China’s shadow, immigration policy and how to steal the best brains.

I have just gone through Reed Hundt’s “In China’s shadow” power point book summary. Fun, easy to follow and very interesting. It’s not just interesting - it is probably one of the most important issues for determining if in 100 years the US will still be the World’s leader.

Which made me think about immigration policy. What if the US (In an act that none of us can imagine how it will pass through Congress) decided to offer Green Cards to any Chinese citizen who wants to immigrate to the US and has a MS or PhD degree in biotech, computer science or environmental studies?

Will they come? I bet a significant number will. Because it goes back to the exact core value of the US - and what China cannot offer - a free and open society (Yes my dear Yale/Berkeley friends - I know - mostly - but still quite better then the Communist party in China).

Influx of hundred of thousands of new, educated people into the work force? That’s great for the economy. You can almost do the back-of-envelope calculation: one million immigrants over a few years. Each buying a house. Getting high paid jobs (Which otherwise might have been outsourced to them in China). Not a bad deal.

And China - they will either have to make China more competitive for this highly skilled labor - make China more free and open so the US is not such a big carrot anymore. But wait - that’s what the US has been trying to push China to do for the last ten years…

Yeh - I know - nobody can get elected with this kind of policy. Yet it’s worth playing with the idea.

Ram

Disrupting the wireless industry, part 2: business model

So what would the the business look like for a venture that tries to become the Next Gen mobile service provider?

First - what it will not be. Today the cellular business is around (i) a bundled monthly service fee (ii) subsidized handset. Get this handset for free, and pay us $50/month for voice+wireless+handset. No *real* differentiator between the operators (Voice+sms is pretty much what most people use) and diffrentiation between handsets is mostly around industrial design. As a result, customer acquisition costs are in the $200-$300 range. So the math looks like: operators pay $250 to get you as a customer, give you a handset and collect $50 for 18 months so $900 Life Time customer value.

The key to the existing business is maintaining the $50/month revenues. If we take it away (original blog post: WiFi+GSM handset, VOIP over WiFi. 75% of usage on WiFi @ home or office, GSM used as backup where customers bring their own SIM) i.e. no more $50/month. Can we build a business?

Yes we can. But it is a different business - with a much smaller ARPU per user - and as a result smaller (if any) handset subsidy.

What are the revenue sources:

The first one - from a chronological perspective - will be ‘mini services’ : Very similar to Skype on the PC: $5 per 500 SMS or international termination. Or $5/month for transcribing voice messages a la Spinvox. Content - ringtones, games and screen savers are counted here as well. How much will be the total user spending per month - probably not more then $15-$30 spent across a few different services. The spending is capped by the PC world - where most of the services are free. So consumers’ mental model for WiFi enabled devices is more of the Internet model rather then the cellular model.

The second source of revenues is from the ‘Audience’ model. Or as some prefer to think about it - advertisement. Once a critical mass of users is built, then the community can be monetized. Its a long process to get there - and its not clear how big it can actually be. the case can easily be made that if you apply the web model, and take into account that unlike the PC - the handset is with us 24/7 - then we are looking at a factor more than the PC. Bring on video ads, click to call and click to act, and woo… you can dream of $20-$50 per month in ad revenues. Ads on mobile will happen. But how much will it be worth - very hard to predict. Because the key factor is what will consumers be willing to tolerate and find useful. On a limited screen and on a highly personal device. This is not something that can be assessed by doing colorful complicated spreadsheets that will make your McKinsey EM proud. The audience model can probably become the dominant source of revenues - but its too early to say if we are looking at $50 or $5 a month opportunity.
Bottom line: Some money on the device, some money on ‘Mini Services’ and as the community builds more and more revenues will come from monetizing the community - the PC audience model. What will be the mix ? We will find out in a few years…
To make any such business profitable, the key obstacle is the customer acquisition costs. If you have to spend $250 to get the customer who will then get you $20/month - its a non starter. The business just does not make sense. And that is the real challenge: is it possible to create a customer experience and services which are so compelling, so exciting and so valuable that they become viral? Can we get away from the spend marketing-dollars-superbowl-ads-brain-wash-brand-building as the only way to get consumers to use the device? What is the consumer offering that users will be willing to pay $200 to buy this handset because it is so ‘cool’ and so valuable to them?

Ram

Technology, individual killing power and reflections on Viriginia Tech

Was talking to B earlier this week when he commented that incidents like the Virginia Tech massacre are almost “an inevitable byproduct of modern free society.”I tend to agree, but would like to think it through

Technology has radically changed our way of life  and human society in the last few hundred years. It has  also changed how war  is conducted. And it has  greatly changed what might be called “individual killing power” If a few hundred years ago a lunatic might have killed one or two individuals before the mob will run him over and kill him, nowadays we have the wimp with two guns butchering over thirty people. Not to mention 9/11 and how 10 individuals killed  over three thousand. And about ten years ago in Israel a Palestinian derailed a bus  and killed tens of people by pulling on the steering wheel.  The individual’s  killing power has greatly increased - and will continue to increase as technology advances throughout our life.

Do we have to accept it ? Do we have to block it ?

A few thoughts

1. Curtailing individual freedom: Happens all the time.  And in different dimensions: “No, you can not own a machine gun and RPG even if you want to defend yourself and bear arms”.  And we are being searched when boarding a flight.  And individuals with criminal record can not buy guns. There is a line curtailing our positive and negative freedoms. And one of the criteria used to decide where to draw the line is evaluating how deadly the weapons or activities are. 

2. As technology changes, so does individual killing power and therefore the line curtailing individual freedom should change. Its not a static line, but rather a line that is continuously moving.  We can not expect to have the same individual freedoms we had two hundred years ago. And in the future, some freedoms will even be more limited.  This line touches on our freedom in many dimensions - not only positive rights like owning guns but also negative rights like online surveys and electronic surveillance: If somebody has been spending hours googling “Building home made chemical weapons” and shopping for the materials online. Wouldn’t it be good if the FBI stopped by to talk to the guy? Maybe he is just an avid chemistry buff. And maybe they will stop by to talk to him just before he goes to board the NY subway with his home made bomb. 

3. Role of Psychiatric evaluations:  One of the possible dimensions of limiting our freedom to “bear arms” has to do with Psychological evaluations.  What would the psychiatrists who evaluated Cho have said if he was asked after the evaluation if he would you allow Cho to buy a gun?  What would he have said if his evaluation  of Cho also included reading his school papers? We are already curtailing individual freedom to bear arms based on previous criminal activity. Is Criminal the only dimension? Should Psychiatric evaluations be used ?  Required ? 

This is not meant to disregard the cirtical role of inidvidual rights and the need to minimize goverment power over us. These are the two huge considerations that we need to balance. And these are the foundation of a free democratic society. My point is that the balance is not a static thing done once - but rather something that needs to be re-evaluated as inidividual killing power progresses.

Ram 

In support of CarterFon (more re Skype petition)

I have written and talked before about how important I think it is to apply the carterfon to Wireless. And that the real battle for NetNeutrality is the wireless one.

So in the last week I sat down and started writing an FCC filing in support of the Skype petition. A few other industry executives offered to help or co-sign. Which is great - especially considering that so many of the individuals in the industry are dependent on having good relationships with mobile operators for their employment.

f you have been part of the mobile industry and would like to help write it, email me.

Ram

‘Google not doing a mobile phone’ & Clintonian truth

There were quite a few blog entries in the last month about the Google Phone project that Andy Rubin is leading. Sim Simeonov wrote one (and then took it off his blog), and others have followed.

Then came the denial from google “”We’re not doing a mobile phone,” Alan Eustace, senior vice president of engineering and research, said in an interview… “I’d like to find something that is broader, rather than do yet another mobile device.”

Lets read between the lines:

“Not doing a mobile phone:” ‘Doing’ GOOG is a software company. They are not doing any phones. But they are writing a Linux based Services & MMI layer for mobile phones. Which is why Alan added “something that is broader, rather than do yet another mobile device”

And the first instance is not a “phone” but a “RIM like device. And Clinton didn’t have “Sex” with that women…

This is GREAT that Google is doing this. And if they end up bringing the source back to the community (which is what the rumors are whispering in the valley) that would be great. If they will have the guts to take it directly to customers, bypass the operators and offer WiVOIP they will transform the mobile industry. What is sad is how they are handling it. They could easily have said “We are working on software solution for mobile phones that will drastically improve the user experience and enrich the services consumer enjoy and handsets with this software will be in the market in early 2008. Thats all we can say at this point” There is no reason to play these Clintonian word games. Just like Politics - by not standing up to what they are doing, and instead playing word games with the industry, they are hurting the core values of what they stand for and their brand. Pity.

R

Nokia 800, Rhapsody and should I send $10 a month to RNWK ?

So I have been playing with Rhapsody on the N800 for more then a week now. And soon my 30 day trial will be over, and I will have to decide if I want to subscribe. Hmmm. Lets see

User Experience: Well, I think Nokia messed up here. While the application is well packaged a have some very nice concepts (like the three control panels shifting right and left), the basic control over playing music is done on the song level not album. What does it mean? Well, to once you add an album to the play list, you actually add 12 new individual songs. You add another one, 12 more songs go in the middle of the playlist. Which song is from which album? Hmm try to figure that out. (Especially with classical music - where there is not enough information about the tracks) If you want to remove an album - sure - remove the 12 songs. Well - after a few minutes, the experience gets too irritating and confusing. There is no linking back between the tracks to the albums and making users naviugate on the song level makes it too tedious. Surprised that Nokia will make such a mistake. Yes - navigation through music is not an easy user expirience problem to solve. But there are way of making it better - and even more visually compelling. (There is a bigger issue - of finger vs pen navigation on touch devices. That will be a topic of another posting)

Music throughout the home: The second issue is that while the speakers in the N800 are nice, thats not enough. Music is to be played on the stereo system. And I have three of those in different rooms throughout the home. So if I am signing up to Rhapsody, I would like to hear my music on those different devices. And use the N800 to control what is playing where. My dream - get a few D-Link or Netgear Media Players and let me use the N800 to control which one is playing what. Yes - I know Sonos is offering the same - and I LOVE the product (Afterall, its another group of xOpenwavers) but I am not going to spend $1000 on it.

And the third point - which i think they are working on solving- is no offline usage. So I cant access my favorite albums when my WiFi is out. Or when on a flight. So its not a replacement to my iPOD. At least not yet.

So for now, I think I will have to tell my friends @ RNWK and Nokia: Great start, but no cigar.

Disrupting the Wireless model (Part 1)

Is it even possible?

When we started Fonav, that was the goal. Take advatdge of the WiFi penetration and dual mode devices to get around the cellular operators and get a consumer focused, great communication expirience offering. For many reasons we ended up in a different place (Yes, I also recommend Founders at Work: Stories of Startups’ Early Days or as others have suggested - Flounder at work) . Yet - the topic is still something I am thinking through a lot ..

Its a complicated questions as the industry is very complicated. So I will try to tackle it in a few seperate postings, each covering one of the required components.

The first two components are (i) Handset Distribution (ii) Business model

Handset distribution. In the US, majority of handsets are sold through the operators shops. In the rest of the world, the situation is better (I heard a number of 50% globally are sold through operators but not sure if it is correct). Yet, even when handsets are not sold through the operators, operators are attempting to control the handset software and offering.

Why is this so important? “Follow the money” Whoever is paying for the handsets, get to control or influence the default software on it. If you are the one placing an order for $10M of handsets (50K handsets) you get to tell the OEM or ODM that the what is the default configuration of the handsets - minor things like: “phones needs to have “Google” as the first bookmark “and have SIP pre-configured to point to “Vonage” servers. And the home page needs to point to my site where I will sell content. And by the way - can you make those settings read only ?

This is the kind of unlfuence the operators have today. Yes - lots of those changes can be done by end users. But thats not a solution for mass markets. Most people don’t have the technical ability to figure out those changes and make them - so anybody attempting to rely on the users to make those changes is automaticaly restricting themselves to a very small segment of the market.

Further more - in the smart phone segment, - both Microsoft Mobile and Symbian have special APIs that are only available to operators. This is done both for security reasons and because the operators are the 800 pound Gorilla who have asked for those features. So if you want to have your nice home screen widget application available from the home screen - you need to be the operator or approved by one.

But if you buy those handsets, you are the customer - and you get to decide what those settings are. Yes - with some of the vendors - like Nokia - $10M order might not be enough - might have to be $100M - but you need to start someplace.

The downside is that distribution is very capital intensive and careful inventory managment. What happens if you miss the xmess season or sell less then you projected? Think about a warehouse full of handsets in millions of dollars that were not sold. Not a pretty sight. And handsets - more then many other CE goods - have a very limited shelf life. SO VCs and reluctant to experiment here - and even though this is a critical element for disrupting the wireless industry, it is not an easy one.

Especially because this is not enough - the next components that is required is a different business model. I will write on this one over the weekend.

Ram

Violin for breakfast ? Yes? Maybe?

I just red this article about a great experiment in the Washington Post: Lets get Joshua Bell to play in the street corner in DC metro and see what happens.

Did people stop by and listen ? Did anybody recognize him? Do we listen to the music because we enjoy it? Because of who is playing?  Or because we are expected to listen to it?

Read the article to find out.

In undergrad at Case there was a tradition that every Thursday night students can sign up and get free tickets to the Cleveland Orchestra.  I used to sign up every week, and once every few I would win the tickets. The orchestra is on campus - so I would just finish studying and walk from my office to the library directly to the orchestra, listen to the concert and then back to the library and study. In one of the most memorable concerts, there was this young women playing the violin - a piece I really enjoyed. It ended up being Midori playing Brahms Violin Conerto in D…  and two years later this concert came up in an interview that got me my first job out of college.

Nokia N800 - going where ?

Have been playing in the last few weeks with the N800. First i got the email / Google Talk to work…. then got some of my photos through the memory card… and finally got RNWK Rhapsody on it. Next is getting the Gizmo Project on it.

Nokia is treating it as an experminet. Testing out two new models:

The first is leveraging the open source community (and Linux) which develops most of the services and the user experience for mass market devices. Its not a complete open-source. Nokia maintains control over the user expirience as it directly ties to the consumer experience == > brand association as well as maintaining a barrier to entry.

The second experiment is the form factor: touch only, Navigation only keys. How will user respond to this form factor? It has many similarities to the iPhone - which makes you wonder whether the whole mobile industry is going to be in touch only devices in a few years.

I think the N800 can go into two very compelling paths:

The first - and most obvious one - is the mobile space - add GSM radio so it becomes dual mode, and you have a great VOIP device. No operator in the way to mess around and block services or control software (re my previous posts on US industry structure). Actually - there is one virtual operator - who can now make money on the services enabled on the device - and this is Nokia - which if you didn’t notice is no experimenting with distributing directly to consumers.

The second direction is a home device. The assumption here is that your cell phone is not going to be the *only* device we use at home, but rather there will be multiple new devices in each household. Imagine the N800 with a few more applications - one that let me easily (using finger navigation) easily view my different photos from the different home computers and servers. And then another application that let you select music and play it on different devices within the home. And yes, a universal remote similar to what we have seen Logitech coming up with. The hardware for these devices is getting dirt cheap. QVGA LCD at under $10, WiFi+App processor+MM accelerator at not much more. Memory and battery. $99 in retail is not that far away.

Another way of thinking about it - in 2010 - if we take stock of a digital household. What devices are we going to see? If we imagine a household of two adults mid 30s and two kids 10 and 15 years old kids. Is it going to be four cell phones and that ll? or will we see a few WiFi devices with a small LCD that connect us to our digital life? I think the latter is the likely scenario - which is also a great back-of-envelope calculation of this huge new market opportunity.