I hate roaming fees. There’s something about paying multiple dollars per minute to access the same network as the local guy standing next to me that just doesn’t make any sense. So I avoid doing it at all costs. In undergrad, this meant backpacking across Europe with my old-school iPhone (that’s right, not 3, not 3G, not 4, 4s or 5, but just iPhone) from Wi-Fi signal to Wi-Fi signal, pulling off a full two months without ever paying for data or voice. Then I got a job, and a corporate phone, so I got used to walking around random cities and relying on Google Maps or TripAdvisor to tell me, in the moment, where I should go, how to get there, and what to do. But now, as an unemployed student, I’m on my own again.

Work got me used to using data on the go, but my bank account (and common sense) won’t allow me to pay the exorbitant fees that result in careless roaming. No problem right! My new iPhone is unlocked, so I’ll just buy a local prepaid SIM card… “Sure”, says the internet: “What do you need? SIM? micro-SIM? nano-SIM? GSM? CDMA? Prepaid? Monthly? Topper card? Got your APN settings set up right?” Geez!

By travelling over the summer, and trying to source the right local SIM card for my phone, I realized how fragmented and unfriendly the market is for this type of task. While attempting to navigate this space in search of an answer, I learnt that currently, local telecom SIM cards can be sourced via the following channels:

Amazon (& other large e-retailers)

While their selection is very limited, it is possible to find international SIM cards on large US retailer sites such as Amazon. Typically, the cards for sale are “interexchange carrier” cards which means you buy one SIM card for use in several countries, but the rates are still way worse than the local rates.

Pros: Purchase is easy, with trusted seller

Cons: Selection is limited; no technical instructions/advice provided by seller

eBay

Several large and small sellers offer local and “interexchange” SIM cards on Ebay. However, as with most products on Ebay, shipping time is typically longer, seller authenticity can be questionable, and there is limited support provided to the buyer. Additionally, sellers tend to charge a healthy premium on the local SIM cards they provide as they have already gone through the trouble of registering and activating the cards.

Pros: Wide selection, including local SIM cards

Cons: Seller authenticity is questionable; prices are high; no technical instructions/advice provided by seller

Local tobacco shops & telecom stores

If you do it right, this should be the cheapest and best option. The problem is that figuring out the ins and outs of a local wireless plan as well as your phone’s technical settings is not most people’s favorite thing to do on their vacation. It is possible to research this information in anticipation of your trip, but there are no guarantees that your phone will work once you arrive, and troubleshooting becomes pretty darn tough if you don’t have an internet connection.

Pros: Local SIM cards available, sometimes local support as well

Cons: Eats into your trip; mistakes can get expensive

All in all, I think the system is broken. Telecom providers charge outrageously high roaming fees at the moment because they know the alternative is a pain in the butt, requires a certain amount of tech-saviness, and usually eats into a time period which is costly for most travelers. The solution to this is out there, and does not require any new advancement in technology, or disruptive hot start-ups. It simply requires a platform in which users who have figured out the specific recipe for their combination of phone/country/budget can share it and perfect it with one another and eventually build the perfect custom catalogue for anyone looking to source a local SIM card.


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 Mobile technology is driving towards an all-encompassing device that will consolidate your communicator, payment system, house key, car key and identification.  We aren’t there yet, but there is a lot of the effort focused on enabling payments from a smartphone; worldwide mobile payments is a $172B business and is expected to grow to $617B by 2016.[1]

There are dozens of companies already chasing after this market and every few months, a new entity seems to jump in – each with its own business model, proprietary technology and merchants.  What are the key requirements of a successful mobile payment platform? At the risk of over-simplifying, the four critical ingredients are:

  1. Security to protect access and transaction payments – often executed with a password, PIN number, photo or distance limit.
  2. Financial institution support – access to finances, whether it be a bank account, credit card or something else.
  3. Communication technology between the customers’ mobile device and the merchants’ transaction device – could be physical, radio or cloud-based.
  4. Widespread merchant acceptance – customers need to be able to use their mobile payment platform at a sufficient number of stores and services.

 There is lots of sprinting to grab first mover status because this is an industry with network effects that is destined to tip towards one platform, at least in the United States.[2]  The real challenge of winning the platform war is to execute especially well on points three and four: Communication Technology and Merchants.  (Note: that is not to say that the first two points are less important, but rather they are table-stakes to even be at the Mobile Payments table).  Surveying the leading platforms, it appears that there are two major customer-focused paradigms that mobile payment entrants consider:

  1. Hardware play – require customers to buy the device with the special hardware that enables payments.
  2. Software play – require customers to download the app that enables payments.

The hardware paradigm typically refers to the NFC chip (near field communication) inside of a smartphone as the authentication and security mechanism.  The benefit of NFC is that it is quick to process a sale and works only within a few inches of the sensor, so it is safer.  This is the system that has been adopted by Google Wallet[3] (via Android phones) and Isis[4] (the recently announced joint venture between AT&T, T-Mobile and Verizon).  The main downside for consumers is that the most popular handset does not include an NFC chip; the iPhone is 33.4% of all smartphones compared to Samsung’s Galaxy S3 representing significantly less than 25.6% of the market.[5]

The software paradigm traditionally just requires the customer to open an app and display a barcode of sorts for the merchant to scan or capture.  The benefit of this system is that it can work on any smartphone as long as the customer downloads the app.  This is the payment system that has been adopted by Square, Paypal, LevelUp, and perhaps one day: Apple’s Passbook.

With both paradigms, there is also a merchant-side challenge: it is expensive to install NFC terminals and barcode scanners – even if it is just an iPad – into every checkout counter of every McDonalds (14,000 US restaurants), Gap (2,550 stores) and Walmart (4,300 US locations).

 It is premature to predict which paradigm will win out – much less which company’s platform – but if I had to guess, it would be the software paradigm.  The reason: it is challenging enough to convince merchants to adopt this new payment system (even if the terminals were given away for free), but it may be even more difficult to sell customers an NFC-enabled smartphone.

In this highly competitive battle for market share, there have been many interesting strategies to onboard customers and merchants alike:

  • LevelUp – attracts merchants with their 0% payment processing (as opposed to 3-4% for standard credit cards)[6].  They also have built both NFC and QR-code scanners into their merchant hardware.[7]  LevelUp claims it has 3,600 merchants as of September 2012.
  • Square – got deeply intimate with Starbucks by taking in $25m in strategic financing and adding Starbucks CEO Howard Schultz to its board of directors.[8]  No surprise, before Christmas 2012, Square will be accepted in all 7,000 US Starbucks locations.[9]  As of August 2012, Square boasted 2M merchants.[10]
  • PayPal – recently invested in a national TV campaign – starring the endearingly-paranoid Jeff Goldblum – to raise awareness of its availability  (watch the commercial here).  This past May, the company announced 15 new merchants including Toys R Us, Abercrombie & Fitch, Barnes & Noble and Home Depot.[11] PayPal claims it reaches 40m point-of-sale systems as a result of a partnership with Ingenico payment terminals.
  •  Apple Passbook – just launched as part of iOS6 and the iPhone 5.  Passbook enables barcode scanning for loyalty cards and airplane tickets, but no mobile payments yet.  If that day comes, the tens of millions of iPhone owners will be an influential buying force.

The race to be the ubiquitous mobile payment platform will explode in the coming months and years.  We will likely see bitter rivalries, confused customers, frustrated merchants, and tumultuous failures before a winner is finally crowned.


[1] “Gartner Says Worldwide Mobile Payment Transaction Value to Surpass $171.5 Billion.”  Gartner Research.  May 29, 2012. http://www.gartner.com/it/page.jsp?id=2028315

[2] The two sides of the platform are consumers and merchants.  While there are somewhat low multi-homing costs for consumers (at the app level), the costs for merchants are considerably higher: multiple hardware apparatuses, accounts receivable to manage, etc.  As such, the market will tip because merchants do not want to simultaneously support multiple technologies.

[3] Google Wallet FAQ.  October 24, 2012. http://www.google.com/wallet/faq.html

[4] “Isis Announces Its Pilot Programs Are Now Up and Running.”  Mobile Payments Today.  October 22, 2012. http://www.mobilepaymentstoday.com/article/202491/Isis-announces-its-pilot-programs-are-now-up-and-running

[5] “One in Three U.S. Smartphone Subscribers Use Apple’s iPhone.”  Apple Insider.  September 27, 2012. http://appleinsider.com/articles/12/09/27/one-in-three-us-smartphone-subscribers-use-apples-iphone

[6] “LevelUp for Businesses.”  Website.  October 26, 2012. https://www.thelevelup.com/interchange-zero

[7] Empson, Rip.  “On a Mission to Be Mobile Payment Agnostic, LevelUp to Roll Out NFC-Capable Terminals.”  TechCrunch.  September 6, 2012. http://techcrunch.com/2012/09/06/on-a-mission-to-be-mobile-payment-agnostic-levelup-to-roll-out-nfc-capable-terminals/

[8] Ha, Peter.  “Square Partners with Starbucks, Raises $25M for Series D.”  TechCrunch.  August 7, 2012. http://techcrunch.com/2012/08/07/square-partnershi/

[9] Perez, Sarah.  “Starbucks’ Square Rollout Gets a Launch Date.” TechCrunch.  October 5, 2012. http://techcrunch.com/2012/10/05/starbucks-square-rollout-gets-a-launch-date-no-loyalty-card-integration-yet/

[10] Kim, Ryan.  “Why Starbucks is Betting on Square.”  Gigaom. http://gigaom.com/2012/08/08/why-starbucks-is-betting-on-square/

[11] Perez, Sarah.  “PayPal Rolls Out to 15 More National Retailers.”  TechCrunch.  May 25, 2012. http://techcrunch.com/2012/05/25/paypal-rolls-out-to-15-more-national-retailers-announces-deals-with-6-top-pos-software-terminal-makers/

 


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Blackberry Out(r)age

“Due to the Blackberry outage, millions of users have been forced to check their email on a computer like wild cave savages.”

“Got an iPhone? Turn it into a virtual Blackberry by enabling airplane mode.”

“That’s it, you pushed it too far RIM! I’ll be looking for a new phone tomorrow morning, and that won’t be in the BlackBerry section…”

 These tweets are from yesterday morning, and were clearly NOT tweeted from a Blackberry device.

How could a company that was, not so long ago, praised for its cutting edge technology and the quality of its products, be made fun of, and be raged at this way on the web? RIM, the Canadian company that manufactures Blackberry devices, has had 3 days of service failures this week, starting in their growth markets of Europe, the Middle East and Africa, and spreading to Asia and the Americas. Business people got disconnected from their mobile office, IT departments got flooded with technical requests, youngsters were not able to BBM their best friends… Yet, it all seemed like the chronicle of a death foretold.

RIM pioneered the development of the mobile phone industry in 2002 by designing a phone that was smart, long before they were even called smartphones. Blackberries started to penetrate enterprises, devices got better each year, adding color screens, enhanced web browsing, cameras, media… Soon enough, people had forgotten that blackberries were edible! And then, Steve Jobs decided to take a closer look at that growing market. He believed he could revolutionize the phone industry the same way he revolutionized the computer and music industries. And he did. In a big way. RIM should have gotten worried, but they were confident they would maintain their stronghold on the business segment, which was the most profitable one, and started being complacent and slow to get new products to market. Many professionals now prefer the trendier iPhones to the sturdy company-issued blackberries.

The outage episode couldn’t have happened at a worse moment as RIM has had a difficult year in many respects. In the quarter ended in August 2011, sales and profits were down 10% and more than 50%, respectively, vs. 2010. In Q2 2011, RIM’s share of the smartphone market dropped to 12%, vs. 19% in Q2 2010. RIM has also seen a slow start for their Playbooks tablet, forecast to sell at 3 million copies in the first year. That’s how many iPads Apple sold in a little over 2 months!

Perhaps more importantly, it coincided with the passing away of Steve Jobs and the launch of the iPhone 4S and iOS5, which included some very anticipated features:

  • iCloud  is Apple’s long awaited cloud computing platform. It allows users to store their documents and media files remotely, and access them from any iPhone, iPad or PC. It is not a revolutionary product per se (companies like Dropbox or Amazon have been offering a similar product for a while), but the fact that Apple is technologically  integrated and controls both the hardware and the software allows for many cool features, like instantaneously updating photo libraries on all your devices if you take a picture with your iPhone or your iPad. This will contribute to strengthen the Apple ecosystem, and drive sales of iPhones and iPads.
  •  iMessage is a free service that allows for free instant messaging between iPhones and iPads. The first version, which is included in iOS5, is pretty basic vs. other iPhone applications like WhatsApp Messenger, but it is more stable, and you can count on Apple’s development team to enhance it very shortly. It is Apple’s response to Blackberry Messenger (BBM), which has been one of the strongest contributor to the Blackberry network effect over the past couple of years. This network effect may be on the brink of collapse as users have an additional incentive to migrate to iPhone.
  • Finally, with the launch of the iPhone 4S, Apple is making it cheaper than ever for users to switch, with the price of the iPhone 4 brought down to $99, and the 3GS being offered for free.

So, will this outage episode be the death sentence for RIM, or will it be salutary and push it to reinvent itself?


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Next week, Sprint becomes the latest carrier in the United States to offer the iPhone, joining Verizon and ATT. As the laggard third place domestic carrier, Sprint desperately fought for rights to sell the phone in hopes that its recent earnings slide may be mitigated. Since the iPhone was released in 2007 on a rival carrier, Sprint’s stock has lost 80% of its value and currently has half the number of subscribers of either ATT or Verizon.

The right to sell this precious device does not come cheap. Literally testing the theory that “you have to spend money to make money”, Sprint is paying an estimated $20B to Apple over the next four years. $20B just to have the right to sell a phone for another company! (In case you are curious as to how many cell phones $20B can buy – it’s 30 million.)

Sprint’s justification is that the lack of an iPhone in their sales portfolio is the number one reason that customers leave the network. And so the logic goes, by offering the device, customers won’t leave. Which is a plausible argument, except that my own anecdotal research suggests there are myriad other reasons for leaving – not the least of which is terrible coverage, pretty much the most important function of a wireless carrier. Plus, to stop the bleeding, Sprint will not only need to work to retain their current customer base, they must attract new customers.

To differentiate themselves from ATT and Verizon, and work to attract new customers, Sprint is taking the unusual route of offering unlimited data plans. The model of unlimited data plans has been phased out by both these competitors, who discovered that while many (estimates of about 90%) of customers use less than 2GB/month, a handful of other users account for vastly larger usage. Sprint’s gamble is that their network upgrades (which also do not come free to the company’s bottom line!) will sustain the increased data usage.

Another concern with Sprint’s strategy is that the four-year deal may be too long of a lock-in window and that perhaps (though yes, as inconceivable as it is for any iPhone toting HBS student to comprehend!) it may commit Sprint to subsidizing the phone past the “coolness” of the device. Were another game changing phone to come out in the next couple years, or perhaps were the Android operating system finally achieve the chic status of the Apple system, Sprint would still be left holding the bag for this deal. (Who can forget the awesome Nokia phones of the late 90s/early 2000s? Who could have ever thought those would lose their trendy status?!)

Despite the concerns presented by Apple’s sheer strength and leverage in its negotiations with Sprint, one potential ray of light for the consumer may be that Apple’s rise to dominance as the gate-keeper of the must have device and operating system represents a fundamental shift in power dynamics within the mobile industry. Although Apple is now able to squeeze maximum value out of carriers, perhaps the consumer is better positioned to “win” as they have more choices and are not as beholden to their carriers as they once were.

Of course, this strategy of “spending money to make money” worked for both ATT and Verizon in the past– both lost money early on in their deals with Apple and have since recouped the costs. Only time will tell if Sprint is positioned to reap the same benefits. For the sake of their shareholders who ultimately foot this bill, one certainly hope it does!

 


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The online world is not so much a world as it is a collection of ecosystems. I think that is the new paradigm that emerging technologies should consider when entering the internet ecosystem. Where do you fit in the internet ecosystem? In essence, we are looking at the growth of 2 sided networks. 2 sided networks means that the sum of any network is greater than the bare number of users – it is the network of users which creates the value-add.

One example of this point is the comparison of Facebook versus MySpace. Facebook is a 2 sided network, where developers can attract users and users in turn attract more users and more developers. However, MySpace was a much more linear website. It essentially was a media launching platform, where users browsed the latest trends / content. There was no sizeable network effect, where the growth of one population would strongly exert a growth pressure on the other population. As a result, where Facebook stands today at 500 million users, MySpace is no longer a viable commodity.

The other space where I see ecosystems playing an important role is the smartphone / portable device world. With the release of iOS5, Apple has essentially removed the requirement of anyone to use a PC or a Mac. Instead with an iPhone and an iPad, the new urban warrior probably has his tools for most of his important tasks. Can Android boast such a comprehensive mobile solution? Unlikely, as I do not believe that Android phones and tablets can talk to each other as seamlessly as the iOS devices. Also bearing in mind the large number of different Android phones, and the range in operating systems due to carrier lag in updating software, I firmly conclude that the Android ecosystem will remain a distant second best to Apple for the foreseeable future.

So who will challenge the Apple ecosystem? Clearly RIM has failed to live upto expectations with poor hardware, even worse software, and the recent crash in blackberry services. I think personally that the news Windows Mobile solutions could be a strong dark horse contender. Not only do they incorporate productivity apps like Office which is used by most folks (and something Apple lacks properly on the iPad), Microsoft have a great opportunity to implement a viable mobile phone and tablet solution using the new Windows interfaces – Windows 8 for tablets and Windows Mobile (Mango) for phones. Combine this potential with Nokia, who despite their many faults are still very good at figuring out hardware, and there is a lot of potential for a new ecosystem to be born. One barrier most people cite is apps for the phone / tablet. And that is true – but only to a certain extent. Although Apple has in excess of 400,000 apps, it can be argued that the long tail of apps are random, low quality and not as incentivizing for a user to choose Apple or a competitor. As long as Microsoft has the top 100-200 applications, I foresee that users would be quite satisfied.

The last thing I want to talk about regarding ecosystems is that it applies beyond the online economy. Look at our homes where are integrating our TV with our entertainment and our homes; or the smart grid phenomenon where we are looking t integrate energy demand management with intelligent supply switching. Ecosystems where devices talk to each other in a seamless manner are the future. And to live in that future, most if not all designers and manufacturers must think in terms of where they fit in this ecosystem. It is not enough to try to exist as a single standalone entity. Just ask HP about their Personal Computing Division.


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