchases, but the goods and availability were limited."

While there's lots of activity going on among would-be mobile payments providers and platforms there's very little consumer education happening. The assumption seems to be that consumers will come along for the ride. If that's indeed the perspective of the involved payments companies it's a naive view. Consumers will do what's comfortable, safe and familiar. And for some time that could mean nothing. 

A transition to mobile payments is inevitable. But, contrary to conventional wisdom, the more companies that jump into the mobile payments market the more likely it is to delay consumer adoption. 

Related posts: 

 

AT&T ApprivaPay Mobile Solution Lost in the Crowd

Everybody's doing it. Mobile payments is one of the most interesting market segments to watch these days because there's so much activity and so much uncertainty. Each month appears to bring a new initiative. This month it's Google Wallet, next month it could be Apple or someone else. 

The carrier initiative ISIS, which is backed in part by AT&T, is largely doomed to fail in my view. That's because the carriers have to rely substantially on third parties to make it work and because they're simply not "entrepreneurial" enough. I don't mean to be so dismissive but this is my belief about the outlook for the effort.

However, AT&T is involved in another mobile payments that competes with Square. It's called Appriva. I just learned about it is week, although it has been around since last year.

At some point in Q3 last year AT&T quietly introduced the program: a mobile point of sale solution for businesses. The company hasn't done much (from what I can tell) to promote the service. As a result it has been largely overshadowed by other mobile payments initiatives.

It appears to be directed at small merchants though not exclusively. To enroll merchants need an AT&T phone (any smartphone apparently) the Appriva software/app and a merchant account. Appriva costs $14.95 for the regular service and $19.95 per month for AprivaPay Professional. It's not immediately clear what the additional benefits are from the "professional" account vs the regular service. 

Neither Square nor Intuit's GoPayment require a merchant account, which is a big advantage for the smallest businesses. Square has no monthly fees, beyond transaction charges, and GoPayment requires a $12.95 monthly charge for higher volume merchants. GoPayment has the advantage of integration with Intuit's other SMB software.

There are obviously many other companies in the mobile payments sector (including the lesser-known Square competitor ROAM). Any or all of them that have any traction and/or technology will be snapped up by larger firms and incumbents in the payment processing ecosystem. 

I think it's quite unlikely, given these simpler competitors and the lack of promotion, that AT&T's Appriva will find much adoption among small businesses. I could be wrong however.

Handicapping Nokisoft's Chances

This past week has been a bad one for Nokia: the company announced earlier that it will miss Q2 sales targets and its shares hit new lows. At the "D9" conference in Southern California Nokia CEO Stephen Elop, who some have accused of being a "Trojan Horse" for Microsoft, said that the current "pain" the company is experiencing will go on for another year or so. Elop vigorously denies that he's a Trojan Horse; he also denies the companion rumor that Microsoft is ready to buy the company's hardware business. 

Nokia has almost no market presence in North America. Elop said it was roughly 30% to 40% as recently as 2004. And its position in Europe and even China is being eroded by competition in real time. Needless to say the situation for Nokia is extremely urgent, if not dire. It could go from being the market leader to a second or third place global competitor this year. 

Nokia has bet its future on Windows, which it says give it more opportunity for "long-term differentiation" vs. Android. The first Nokia-Windows Phone will be out at the earliest in Q4 of this year.  

Screen shot 2011-06-02 at 6.39.48 AMElop characterized the smartphone market now as a battle of "ecosystems" rather than handsets, and I think that's essentially correct. In that context the question is whether Microsoft and Windows Phone can develop a sufficiently large and interesting ecosystem to gain consumers' interest.

There's a kind of catch 22 problem: without consumer scale developers won't pay attention and build apps, and without apps and software consumers won't find the phones as interesting. However I also believe that the role of apps in the competitive landscape may now be somewhat overblown. Consumers need/want certain categories of apps but they certainly don't care about having access to 500K apps.

After many months of asking I just recently received a Windows Phone (as a loaner from Microsoft). So far I find it easy and pleasant to use. However I haven't used it long enough or broadly enough to come to any final conclusions. 

Some things about the OS and software are unfamiliar and require adjustment (vs. iPhone and Android). But overall the speed and general usability are good. The phone also has a polished UI design -- except for the homescreen, which I don't find compelling.

The device does lack apps; there are some but the selection is limited. And there are certain things about the user experience and software I simply don't like: 

  • As mentioned: the layout and aesthetics of the home screen (pictured, left) 
  • The degree to which the carrier and Microsoft have control over the tiles on the home screen. They can't be customized, which they should be capable of. 

Despite these complaints I would argue that Windows Phone is a credible alternative to the iPhone and Android. The Mango update also just added a ton of new features, arguably none of which are "breakthrough" and some of which are imitative of others or play catch up. But overall they improve the handset. 

In order to appreciate Windows Phone, consumers would probably need to use the device for a period of time. So far consumers don't seem to be that interested. They appear happy to continue buying iPhones and Android devices. And it's not clear exactly what Microsoft can do to stimulate more consumer demand. The company has run some entertaining commercials, which may have built modest awareness but haven't had a major impact. Pricing is another lever here but Microsoft isn't really in control of this. Rather it's the OEMs and the carriers who determine how much the handsets will cost. 

Both Gartner and IDC have predicted that Nokia will stabilize and regain market share globally when the Nokisoft phones come out later this year or next. The firms have also predicted that Windows will become the number two OS in the world after Android on the strength of Nokia's distribution. Certainly Nokia will help gain more exposure for Windows Phones and there will be more sales. How many sales is far from clear however. 

I must say in general I'm pleasantly surprised by the look and performance (thus far) of Windows Phone. I called it a "credible alternative." But is "credible alternative" going to be enough to "move the needle" and divert consumers to Windows from Android, RIM or iPhone? Probably not without more software changes from Microsoft, more apps and massive and coordinated promotion of the handsets from both Nokia and Microsoft. 

See related: Stephen Elop's Nokia Adventure 

T-Mobile Continues Making Case Against Own Merger with AT&T

There are groups lined up on both sides of the proposed AT&T-Mobile merger/acquistion. Sprint and several high-profile consumer groups oppose the merger and an unexpected collection of groups, including labor unions, support it.

Arguably the strongest argument against the acquisition is being made by T-Mobile itself. Recently the company introduced some new consumer-friendly pricing plans at a time when carriers are largely going in the opposite direction. And the company's new TV campaign highlights the high cost and "gotcha" billing by the major carriers (e.g., AT&T and Verizon). 

The most recent campaign depicts a mobile subscriber being "shaken down" by thugs who are representatives of a major carrier. The commercial dialogue goes like this:

Woman: What's going on over there?

Man: It's just my monthly mugging by my cellphone company . . . brutally expensive."

 Screen shot 2011-06-02 at 5.41.32 AM

It's very hard not to see AT&T as that carrier doing the "mugging" (either AT&T or Verizon is being implied). AT&T is mentioned, along with the other major carriers, at the end of the spot: "Save over $350 vs. AT&T . . . "

It's very difficult for me -- and I'm sure I'm not the only one -- not to see these campaigns as a strong argument against allowing the merger to happen. Clearly AT&T is not interested in maintaining T-Mobile's aggressive pricing and discounting. And by reducing the major players in the US market from four to three, there will be fewer incentives for carriers to compete on price. 

Indeed, AT&T and Verizon essentially don't compete on price. It's Sprint and T-Mobile that have positioned themselves as "value" carriers. AT&T and Verizon talk about their handset selection and the quality of their networks more than their plans and pricing.

I suspect some version of the acquisition (with conditions) will ultimately go through. I find it highly ironic however that probably the strongest arguments against the merger are being vividly laid out in the ad campaigns of would-be "acquiree" T-Mobile. 

Tablet Wars: Which Non-iPads Will Be Here Next Year?

Non-iPad tablets are starting to proliferate and some of them are getting positive reviews. For example, ZDNet's Matthew Miller has given the new HTC Flyer 7" Android tablet a very positive review. It features the HTC Sense UI and some other proprietary software tweaks. However its main differentiator is a stylus/pen (sold separately) that works with the tablet.

This is unique in the market and could be a nice feature for artists and those who want to draw on the device -- or students making notes while reading or in classs. 

Android Central gives the new Samsung Android 10.1" tablet a very positive review as well. However I find the 10.1 size, which favors the portrait angle, awkward. With a smaller form factor I would be more enthusiastic. Beyond this, however the software experience simply doesn't stand up to the iPad. My biggest pet peeve is that all websites are read as mobile, which doesn't take advantage of the larger form factor. In addition almost none of the Android apps have been optimized for tablets at this point. 

If I'd never used an iPad the Samsung device would be impressive in many respects. However one must get used to the navigation, among other things, on the Honeycomb device. I've said this many times in the past but I think the winning Android tablets will be 7" especially given no Apple entry in that smaller category. 

The RIM Playbook is 7" and appeared to be selling well according to some preliminary reports. However a new report suggests that the device is actually not selling very well and experiencing a high return rate. We'll have to wait until the next RIM earnings report to learn the truth. The Playbook is supposed to be able to run Android apps, which was a shrewd and critical decision by RIM. Otherwise it would be DOA. Even so, it may not survive. 

The first Android "flagship" tablet, the 10" Motorola Xoom, is effectively a flop. And HP/Palm is making lots of boasts and claims about its forthcoming TouchPad (which will be priced at $499 and $599). However the 9.7" device also likely to fail if it tries to go head to head with the iPad. 

Putting aside eReaders, by this time next year there will probably be three categories of tablets: 10", 7" and a smaller category that will include everything else: iPod Touch, Galaxy Player, Dell Streak, etc. Almost all non-iPad tablets (unless they're very inexpensive) will fail at the 10" level.

However there will be several viable mostly Android competitors at the 7" level, chiefly because Apple isn't present. Apple has said it's not ceding any segment but it's unclear if/when an "iPad Nano" will show up. This creates an opportunity for Android tablet competitors to control this 7" segment. Pricing is a big issue, however. Most of the "quality" 7" tablets remain too expensive (without a carrier subsidy) to drive mass adoption at this time. Most people don't want to buy another data plan as well. Amazon may change that; we'll see. 

Below is data from Nielsen comparing how various connected devices are used. Smartphones are used relatively evenly throughout the day and in various locations; however tablets are used heavily during TV watching and in bed. By contrast eReaders are used most heavily in bed. 

http://blog.nielsen.com/nielsenwire/wp-content/uploads/2011/05/connected-devices-2.jpg

Those who would argue that tablets are a "fad" are simply mistaken. Ultimately 30% to 50% of PC usage will shift to smartphones and tablets in my opinion. 

Veer Should Be Positioned As 'VW Beetle of Smarpthones'

Might the compact HP/Palm Veer be the OEM's comeback handset? It certainly could be but might not turn out to be in actuality if improperly positioned and marketed.

The HP Veer was previewed last year and availability was announced this morning. The handset will be exclusive to AT&T and out May 15. It will cost $99 with a two-year contract. There's both a white (pictured) and a black version. 

Though AT&T is the largest US carrier exclusivity might be the first mistake. A limited period of exclusivity is OK but prolonged exclusivity will hurt the handset's chances with consumers. 

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White is good, but a rainbow of colors would have been better and made the phone a more distinctive product.

Another black smartphone, only distinguished by its size, is not going to sell a ton. But a "cute" smartphone that comes in blue, yellow, pink, green, etc. has a better shot. 

This phone should be positioned as the "VW Beetle of smartphones." The campaign surrounding it should be about individuality, fun and personal style (kind of like Apple products). However I'm not sure that a company like HP thinks that way. 

Carriers Blink, Invite Visa to Be Part of Payments Cabal

According to Reuters and the Wall Street Journal three of the big carriers in the US (not including Sprint) are significantly scaling back ambitions for ISIS, their mobile payments effort that was to take on Visa and MasterCard. The original idea was that users would have payment accounts with their carrier directly and Discover Card was going to be used as the payments platform.

The plan was that the carriers would take a cut of each transaction. There were also shopping and mobile marketing fantasies associated with ISIS.

However, according to the WSJ, Discover was the weak link and many merchants balked at using the smaller company. It's a tiny player (3% of the market) compared with Visa, Mastercard and Amex. Very few US consumers have the Discover Card. Accordingly the US carriers have now invited Visa and MasterCard to participate in ISIS to help drive consumer adoption. 

According to the WSJ: 

[T]he group has adopted the less ambitious goal of setting up a "mobile wallet" that can store and exchange the account information on a users' existing Visa, MasterCard or other card, people familiar with the matter said. The carriers are scrambling to find other ways to make money from the transactions.

To get as many users as possible, the carriers are now in talks with Visa and MasterCard to have them participate in the system they will embed in phones, people familiar with the matter said.

However using Visa and MasterCard will mean the death of the intended business model. Merchants and consumers alike would reject any additional costs tacked on to transactions by carriers as a profit margin. 

Separately Google and RIM are moving forward with NFC-based payments trials. Google's NFC test is with a number of retailers in SF and NY. RIM is working with MasterCard and Bank America. Google's "Gingerbread" OS supports NFC currently. 

The first ISIS payments trial is slated for next year (2012) with the Utah Transit Authority. Assuming that was successful it would probably be several more years at least before any mainstream adoption of ISIS. 

Mobile payments in some sense are inevitable. But the specific models of what successful programs will look like have yet to emerge. Standards, security and privacy all remain open questions. 

Ultimately mobile payments are a kind of "one-click" convenience built on some stored credit card much like iTunes or Amazon. Beyond security and consumer acceptance the big challenge is the real-world infrastructure that will allow merchants, hotels, restaurants, public transit and other places to accept mobile payments. 

Related posts of mobile payments:

Consumers Have New-Phone Envy, iPhone Top Device

No matter what "flagship" Android device you have it will be obsolete in three to six months. Today's Android flagship is the Samsung Galaxy II, with impressive specs and performance. 

But there will be another more powerful handset by Thanksgiving. 

The competition among the group of OEMs releasing Android handsets -- Samsung, Motorola, LG and HTC chiefly -- is intensifying to the point where bigger and better Android devices are being released at least quarterly. Electronics site Retrevo said that it "counted more than 120 new smartphones from major vendors over the course of about a year."

Most of these are new Android handsets. 

Yet US carriers (other than Sprint) only permit upgrades once every two-year contract cycle. Sprint allows annual upgrades for "premier" high value customers. But generally the hardware releases are coming much faster than consumers are permitted to upgrade.

http://www.retrevo.com/content/files/images/misc/gadgetology_11Apr25_3.jpg

Retrevo asked its users whether they felt their smartphones were obsolete, given the pace of new handset releases. A large majority (62%) said yes. However, asked if they wanted to pay more for handsets to be permitted to upgrade annually, most said they would not. About 23% said they would pay either $100 (19%) or $200 (4%) for the privilege.  

http://www.retrevo.com/content/files/images/misc/gadgetology_11Apr25_4.jpg

Meanwhile NPD Group today issued a report that said Apple, buoyed by the success of the Verizon iPhone, became the "third-largest handset brand in the U.S., behind Samsung at 23 percent and LG at 18 percent." The iPhone 4 was the top-selling handset in the US despite the fact that Android handsets collectively outsold it and accounted for 50% of all US smartphone sales in Q1 2011.

According to NPD in Q1 here are the top-selling handsets in the US:

  1. iPhone 4
  2. iPhone 3GS 
  3. Motorola Droid X
  4. HTC EVO 4G
  5. HTC Droid Incredibe

NPD also reported that RIM "lost ground, falling 5 points, to 14 percent" of sales. RIM confirmed that it is indeed losing share by issuing new financial guidance, saying that smartphone sales will be at the "lower end of the range." 

VZW Gains Nearly 1M Subs, 2.2M iPhones Sold

Verizon reported quarterly earnings this morning. Total company revenue was almost $27 billion.

Verizon Wireless added 906,000 subscribers and activated 2.2 million iPhones (in 8 weeks), ending months of speculation. By contrast AT&T added only 62,000 subscribers but activated 3.6 million iPhones during the quarter. Verizon also activated 260,000 HTC ThunderBolts (Android), its first LTE/4G device. 

Sixty percent of new phone sales were smartphone sales at Verizon; and 65% of smartphone buyers were new smartphone owners (upgrading from feature phones).

 Picture 28

Approximately 32% of all Verizon Wireless customers now own smartphones. That would mean more than 30 million smartphones at Verizon alone.

The company reported that it now has "104 million total wireless connections," 88 million of which are "retail customers." (A small number of those are "connected [tablet] devices.") 

 

AT&T's Doesn't Feel Sting of VZW iPhone

The iPhone had been driving strong wireless growth at AT&T for the past several quarters. So when the Verizon iPhone hit many financial analysts assumed there would be widespread defections and a corresponding slowing of wireless growth. Not so according to Q1 2011 AT&T revenues released this morning.

The AT&T saw a 39% increase in Q1 profit. Revenues rose to $31.2 billion in the first quarter, up $700 million vs. a year ago. Here are some additional earnings highlights:

  • 10.2 percent growth in wireless revenues, with an 8.6 percent increase in wireless service revenues 
  • Best-ever first-quarter increase in total wireless subscribers, up 2.0 million to reach 97.5 million subscribers in service, with gains in every category
  • Best-ever first-quarter smartphone sales of more than 5.5 million
  • iPhone activations increased nearly 1 million year over year to 3.6 million, with 23 percent of subscribers new to AT&T; iPhone subscriber churn unchanged year over year
  • Best-ever first-quarter connected device net adds of 1.3 million
  • 23.9 percent growth in wireless data revenues, up almost $1 billion versus the year-earlier quarter

As indicated by the numbers the iPhone remains popular at AT&T. The company reported that 3.6 million iPhones were activated in Q1 with almost 25% of those activations coming from new customers. That compared with 2.7 million iPhones activated a year earlier. 

Rougly 40% of the 5.5 million smartphone sales (AT&T's third best quarter for smartphone sales) were made up of non-iPhone devices. The carrier now has 97.5 million wireless subscribers. 

 Screen shot 2011-04-20 at 9.22.29 AM

See also: AT&T Interactive Planning Local-Mobile SDK