When supply increases and demand stays the same, the price is sure to fall.
[+] All creative works are depreciating.
In fact, all the publishers and authors neglect one thing: the popularity of Internet has lowered the entry barrier to publishing, which means creative works are no longer valued as much as before. This is a cruel fact, as well as the origin of all disputes.
In the startup phase, many websites started with provision of free content as an experiment with new business model, and as strategy to quickly expand their user bases. However, free content can be produced by not only commercial websites but practically everyone.
The rise of Blog is an obvious example, which leads to the popularity of online writing. As tools for online publishing become more user-friendly, those who know how to type, to post a picture, and to write all go online. Writing has become a popular movement.
We can foresee that these small individual publishers will all own a small group of loyal readers and a certain degree of publicity. Yet as the Internet is a kind of a distributed medium, it is not that easy for an author to develop a large readership.
Why? Because when you enter a keyword in the search engine, you'll find loads of such small online publishers/creative workers. Back to the basics of supply and demand: when supply increases and demand stays the same, the price is sure to fall.
[+] the depreciation and dissolution of knowledge
The first (and very likely the last) eBook of the horror writer Stephen King is priced at USD 2.5, and his fans rushed for this eBook. But if we go search the Net, we'll possibly find tons of Bloggers who are writing on similar fields.
We need to learn to understand that, when everybody can be an author, the knowledge is then liberated. While we enjoy the fruit of liberation, we have to accept that the price of knowledge will continue to drop with no rolling back. This is true for the creation of texts, and of music and video works sooner or later.
In addition to depreciation, there is also the dissolution of knowledge. When we search the Net, what we will get is usually many many one-sided information. Under the influence of fast changing living styles, we tend to look for pieces of convenient information instead of lengthy solid one that is hard to digest.
So, it is not to our surprise that a major part of works published online are those of a smaller size. Books are to be disintegrated and sold in several separate parts. The most striking example is Amazon, which breaks books into chapters and has them sold in the electronic form at a lower price.
It surely does not mean that all kinds of creative works will become valueless ever since. More possibly the Internet will cause an effect of polarization. At one end is most general content, which is to be liberated and becomes free of charge. At the other end is some niche content, which is able to gain popularity in a short time and brings in revenues from a large sales volume with a small margin. There will be people who are willing to pay.
[+] Popular lightweight online creation rocks the foundation of physical publishing
There are loads of writers of all kinds. They are Pro Amateurs. They have full jobs during daytime, and they are online writers in their professional or amateur areas. They own a small readership, and sometimes there are exchanges of various natures among these online writers.
Some of them may suddenly become a "Master for One Day." A Master for One Day refers to a person who, in some particular situations, becomes the focus of attention for her/his work (be it a novel, a commentary or music) online all of a sudden. But when attention disperses, everything returns to normal. And this is online creation.
As long as there are these people continuing to create online, your incentive to buy a hardcopy of books in your daily life will remain low. Ten years ago I was a person who needed to read a dozen of magazines every month, and now I can find practically all information on the Net. The time for magazine publishers will only get harder.
Putting digitized library collections online is only to recognize the popularization of knowledge of the past. The Internet has long become the biggest library for all, and with the advancement of search technology, people can easily access the information they need.
Existing copyrights can protect the intellectual properties of the old days, but it runs short of ways in dealing with the liberating online publishing. Copyright owners may be able to accuse Google in the court, but they can never prevent people from creating their own works, and this is exactly what rocks the foundation: the jobs of book authors have been taken away since long time ago.
[+] Advertising model is the ultimate model
When the production and distribution of knowledge gets more common, free offering becomes inevitable. At the moment, it appears that the only way to reward to the authors is through advertising income. As Google has introduced keyword advertisements to the world's biggest library (the Internet!), it can surely do the same in the case of traditional libraries.
For a product that forgoes the right to direct sales and turns to sources of indirect incomes (like advertising income), it means that the price of this product has reached at the lowest possible level. The massive content and creative works on the Net will sooner or later drives the price to such a level; it is also true for physical publishing.
So, at the end the point is whether there is an effective way to allow creators some reasonable reward for their works. Like what I've argued in my previous article on Blog: Bloggers are producers, not consumers. This is something we should respect.
The practice "content for free, and advertisements for sale" has been molded, and those rules that used to work on the Internet only have begun to shake the physical world. What is impacted is not only the publishing business but also the software industry (even Microsoft will soon provide software free of charge and make money from advertisements). No one can argue that all content has a price any more.
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Prev : Internet and Books (1) Dilemma of Online Publishing
Next : Predictions on China Internet Market (1) Saturation Stage
- Today in History
The Fourth Generation of Internet Marketing (1) RSS Marketing - 2006/12/17
Internet and Books (2) the Supply for Content Exceeds the Demand - 2005/12/11
VoIP (4) Dual-network Handsets Will Die of Subsidies - 2004/12/19
VoIP (3) Phone Number Is Vital - 2004/12/12
Be it physical or virtual, well-known writers lukewarm to online publishing.
[+] A controversial digital library project
At the end of 2004, emerging online company Google planned to scan book collections in New York public library as well as libraries at four universities - Harvard, Stanford, Michigan in the U.S. and Oxford in England - and indexed the material for online search. The Google Print project immediately caused a stir.
By stir it means that competitors (e.g. Microsoft) followed suit at once, and copyrighters rallied against what they thought massive copyright infringement with the Authors Guild and the Association of Authors Representatives in the U.S. raising an action respectively against Google.
Amid waves of criticism, Google announced that it would suspend the digitization of copyrighted books and would like to hear publishers' opinions and find out which books to be excluded from the digitization project. On the other hand, Microsoft sought to pace up and overtake Google in similar plans.
Libraries are the hubs of human knowledge and wisdom. Domestic or abroad, we have been seen destructive attempts in wars to burn book collections, which distressfully cause cultural faults. The digitization of libraries not only makes preservation easier, but facilitates the distribution of ideas.
If it is a right thing to do, it is to our common interest, and the competitors exclaimed, "Why we never thought of this before? Now let's follow suit," it is strange that the project did not get on well. Behind the scene it's actually a struggle of an industry.
[+] Selling books as a stepping stone to e-commerce
The development of the Internet has been tangled with words like "books" and "publication". First it was Amazon which initiated the fashion of online bookstores, and no sooner we'd seen successful eCommerce, starting as e-bookstores, emerge from the world over. (And those successful ones began to expand their selling lists with no surprise.)
Why can selling book be a stepping stone to eCommerce? Firstly, there is the demand from consumers. Secondly, the low unit price of books helps to lower the entry barrier to online shopping for consumers. In addition, there is little risk of damage caused by crashing during the shipping of books, and loose requirement for timeliness. All these conditions make it an ideal product for online shopping in its early stage.
For hardcopy books sold online, there is always an issue of delivery of physical goods, which is contradictory to the virtuality of the Internet. The margins for books are already thin, and profits are further eaten away by logistics cost. This is causing headaches for these online businesses. That's why we saw an upsurge for eBooks in around 2000.
In March 2000, the famous US horror writer Stephen King released his new novel on major online bookstores. This 66 paged short novel was priced as low as USD 2.5 and available in electronic version only. No paper books. This new release by the horror master had triggered a rush among fans.
For the sake of copyright protection, this book can only be read via specific software GlassBook. Even with the restriction, still there were a total of 400 thousand books sold on Amazon within 24 hours after its release. Afterwards, however, Stephen King publicly expressed his disappointment over the development of eBooks and declared that he would never publish any book in electronic version.
[+] The dilemma between virtual and physical publication
We may not be able to perceive the discontent of the horror master, but we can surely imagine what it means for a ordinary person like you and me to sell a volume of 400 thousand books online - this would very much equal to a reputation as a "popular online writer" and a royalty of USD100 thousand (estimated as 10% of the sales).
Yet this is exactly where the problem lies. Had Stephen King not been famous in the physical publishing world, there wouldn't be any interest in his eBooks. EBooks have long been a must on the sales list of online bookstores, yet you can hardly find a book by well-known writers on the list.
For if it is a book by a renowned author, you would rather pay for a hardcopy for its better reading experience. (It goes without saying that a computer monitor is not an ideal reading interface, which proves to be the hardest obstacle to the expansion of eBooks.)
And there is another trend that goes the other way around. In 1999, "Slicker Tsai", a writer, vaulted into prominence across the Taiwan Strait for his online novel "The First Intimate Touch," which had stimulated the birth of a new breed of online writers. So it seems likely to first grow publicity by writing free novels online and then to reap profits through selling paper books.
Across the Strait, we've also seen many websites for literary online communities, such as Yoshow.com in Taiwan and rongshuxia.com in China. But you can't trade articles for money in the virtual world. At the end of the day, you can only make money through the business of traditional publishing. All this must have made many business owners very exhausted.
[+] The old system encroached, the new one yet to be seen
It is no easy task to nurture a well-known online writer to the extent that her/his fame can be transformed into profits in the physical publishing world. For an article that has been posted all over the Net, it is questionable how much one would be willing to pay for it. And for writers that make a name for them on the Net, most of them will choose to turn to the physical publishing business for good.
From Google's digital library project to online publishing, my purpose is trying to point out that, while it is inevitable to go digital in terms of the distribution of books, there is a growing concern of publishers and authors that their rights will be sacrificed because they haven't seen any sustainable new business model.
Actually it is a common plague for all forms of digital content: Old rights are being encroached, while new income is far from a sure thing; only it's more so for music and movies and less for literary works. Yet, such phenomenon is expected to become more common with digitalization tools getting more popular.
Google's digital library project attempts to generate revenues by selling keyword advertisements. It seems to suggest that, to some extent, rights are always associated with money. If authors can be benefited from Googles' advertisement sales, will they become less resistant?
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Prev : Google's Choice (2) Lessons for the Software Giant Next : Internet and Books (2) the Supply for Content Exceeds the Demand
- Today in History
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
Agile Google vs. mighty Microsoft.
[+] Back then, NC was a premature concept
Google has already made its choice between a media company and a technical one, which prompts people to associate Google with Microdoft even more than as a contrast to Yahoo!. Of course, an Internet company can't do without technology, but Google is more technology-oriented, which makes it more like a software company.
Looking back to the past, we can find another company that once severely threatened Microsoft experienced similar struggle to arrive at a decision: Netscape. This company started as a browser provider, which earlier on aimed to forge a network computing platform and sought to take the place of Microsoft's desktop operation system (OS).
If all the information and software can be obtained on the Net via browser, then we won't need to buy and install any program in our computers. For example, when we want to edit a document, we can access Word on the Internet and save the processed file on the Net when we finish the work. We don't even need a hard drive in our PCs.
Such a compact is the so-called NC (Network Computer) brought up by Oracle's CEO in 1997. After turning on our PCs, we need only browsers. Nothing more. It doesn't matter if it runs on a Microsoft's OS.
There are several factors necessary for NC's success. The first is a browser with a mature interface. At that time the interface facility is not ready yet and consequently not fit for a sophisticated network application. The second is a reliable and efficient programming environment. Java was once expected to provide such an environment but it didn't make it.
The third is network bandwidth. If there is no software in the computer, then if we want to make a drawing, we'll need to retrieve part of a drawing program via the Net to the local PC, with a satisfyingly fast speed since most people are not good at waiting. The NC concept is fantastic, but the timing then was not right.
[+] Different mindsets between a software-oriented and a media company
Since Microsoft started to tie Internet Explorer (IE) with Windows to encroach on Netscape's market share, Netscape's plan to replace Microsoft's OS had been disillusioned. Netscape's management team decided to transform itself into a portal operator.
Running a media company has less to do with technology. More specifically, for a portal, it is relatively irrelevant which browser a user employs to visit its site. Netscape retreated from the role as a software company and turned to the media business.
Can Netscape come off? The history gives no successful precedent for a software company to convert to a media company. What a media business needs is "the talent to lead the fashion," which is not a specialty of a tech firm. Such talent can not be processed in a scientific approach; naturally Netscape didn't make it.
Even MSN.COM, set up by Microsoft for joining the scrimmage of portals, does not stand out. And, the dual role as media/technology company often causes competition of internal resources, resulting in fierce internal strives and attrition.
A software company's mindset is to sell the content, and what it creates is for making money. A media company wants eyeballs, and what it produces is for free viewing. When a company operates both in two lines of business at the same time, the top management vexes at how resources should be distributed. What's worse is each business line thinks the other as the parasite of the company.
Yet, the time keeps moving on. As a software industry leader, Microsoft is speeding up to transform to a media business. This change may be driven by its vision or maybe by the environment. But no one can deny the impact of Google, the next-generation challenger, on such a change.
[+] First step: develop a habit of remote storage
Back then NC (network computer) sounded like an unrealistic idea, the reason being that it's far less convenient to execute a program via the Net than to do it on a local PC with the program installed in it. Forget about the matter of bandwidth: can any user feel comfortable placing her/his data on a remote host?
However, there is a starting point for everything. Google first chose the oldest and most popular network application on the Internet to persuade users: free email account with up to 2GB of storage capacity.
Checking emails from your web browser, which has to some extent substituted software like Outlook, is the most acceptable web-based application by Internet users. Yet still users may be thinking to download emails to local PCs, as the storage of the remote host is not sufficient.
Gmail (free email service offered by Google) users may have the impression that Google constantly reminds you of your email storage of up to 2GB, and that you need not delete any emails. So users start to see it unnecessary to download emails to a local PC.
While you are thinking to get rid of Outlook, the great Google Print initiative attempts to scan all the books in libraries and move them online. Now you don't even install electronic document readers such as Adobe Reader (not to mention buying books).
Writing diaries and storing/exchanging photos online are not inventions of Google, yet it quickly accommodates the two services to its offering. This means that users are more and more confident in saving their data online in a remote host.
[+] Agile Google vs. mighty Microsoft
When will Microsoft develop a web-based Office with no installation to a local PC required and available on demand? It seems that it's just a matter of time. The will of the software giant to turn the tables has to be taken seriously; last time when it exerted such power, its rival Netscape collapsed.
Yet the situation seems to be much more favorable to Google this time. The concept of NC came too early. The software industry has not really prepared to embrace the concept of NC until now. Users are more used to web-based applications, broadband more accessible and next-generation web interfacing technology and the environment more mature.
Google has proved that a software company can survive on advertisement sales only; it doesn't need to sell software any more. It's the first lesson Microsoft got from Google. To provide software to users via the Internet instantly bypasses the network of sales channels which was built up by Microsoft over more than a decade and has knocked down many software vendors.
The second lesson Microsoft got from Google is that users are getting used to web-based applications with a browser interface. When free offering becomes more regular, it will get more and more difficult to sell packaged software that needs to be installed on a desktop.
Microsoft is now facing the internal tug of war between software-/media- oriented approaches (for example, how to distinguish between Windows Live and MSN.COM after all?) and between packaged software sales and free software offering. On the other hand, the generic online company Google appears to be much more agile. The contest between the two is surely to be very exciting.
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Prev : Google's Choice (1) Lessons for Portals Next : Internet and Books (1) Dilemma of Online Publishing
- Today in History
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
Yahoo! adores heroes, Google respects grassroots.
[+] The value of media content - not easy to show
The saying "content is king" may represent the pride of content creators including journalists, editors, writers, painters, singers, directors and so on. Content is the crystallization of their creativity. But, due to its intangibility, it may be respected in terms of its value but not so in terms of its price.
In any part of the physical world, the establishment of concepts of copyrights and intellectual property rights takes some time, which is generally facilitated by measures including education, advocacy and regulations. Only after the confirmation of t these rights can the income of content creators and the viability of content industry be assured.
Since digitization breaks the content from hardware of paper and CDs and brings it to the Net, the price is even less recognized. During the ten years of Internet development, the saying of "content is king" is constantly heard, but still there is a lack of a mass public who are willing to pay for it. And consequently its value is highly questioned.
A hardcopy of newspaper can be sold at several dollars, but once it's put on the net it becomes free of charge. This is exactly the struggle the newspaper industry has been facing during the past decade. Without fundamental revenue, it is impossible to support news articles dedicated to the Internet. It turns out that the Internet becomes the recycling plant of newspaper articles.
If the production of content can not promise revenue, will the management persist with it? This is a question with an easy answer, which rightly reflects the mindset of the portal runners in the early stage. Early portals never hired their own reporters to write their own news content.
[+] Managerial thinking of search engines
Search engines started in the U.S. ten years ago. In the beginning they did not have a viable business model. No sooner they saw their user base growing, and then they thought of developing themselves into media. The most important factor in media's business model is the size of user base, and of course the number of pageviews and advertising value that may follow.
Yet there is a fetal weakness of the advertisement model: the users won't stay on. Most people leave the search engines for their destinations as soon as they find what they need. If people view only one or two pages and then get away, then how are they going to sell ads? No, they've got to develop their user stickiness.
The first idea that comes to their mind is to present news content directly on search engine sites. Sites runners start to talk to newspapers and magazines about cooperation, so that their users can see news or stock prices without leaving the search engines. This is straight forward thinking: I don't want to let you go, so I put on things that you are interested in.
Besides, is there anything other than content that can help firmly grasp users? So, you see the emergence of free services such as free emails, and virtual community services soon afterwards. The attempt behind these is to bind the users with virtual interpersonal communication through functions such as chat rooms, forums and calendars. Search engines then transform into portals.
In any case, these site runners keep their hands way off content. When working with newspapers, the content is provided by cooperative partners. In the case of community services, the content is provided by the users. For ten years portals never produce content all by themselves, and they hire very few reporters. Most content on the Net is second-hand.
[+] New business paradigm brought up by Google
In the past decade, there was nothing wrong with this business mindset. The cost to produce content is high, the users' willingness to pay is low, and it's simply unsustainable to reply on the slender ad revenue. For websites as big and offering services as diversified as Portals, it needs to develop more pipelines in various areas. As such, it is right to save the cost for content production.
Yet, as times move on, we see the emergence of a new breed of companies, which is very much like giving two lessons to the old ones. A search engine company, which has reaped fat profits from ad sales only, went public in the U.S. with big success. The popularity among investors for this company has driven its stock price to as high as USD300 and above. This company is named Google.
The first lesson: Google taught industry players that online advertisement model must link up with key words. This model is favored by quite a few ad buyers and search engine users, and is lining the pocket of the company as a result. The second lesson: a search engine company has no need to focus on increasing user stickiness - they'd better find what exactly they want and then leave right away.
The paradigm set up by Google is that, a search engine can be reduced to a small search box on the website and can still survive. In the past, players did everything, which made them too big to reply on ad revenue solely.
Most people wonder if Google would become a kind of a general portal like Yahoo!. Yet, all signs show that Google chooses the role as "a software service provider" instead of "a media content provider".
[+] Choice between the roles of a media company and an IT company
One example. The news content, headlines and abstracts on Google's news channel are fetched from various major news sites. These news articles are sorted and ordered according to the calculated times they show up on the Net. There is no manual editing involved in the entire process. Google's functioning relies on the power of the Internet.
Yet traditional portals need human editors. We may probably think that such editors do little to add value to the content, but the act of editing itself represents the attitude of the media, the judgment of the owners on current affairs, and even the ability to create trends.
The traditional logic is, "I am the editor, and I'll tell you what is important." And Google's way is, to find out what most people deem important by using the power of technology. It is to resolve complexity with simple algorithm, which is 100% engineers thinking. This is quite evident when we look at the offering of Google.
On the other hand, traditional media run on another system. Basically it replies on some kind of talent, which cannot be computed. You probably cannot tell which out of ten unreleased songs will hit the market, but a music producer at a record company can.
This is why famous directors, screenwriters and music producers are always so highly respected. They are gifted, and the content they create may have the chance to be appreciated by many of us and survive the test of time. Yet, we can almost be sure that the corporate culture in Google will not nurture such kind of people.
[+] Yahoo! has a different belief in media than Google
Yahoo! takes a completely contrary approach. Yahoo!'s CEO Terry Semel is from Hollywood. Since he took this position in 2001, he has led this company to break out of the DOTCOM bubble and achieved brilliant performance. Now his plan in mind is to transform Yahoo! to a company that is more like Time Warner.
He set up a media division, and has started to recruited senior people from Hollywood (despite that these people have no clue about the Internet industry), hire journalists to write news, and produce generic programs for the Net. He hopes to devise the possible ways that the content may be presented on the Net in the future.
Simply put, Yahoo! believes that Internet media definitely need masters similar to well-known directors for movies. Only masters can lead the trend and create content that can touch the bottom of the hearts. And Google trusts "the decision of most people," and assumes that the so-called " trend" is supposed to be the result of the selections made by the majority of people.
Yahoo! adores heroes, and Google admires grassroots. As a matter of fact, if both companies refrain from doing things they are not good at, both will succeed. However, if we look at them purely in terms of interest, Google's way may appear a bit insipid. The difference between the two may become more obvious as time goes by.
Do you believe in the genius of masters or the collective wisdom? The audience is getting clearer about what they want to see and their make their choices known via the Net. The emergence of the Internet results in the dissolution of mass media and adverse conditions for the birth of masters. But, it is also true that the prodigies are irreplaceable, as least for now.
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Prev : Another Picture of Digital Home Market Next : Google's Choice (2) Lessons for the Software Giant
- Today in History
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
The home server will not be so marvelous as manufacturers have imagined.
[+] Mistake an industrial demand for the consumer demand.
Marketing staff in high-tech industry often have this headache: when a new product is introduced, it might create user experience which consumers never had before. How do you know that consumers will accept and buy it?
Because of that, however, the development of high-tech products is full of fun (of course, for manufacturers involved, it might be a tormenting life-and-death bet). Whatever it might be, the least a manufacturer should not do is to mistake a demand of the industry itself for the demand of consumers.
One example is the WAP Mobile Internet in 2000. In the midst of the dotcom tide, telecom equipment and handset manufacturers, in an effort to stop their sales from further declining, successfully persuaded telecom operators to enter the mobile Internet market. Eventually, an industrial demand is disguised into the demand of consumers, who won't come to pay the bill.
Today, another industry-hyped high-tech sector is about to move. The sector is called digital home, whose mobilization has extended to the hardware/software manufacturing, as well as the media sector, and caused the opposition and alliance of the traditional consumer electronics industry and the IT industry.
While manufacturers involved believe firmly that the vision is eventually going to become true, there are arguments about how it looks like. Here I would like to warn once again: it is dangerous for businesses to mistake their own demands for the demands of consumers. It is impossible to get a look at the real picture of the future development without knowing the difference of the two first.
[+] Now, the demand for the digital home is just from manufacturers.
The origin of the digital home sector is very simple: the slowdown in the market growth of the IT hardware and software industry. The practice of driving the market performance with product functions, which was effective in the past, is at a standstill, at least for now.
Consumers are no longer desperate about the CPU speed or upgrading software. A desktop with Windows XP would be good enough for at least two or three years, so long as it could enable Internet access and offer Office software.
Manufacturers, however, are trying to create space for consumers to buy their second computer, for example, a desktop at home and a notebook for use on the move. Essentially, the digital home is an attempt to create a market segment of a second computer in the sitting room.
For traditional consumer electronics manufacturers who have been tied to sitting rooms and kitchens so far, the market has been saturated for a long time. If, in this new digital home tide, they could booster their sales, or even introduce new changes to the long-stagnant sales rank list, that would be a good opportunity, wouldn't it?
For every additional computer installed in the sitting room, Intel will be able to sell one more CPU and Microsoft one more Windows system, not to mention all the other suppliers—the graphic card, sound card, hard drive, and memory manufacturers can all benefit from a share.
[+] Does the digital sitting room need a control center?
Hence the concept of the home server is proposed, holding that, in the future, all digital appliances will need a host computer, which can not only access the Internet, but also connect all the appliances (through wired or wireless links), store and deliver digital contents. The home server, of course, will allow remote control.
Obviously, this seemingly inevitable vision is a demand of manufacturers. The question is: is it a demand of consumers too? So far, there has been such user experience of connecting all other appliances into one, which is the TV set (it connects the audio system, the DVD player and the game player).
Is the home server going to take the place of the TV set, or becomes a peripheral product of the latter, or to turn the TV set into just a display panel? If it is the first case, the home server must have a built-in TV. So far many products have been introduced with the aim of integrating the TV with the computer, but none is successful because of the problem of the operating interface.
For the second and third cases, the home server is nothing but a network hub plus a keyboard. It doesn't matter at all whether it is placed at the sitting room or not. Let's take another viewpoint. It is better to connect the computer in the study with the TV in the sitting room through wireless links, isn't it? If so, there's no reason for consumers to buy a home server.
In addition, we all believe that digital appliances should be networked. Yet there is another scenario: the digital appliances are networked, but not through a host. In other words, if there's a standard that enables the networking and data exchanging among the digital appliances, there's no need for a host.
[+] The imagination of a digital home
IT manufacturers have made a lot of efforts to make the computer an essential part of the sitting room. In the first place, the interface is reduced to contain only icons. And then the keyboard and mouse are replaced by the remote controller, in an assumption that this would be easier to use and fit better with the habits in the sitting room.
Yet underneath this mindset is a fundamental contradiction: to become the control center of the household, the home server should have powerful function, far more powerful than what a remote controller could handle. Too simple to enable the complicated functions, remote controllers have become a big trouble for digital appliance users.
One crucial challenge is the fact that the user will have to handle the computer two meters away, which makes it difficult to read things on the screen. I tried such a product before and was very eager to throw away the remote controller and grab a keyboard. But I found soon that I had to look down at the remote controller and up at the screen two meters away again and again. That is enough to drive the user mad.
There are two possible solutions. The first is to move the host back into the study, give it the keyboard and mouse back, keep it at an appropriate distance from the screen and get it wirelessly connected with other appliances. The second is to make a full-functional remote controller with a keyboard, a wheel (to replace the mouse and be handled with a finger), and a LCD display, as a mini-sized PDA.
In other words, consumers may control other digital appliances by looking at the display of the remote controller. As a matter of fact, we have seen such remote controller interface on air conditioners, and they fit perfectly with consumers' experience of using the appliance. The key of the digital home is the remote controller in consumers' hands, not a host at a remote end.
The home server will not be so marvelous as manufacturers have described. They will be nothing but a carrier capable of storing digital contents. It does not matter where they are placed. If digital appliances could be networked without a host, what consumers hold in their hands would be the real control center with preliminary computing powers.
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Prev : It All Boils Down to Brand Names Next : Google's Choice (1) Lessons for Portals
- Today in History
The Web 2.0 Revolution (7) Death of the Intermediaries - 2006/10/15
Another Picture of Digital Home Market - 2005/10/16
Corporate Website a Handful (3) Strategic Alliance Why? - 2003/10/12
Competition in eCommerce will emerge from endless price warfare and head back to brand name cultivation.
[+] There will always be a lower price
Some while ago, on the occasion of a speech, I acquainted myself with an Internet start-up mom, who got her business up and running by auctioning maternity dresses on the Internet. She has got herself a reputation for good service and is doing just fine. Now this Madam Entrepreneurial is on route to operating a website that she can call her own.
In the world of online start-ups, this route, in fact, is a well-treaded one. Naturally, most would start with very little capital. After all, that's the beauty of Internet-based business. Business owners get to operate on a stripped-down platform to get access to a large number web surfer. That's how it goes. They start trading on the Net first using whatever platform already there and then picture having one of their own online store in the wake of some success.
Interestingly enough, maternity apparel as a product is not required either in large quantities or on a long-term basis. That is, she gets to do business with each of her clients during pregnancy only. The fact that each client has a business life expectancy of only 10 months gives her a hard time holding out as she is in constant need to locate new clients.
Besides, selling via e-Bay and the likes used to incur less cost as sellers could choose to sell their products one at a time, meaning they can back out anytime they want. Things get a bit tricky when one runs his or her own online store website as there is an underlying commitment for perennial operations. (Read: more choices provided, faster delivery, and higher inventory cost).
As if it's not bad enough, going it alone also means having to fend off price competition from new individuals conducting online auctions, to the surprise of many who have chosen marketing on the Net exactly having stripped-down cost and flexibility in operations in mind, just like this friend of mine before. It's a story of rags-to-riches turning against rags. Ironic, isn't it?
What happened to this friend of mine epitomizes what the eCommerce is like right now. The fact of life is that once on the Internet, nobody, be it large-scale online stores or small-fry auctioneers, can even get close to shaking price competition off their backs. Is eCommerce doomed? One can't help but wonder.
[+] Online shopping means low tag prices
Marketing people specialize in making simple things complicated unnecessarily so that they can squeeze more values out of a product. Dishonest as it may seem, it's what marketers must do to steer clear of price competition. If what's left of competition is pricing, what worth is of marketing professionals?
In the world of tangibles, pricing is less of a problem for shop owners as it's way too much trouble for consumers to even want to go store to store, aisle to aisle, or even rack to rack checking prices. That simply is not going to happen.
But that happens on the Internet as even those seeking to get a car can afford the time to go through the specs of all the cars within budget on the market before making the trip to local dealership or showroom for the actual buying. It makes a lot more sense time-wise.
When consumers can easily find something in all online shops, price becomes the only thing that makes a difference. In this day and age, loyalty is in near inexistence. The only thing you can count on is price, and that does not draw a smile from virtual shop owners.
Over time, shopping on the Net has become synonymous with shopping at bargains. That explains why one can hardly find any LV, Gucci, you name it, on the Net, since these brand names do not even go on sales much, not to mention debase themselves by rubbing elbows with cheap knockoffs on the Internet. They have brand name values to protect after all (They have got a lot to lose brand-wise).
Luxury items (garment, handbags, shoulder bags) are highly sought after on auction websites, but they are in extremely small quantity as marketers can scrape together only so many (or little, to be exact), and they are swept off by buyers the minute they appear on the Net for, again, lower prices than in the brick-and-mortars.
The truth is we have never seen producers/distributors of any of these elite brand names bother to supply to eCommerce runners. There is nothing you can click on to buy stuff s on their official sites. This is how much these elite vendors distrust the Internet.
[+] Say goodbye to price competition
For those who run small eCommerce businesses, steering clear of price war on the Net is easy, at least in theory. The key term is product differentiation. As long as your product is different, your price can be different. Period. The problem is it's hard to get something that different to sell on the Net. When you do, competitors imitate as soon as they can.
That leaves one with the sole choice of creating one's own brand. Many have been able to do so and build a reputation for which people come back to shop again. What's better, having one's own brand name means you get to name your own prices.
This strategy worked for another friend of mine, who started up a business on the Internet four years ago, when he chose to create a new aromatic essence oil brand name in stead of representing foreign ones. In just two short years, he was able to establish an unchasable lead ahead of peers.
For prestigious fashion brand names who take a dim view of Internet sales in the form of either fear or contempt, there is a way out. That is, there are answers to one's fear of what selling on the Net could do to harm channel prices, brand name values or outlet sales.
I suggest setting up a brand new sub-brand especially for the operations on the Internet. These products shall only be accessible on the Net, and yes, they should be cheaper to meet web shoppers' expectations. If anything else, they should take on a younger look to appeal to the supposedly young web-surfing generations.
All marketing activities boil down to brand names. It's just that simple. With a convincing brand name, you can thrust one type of shampoos down consumers' throats at a higher price than most and they won't even make a sound. That how magical brand names can be, and there is no reason why they won't work on the Net.
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Prev : Crime and Punishment of P2P (2) Fire of Greed Next : Another Picture of Digital Home Market
- Today in History
The Web 2.0 Revolution (6) Struggle of the Press Industry - 2006/10/08
It All Boils Down to Brand Names - 2005/10/09
Crime and Punishment of P2P (2) Fire of Greed - 2005/10/02
Three Musts of Digital Content Biz (4) Pricing by Consumers' Budget - 2004/10/03
Corporate Website a Handful (2) Division of Labor How? - 2003/10/05
P2P is inherently decentralized, born with the possibility of infringement. And the records companies can never put up with this.
[+] P2P should remain non-commercial
With legal determinations around the world getting more adverse, it is expected that commercial P2P software companies which ignorantly claim that, "I have no idea about users' infringement and no obligation to stop them from doing so," will soon falling away.
If P2P software remains non-commercial, and anonymous engineers around the world keep on volunteering to update the software and open the source, the music/records industry can hardly find a real target of complaint. Just like in the myth, Prometheus continued to suffer on the mountain, but men can never stop using fire.
Is the records industry, which has the mighty power to wreak torture on the Promethean culprit, a victim or an inflictor? It is an interesting question. In the past the records industry considered itself the victim and accused that illegal music download had caused it tremendous loss.
The deep-pockets who are capable of dominating the world not only choke the development of P2P but also direct their charges to search engines. August 2005, seven major records companies in Hong Kong sued the biggest search engine in China: Baidu.com.
The reason: Baidu as a search engine, provides information of and links to illegal MP3 download websites. China has been the paradise of free music and movies, and Baidu just went public in the U.S., which made it a conspicuous target.
[+] Who should check on infringement?
If the disclaimer that, "I supply the software only and will not be liable for users' infringement," can't prevent a commercial P2P software company from a legal action, then it is to nobody's surprise that a search engine is sued even if it claims, "I provide search results only and will not warrant the legality of such results."
Such thinking can continue to develop. Take a telecom operator offering ADSL service for example. It can claim that, "I offer Internet connection service only and will not be liable for the legality of users' online activities." But the record industry companies can still sue it, and precedents tell that they have a good chance to win.
So how to eradicate the root of illegal music, where to start? If there are loads of providers/software engineers/crazy downloaders everywhere, then to start with telecom operators seems to be a solution once and for all. In fact, telecom operators do have all the connection records.
But, telecom operators have their own trouble, too. It can cause huge burden to the system as well as extra cost if ADSL users hang on the Net and use P2P software to grab music and movies all day long. Not so long ago, there were even rumors that telecom operators in China were about to shut out one of the most popular P2P software: BitTorrent.
Telecom operators in China now plan to change the way they bill ADSL users. It used to be a flat fee per month for all, now they want to charge higher monthly fee from high volume users. Suddenly we realize that the flat monthly fee scheme is based on the calculation of telecom operators that we users will not need that much bandwidth at all.
[+] The true face of records companies
Will records companies work with telecom operators to take away the fire from men? The truth is, telecom operators have tried hard to avoid such an outcome, because it means they will have to bear the liability for users' infringement ever, which may lead to tremendous monitoring cost and endless trouble of lawsuits.
Yet the records companies will never give up. Before, the atmosphere was more favorable to P2P. Seeing that there was little hope to curb P2P, some records companies chose to work with P2P companies and sought to incorporate them into the legal music download business and "to get the child once gone astray back on the right track."
If you believe this benignant face, you can be very wrong. The records companies join your side simply because they are incapable of doing the opposite. Once they become strong enough to fight back, they will do so relentlessly. P2P is inherently decentralized, born with the possibility of infringement. And the records companies can never put up with this.
In addition to the legal actions employed to frustrate P2P software companies/websites, records companies are also encroaching on the area of legal music download. Apple has over 70% of the legal download market worldwide. It used to sell at 99 cents per song, but now it is under the pressure of price hike.
Apple's suppliers of music files say that their current offer is under-priced, and that they wish to have more flexibility in pricing. That is, some songs may be priced a bit higher, and some lower. Apple has helped generate magnificent profits for these records companies, and now they are asking to raise their prices.
[+] P2P will continue to survive
What the records companies are asking for is not really price hike but price differentiation theoretically. Yet for those who are familiar with the capitalist market know that, price differentiation is the start of exploitation of consumers. Through price differentiation, businesses are attempting to reap every cent they can out of the consumers' pockets.
Steve Jobs, Apple's CEO, is one of the people who are too aware of the essence of the game. Greed. He sees it through right away. It is quite natural that records companies would think about implanting the rules of their capitalist game in the traditional music industry to the digital world, as they have finally mounted on the throne of power for the first time.
In any case, there is already clear direction about how the digital world should run. In the future, all music files will be encrypted and copyright protected to ensure that every cent is safely collected. As to transmission of music and movies via P2P, it can only go underground. The two modes will co-exist, but there will be no gray area in between.
P2P per se is a communication technology, but once it gets involved with the distribution of copyrighted music, movies or software, it gets stained. Yet there is no lack of smart people. Like Niklas Zennstrom, the creator of P2P software Kazza, he went on and invented Skype. He applied P2P technology to VoIP and successfully got rid of the harassment of lawyers.
My memory brings me to the year of 2000 when the fire of revolution just broke out from AOL; I tried the very first P2P software with excitement and imagined the infinite possibilities behind it. It is true that Zeus could not take the fire back from men, but he did possess the power to have Prometheus chained to Mount Caucasus and tortured as punishment. Well I think we still have a long way to go, my friends.
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Prev : Crime and Punishment of P2P (1) Liberalization of Power Next : It All Boils Down to Brand Names
- Today in History
The Web 2.0 Revolution (6) Struggle of the Press Industry - 2006/10/08
It All Boils Down to Brand Names - 2005/10/09
Crime and Punishment of P2P (2) Fire of Greed - 2005/10/02
Three Musts of Digital Content Biz (4) Pricing by Consumers' Budget - 2004/10/03
Corporate Website a Handful (2) Division of Labor How? - 2003/10/05
Circumstances looked very unfavorable to the development of P2P.
[+] P2P: the stolen fire
In Greek mythology, Prometheus went against Zeus's will and stole fire for men. Men then knew about fire. As a punishment, Zeus had Prometheus bound to Mount Caucasus, where an eagle would devour his ever-regenerating liver day after day.
Zeus had his reason not to agree to give fire to men: Men should keep a simple life; too much enjoyment of ease and comfort was not good to them. Fire brought benefits, but also disturbances. A single spark could start a prairie fire. It was not unlikely that men could eventually get hurt.
In March 2000, AOL employee Justin Frankel and another engineer Tom Pepper released the source code of Gnutella, the first ever P2P file exchange software in the world.
Overwhelmed by the shock waves of the bust of Internet bubble, the public did not pay too much attention to the news at that time, or they just did not quite grasp the significance of this epochal event. Now, after five years, the term P2P has practically become a byword of free MP3 and free movie downloads.
P2P, a completely de-centralized file exchange structure, was born to be a rebel, bearing the predestined mission to resist domination. It is the stolen fire, being brought to the cyber world.
[+] P2P is against centralization
The concept of the first-generation Internet is client-server based. For example, a website Yahoo! has been set up; a user can send a request for a session from her/his own browser to the website server, and the server will responds and send a page to the browser. In this case, the website is the Server, and the browser the Client.
Consequently, browsers all over the world call on Yahoo!, and a new media hegemony thus comes into being. The online users may not be aware of it, but it is exactly centralization. It implies that Yahoo! may control what you can and can't see. Apart from this, it may easily become the target of attacks due to its conspicuousness.
However, P2P structure is different. It makes each of P2P users the Server. Anyone who has a computer with Internet connection can put any software for others to access and capture. Anyone can be the Server and the Client at the same time.
When you want to look for a file, you need only to give a search command, and the P2P software will automatically go find out who has this file in her/his computer. You can select the item to be downloaded on the returned list, and then a direct link between the two computers will be set up to transmit the selected file, with no third party involved.
This is a complete delegation of power. The power to distribute content returns to the masses, with no authority in between to screen files and documents and decide which to be published.
[+] Men's abuse of fire
This is the spirit of P2P, or Peer to Peer. When the evil dominator wants to punish the source of the distributed files, he can't even identify the culprit. The attempt to eradicate the P2P software is even more unlikely. With hundreds of thousands of engineers volunteer to develop such kind of software, how can it be eradicated?
This is not to say that these inventors develop P2P software with a political agenda. Yet, such software structure has very soon won the support from liberals; a group of fervent developers continue to contribute to the improvement of such software, and the number of users continues to grow.
What exactly are the files worth to be exchanged on the Net? To the end, most of the people use P2P software to grab free music files. Free MP3's have been running wild since the emergence of the internet; now they are getting wilder. Some people assert: the music industry has been dominated by the big five record companies; we are to liberate music!
Now it comes the day when Zeus's concern becomes a reality: Men are distracted; they use P2P for commercial purposes. People start to set up companies specifically for the development of P2P software, and furthermore publicize that the software can be used for exchange of free music files. The gods are enraged; they want to punish the men and they send legal letters.
Business entities conduct development of P2P software and charge users for the software, and some companies are even making big money out of it. Now the record companies find their targets to file charges. Such lawsuits are common occurrences. Software companies and music industry giants stick to their own arguments and show no sign of concession.
[+] Circumstances turn against P2P
The focus of controversy is that, the software per se is but a tool, and it is indeed not within the control of software developers as to what files are to be transmitted via the software by users. But, in all fairness, everyone knows what users are going to do with it. As the popularity of broadband grows, the transmission involves from free music to free movies.
Is it against the law that one buys a legal music CD, turning the music into MP3 files and sharing them via P2P software with other P2P users? According to the existing copyrights law, yes! There is no gray area in between. Should a judge find such deeds guilty, s/he is but acting by law.
Some people argue that record companies are making extravagant profits from their music business, and that it is unfair to put all the blame on consumers. Overbearing record companies may be hideous, yet it does not justify consumers' illegal resistance.
Since the past, software companies have been calling on government not to oppress the development of new technologies. P2P is new, and is indeed a rising star. A sentence of guilt may very well suffocate innovation. However, the court is getting less patience to such an argument.
June 2005, the U.S. Supreme Court made an unfavorable decision against Grokster, a P2P service provider, finding that Grokster encouraged its users to distribute illegal music files. Since then for several months, RIAA (Recording Industry Association of America) had been going around and sending legal letters. Soon, many P2P websites close their operation.
The fire of revolution started within the Internet media AOL in March 2000 had gradually been put off during its institutionalization process. The circumstances looked very unfavorable to the development of P2P, especially in terms of its use for exchanging music and movie files.
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Prev : Envisioning China's 3G Market (3) Systems & Markets Next : Crime and Punishment of P2P (2) Fire of Greed
- Today in History
The Web 2.0 Revolution (5) Search 3.0 - 2006/09/24
Crime and Punishment of P2P (1) Liberalization of Power - 2005/09/25
Three Musts of Digital Content Biz (3) Redefining Ownership - 2004/09/26
Corporate Website a Handful (1) Accountability Where? - 2003/09/28
The split-up of China Unicom will be inevitable.
[+] Case study: market development in Japan
With the government's intention of supporting Chinese own TD-SCDMA standards, the issuance of 3G licenses, which are already intermingled with a lot of considerations, is getting even more complicated. Counting WCDMA and CDMA2000, there are three 3G systems available in China's 3G market.
However, if we get back to the arena of marketing, things often get much easier. When we look at the Japanese market, for example, we can get a lot of inspiration. The following figure shows that NTT DoCoMo and KDDI walk through a similar path by upgrading their own 2G subscribers into 3G systems.
Although NTT DoCoMo introduced the 3G service half a year earlier than KDDI did, its migration of 3G subscribers has been much slower than KDDI until recent months when it picked up speed. The following figure shows the increase in 3G subscribers:
Remember, despite the strong growth momentum, most 3G subscribers of the carriers are upgraded from their own 2G subscriber bases. Why was KDDI able to achieve such a rapid growth at the beginning, while DoCoMo was dragging far behind? The key lies in the 3G system that they used.
In addition, the above figure shows that while KDDI has almost upgraded all of its own 2G subscribers, NTT DoCoMo has just started in the initial stage to accelerate the process. Predictably, DoCoMo will have far more 3G subscribers than KDDI in the next two years.
[+] User experience will depend on the 3G system used
Why was KDDI, which adopted the CDMA2000 system, able to achieve satisfactory performance at the beginning? There are a number of reasons: 1) thanks to the features of the CDMA system, KDDI was able to deploy 3G systems rapidly at its existing 2G base stations at lower costs and higher speed. Only half a year after KDDI's introduction of 3G, its services covered 90% of the entire territory of Japan.
Despite the attraction of 3G value added services to users, the fundamental part is its mobile communication function. In places where 3G service is not available, a CDMA2000 handset may roam automatically to an existing CDMAOne system (2G) to extent the availability.
As NTT DoCoMo used PDC system to provide 2G mobile communication, its 3G WCDMA system had to be built all over again. As a result, its 3G services could cover only the Tokyo region in the initial stage. What's more, subscribers out of the region were not able to roam into the PDC network. Therefore, subscribers had to bring two handsets.
2) KDDI did not intend to tell its subscribers that what they used was the 3G service at the very beginning. As its goal was to attract its own 2G subscribers to upgrade into 3G, KDDI only told its subscribers: "KDDI is introducing a location based service", or "KDDI is introducing mobile streaming media service". It never mentioned the word "3G".
Of course, to use those services, subscribers had to change their handsets. While they did so at the stores appointed by KDDI, the 2G subscribers did not know they were switching to 3G network. With the same voice service coverage of 2G systems, more value added services and similar handsets, subscribers did not feel any pain at all during the upgrade process.
[+] The key is to allow 3G subscribers to roam into 2G networks
On the part of DoCoMo, in addition to the disturbance of the network coverage, it had another trouble: the expensive, large and highly power consuming WCDMA handset, which had far less model options than CDMA2000 handsets did, severely affecting the growth speed of its 3G subscriber base.
The case of Japan gives us two lessons: 1) network coverage is the prime condition for the rapid development of the 3G service; 2) there must be sufficient models of handset available, with prices and standby time comparable with 2G handsets. In addition, such handsets should not be too large; otherwise subscribers would not be interested at all.
When Hutchison 3 started to introduce the 3G service in Europe, it had similar troubles. It had only three models of handset for subscribers to choose from. Why are subscribers of both DoCoMo and Hutchison 3 beginning to increase drastically lately? The answer is that the problem of WCDMA handsets has been preliminarily solved.
If China starts to issue 3G licenses in 2006, by the time carriers complete their initial equipment deployment, both 3G handsets of WCDMA and CDMA2000 systems will not be a problem. Even the price will drop to a reasonable level, freeing carriers of the pain of the expensive handsets that the current 3G carriers are suffering from.
By that time, WCDMA handsets will be able to roam into existing GSM networks where 3G signals are not available. In the meantime, CDMA2000 handsets should be able to roam into the existing CDMAOne network, which will significantly improve the user experience of 3G subscribers.
[+] The restructuring of carriers and the issuance of 3G licenses
From a standpoint of the country's development, the government should minimize repeated investments in telecom infrastructure. However, in view of the long-term development of the telecom industry and the country's competitive edge, it seems necessary to accelerate the development of 3G, and to cultivate the power of carriers and equipment/terminal manufacturers. Whether the restructuring of carriers and the issuance of 3G licenses will be attached equal importance is beyond the scope of my prediction. However, if we return to the arena of marketing while also considering the above national policies, the situation would become crystal clear all in a sudden.
China only needs to issue three 3G licenses, which should be based on the WCDMA, CDMA2000 and TD-SCDMA respectively. To be more specific, the WCDMA is an extension for the existing GSM system, and CDMA2000 for the CDMAOne system.
In that case, the split-up of China Unicom will be inevitable. Its CDMA network will be able to get a 3G license, as that would be the best way to minimize the waste of repeated investments. When we look back at the experience of KDDI, we could see that it is an approach to ensure highest subscriber acceptance rate, painless upgrade to 3G and acceleration of 3G development.
As to whether the GSM network of the post-split-up China Unicom should be combined with those of other carriers, it might be considered separately. The key is there need to be only one license for the WCDMA-based 3G license. Carriers with the GSM system could upgrade their existing systems into WCDMA to avoid repeated investments and to ensure quick acceptance of subscribers.
[+] TD-SCDMA carriers will be 3G Only
For China Telecom and China Netcom, which have their own PHS systems, the huge subscriber base cannot be turned into 3G customers, and repeated investments would be inevitable with whichever 3G system. Therefore, a TD-SCDMA-based 3G license would be most suitable for them.
There would be 3G-only carriers in the market. Without a 2G subscriber base, carriers with TD-SCDMA networks will try the fastest way of attracting 3G subscribers. Inevitably, they will offer lower voice tariff as a means for market competition, which will eventually pull 2G+3G carriers into the battle and stimulate the high-speed development of the 3G market.
However, carriers with only TD-SCDMA systems might not be so lucky. They must achieve the coverage of all regions once for all, as they will not be able to allow roaming into existing 2G networks. That would incur heavy burdens of capital expenditures during the initial stages. More importantly, they should be particularly careful not to step into the painful path of DoCoMo again.
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Prev : Envisioning China's 3G Market (2) 3G License & Market Strategy Next : Crime and Punishment of P2P (1) Liberalization of Power
- Today in History
The Web 2.0 Revolution (4) the Google Paradigm - 2006/09/17
The Web 2.0 Revolution (3) Advertising Revenue is Not Enough - 2006/09/10
Envisioning China's 3G Market (3) Systems & Markets - 2005/09/11
Three Musts of Digital Content Biz (2) Stop Selling "Containers" - 2004/09/19
Three Musts of Digital Content Biz (1) Content is Cheap - 2004/09/12
One of the key factors is the appearance of the 3G Only carrier.
[+] PHS subscribers will not be the first 3G subscribers.
Currently, 3G handsets are still too expensive. Particularly, WCDMA handsets are selling at prices slightly higher than those of high-end 2G handsets. Therefore, carriers will have to invest higher handset subsidies to lower the entry barriers for consumers to buy, if they want to accelerate the development of 3G subscribers.
To prepare for the flooding-in of 3G subscribers, carriers must provide voice services with the quality and network coverage comparable to that of 2G. The idea of "building 3G infrastructures mainly around urban areas" might incur massive subscriber complaints. Therefore, carriers will have to invest in the development of base stations at the same time.
Having made huge investments at both sides, carriers might naturally expect high ARPU from subscribers during the initial stage of 3G to justify what they have done. In the current market, high-ARPU subscribers exist in 1) their own 2G subscriber bases, and 2) 2G subscriber bases of other carriers.
In whichever case, PHS subscribers will not be the source of the first 3G subscribers that carriers wish to attract. That is a customer group that requires cheap handsets and low fee rates. For carriers, huge handset subsidy for this kind of customer is definitely not a good deal.
In addition, as we mentioned in the previous section, there might be a growth room of 100 million subscribers in the 2G market (not including PHS). Would they be the prime source of 3G subscribers? Would their first cell phones be 3G handsets?
As discussed above, after so many years of mobile communication development, those who without a mobile handset by now will be low-end subscribers of the saturation stage. For carriers, such subscribers are of marginal value. They will not be the prime source of subscribers at the initial stage of 3G, either.
[+] Marketing strategies for two types of the 3G carrier
Therefore, at the initial stage of 3G, carriers will have only two options: to upgrade their own high-end 2G subscribers to 3G, or to grab high-end 2G subscribers from other carriers. The former seems hardly necessary (to spend a lot of money to upgrade their own subscribers to 3G without increasing their ARPU would be hardly justifiable, as their ARPU is already high).
As to the latter, there would be the question of "with what means to grab high-end subscribers away from other carriers?" Suppose that two carriers both have 3G and offer largely similar value added services, is there any way to attract subscribers other than the old tactic of price cut? If 3G ends up in a price war, that would be the cause.
The possibility of a price war at the very beginning to lead 3G away form its main track will depend on the way in which 3G licenses are issued. Here 3G carriers can be divided into two major types: the carrier without 2G subscribers (3G Only carriers) and the one that has 2G subscribers (2G+3G carriers).
If all carriers in the market are 2G+3G carriers with similar sizes, 3G will be used as a weapon for defense instead of attack. For carriers, the purpose of developing the 3G service is to prevent their high-end 2G clients from turning to rivals.
To avoid big drop of ARPU when migrating their 2G subscribers to 3G, carriers will not offer substantial cut in 3G voice service tariff. Therefore, it will be hard to grab subscribers from other carriers. Please note that, value added services are bright spots for 3G, but what really attracts subscribers to shift to another carrier is the voice tariff.
Carriers will focus their efforts on existing 2G subscribers of their own, and introduce value added data services at a tariff lower than the 2G counterparts. While trying to "keep peace at the tip of a bayonet", carriers are working slowly to promote 3G. As a result, the coverage of the network would expand gradually from urban areas to rural regions.
[+] New carriers could disturb the situation.
In view of the above situation of competition, carriers will sell the concept of "2G+" to consumers for 3G positioning. In other words, their 3G voice service tariff will equal to that of 2G, with the 3G data service regarded as a "plus". To subscribers, 3G is an upgrade version of 2G.
That seemingly reasonable concept could be broken apart by other competition modes, including: 1)2G+3G carriers of smaller size wishing to use 3G as a weapon to grab subscribers from each other; or 2) a possible price war for voice services triggered by 3G Only carriers.
The first situation would hardly occur, for, if they want to grab subscribers from other carriers, 2G would be a weapon good enough and there is no need to use 3G (isn't it much cheaper to use 2G as a weapon for competition?) The second situation, however, has already happened in Europe.
In Europe, the 3G Only carrier is Hutchison 3, which started its 3G business with data services as the focus. Yet the slow growth of subscriber number compelled the company to use the last-resort weapon: price cut for its voice service, which has lasted till today.
The most interesting part, however, is the reaction of those 2G+3G carriers. They seem not bothered by Hutchison 3's 30%-lower voice tariff at all. The following figure shows that Vodafone UK does not change its rates in face of the Hutchison 3's challenge.
In addition to lower rates, there are also considerable handset subsidies. Imaginably, it has cost Hutchison 3 huge money to build a subscriber base. With the support of 2G revenues, 2G+3G carriers are not afraid of the challenge at all. They just sit there waiting for the reduction of the 3G handset cost. For them, subscriber loss is tolerable so long as it is contained within a reasonable range.
[+] The 3G market growth will depend on the way licenses are issued.
To what extent 3G will develop in a country depends on how many carriers in the local market are willing to promote the service. Typical cases in the regard include Japan and South Korea. In Japan, NTT DoCoMo offers a 20% cut in voice tariff to accelerate the development of the 3G service.
However, even the case in Japan reveals that, when carriers push for 3G services, most of their 3G subscribers are those who migrate from their own 2G subscriber bases. To accelerate business development, carriers often have to reduce their voice tariff.
In other words, it is not quite right with the argument: "3G will save carriers out of the trouble of the declining voice revenue with higher revenues from data services." It is because carriers are eager to accelerate the 3G service that they are now caught in the mire of declining voice revenue, which would not have dropped so fast if they had not pushed for the 3G service.
Maybe five years after the launch of 3G, carriers will find that their ARPU is back to the level of 2G again, but with data services holding a bigger share. There will not be any change to the total revenue of carriers. The only thing changed will be the revenue structure.
Let's get back to the topic raised at the beginning: how should 3G licenses be issued? The question can be translated into a simpler one: "how fast does China plan to develop its 3G service?" It is better to look at the issuance of 3G licenses from the viewpoint of marketing. One of the key factors will be a simple question: will there be a 3G Only carrier?
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Envisioning China's 3G Market (2) 3G License & Market Strategy - 2005/09/04
