3G Is Making Music Mobile
My TMF board colleague, Ollie, and I continue our dialogue on cdma based Global 3G (G3G), digital convergence, and mobile wireless music players ...
<< Ollie: I guess there are just some convergence-based assumptions and leaps of faith that are yet to come together in reality - I'm a tad skeptical right now, but I look forward to witnessing these question marks being overcome. >>
You have a right to be skeptical. The flip-side of that skepticism is over-exuberance and we have witnessed that. For those of us that have invested in mobile wireless companies the migration from 2nd generation circuit-switched digital mobile wireless to the 2½ generation which adds packet data and initial '3G services' and on to full blown cdma or cdm/tdm 3G multimedia service and services with increased capacity and data transmission speeds has seemed painfully slow, although realistically it is progressing right nicely, even though 3G services are just emerging from the chasm and entering the bowling alley. Aided by Moores Law essentially we are getting to whole product concurrently with 3G networks being overlaid on 2.5G networks and using their IP backbone.
2.5G: Looking Back a Half Step
I vividly remember when we investors were impatiently waiting for not just 3G, but the necessary interim 2.5G GPRS and 1xRTT steps back before QUACOMM and CDG attempted to hype 1xRTT as 3G, and the UWCC (kna 3GAmericas) was doing likewise with EDGE.
By late 2000, in Europe, the carriers who started placing orders for GPRS overlays in mid-99 were blaming none other than handset manufacturers - what else is new? - for their own delays in implementing GPRS, rolling out upgrades, adding capacity, and optimizing those networks. When the bubble burst and capital markets quickly dried up, and their valuations were halved and then halved again, they had already started to tell themselves they really didn't need 3G just yet, and that 2.5G would be good enough for the foreseeable future. By late Q3 2001 GPRS handsets started coming on stream from multiple manufacturers and arrived in volume Q4, a year later than originally anticipated, but when that volume ramp started carriers looked at each other and said ...
"Oh Sh**! We don't got no interoperable multimedia services, and nobody's gonna buy these expensive handsets without em, and we aren't gonna be able to raise our ARPU, and justify our GPRS expansion, much less 3G."
Necessity is the mother of invention. In November 2001 Jorma Ollila took the stage at Comdex in Las Vegas and announced that they had formed the Open Mobile Architecture Initiative (OMAI) in conjunction with AT&T Wireless, Cingular, MM02, NTT DoCoMo, Telefonica Moviles, Vodafone, Fujitsu, Matsushita, Mitsubishi, Motorola, NEC, Samsung, Sharp, Siemens, Sony Ericsson, Toshiba, and Symbian, with the objective of focusing on developing open interoperable standards for next-generation services that they were confident would inevitably spring from the increasing convergence of mobile phones and the Internet, provided standards based building blocks were implemented.
Shortly the founding members of OMAI were joined by BEA Systems, Sun Microsystems, Borland, HP, IBM, Oracle, STMicroelectronics and Texas Instruments and 6 months later OMAI became the Open Mobile Alliance (OMA). Today the Open Mobile Alliance has grown to more than 300 companies representing a Who's Who of mobile operators, device and network suppliers, information technology companies, and content providers. These are the enablers they are standardizing which will overcome barriers, resolve issues and eventually lead to a mass market for 3G services.
openmobilealliance.org
If you scan that list you will see several service enablers that are necessary to make digital convergence and mobile multimedia music services a reality and not the least of those are OMA Download, OMA Digital Rights Management, and the OMA SyncML Common Specification, and they bear on our discussion.
It has taken 3½ years to mature these standards and implement early versions commercially for servers, in devices, in software, and while there is a ways to go, they already now enable the near-term introduction of meaningful 3G multimedia data services.
<< Ollie: Unless the music and video industries do a 180, you're not going to be able to share music and other copyrighted content via your phones. >>
The music and video industries and their artists and distributors are very actively involved in this convergence because it potentially significantly increases their market. That's why Neil Portnoy the President of the Recording Academy was present and spoke passionately and enthusiastically at the Nokia N91 launch event in Amsterdam. OMA Digital Rights Management is an important enabler, and one without which this would not be possible. Music moves but is not copied. Playlists are shared. Artists get paid. Remember what that BusinessWeek article talked about in addressing that issue:
The initial downloading services have locked tunes onto the phone partly because, unlike Internet music services, early technology didn't provide a way to prevent multiple copies from being released to file-sharing networks. Now, Microsoft, digital media specialist Loudeye, and mobile music startup Melodeo are developing systems that provide better copy protection so tracks can be moved around easily and safely. ... The first iterations are crude. Nokia, in partnership with Microsoft and Loudeye Corp., provides operators with technology to send customers two copies of a track. One goes to the phone and can't be moved, and the other, a copy-protected version, goes to the PC. By yearend, Nokia will do away with this clunky workaround so a customer can buy copy-protected downloads over the air and move them freely. Operator O2 Germany, a unit of Britain's O2 PLC, will use the Nokia solution in its wireless music offering, launching this summer, and Vodafone may adopt it.
Nearing the Inflection Point
<< Ollie: How realistic is it that downloading a song to your cellphone is going to be cheaper than the itunes $.99 service? And how long will it take to download? Perhaps there will be some willingness to pay a little extra for convenience, ... >>
There is no reason for it to be cheaper, and it won't be. Individuals and particularly early adopters have generally proven willing to pay a premium for mobility and the carriers are counting on that. The trick will be for them to establish the right business model and the right value proposition and they might not get it right on the 1st whack, but once they have established the service, stabilized and optimized it, they can always tune the price even as they improve the service. As that BusinessWeek article stated:
Verizon, Sprint, and Cingular are expected to charge about $2 for wireless downloads when they introduce their services, or twice the 99 cents per song on iTunes. They figure they can charge a premium for the convenience of getting songs anytime, even though customers most likely won't be able to listen to those songs anywhere but on their phones, at least initially.
$2 might be a tad high. How about $1.49 or $1.29? How about $10 a month for unlimited access to the service and 7 tunes a month with no minutes of use charged and $2 a pop over the 7 included tunes? The market will work it out.
If I'm out and about and my flights delayed and I am in the mood to hear Freddie Mercury and band belt "We are the Champions" or "Radio Ga-Ga" I'd be glad to pay $2 a copy even though I have multiple copies at home on vinyl, CD, and HDD, and I can take the ante out of the phones e-wallet. It's about mobility, it's about convenience. It's about immediacy.
How long will it take to download? PDQ. With WCDMA less time than with EDGE and much less time than with GPRS or 1xRTT. With 1xEV-DO even less time. About the same time as DSL. A little slow with 1xRTT or GPRS but fast enough even with EDGE because always on -- except when in offline mode -- UMTS (WCDMA) and EDGE Class A handsets are multitasking so while the selected tune is downloading the user can be talking on a voice call, gaming, or listening to FM or other downloaded tunes or update my calendar and to-do list.
<< Ollie: I think this is where we (and more importantly Nokia and Cingular, etc) have to be extremely smart about their markets. Is there a market for the one-size-fits-all N91? Do people who want the music player also want the camera, and also want wifi, and also want POP3? >>
Nokia and Cingular, and the other device manufacturers, and the other global carriers will most certainly have to create the right value proposition, and provide the right range of devices, suited to the market segments they are targeting.
I don't know whether Nokia will sell 1 million, 2 million, or 5 million relatively high priced N91 devices in its life cycle, but the N91 dramatically demonstrates the capability for manufacturers to converge multiple radio access technologies and multiple multimedia technologies and capabilities in a single 5¾ ounce palm sized pocketable device.
This is not Nokia's 1st music player, nor will it be its last. It simply is their 1st with a HDD for large storage capacity, with MS Media Player 10 connectivity, with WiFi as well as WCDMA/EDGE in a consumer device, and the 1st real potential challenger to the iPod. Nokia will be selling variants with larger HDD, or alternatively with memory cards, 2 megapixel cameras, 1.3 megapixel and 3 megapixel cameras and without any camera, and without WiFi. A year after the N91 releases to retailers they'll have a segmented range of 2.5G & 3G mobile wireless music players in a variety of price points.
In one sense, the N91's market appeal will be limited by its high price. OTOH its affluent target audience is very broad. Some of your classmates will find the coin for one, and some of the many affluent folks that hang around Union Square (not the homeless <g>) will too. Students in the Bay Area know where to find no charge WiFi hotspots, and young businessmen that like music have access in their offices, and there is no reason a young affluent businessman won't like this phone. Even older businessmen like me might spring for this device. That's why POP3 and the other e-mail options are available and why accessories include a foldable portable Bluetooth keyboard and Bluetooth digital pen. For those that feel a camera is a must, this one's 2 megapixel. I can even see prosperous young attorneys in Cingular's hometown springing for one once Cingular blankets Atlanta with WCDMA, given their nationwide fallback to EDGE while they continue to build out WCDMA and implement HSDPA.
I am beginning to think that possibly the N91 is a potential Market Maker just as the iPod was a potential Market Maker that made a market that could be considerably larger than it currently is as the market goes mobile.
Whether or not the N91 is a market maker I am convinced this will be a market and I am also convinced that G3G will be mass market.
<< Ollie: I guess there are just some convergence-based assumptions and leaps of faith that are yet to come together in reality. >>
The N91 brought convergence one step closer. 3G is a technology push, but when 300+ big companies are pushing, the likelihood is 3G and digital convergence is gonna happen, and be a mass market. It takes standards based whole product. The N91 coupled with the Microsoft enabled Loudeye-Nokia music platform tailored for a carrier and allowing the carrier to get a piece of the action that Apple now enjoys is whole product.
Obviously not every carrier is going to implement the Microsoft-Loudeye-Nokia solution so it will be very interesting to see what Cingular, Verizon, and Sprint PCS implement here in the USA.
Comments or opinions anyone?
Best to Ollie on TMF and All here,
- Eric - |
