The only thing in the middle of the road are dead skunks and yellow lines

Or so goes the Texas adage. Today’s 3-2 FCC vote on rules pertaining to so-called “Net Neutrality” may once again prove that compromise guarantees only one thing.  That nobody’s happy. The debate, which has been a five year long rollercoaster ride, came to a head in what is being described as “rules of the road” for the Internet. The inherent fuzziness of the provisions, which include such vague concepts such as “transparency,” “network management,” and “unreasonable discrimination” all but guarantee that the matter will ultimately be decided in the courts. Furthermore, the same rules don’t apply to fixed and mobile networks.

Fair to Middling

FCC Chairman Julius Genachowski made a point of characterizing the rules as “middle of the road” approach—though likely one where no side even feels a little bit ok about it. “On one end of the spectrum, there are those who say government should do nothing at all, on the other end of the spectrum are those who would adopt a set of detailed and rigid regulations.” The Chairman said he rejects “both extremes in favor of a strong and sensible framework - one that protects Internet freedom and openness and promotes robust innovation and investment."

A Little Hyperbole Goes a Long Way

Indeed, critics are vocal on both sides, with opponents comparing it to the “government takeover of the Internet,” and Net Neutrality supporters calling it “worse than nothing.” Outspoken Senator Al Franken calls it the “most important free speech issue of our time,” and surmised that “ If corporations are allowed to prioritize content on the Internet, or they are allowed to block applications you access on your iPhone, there is nothing to prevent those same corporations from censoring political speech.” Republican FCC Commissioner Robert McDowell, in a Wall Street Journal Op/Ed piece said that the new rules will squelch innovation and investment, and reflect more “coercion than consensus or compromise.” He goes on to say: “On this winter solstice, we will witness jaw-dropping interventionist chutzpah as the FCC bypasses branches of our government in the dogged pursuit of needless and harmful regulation. The darkest day of the year may end up marking the beginning of a long winter's night for Internet freedom.”

Netting Out Net Neutrality

It’s still not over

It’s not over—not even by a long shot. April’s ruling by the U.S. Court of Appeals for the District of Columbia challenged the very role of the FCC in regulating broadband. Certainly, this is yet to be scrutinized and debated in Congress, and ultimately in the courts.

Please Have Exact Change

While the rules voted on today preclude service providers from blocking “lawful content,” they apparently do little to discourage the practice of “paid prioritization. ” The rules, set to go into effect in 2011, create a “toll road” of sorts on the metaphorical information superhighway—a road that companies such Google and Netflix may be forced to take.

FUD Factor 2.0

Markets don’t like fear, uncertainty and doubt. We all know that. And while Chairman Genachowski suggest that the rules “increase certainty in the marketplace, and spur investment both at the edge and in the core of our broadband networks”, the result may be just the opposite. Well, that’s what it smells like anyway.  -Ben Piper

I never thought I would hear it, but the buzz on the streets of Essex, that trend-setting county just east of London, is that Research in Motion (RIM)’s BlackBerry handsets have now replaced Apple’s iPhone as the gadget of choice. I should immediately qualify this “finding” as purely anecdotal research, based on a conversation with my 13-year-old niece this past weekend regarding her latest phone, acquired because, as all parents will recognise, “all her friends have got one”. It doesn’t seem five minutes since she was demanding the latest iPhone, hence my surprise that the BlackBerry has risen so rapidly in the teenage desirability league table, at the expense of the apparently unstoppable iPhone. My colleague, Andy Brown, our resident RIM expert, assures me that the Canadian company has been promoting the BlackBerry as a consumer device for some years, largely by advertising it in the hands of celebrities. In spite of those efforts I would argue that it is still commonly perceived as a business-centric device. Nevertheless, consumer sales of BlackBerrys have been rising rapidly, contributing to RIM’s impressive overall performance in the mobile phone market. I was obviously keen to learn why today’s younger teenagers are apparently bucking the accepted trend towards using touchscreen, button-free devices. The QWERTY keyboard, according to my niece, is in fact one of the appealing features of the BlackBerry, since typing messages is so much easier. And it turns out that messaging appears to lie at the heart of RIM’s success in this segment: the ability for young friends to send each other messages using RIM’s BlackBerry Messenger (BBM) service, completely free of charge, has huge appeal to the device’s owners as well as their parents, concerned at rising monthly bills. So the obvious question is, what happened to the apparently eternal appeal of an unlimited choice of apps, as well as 4” touchscreen displays? At least for this small sample, it seems they are now considered of secondary importance. For my niece and her group of friends, the ability to stay in touch via near-constant, rapid messaging, and at zero additional cost, is what matters most. Whether that will be the case as they get older remains to be seen, but it’s a reminder that one device format is unlikely to suit the needs of all segments, however successful a particular product may appear. “With iPhone, every handset works the same,” said Apple’s Steve Jobs during yesterday’s results call. Yes, Steve, they do: and it seems, amazingly enough, that some people really don’t need it that way. Client Reading: RIM Announces PlayBook Tablet and Multiplatform Strategy

It’s no surprise that a majority of early iPad buyers had already bought into the Apple ecosystem, but the fact that fully 90% of people who say they will buy an iPad during the next 12 months already own an Apple device is perhaps surprising. It might have been reasonable to assume that the novelty of the tablet form factor would open up a whole new wave of potential customers attracted by its innovative design, regardless of how familiar they were with the benefits of Apple’s user interface and design. It seems, however, that in the early days at least demand for the iPad will be met almost entirely by existing Apple owners. Our survey of 2000 US consumers also suggests that a third or more of existing iPhone and Macbook owners have already gained access to an iPad (at least they say they have used one at home). And nearly a half of the early iPad adopters say they are somewhat or very likely to buy another iPad during the coming year – an indication of strong customer satisfaction if ever there was one. So how should Apple respond to this news? On the one hand the company should relax in the knowledge that so many of its core and loyal customers are saving up to buy the company’s latest device. On the other hand, there may be just the slightest concern that the iPad has so far failed to win new hearts and minds amongst the half of US homes which do not already own at least one Apple product. That may change as the tablet category becomes more widely recognised. New entrants will shortly be flooding the market with iPad alternatives which will help raise general awareness of this new category. As Apple struggles to meet demand from its existing customers, the opportunity is there for competitors to target the remaining market segments with iPad alternatives. Client Reading: Apple's iPad: Identifying Early Adopters and Intentions to Buy Meet Our Analysts: 3DTV Analyst Forum at IBC 2010

Apple cynics seem to have taken the initiative following the announcement of Apple’s iPad internet tablet. I tend to shy away from anything as hyped as this product has been. Surely the most hyped Apple device ever... And for that reason alone I am feeling underwhelmed. Is the iPad really what this was all building up to? Let's think about the applications: Books - ok, I get this. if you want e-books this seems like a reasonable way to carry and read them. A nice way to read newspapers as well – I’m not sure the publishers will make money from it though. Web browsing and applications - I suppose the brower must work well. This is definitely the primary set of apps in my view. Consumers need an easy and fast way to get to websites quickly when they’re at home and don’t want to boot up the laptop. Music - ok, but who would rather listen to their music through a 1.5 pound portable device with (presumably) tinny speakers rather than either a) a small iPhone/Pod plus headphones, or b) plus docking device? Photos - yes of course – iPad could be a very nice digital photo frame. Games - could eventually become a killer app but control and input functions will need to be adapted to a larger screen device and iPhone app developers need to get to work to match the screen's HD resolution. Productivity applications - I'm struggling here. is this really how the iPad is going to get used? The virtual keyboard may be good, although early reports are not promising. But think about how are people going to hold or rest this device: sitting down in a chair - it would have to rest on the flat table, so you are leaning over it to use it properly. Sitting in an armchair - so it's on your lap, but again you have trouble positioning the screen at the right angle; or standing, so you hold it resting in one arm and only have one arm free to touch the screen. Or you use a stand and add-on keyboard, and it becomes... a laptop! OK, maybe the iPad could be used occasionally for productivity applications, but I just don't see this device as a breakthrough for work-based devices. and finally... Video. Video playback is reported as stunning - I can believe this. But where are the extra video content applications or TV deals? The specialised video apps like TV-transfer? No HDMI for TV connection? Apple seems to be struggling more than ever to break into the home video market in a big way. And no multi-tasking… this is crazy. I can't play music while I surf?! Form factor: maybe I was expecting too much from Apple, but really the iPad is hardly a revelation. Have they done what we expected? ie take all previous tablet-type implementations, improved on them and added innovative style and usability and content integration to create a unique package? I don't see this from what I've read and seen. And it's too heavy to be held in one hand, much heavier than some e-readers. Wireless: So the key question - how often would this device be used in truly mobile situations, and of those situations, how often would a user need to have cellular data service? The cellular service can be bought ad hoc - and I think it will be primarily. Not much new recurring revenue for carriers there then... The iPad is surely primarily a “free data” wifi device. It doesn’t need always-on connectivity for messages and voice - I'm always going to carry a phone for those. I can get online for websites and apps via hotspots when needed, and primarily use my home broadband to load it up with content. Having said all this, of course the lower than expected price points mean they will sell millions to Apple fans who won't blink at spending another $500 on the latest Jobs gizmo. (And did anyone at Apple really not investigate the unfortunate connotations of the device name for the female market? - one wonders if Jobs has really lost his touch.) Client Reading: Consumer Imperatives for Digital TV Media Browsers

When I switched my home television service  from DirecTV to Comcast last summer, the slick sales guy on the other end of the line promised me that I would be receiving an identical channel lineup to the one I was currently receiving.  “Apples to apples,” he promised. “Only cheaper.”   What’s not to like? You’d think that I, someone who gets paid to research and write about digital television, would have done more due diligence on his own account.  I didn’t. So, when it became apparent that two “must have” channels for me (NatGeo and BBC America) were not in my Comcast tier, I called again to inquire.  Seems that to get those, I would have pay an additional $15 a month to buy up to the next highest tier, one filled with numerous channels of no use or interest to me.   Suddenly the calculus changed.  This was no longer a good deal.  

This time, it’s not coming from the FCC

Recent movements suggest that change may be afoot.  No sooner had Comcast announced the launch of its OTT-mitigating Fancast Xfinity TV service than rumors started circulating about Apple’s talks with CBS and ABC.  Seems the folks in Cupertino are mulling a subscription-based video service, obviating the need for iPhone/iPod users to depend solely on the Apple iTunes service for downloads. If the Apple service is successful at elegantly bridging  the '’screen gap,” and delivering compelling online content to the tv screen, it could fundamentally alter the way MSOs sell content.  The much maligned “bundled” system currently in place, whereby consumers are required to purchase content in blocks of channels--rather than individually--could finally be on the chopping block.  And that’s good news. What is interesting, though, is that the catalyst for this change will be the market—not a government mandate as previously feared. A la carte used to be somewhat of a cause célèbre in the television world, and one that the FCC has been wrestling for years. It was only the more recent emergence of “net neutrality” that has stolen the spotlight from the issue. Former FCC Commissioner Powell’s administration commissioned a 2004 report finding that, under an mandated a la carte scheme, customers would end up paying more.  That report has since been largely discredited and found to be riddled with misinformation and half-baked analysis.  Successor Kevin Martin embraced “cable choice,” though apparently more for the way it allows parents to monitor and block channels, than for household consumer budgetary reasons. One analyst firm  rather dramatically predicted ‘economic ruin’ if the FCC went ahead with its plan.

Who moved my talking points?

Government-mandated a la carte is bad for cable consumers, who would wind up paying higher prices to receive the same level of service and fewer channels than they receive today.”-NCTA Issue Brief, January 2009

The National Cable Television Association (NCTA ) talking points were crafted to respond to a possible “government takeover” of television.  In the context of a market driven change, the memo reads somewhat differently.  Most of the arguments fly out the window, and the market will call the cable industry’s bluff on the supposed technological barriers to offering personalized programming. As usual, the problem does not lie in the technology, but rather in the business model The very nature of cable advertising is in flux, brought upon largely by digital television.  The 30-year old model in place today, whereby flagship channels lead certain tiers and support fledgling new ones, could be facing some changes.  While the NCTA estimates that half of cable companies’ revenues come from national ad sales, this is certainly shifting.  Intelligent two-way networks will herald in addressable advertising—the next step in demographic targeting. Indeed, vendors I spoke with only months ago alluded to some “user identification” scenarios that could pinpoint actual viewers within a household, based on their “jitter signature.”  Seems that we all shake and tremble in our own unique ways, and it is possible to use these signatures like fingerprints, and serve up completely targeted advertising.  To be sure, , vendors will need to overcome the “creep out” factor first, but the general idea is the same.  Linear advertising as we know it is going the way of the dodo, and the MSO’s ‘old math’ will need to change.

It’s not about choice…it’s about the illusion of choice

Our research shows time and time again that consumers are tired are feeling that they are being screwed by their pay television providers.  The nickel and diming in all aspects of consumers’ lives has grown out of control.  Our latest survey work (to be published in Q1) found that only about 20% of pay tv customers felt that the ““value for money” they were getting from their pay television operator exceeded expectations. Part of the issue is consumers’ feeling that they have no control, that they are somehow being  taken advantage of.. Choice—or more importantly, the illusion of choice—is an extremely powerful tool.   Think of the immensely popular Build a Bear Workshop franchise, whose stores dot shopping malls across the world.  BABW allows customers to design and personalize their very own stuffed creatures by visiting eight “stuffed animal-making stations,” where they can choose (and buy) everything from stuffing to clothing.  The concept has been a huge hit, and the company is now a $300 million/year concern, with over 400 stores worldwide.  What is the secret to the company’s success?  Certainly not selling adorable plush animals; anyone can do that.  Rather, BABW has perfected the illusion of choice and flexibility.  All customer start at the same default position: buying a bear.  The trick is, they end up paying more for the additional  features relevant to them.

How about “Build a Bundle?”

What prevents MSOs from employing a similar strategy—allowing customers to design their own bundled offerings?  All would start at the same default position, the $XX/month basic tier.  The real money comes in the add-ons.  Critics say this is not how advertising works in the cable industry.  Guess what?  It’s about to change. My (still untested) hypothesis is that, if customers were given the choice to “personalize” a  television bundle, ARPUs would actually increase--or at least stay the same.  Allowing them to configure a package conveys the illusion of choice and control, and makes customers think they are in the driver’s seat. Sounds like a great project-opportunity…phone lines are open if someone out there wants us to test the concept.

I’m on my way back to Boston,after spending 2 days at the Telco TV event in Orlando, a somewhat small--but nonetheless impressive--show focused on the IPTV space.  I’m posting this online at 35,000 feet, which is one of the few places I don’t particularly mind (or at least won’t audibly complain about) paying for connectivity.

My overall takeaway from the show is that IPTV still has a long way to go--and I feel like I say that every year at this time. A few notes and observations from the keynote sessions, workshops, and meetings:

What have you done for me lately?

For years, we’ve been hearing about the promise of IPTV, and the jaw-dropping array of services and applications it will ultimately deliver. The potential and promise of IPTV has been widely hyped. Jeff Weber, VP of Video Products at AT&T, suggested that IPTV’s upside is “beyond our understanding.” The question remains, though, what has the technology delivered?

Research we recently published confirms the strong growth opportunities for IPTV in the US—that growth, however, is dependent on a few basic conditions, including sustainable customer take up, and achievable and meaningful differentiation. The “me too” services won’t cut it anymore.

Um…the datestamp on that slide is “2005”

Sadly, the slideware on display at this year’s keynotes and sessions might as well have been from five years ago. The same tired slides and examples keep showing up again and again, presented as “innovative” and “new.” These include on-screen Caller ID (a curious notion in the first place, given the rapid decline of residential landlines, and the inherently personal nature of telephone communication), customizable EPG skins (really??), multiview, and remote DVR programming.

Not exactly earth shattering stuff.

Is there an app for that?

While IPTV may not fully realize its full potential for several years, the general consensus seems to be that the likely path to innovation in the space may come through the open “widgetization.” Drawing parallels to iPhone apps, proponents of this theory foresee a flood of new applications migrating to the television screen. Whether or not these can be (or should be) monetized remains another question. It does loop back to the fundamental question: how to compel a consumer to move to IPTV.

No first mover advantage

IPTV represents the first time in the Telcos’ history that they have been second to market…indeed, they enjoyed near or complete platform monopolies for decades. Television has a long and storied past, and consumers have developed a set of expectations and quality thresholds. Having to build to a set high-water mark is no easy task. And they have to do more than replicate what the cable companies are offering—to be successful, they have to surpass it.

What the Telcos have in their favor, however, is a long legacy of delivering “five nines” quality to consumers; an established brand and existing customer base.

The challenge is in meshing the two pieces together: harnessing the experience and success of the past, while simultaneously changing the fundamental Telco mindset from one of a monopolistic utility provider to that of a competitive provider of services.

It's the classic business dilemma: where do you go when you're number one? And in the case of Nokia, which has dominated the global mobile phone market for nearly a decade, that challenge has seemed greater than ever. Nokia's market share has never dipped below 30% since 2000, and in a market which has now reached an astonishing 1.12 billion phones sold every year this is an extraordinary achievement. Indeed, so successful has Nokia's strategy been that it has been increasing its share steadily and finally broke through the 40% barrier during Q4 last year. The "Nokia era" of mobile phone dominance has been mirrored by a number of other consumer technology markets in the past. Sony famously dominated the "Walkman" business throughout the 1980s, having created the original design for headset audio by bundling a portable audiocassette player with a pair of lightweight headphones. It's difficult to believe it now, when thumbnail MP3 players carry entire music collections, but that was a cool device just 20 years ago, and if you didn't own a Sony, you made sure to hide the brand. Sony managed to convert some of that loyalty to the CD format, but was gradually losing its grip and eventually missed the boat completely on digital music and today's iPod era. The consumer technology industry is littered with famous old brands that lost their way. RCA was the de facto TV brand leader in the US for years but has long slipped into the sub 5% bracket and is now under Chinese ownership. Japan's JVC created the VHS standard and thrived during the VCR era, but was unable to build on this success and inevitably fell on hard times. So will the same fate eventually befall Nokia? In historic terms, to dominate a market over a period of several years is not so unusual. The longer term challenge is to maintain sufficient flexibility to react to market evolution. Nokia will no doubt continue to lead in "mobile phones" for some time, but it must never take its eye off the wider technology market in case a new competitor comes along with something that may not look like a phone, but which begins to win Nokia's phone customers. The iPhone is the obvious current example of blind side evolution that could eventually change the competitive environment. Nokia must make sure that it comes up with the answer to "what will mobile phones become?", otherwise that 40% share could look very different in a few years' time. Nokia Reaches 40% Share as 332 Million Cellphones Ship Worldwide in Q4 2007

I am sure we all have our own favourite hotspot horror stories. One of my more recent experiences, about which I penned but never published several angry paragraphs, concerned an attempt to use T-Mobile's hotspot service at Chicago's O-Hare airport back in the summer. As usual with T-Mobile, I was required to run round in circles several times before performing double backflips, creating user accounts and trying to retrieve unretrievable and forgotten usernames and passwords before finally giving up and depriving the company of its measly $6, which it no doubt did not miss. I do wonder if the designers of these systems, or indeed the senior managers responsible, ever actually put themselves through the experience they expect their customers to suffer. That time I was using, or failing to use, a laptop PC, which no doubt accounts for 95% of hotspot usage today. But hotspots will also support a growing number of other wireless devices, and I have at one time or another also successfully used Nokia's N95 and N800 tablet at different locations. Nintendo's DS is the obvious mass market example of a WiFi-enabled device that might benefit from wider WiFi availability, but there are many others waiting in the wings. Not least, of course, Apple's iPhone, which by all accounts has woken up the US industry to the fact that people really do want WiFi (ie wireless broadband) capability on handheld devices. One thing is for sure, though: the hotspot experience has to improve, and that's where Devicescape hopes to step in. We met with David Fraser, the CEO, yesterday, and the company seems to be rapidly building a lead in what should become an important market as 2 billion wireless home devices are sold over the next 6 years. Devicescape's database and application essentially stores details of the vast number of WiFi hotspots around the world, as well as the login details of registered users, saving the device owner the hassle of logging in every time he reaches another hotspot. It can also work with home wireless LANs, so that the user's friends and relatives can be registered as approved users. Devicescape claims that their software is already in 10% of hacked iPhones, demonstrating that Apple's enthusiast customers are determined to make WiFi a more pleasurable experience. The company also suggests that cellular operators are beginning to change their attitude towards WiFi, which they may previously have seen as unnecessary or even competitive to cellular, but now recognise (not least because of the iPhone's success) as a way to boost customer satisfaction and revenues. We will see. My first trial today did not go well - standing near Oxford Street in London, my N95 found the BT Openzone well enough, but Devicescape claimed I was not authorised to log in, even though I had registered my account. I will check the details and report back. But in principle there is no doubt Devicescape is trying to solve a genuine problem, and they appear to be getting the more forward-thinking operators on-side, which can only be a good sign.

Nokia makes the headlines today with the introduction of its services and software strategy. The company recently announced a major reorganisation, splitting its devices group from services and software. While the company is introducing new phones today, the key development relates to its new approach to the web. This is epitomised by the introduction of Ovi, a portal that will encompass its music, navigation, games, communities and other internet services. Also newly announced is the Nokia Music Store, which besides offering millions of songs, will integrate music buying and playback across both PC and mobile devices. It may be surprising that Nokia, the world's most successful mobile phone manufacturer, has set itself the challenge of transforming itself at a time when it is once again dominating the industry. The strategy of the last few years, built on different groups of phones carefully targeted at different user segments, appears to have served the company well as it approaches a 40% share of the 1 billion global market. But Nokia appears to be humble enough to recognise that this approach may not be appropriate for the demands of the next era in mobile devices. In particular, the company believes that software and related services will be just as important as the devices themselves as they evolve from standalone phones to what Nokia likes to call "multimedia computers". It sees the advanced internet, media and navigation capabilities of today's N series devices migrating steadily to all handsets over the coming years, putting web functionality into the hands of billions of users around the world. Many at yesterday's press event will have been comparing Nokia's approach to Apple's dominant iPod and much-hyped iPhone devices. The fundamental difference between the two is that Apple's success has been built on a closely controlled, vertical platform, whereas Nokia believes it can create an open solution that invites unrestricted competition to create the best consumer experiences. Nokia would appear to stand a reasonable chance of leveraging its dominance of the handset business into a leading position in internet services, but this is a long-term play, and devices will remain the core of the company's business for some years to come. Over The Top or Round The Back? Exploring The Emerging Multi-Billion Web Video Landscape, Revenue Outlook and Adoption Scenarios Attend Strategy Analytics' Analyst Forum at IBC. Registration is Free.

Extraordinary findings from our latest research, which surveys user experience of two leading multimedia phones: the iPhone is not perfect after all. But it and Nokia's N95 stand out a mile from anything else on the market when it comes to multimedia. Apple's much-hyped device falls down on one key aspect - texting. Avid texters will not like the iPhone's touch screen initially because they need to feel the keys. The N95 was noted particularly for the quality of its music playback. But there's no question the iPhone hits the mark in terms of styling, menu navigation and video playback.