Your social network relationships have become a kind of data which can be carried and peeped.
[+] social networks will become personal profile centers
So far we have seen social network sites' plans to open up their users' profiles, such as Facebook Connect, MySpace Data Availability and Google Friend Connect. One common idea behind all these plans is to allow users to decide which websites they can bring their profiles to. We can call it "portability of personal profiles."
Users of Facebook and MySpace can decide if they want to carry their personal data - name, phone number and address - and social network profiles - friend list or user group - with them to other websites. For example, you may access your Facebook friends from other websites you are using, of course with your authorization.
Through this strategy of opening up, social network is moving towards its next stage to play the role of personal profile center. Quite a few online users prefer to store their personal profiles in one central place, so that they will not need to fill in the same data repeatedly no matter where they go, and moreover, they only need to make changes to their profiles at one place - data at other websites will all be automatically updated. As such, we can see the value of such personal profile centers.
One thing calling for our attention is that, the idea of "portable profile" may not be a new one, but what is portable this time is your "relationship". In the past, your data or your tracks online do not include your social network relationships, which now become a kind of data that can be carried about and, of course, peeped.
[+] Personal profiles become tangible
You may have no idea about what websites your friends regularly visit, not to mention when they do. With the portability of personal profiles, you, when browsing some small website, may unexpectedly find your friends there, too. It is because you both are Facebook users and you carry your personal social network profiles with you to this site.
The society is thus turning into a gigantic tangible net where you may bump into someone you know at some corner. The impact of this development on people's social life is yet to be understood, but this is the first time we are able to transform our social relationships into tangible data, which can be stored in one place, carried about and, maybe, traded?
Social network websites, as places where personal profiles are stored, will have to bear social and even legal responsibility more than before. Who is after all the legal owner of the profiles - the users or the social network websites? Do social network sites merely provide data hosting service? What kind of responsibility they may have if the data gets stolen by hackers/ Can the government intervene in the management of personal profiles for the sake of social security?
In addition to legal aspects, there are business aspects, too. Thanks to the rapid flow of news content on the Internet, traditional media have almost got wiped out by portals. Now with open platforms and open user profiles, we see personal profiles flow rapidly on the Internet, and we wonder which traditional industries will be clawed down this time.
[+] Standard of personal profile portability
There is no standard so far for portable personal profiles. At least MySpace, Facebook and Google use three different methods. Users are bound to meet difficulties if they want to carry their profiles to another social network websites. Such portability benefits competitors, which will not be allowed.
However, if the ownership of these profiles belongs to users, there is no reason to obstruct the free and convenient flow of personal profiles among major social network websites? In this case, there may be a reason for the government to step in to break down the barrier set up by competing websites. Such intervention has a precedent in the telecommunications industry - telephone number portability, which allows users to carry their telephone numbers with them when switching service providers.
Furthermore, we can see this issue at as high as the national level. Imagine a scenario in which American companies such as MySpace and Facebook providing services in other countries. These American companies may accumulate an enormous amount of personal data and social network profiles of the citizens of another country. In that case, who owns these profiles? Is the government of that country entitled to intervene in the usage and management of these profiles?
It is possible that the data exchange standard for personal profile portability may become an international issue because a country may want to prevent foreign companies from controlling the profiles of its citizens. In the case of terrestrial TV standards, the result was that we have three standards: American, European and Japanese. So far the government seems to be slow in response because it sort of lags behind the fast development of technology.
Openness is an intrinsic feature of the Internet, and after a decade, we see a new exciting development of openness - open platforms and open user profiles related to social network. Business competition happens very fast, and it may take us another decade to manage to solve the legal and international issues it has incurred.
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Prev : Openness, where is it going to take us? (4)
- Today in History
Openness, where is it going to take us? (5) - 2008/12/07
Mobile TV Market (3) Terminal Manufacturers & Content Providers - 2007/12/02
Great Future of Wireless Broadband (4) WiMax, 3G and 4G - 2006/12/03
Internet and Books (1) Dilemma of Online Publishing - 2005/12/04
VoIP (2) Who Depends on Whom - 2004/12/05
VoIP Gives out the First Cry - 2003/12/07
Users become more dependent on them for their central data storage.
[+] An ignored project of opening user profiles
A few days before the 512 earthquake in Sichuang, China, MySpace announced its plan of MySpace Data Availability, which was to open its users' profiles. A few days later, Facebook follow suit by launching Facebook Connect. The two companies, after the phase of opening their platforms for one year, have entered a new stage of open user profiles. Their plans were supposed to arouse extensive attention, yet they didn't draw too much attention of the press because it was overwhelmed by earthquake news.
What is open user profile? It is about allowing users the freedom to carry their social network profiles to other websites. One simple example: you can post your photo from your MySpace album on your Yahoo Messenger. Users are able to do so if Yahoo Messenger links to MySpace platform.
Such openness breaks the barriers between websites even further. As far as small- and medium-sized websites are concerned, open platform is about social network websites inviting them in to develop applications, while open user profile is about opening user profiles for them to do applications from the outside. The former is a centralized system with a social network website at its core, and the latter concerns exchange among websites on relatively equal terms.
What has been opened includes not only user registration data (e.g. names and addresses), blogs and photos but also users' friend lists - so that you can see if your MySpace friends log on the same website. Users can carry not only static data but also living relationships. The Internet has got to a point where the rules of the game have been constantly overwritten.
[+] Why open user profile?
Some people may think that these social network websites must have gone crazy to unconditionally open millions of their user profiles, and most important of all, the social network of users, they have accumulated for years. It is within users' discretion if they want their profiles open and to be accessed from other websites, yet should social network websites allow their users such an option that makes their user profiles available to other websites?
From the viewpoint of users, many of them have been fed up with filling personal registration data repeatedly. Web 2.0 websites in particular would ask you to provide loads of information of interests, hobbies and things, upload photos and most annoyingly, set up friend lists and invite your friends to join. Users may think: why can't I just use my MySpace friend list?
To streamline user registration process, small- and medium-sized Web 2.0 websites even encourage you to use the same ID you use to log on bigger websites. They, on one hand, access big social network websites' open platforms and develop small widgets to be embedded in big websites; on the other hand, they link to these social network websites' open profile plans so that users can carry their profiles with them.
It looks like small- and medium-sized Web 2.0 websites are getting more dependent on big social network websites. Indeed, the trend of opening up - both the platform and user profiles - has been pushing smaller Web 2.0 websites to lean on bigger social network websites. Smaller websites will find it harder to survive and get more attached to large social network websites which control the valuable and critical asset of user profiles.
[+] Demand for central storage of personal data
So, don't social network websites worry about small- and medium-sized websites stealing the data? Firstly, Westerners have high respect to users' privacy and it is a serious issue to access personal data without the owner's permission. Yet, even if the small- and medium-sized websites don't steal but just access and use the data normally, users may at the end turn to stick to them instead of the social network websites where they are from. Are these big websites not concerned?
The core of social network websites has been users' profiles and social relationships. Look at the illustration below that shows the four layers of the concept of social network websites. We can say that it is feasible for website operators to have third parties develop applications for them as long as they have good control of the core. As a matter of fact, users prefer to store their data in one single place, so social network websites will be taking up the role of data centers.
Imagine there is one place on the Internet where it is safe for you to store all your personal data. You can user your own discretion to access this data from other websites to save the effort to repeatedly fill in the same data, and when you move house, you only need to change your contact address once at this once place and the data at other websites will be automatically updated. Such convenience is beyond understanding in the Web 1.0 era.
No small- and medium-sized websites will be able to steal user profiles from big social network websites, and the significance of social network websites will not be reduced whatsoever. In fact, as social network websites are opening their user profiles to more other websites, their users become more dependent on them for their central data storage. The more you open, the better chance you have in the competition - this is the true meaning of online openness.
At the same time, what problems there will be when social network websites are becoming a personal data platform?
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Openness, where is it going to take us? (4) - 2008/11/30
How Did Tablet PC End up in Failure - 2003/11/30
After open platform comes the matter of profit share.
It is predictable that the open platform would change the existing dynamics of the industry. For example, we have seen many third parties developing applications for the social network websites in China - 51.com and Xiaonei. They can of course do the same thing for bigger players like Baidou or qq.com if they decided to open their platforms. Yet, is it possible that 51.com and Xiaonei develop applications imbedded in Baidou and qq.com?
Moreover, what if 51.com and Xiaonei develop applications to be imbedded in each other's websites? In that case, which is the big brother, and which is the little one? The relationship will become so complicated that in the end there will surely be many tangible and intangible clauses and terms made to prevent competitors from cutting ground by using imbedded applications. However, as far as social network service providers are concerned, to what extent should they open their platforms?
Some social network websites make it clear in their contracts with third party developers that applications in specific areas (such as recruitment and travel services) are not to be opened because the big brothers want to do it themselves, now or later. These areas are not supposed to be touched by little ones. Such cherry picking mindset is rather paradoxical - can this be called open?
In fact, social network websites need not to be afraid of opening themselves, as long as they get a good hold of their core value. The internet was born to be open, and online service providers should embrace this reality. They should open themselves except for their core. Yet, eventually what is the core value of social network?
[+] Only the core that should not be opened
From the surface, the tangible products of social network services are blogs, photo upload, friend lists and so on. Yet we should know clearly that the value of social network underneath these products lies in two parts - data storage and social relationship. The former is users' tangible asset and the latter the intangible.
A social network website's user may store blog articles s/he has been working for threes years and photos for one year at the website. Guess if s/he would run away from that website? Many people see the glamorous part of social network service providers but hardly their efforts in providing basic data storage functions. To be a platform operator or a big brother in social network services, data storage is the basic work, which needs to be under full control.
In addition to basic data storage, the intangible asset of users' social relationship needs to be taken good care too. The key for social network services to become sticky and irresistible for users lies in interpersonal interaction, which allows users to know what their friends are doing online easily. As long as social network service operators have god hold of users' social relationship, they don't need to be afraid of opening up.
In other words, it is OK to have third parties to develop applications except in areas involved in basic data storage or in ways intended to steal or transfer user's social relationship. This can be compared with the opening up of state-owned enterprises. It takes thorough consideration to decide which parts are about basic applications that should not be opened and which parts can be opened in moderation.
[+] Five tasks for open platform
After open platform comes the issue of profit share. A social network website operator should help third-party developers revolve problems and earn profits in the following areas:
1) Promotion. A social network website operator should provide a mechanism through which new services or applications can promote themselves while those not favored by users can be naturally weeded out.
2) Advertising revenue. For instance, a website can work with Google Adsense, a popular online advertising solution to web publishers in China, and let third-party developers keep all of the advertising revenue they bring in instead of sharing with them.
3) User payment. Users may be willing to pay for applications such as games, and social network websites should provide a solution to help application developers with user payment.
For the points mentioned above, 51.com has taken the initiative to provide solutions. 51.com opens its virtual money API to third-party developers, and by working with the sales channel of prepaid game cards of the game developer, Giant, users can top up easily. This is an attractive advantage for developers.
4) Basic web hosting. For developers to start offering their services at a lower cost, provision of basic web hosting may be necessary.
5) Investment or acquisition opportunity. A good application can be a good potential investment target; especially if it can be applied in a number of various social network websites and accumulate a huge amount of users. By provide funding opportunities at the initial stage, the website operator can help a application developer to grow and reserve a good investment opportunity for the future.
Open platform unveils a new competition for users. Social network websites wish to grow bigger, but at the same time they are worried to lose their turf. The top priority is to know yourself well. Your best chance lies in opening up yourself to the outside but preserving your core, and for this you need a good profit share system. At the end, you may even need to open up your user data to others to ensure lasting growth.
Yet, why do social network websites need to open their user data which they have made every effort to gather?
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- Today in History
Openness, where is it going to take us? (3) - 2008/11/23
Mobile TV Market (2) the Subtle Role of Telecom Operators - 2007/11/25
Great Future of Wireless Broadband (3) Scarce Resources - 2006/11/26
Google's Choice (2) Lessons for the Software Giant - 2005/11/20
VoIP (1) It's a Fool Not to Make Telecom Money - 2004/11/28
Why open platform? The root cause is to address the problem of inactive users.
[+] open platforms for big brothers only
The idea of open platform is about a big website releasing its API and allowing others (individual users, small groups or small or medium-sized websites) to write programs in accordance with its API standards and embed the programs in this big website for its users. For website application developers, this mode can be called "follow the big brother."
Why open platforms? The fundamental reason is to solve the problem of inactive users. Social network services are driven by pressure of interpersonal relationships, so in the beginning users would feel compelled to log on the services. After a while, the pressure wanes and about two thirds of users would quiet down. One way to resolve this problem is continue to offer new applications. Yet it is too slow for a website operator to develop applications solely on its own, so it can only open its platform and let others join.
There are several key points in the definition of open platform mentioned in the first paragraph. Firstly, only the major players of the industry have the power to attract others to join. The open platforms of 51.com and Xiaonei.com, two independent social network websites in China, can only work well when they are turning into major players. Yet, keep in mind that the most powerful open platform would be that of Tencent (qq.com), a major Internet Instant Messenger Service provider in China, which can afford to wait for its best chance.
Why do companies follow the big brother instead of striving to be a big brother? This is because the market conditions three years ago could support a startup to grow into a big player. Now it has become difficult for startups - many of them can't even secure financing. Attaching to a major player for a chance to survive is straightforward thinking. Therefore we see a process of industry consolidation.
[+] Benefits for followers
Secondly, applications, after all, are for users of major websites. It is necessary to figure out what kind of applications major users would need. News for Sina, search for Baidu, C2C trade for Taobao, - major websites have their distinct product positioning. In a word, big websites of different types would have open platforms of different kinds; so small players must have different ways to work with them.
Social network services websites have no specific product positioning, which, however, give unlimited space for imagination. They are most powerful in spreading information. Although this type of websites offers specific functions such as blog, photo album, friend list and communities, their actual core product - relationships and networking - is relatively abstract. For applications to be successful, this core must be taken into close consideration.
Thirdly, followers must have benefits. The odds may be poor for a small developer to grow into a big brother, but at least it must be able to support itself. A big brother cannot make smaller developers keep working with it if it does not take care of them. Unless the big brother is the one and only player in the business, otherwise small developers can always turn to other big brothers.
Contrary to the real life, followers on the Internet enjoy certain freedom. They can join different camps at the same time. Developers certainly would like their applications to be used at many occasions without restrictions and make them good money. It would be a lot of trouble if one has to follow different rules (APIs) when joining different camps. Wouldn't it be a lot more convenient if all big brothers have the same set of rules?
[+] Battle for open standards
So we've seen the emergence of a standard that all big brothers are supposed to follow. This is the Open Social standard advocated by Google - a universal standard for open platform. If all big brothers abide by the standards, life would be a lot easier for small followers. They can join different camps freely, and someday they may even become big by being able to benefit from working with many big players.
This scenario is very much like vertical and horizontal alliances in the era of Warring States in China. Google's performance in social network services is only average. But if you look at the list of Open Social partners, you'll find that Google, with this alliance, looks like ready to contend with Facebook. However, what is Googls's intent to develop a standard for all to use, free of charge? What benefits, after all, will it be able to reap?
Overall, the core of Google is search. Google would wish that its Spider and Adsense could reach where there is traffic on the Internet. Nevertheless, social network services websites are very special - they have heavy traffic, yet they, particularly personal profiles, can only be access by logged-on users. Search engines have trouble indexing web pages of these services.
So Google has to open them up, and Open Social can be seen as a product of such thinking. Actually, baidu.com can take the same approach and come up with an open platform standard that suits Chinese social behaviors. It can encourage other social network services providers to adopt this standard, and independent players such as 51.com and xiaonei.com are very likely to join.
Why? Because for independent social network services providers, it would be too risky to rely on a third party standard and too inefficient to develop its own one. The solution then is to "compatibility with all standards." For them, the point is to attract more developers to come up with more applications to stimulate user activities. It does not matter which standards they choose.
In a standardized and transparent Internet world, what can website operators do to retain their users?
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Prev : Openness, where is it going to take us? (1)
- Today in History
Openness, where is it going to take us? (2) - 2008/11/16
Mobile TV Market (1) Cell Phone plus TV, the Dream of Everybody - 2007/11/18
Great Future of Wireless Broadband (2) Public WiFi is Not Enough - 2006/11/19
Great Future of Wireless Broadband (1) Living in the WiFi City - 2006/11/12
Google's Choice (1) Lessons for Portals - 2005/11/13
A Word of Advice for Small Online Stores - 2004/11/14
"To grow bigger" is an inevitable pressure rising from within.
[+] The Internet was born to be open.
The Internet was born to be open and free. Since the time when people established the underlying architecture of communications network, the Internet was endowed with the attributes of a decentralized architecture like its genes. Some negative impacts have come along, such as issues of online security and spams. Yet as such things are the consequences of the working of the Internet's genes, they are meant to subsist. For those Internet businesses that go against the Internet's innate characteristics, they would inevitably face tremendous pressure from competition.
Ten years ago, the Internet had posed a severe challenge to the conventional logic of business world – monopoly - , especially of the capital-intensive media industry. The Internet broke the structure and created an opening. An open Internet enabled more content partners to join. Free Internet services quickly drew in a large number of users. People running Internet companies were aware that only through opening up themselves could they continue to grow.
As the Internet follows the pattern of scale economy, inevitably, there is always an innate pressure for Internet businesses "to grow bigger." They need to quickly increase their user base and traffic to achieve a comparatively low marginal cost. One way to grow big fast is to offer free services; to open and embrace more partners is another. During the first decade of the Internet, these two methods seemed to work well.
Now we've seen a third method emerges with Web 2.0 - social network. The way social network works is similar to multi-level marketing. Spreading from one user's social network to another's and then many others', social network services quickly accumulate a huge amount of users. However, the pressure to grow bigger never wanes. Following the innate nature of the Internet - open and free - , renowned social network services providers have come up with solutions: an open platform and opening up users' profiles.
[+] No opening up, no monopoly
Doesn't it sound paradoxical? The only way to achieve a monopolistic position on the Internet is through opening up. In the conventional business world, businesses that survive fierce competition would build bulwarks to enclose its empire within and erect competition barriers. This is why we've seen the first-generation Internet companies, such as Yahoo!, developing into new monopolies. It seems that they have followed the same trajectory of history.
If its monopolistic advantage can last out, why would Yahoo! have Yahoo! Open Strategy? Why would a monopoly need to open itself up? The reason is new players keep coming on the stage, first Google, and later MySpace and Facebook. They have come with a new revolutionary power to rewrite the old business rules, and on the Internet, the revolution can happen at an astonishingly fast speed.
Openness is embedded in the genes of the Internet. It is difficult to monopolize the Internet marked with a decentralized architecture. Internet companies are constantly under pressure for growth, and putting up walls is not good for growing big because no Internet company, however powerful it may be, can monopolize the traffic on the Internet with its own websites - the majority of the traffic is always fall outside its own websites.
Moreover, new comers will exercise the power of openness to challenge the success of existing players. One of the most successful products of Google is the omnipresent Adsense, but Google has been threatened first by Facebook, which took the lead to open its platform, and later by MySpace, which was the first to open up users' profiles. They have unsettled both Yahoo! and Google. More openness leads to greater competition.
[+] Technological innovation is a key catalyst.
The first-generation Internet aggregates and opens up "content;" typical examples are portals like Yahoo!, and issues concerned around copyrights, trading of content and the transformation of patterns of mass communications. The second-generation Internet aggregates and opens up personal relationships; typical examples are social network websites like MySpace, and issues concerned around privacy, property rights of personal data and the transformation of patterns of interpersonal communications.
A key catalyst of all the changes is technological innovation, such as standardization of data exchange and standardization of applications interoperability. The former refers to the prevalence of document (e.g. XML) exchange standards and the later the sophistication of Web Service. The former enables users to insert content of one website to other websites; the latter allows users to embed a function module of one website to other websites.
10 years ago, when a portal wanted to use the content of a certain media company, both parties would need to go through a lengthy process of program development and docking. Now, website operators share their content in standard RSS format freely. When this becomes a common practice, the barriers to content exchange are instantly pulled down, and content may flow more rapidly on the Internet.
The concept of open platform, first raised by Facebook, is to allow applications of other websites to be embedded on Facebook. On the other hand, the idea to open users' profiles, first brought up by MySpace, is to enable users to embed their personal profiles onto other websites. The mode of the former is like "one-stop shopping"; the latter is more like "take out" - portable personal profile.
Furthermore, the idea, initiated long ago, to integrate various login ID's for different websites into a universal one, has been back to the talk again. The Internet world is sure to become more transparent with data flowing faster and content and functions among websites more integrated. It will affect the closer integration of industry chains, the decline of old business giants and the emergence of new ones, disputes over privacy issues and so on.
Openness is a path of no return, but where is it going to take us?
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- Today in History
Openness, where is it going to take us? (1) - 2008/11/09
The Web 2.0 Revolution (10) the Big Future of Web 3.0 - 2006/11/05
It is more possible to become a stable, low-growth market. Therefore, it's no use being hasty.
[+] Will the advent of 3G lead to a reshuffle of WAP market?
Despite continuous setbacks since 2000, telecom operators have never stopped efforts in the mobile Internet market. Theoretically, Moternet, the WAP portal of the largest mobile operator in the world, China Mobile should have the heaviest traffic volume in the world. After all, it has such a huge subscriber base. This, however, is not the reality.
From an iResearch report, Handset-enabled Internet Activities in China in 2008, we can see that Sina, Baidu and Tencent are among the most visited WAP sites in China. There are even a few independent 3G WAP portals. Thanks to their huge PC-based user bases, traditional Internet players seem to have a chance to challenge telecom operators.
Will the advent of 3G lead to a reshuffle of the market? Despite the fierce battle for subscribers, New China Mobile, New China Telecom and New China Unicom have not changed their visions of transforming from "communication service providers" into "information service providers". Key to this effort will be WAP. Will other WAP sites score another goal along with the promotion of 3G?
What we might not have understood correctly is the fact that, with the advent of 3G, the WAP market might have a stable and slow growth, instead of a sweeping revolution. Therefore, it's no use being hasty. It seems that, at the present time, the conditions for a sweeping revolution are not yet in place.
[+] The development of the WAP user base is a long-term process
First, if the 3 new operators do not offer substantially lower WAP rates, there would be no momentum for WAP users to upgrade to 3G, as no major change is expected to the contents offered by WAP sites. There might be more video and mobile TV services, but the key to the acceptance of users is still the fee rate.
The problem is that only telecom operators could decide the fee rates. Other Internet players have no say in it. In view of the current competition picture, the operators are expected to cut 3G WAP fee rates to some extent. But as I said, only substantial cut in voice fee rates could significantly increase the 3G user base, which is essential for a sharp increase in 3G WAP user base.
Secondly, does a substantial increase of 3G user base mean the same for WAP user base? Experience of telecom operators indicates that a large portion of the first 3G mobile phone subscribers would be WAP users of the 2G time. In other words, as a 2G WAP user becomes 3G WAP user, there would be no increase in the total WAP user number in the market.
In the long term, with intensive 3G promotion efforts of operators, all users will eventually give up 2G (whether voluntarily or forced to do so). The process, however, might not be as fast as you and I have thought. Considering the WAP service, which might be offered as an accessory service, the development of the WAP market could be even slower. The key to the speed of growth is the fee rate, not the number of Gs.
[+] The pain in business models
Why have telecom operators not been able to make good WAP sites? Based on my 5 years of experience in an operator, I could see that the root of the problem is their business models. For telecom operators, there's no free service. Every service should generate revenue, which ideally should be collected from end-users with phone bills. One dollar from each user would add up to an amazingly large amount for the hundreds of millions of income.
WAP services are duplicates of those of the Internet, whose basic business model is to offer free service and gain revenue from advertising. Sharp conflicts are expected for the business model transformation, not to mention the difficulty of changing the mindset of staff in a short time. Telecom operators need to regard themselves as media players before establishing ad departments to gain ad revenue. For them, that's too much.
This business model would have nothing to do with the number of Gs. For WAP, if the business model were transformed to that of media in the 2G time, Monternet could have done it very well even without 3G. Now we are back to the basic question: which is scored "better", higher ARPU or advertising income? If the former, there will not be any change.
It does not mean that telecom operators have to give up fee-based music or image download services, which are, in fact, the revenue sources of the traditional Internet companies, too. Yet, if operators cannot think of anything else, their business growth would be limited. For example, Nokia is seeking cooperation with telecom operators even as it has its own advertising network.
Why didn't operators make the proposal first? Because they are still using the old mindsets. Any business you don't do, somebody else in the business chain would do. Nokia Advertising Network is a manifestation of the company's resolution to transit from the manufacturing industry to the service (particularly the Internet service) industry. Do New China Mobile, New China Unicom and New China Telecom have the same resolution?
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Prev : New Landscape in China's Telecom Market (7) The Pricing of 3G Value-added Services
- Today in History
New Landscape in China's Telecom Market (8) WAP Sector Is Slowing Down - 2008/08/10
PDA in Siege (1) The Attack of Notebooks - 2004/08/15
3G value-added services will be cheap, but not so cheap as you have expected.
[+] The pricing of video phone service
As a result of the fierce battle for subscribers between operators, 3G value-added services eventually become a secondary role. In the long-term, however, mobile subscribers will gradually accept the services and use them more than they did in the 2G time. In fact, subscribers first switch to 3G because of attractive voice fee rates. Then they begin to use more value-added services because of faster Internet access speed.
Generally speaking, the most talked-about 3G services include video phone and streaming media. With video phone, you will be able to see the one you are calling. Of course, you can also dial a number to watch a live broadcasting program. Streaming media, on the other hand, enables users to watch audio/video programs via the Internet, mostly by logging onto portals of operators with handsets.
Voice service, video phone and streaming media, how should the three services be appropriately priced? First, as video phone consumes 4 times of bandwidth than general voice calls do, should it be 4 times as expensive? The answer is no, because 4 times is pretty scaring. Most operators offer rates ranging between 1.2 to 1.5 times.
Due to privacy and courtesy concerns, video phone is rarely used. Some people argue that operators should offer lower rates to increase use of video phone services. The fact is, however, low price is probably not sufficient to eliminate the privacy concern. Operators even believe there are reasons you have to use video phone (e.g., your wife requires you to). Is there any other chance of earning such easy money?
[+] The pricing for streaming media
Streaming media service, which enables mobile TV and movies, has been in a dilemma of whether to charge by traffic volume (e.g., RMB X for watching Y mega bytes per month) or by service time (e.g., RMB X for Y hours per month). Eventually, all operators chose service time-based fee rate models.
As most users are still not accustomed to traffic based models, while charging by service time also seems weird (nobody pays TV bills by minutes), the best solution would be monthly packages without time or traffic volume limit. Fearing that users might turn on their handsets 24 hours a day, which would result in considerable waste of wireless network resources, most operators dare not choose the solution.
If they choose to charge by service time, how much per minute would be appropriate? Streaming media service usually consumes twice bandwidth as much as video call does. Nevertheless, I suggest its fee rate be set similar to, or even lower than that of general voice calls. As streaming media service is delivered through IP-based packet-switched network, it could use network resources more effectively than video phone, allowing larger bandwidth for users.
That billing model encourages the use of streaming media to improve the efficiency of the network resources of operators. A challenge for operators is that they have to collect payments for content providers, which would increase the total cost of users. However, that seems to be a problem without solution, because content providers need to be paid, too.
[+] WAP monthly package and the pricing for mobile Internet access
In my view, WAP, the service that has been available since the 2G time is more profitable than mobile TV, which is wildly betted on because of the Olympic Games. Some operators have already offered WAP monthly packages without traffic volume limit. With the advent of 3G, they now face a problem: whether to raise or lower the package rates?
As the costs of operators are based on traffic volumes and 3G, with higher speed, will generate far larger WAP volumes than 2G, maintaining the monthly packages does not seem to be a good deal. However, in order to encourage 3G subscribers to use WAP services, it makes no sense to raise the price. But operators do not want to cut price. Eventually, the fee rates are usually kept at the same level of the 2G services.
As to the monthly mobile Internet access packages (via computers) for current China Unicom's CDMA network, no substantial change is expected because the speed of 3G service remains low (384k for WCDMA). However, as 3G has just been launched in mainland China, it would be well equivalent to the level of 3.5G (HSDPA) right from the beginning. As a result, the fee charging model would change.
For example, there might be packages of RMB X/month for the speed of 128k and RMB Y/month for 256k. Such a pricing model is similar to that of ADSL. Theoretically, the peak rate of HSDPA could be up to 14.4M (it is reported that 3.6M Internet access services would be available soon in Taiwan). Therefore, it is possible to introduce different fee rates for different speed.
[+] The fee rate of value-added services is not the key to attract subscribers
Why operators are so reluctant to cut fee rates of 3G value-added services? Because in the fight for subscribers, they have already cut prices of general voice calls. How do they compensate the loss? Through the above value-added services, of course. Will the value-added service fee rate level affect their subscriber base? Basically not. Then why not setting the fee rates a little bit higher?
Many consumers would consider switching to operators who offer lower voice rates, not the one who offer lower value-added service fee rates. The pricing of value-added service is not the key for operators to attract subscribers. With this user experience and such a mindset of operators, 3G value-added services will be cheap, but not so cheap as you have expected.
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Prev : New Landscape in China's Telecom Market (6) Insight into 3G Price War in Taiwan Next : New Landscape in China's Telecom Market (8) WAP Sector Is Slowing Down
- Today in History
New Landscape in China's Telecom Market (7) The Pricing of 3G Value-added Services - 2008/07/27
New Landscape in China's Telecom Market (6) Insight into 3G Price War in Taiwan - 2008/07/20
From Idea to Business (2) How to Estimate Your Income and Cost? - 2007/07/22
New Era of Online Advertising (2) from Exposure to Deal - 2006/07/23
Ultimate Mobile Device (5) Universal User Experience - 2005/07/24
Operators always seek to avoid direct discount.
[+] The 3G war in Taiwan started 5 years ago.
In the previous sessions, I envisioned the post-restructuring 3G fee rate war in mainland China, and provided suggestions on the offensive and defensive strategies for operators. However, as those are just general discussions, it is hard for ordinary people to understand the remarkable aspects of the strategies. Now let's forget about New China Telecom, New China Mobile and New China Unicom, and take a look at the 3G price war that has been ongoing in Taiwan for 5 years.
Taiwan is a place with a GSM penetration rate higher than 100%. In other words, it has more GSM phone numbers than its entire population. Thanks to white hot competitions in the market, the public has been well educated about the "on-net" and "off-net" fee rates. Calls between subscribers of the same operator are entitled to 50% off "on-net fee rates".
Just take a look at the fee rate lists of operators in Taiwan, and you will see this is an inherent logic of their billing practice. As a result, the larger an operator is, the more powerful its ability to attract new and retain existing subscribers. The public knows that, for example, being a subscriber of Chunghwa Telecom, you have better chance of calling somebody who happens to be a subscriber of the same operator and being entitled to preferential (on-net) fee rates.
At the beginning, emerging operators were not able to take a bite from the existing subscriber bases of the "Big 3", i.e., Chunghwa Telecom, Far Eastone Telecom and Taiwan Mobile. The first attack was launched by Taiwan's first 3G operator: Asia Pacific Broadband Wireless Communications Inc. (APBW) In July 2003, APBW launched its value-added brand QMA and two expensive 3G handset models, believing that the first 3G subscribers would arrive soon for its rich portfolio of applications.
[+] Free calls for on-net subscribers
It was not long before APBW found that its 3G vision was a beautiful mistake. Unable to achieve its sales target with expensive handsets and value-added services, the operator soon started its phase-II operation. With free handsets and a stunning offer of "free calls between on-net subscribers", it triggered a price war. Free on-net calls meant that calls between any two 3G subscribers of APBW were free of charge.
The bloody price war did not trap the Big 3, which, as public companies, could not stand the consequent ugly finance statements. In addition, with strong brands, they did not feel the need of an immediate response. Many lovers and students joined the subscriber base of APBW in couple for the free on-net calls. They turned out to be the first subscribers of APBW.
The Big 3 seemed to be so confident that they waited until the end of 2005 to launch their own 3G services. Their strategies were simple: just regarding 3G as a value-added service of 2G. They offered similar fee rates for 3G, except for the mobile Internet service. Up until then, there had not been an all-out 3G price war, as existing operators had been defensive, instead of offensive in the 3G market.
In December 2005, a new 3G operator, VIBO Telecom launched its business operation. Like APBW, VIBO Telecom tried to build its subscribe base from scratch. With lessons learned from APBW, VIBO Telecom did not expect too much from value-added 3G services. Instead, it posed for a price war right from the beginning by offering a package "Everybody On-net".
[+] Same fee rates for on-net and off-net calls
"Everybody On-net" was just the opposite of free on-net calls. The following are a few examples of the differences:
General 3G: NTD X/second for off-net calls and NTD 0.5X/second for on-net calls (like the case of 2G);
APBW: NTD X/second for off-net calls, free of charge for on-net calls
VIBO Telecom: NTD 0.5X/second for off-net calls, NTD 0.5X/second for on-net calls (the same price for on-net and off-net calls, "uniform rates")
As mobile subscribers in Taiwan tended to believe that using services of major operators means better chance of enjoying the 50% discount on-net rates, "Everybody On-net" was actually an attempt to tell consumers that, with VIBO Telecom, they could have 50% discount rates for both on-net and off-net calls. As a matter of fact, VIBO Telecom's price war was to offer 50% discount for off-net fee rates.
"Everybody On-net" led to the counterattack from the Big 3. The first to respond was Taiwan Mobile, which offered a "Local Life" package, dividing Taiwan into 5 regions. Calls within each region were entitled to uniform fee rates similar to those of VIBO Telecom. However, out of the selected region, the cost of communication would rise sharply.
It was really a smart action. It squeezed VIBO Telecom out of the spot light of "uniform rates" without too much compromise in actual fee rates. The region-specific preferential rate package was not as lethal as the 50% discount of VIBO Telecom. However, the strong brand of Taiwan Mobile helped to prevent its subscribers from switching to VIBO Telecom.
[+] Big brands sat tight
For Taiwan Mobile, it was a successful defense. For APBW, however, it was an alert. It followed suit immediately by launching the brand new "Wonder 4" package, ,which, like that of Taiwan Mobile, divided Taiwan into just 4 regions, and offered lower rates than "Local Life". In this package, on-net calls were no longer free. It gave APBW a chance to get rid of the double-edged sword of free on-net calls.
By far the 3G price war really begun, only Far Eastone Telecom and Chunghwa Telecom still sat tight. Instead of introducing new 3G packages, Far Eastone Telecom offered "get one free minute for each minute of on-net calls" promotion for the its existing package. In other words, it was another 50% off based on the existing 50% discount rate.
Far Eastone Telecom promotion: NTD X/second for off-net calls, NTD 0.25X/second (roughly) for on-net calls.
In face of deep cuts in off-net fee rates by rivals, Far Eastone Telecom chose to increase discount for its on-net rates to consolidate its subscriber base. Chunghwa Telecom launched an intensive TV advertising campaign for its F2 (Friend and Family) package, which offered ultra-low rates for calls between each group of 10 mobile subscribers and 6 local fixed line subscribers. Leveraging its advantages in the local phone market, Chunghwa Telecom consolidated its subscriber base, while responding to the 3G price war in a roundabout way.
It is not until lately that Chunghwa Telecom eventually joins the price war by introducing "uniform fee rates for on-net and off-net calls". Yet it has been 3 years since VIBO Telecom triggered the price war, it is true that market leaders are hurt by the proposition of VIBO Telecom. However, with strong brands, they can afford to be the last ones to join the price war.
[+] Being cheap is just an excuse
Aren't we talking about 3G? How comes that price war takes the place of value-added services as the prime role? As I have said, regarding value-added services as the prime role of 3G is a beautiful mistake. The fact is value-added services are only an excuse for operators to avoid price wars. Whether in Taiwan or in mainland China, 3G price wars are inevitable, so long as price killers exist in the market.
In addition, operators are always seeking ways to avoid direct discounts. For them, the best solution is to make consumers feel an offering is cheap, which is actually not. "Being cheap is just an excuse". This is what I have learned from my experience in designing the "Everybody On-net" package at VIBO Telecom and the consequent price war. Consumers will never know the real planning of the operators behind the fee rates.
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Prev : New Landscape in China's Telecom Market (5) Fee Rates of 3G Services
- Today in History
New Landscape in China's Telecom Market (6) Insight into 3G Price War in Taiwan - 2008/07/20
From Idea to Business (2) How to Estimate Your Income and Cost? - 2007/07/22
New Era of Online Advertising (2) from Exposure to Deal - 2006/07/23
Ultimate Mobile Device (5) Universal User Experience - 2005/07/24
The key of the attack and defense between operators is the fee rate.
[+] Fee rates reflect the mindsets of operators
Telecom services are basic services. The prime goods involved are "fee rates" (and "terminals" too). Selling communication services is like selling bottled water. It is difficult to target at the right market segment. Why do consumers have brand preference even when they cannot tell the difference between the tastes of bottled water? Since any operator can ensure uninterrupted communication, why do consumers prefer specific brands?
Players offering homogeneous products would be trapped into an endless price war, which would eventually erode the profit margin of everybody, if they do not differentiate their brands and fee rates. So far, few researches on the telecom restructuring mention the price competition strategy. Fortunately, I have the experience of working at a 3G mobile operator as the one in charge of service package pricing. Therefore, I do have something to share with my readers.
The first challenge in the post-restructuring 3G market is to attract subscribers of others while ensuring successful migration of the existing customer base. The key is the fee rate. As is shown in the following chart, operators adopting strategy D tend to have strong brands. Therefore, their 3G fee rates would be at the same level of 2G and no discount is expected.
Such operators would choose to gradually migrate their 2G subscribers to the 3G network. With the same voice fee rates for both 3G and 2G services, the migration will not reduce their revenue. However, why should consumers switch to 3G if there's no discount? Do you really believe that the "rich portfolio of value-added 3G services" is the cause?
[+] No price cut v.s. deep price cut
In fact, only a small number of people would switch to 3G for value-added services. For the vast majority, they neither know nor care about what 3G is. But they will consider anything "that's cheaper". "Price cut" is capable of boosting sales without having to explain to the customer what 3G is.
Operators adopting strategy D have enough confidence that their subscribers will not betray them for lower rates. Therefore, they are patient enough to sell 3G as value-added services of 2G. Nevertheless, they will need to give the subscribers something real. So they begin to cut the prices for mobile Internet services deeply to cater for those who have switched to 3G really for value-added services.
It seems that only New China Mobile has the ability to adopt such a strategy. However, New China Unicom and New China Telecom are waiting to launch a price war. For them, strategy B is milder and worth trying. However, the real price killer is strategy A. Low 3G rate packages plus simple, affordable handsets, seem to be ready to sweep across the market.
Anyone who triggers a price war would get hurt, too. At least with its own 2G subscribers flooding into 3G, its revenue would decrease. However, with its CDMA, New China Telecom doesn't have to worry, for its existing PHS service is cheap enough. If New China Telecom's 3G fee rates could be as low as that of PHS, it would be powerful enough to drive all rivals out of the market.
[+] Ways to cut price
Direct discount, e.g., the offering of a 3G rate based on the discount of a 2G rate, is the least desirable way for a price cut. Powerful as it is, there's no tactics to say. Imagine this: how about 50% off for calls between 3G users of New China Unicom? As communication between subscribers of the same operator consumes only internal resources and does not involve settlement with other operators. This would be a useful and low-cost way.
It would enable New China Unicom to maintain 2G fee rates for 3G services, while offering 50% off for communication between its 3G subscribers. In addition, it would attract consumers in couples or in groups. For example, lovers or family members would switch to the service together to benefit from the 50% off discount. It enables operators to build up their customer bases fast.
You might want to ask: "aren't lovers' or family packages very common in today's market?" The fact is most packages available in the market require the payment of an additional fee monthly. What I mean, however, is automatic availability without the need to pay for an additional package. The practice, which offers different fee rates for "on-net" and "off-net" calls and favorable rates for the former, has been popular around the world for years. But it has never appeared in China. For example:
A 2G subscriber of New China Unicom calls a 2G subscriber of New China Mobile (off-net): RMB X/second;
A 2G subscriber of New China Unicom calls a 3G subscriber of New China Mobile (off-net): RMB X/second;
A 3G subscriber of New China Unicom calls a 2G subscriber of New China Mobile (off-net): RMB X/second;
A 3G subscriber of New China Unicom calls a 3G subscriber of New China Mobile (off-net): RMB X/second;
A 3G subscriber of New China Unicom calls another 3G subscriber of New China Unicom (on-net): RMB 0.5X/second;
A 3G subscriber of New China Unicom calls a 2G subscriber of New China Unicom (on-net): RMB 0.5X/second;
The above fee rates would have a number of results. 1) It would attract groups of subscribers of other operators to use the 3G services of New China Unicom to benefit from its favorable rates; 2) existing 2G subscribers of New China Unicom will speed up their migration to 3G for the favorable rates, without causing substantial loss to the revenue of the operator. In fact, if it is New China Mobile that adopts the above practice, the result would be even more stunning, as it has a formidable customer base. The problem is New China Mobile might think it is an unnecessary act.
Maybe you would ask: "why 50% off instead of 20% off?" Mainly because 50% off is more impressive.
What if New China Unicom and New China Telecom both use the same weapon? How would New China Mobile respond? It could simply offer 50% off for calls between its 3G and 2G subscribers, while maintaining the rates for other services. It would enable faster migration of existing 2G subscribers to 3G, and allow the operator to respond calmly to the price war waged by rivals.
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Prev : New Landscape in China's Telecom Market (4) Dealing with Existing Subscribers is Key Next : New Landscape in China's Telecom Market (6) Insight into 3G Price War in Taiwan
- Today in History
New Landscape in China's Telecom Market (5) Fee Rates of 3G Services - 2008/07/13
From Idea to Business (1) How to Estimate Your User Number? - 2007/07/15
New Era of Online Advertising (1) from Media to Channels - 2006/07/16
Ultimate Mobile Device (4) Email Service Anywhere Anytime - 2005/07/10
As a matter of fact, each of these operators has more than 100 million subscribers to deal with.
[+] Are there bystanders in the 3G market?
One interesting question: is it possible that, having obtained their 3G licenses, the 3 new operators, i.e., New China Mobile, New China Telecom and New China Unicom all choose to postpone the launch of their 3G services, and wait for the response of the market? After all, migrating existing GSM or CDMA or PHS subscribers to 3G proves to be a huge workload, and might trigger a price war if not dealt properly.
In April 2007, I analyzed 4 possible market accessing strategies of 3G operators with a chart titled "Market Strategies of 3G Operators". As a matter of fact, each of these 4 strategies has been used by telecom operators around the world. Which is the best depends on the competition situation among local telecom operators, as well as standards they adopt.
Most operators planning to postpone the launch of 3G services would adopt strategy C, i.e., starting by providing internet access service only. With base stations mostly located in cities, these operators primarily sell PC data cards to business people to enable Internet accessing for notebooks.In suburb regions, where 3G signal is not available, services will automatically roam to the original GSM network. So the operators will not provide 3G mobile phone and voice services in the initial stage.
Operators adopting this strategy have a number of common identities: 1) they are market leaders with strong brands, and not afraid of rival operators trying to snap market shares away from them with 3G services. 2) Their 3G infrastructure development tends to be slow, with signals capable of covering only urban areas at the beginning. Business people do have requirements for mobile internet, but they care even more about the quality of voice communication. Therefore, the limit signal coverage for the voice service in the initial stage would offend them.
[+] Maybe everybody is a bystander
The one that's most likely to adopt the above tactics is New China Mobile. In view of the heavy workload of migrating hundreds of millions of subscribers to TD-SCDMA, and the possibility of revenue decline, it pays to be careful. Anyway, nobody has experience in TD-SCDMA. With confidence in the brand, many subscribers would rather wait for New China Mobile's 3G services than switch to other operators.
Therefore, New China Mobile might well be a bystander at the initial stage. Although 3G is a more advanced technology, it is hard for ordinary consumers to tell the difference from 2G (I have a 3G phone myself, but I use it only to make phone calls and send/receive short messages). Therefore, it would be hard to persuade them to switch to 3G in the initial stage.
Should other operators take the advantage of the time window in the 3G voice market left by New China Mobile to introduce their own services? Should they launch attacks with 3G systems and infrastructures that are more mature and easier to deploy, as well as 3G handsets and more affordable fee rates? Or should they join New China Mobile to adopt strategy C and be a bystander in the initial stage too?
There's one factor they must consider when selecting their competition strategies: where will their 3G subscribers come from? In our view, the 3G subscribers will come from: 1) their own 2G customer base; 2) the 2G customer bases of other operators; and 3) people who have never used a handset. The experience of 3G operators in Japan indicates that, for any 3G operator, most of the 3G subscribers would come from its own 2G customer base, with only a small portion from rival operators.
[+] The speed and the fee rates are the key
If operators do intend to migrate their 2G customer bases to 3G, there would be a peaceful market in the initial stage. As each operator is engaged in migrating its own 2G subscribers to 3G, no one would bother to launch an attack before it has had a strong foothold in the market.
As a matter of fact, each of these operators has more than 100 million subscribers to deal with. The one who completes all this first would take the lead in launching an attack. Therefore, the key to success would be speed, nothing else. Despite the strong brand of New China Mobile, which allows it the luxury of more waiting time, subscribers are realistic and impatient. They would switch to any other operator that offers the most favorable terms.
To retain existing subscribes and launch an attack toward other operators, the fee rate packages for voice services would be a powerful weapon. The advent of 3G has led to the emergence of a number of call modes: including 3G-to-3G and 3G-to-2G. As there are 3 different systems for both 3G and 2G, the situation could become more complicated. For example, a 3G subscriber of New China Telecom would call a 2G subscriber of New China Unicom.
With such a complexity, a compelling fee rate package would be helpful to retain and migrate existing subscribers while attracting new subscribers from other operators. As to whether it would reduce the revenue of the operator, there's no guarantee. Anyway, 3G is not something intended to help operators earn more.
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- Today in History
New Landscape in China's Telecom Market (4) Dealing with Existing Subscribers is Key - 2008/07/06
Ultimate Mobile Device (3) Video, Storage, Copyright Management - 2005/07/03
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