Skype today launched Video for iPhone, iPod Touch and iPads. This new version of the Skype service application software lets users make and receive video calls from iPhones, iPod touch and iPads, with instant messaging for other Skype users, over both Wi-Fi and AT&T's 3G network.

Was it a test for this iPhone video application that brought down Skype's Video Network Last week? The story going around last week was that a new release for Apple software - possibly the Skype iPhone Video application announced today - had a problem and triggered the Skype server failure when installed first on one and then several Skype 'supernodes'.

But don't blame the Apple software application.

Skype's supernodes act as both offline message (IM/SMS) relays and as Skype's Chief Information Officer noted yesterday "a directory, supporting other Skype clients, helping to establish connections between them and creating local clusters typically of several hundred peer nodes per each supernode."

The initial crashes brought down 25% to 30% of the Skype supernode servers - just before the normal daily peak. This in turn led to traffic overload that created extensive delays in the support servers responsible for offline instant messaging. This resulted in long response delays to some to Skype Windows clients and 20% of these had an old software bug that then caused them to crash.

The official Skype story was released yesterday by Lars Rabbe, Skype's Chief Information Officer, who describes the "snowball" effect that blocked most Skype users for 24 hours on 22^nd.- 23^rd. December 2010.

"50% of all Skype users globally were running (an older) 5.0.0.152 version of Skype for Windows, and the supernode crashes caused approximately 40% of those clients to fail. These ... included 25–30% of the publicly available 'supernodes', (that) also failed as a result of this problem."

"The failure of 25–30% of supernodes in the P2P network resulted in .. massively increased... load as (supernodes) reconnected to the peer-to-peer cloud... just before our usual daily peak-hour (1000 PST/1800 GMT)". As users tried to reconnect to the system, they generated "traffic to the supernodes that was about 100 times what would normally be expected at that time of day" and overwhelmed the remaining supernodes bringing the whole system to a standstill.

It is interesting that some sources focus blame on Microsoft, not just Skype's network, servers and software, but maybe the problem is more profound.

P2P Server Architecture.

Serious questions need to be asked about a network service architecture that allows:

• Application software to crash what should be 'carrier class' servers performing network functions
• P2P software that causes both network and user device based clients to crash as a result of network overload problems
• Network server problems that spread automatically across a large number of supernodes

Network servers need to be especially resilient and intelligent in how they 'fail-over' in a distributed networking environment; but a robust Service Architecture is always a pre-requisite.

Let other P2P and 'Cloud' service providers beware.

On a positive note Skype brought in massive extra capacity to stabilize the network and was also able to restore Group Video Calling functionality in time for Christmas.

Software Release Deployment

Lars Rabbe also committed to review Skype's "testing processes to determine better ways of detecting and avoiding bugs which could affect the system.". Hopefully this promise includes:

• 'Old fashioned' regression testing of all old versions of client software
• Large scale network testing that does not impact live users - especially at peak traffic times!

These are rules that traditional service providers have followed for decades. Perhaps a little more respect for the "old fashioned" network operators and their software release processes is warranted.

At CTIA in San Francisco last week, away from the fanfare around LTE rollouts and the next dozen tablet devices (ok, I exaggerate a little), Sprint had an announcement which will have significantly higher impact on mobile broadband adoption and revenues: Sprint ID. 

Sprint ID promises to up the ante on personalization and ease current feature phone users into the smart phone ranks.

Sprint ID offers instant personalization along key themes/packs where the operator has done the heavy lifting of identifying and group related applications of interest to different persona from wallpaper to ringtones to apps. While the one click marketing line is not quite matched by reality given pesky little things like accepting terms and conditions etc, Sprint ID is a significant breakthrough in my opinion as:

• it broadens the market appeal of Smart phones to current feature phones users with a simple to understand offer in a range of device price points including the critical $49 and $99 levels.
• it tackles one of the biggest weakness of all app stores: discoverability of content and simple personalization.

Three handsets were featured at launch of Sprint ID: Sanyo Zio™, Samsung Transform™, LG Optimus S™. These three devices cover key price points in the Sprint portfolio and provide customers with a range of form factors, industrial design and brand to meet their tastes. Interesting to note that both LG and Sanyo retain the right to put their own packs on their handsets as well. This is a big win for LG as its Optimus S™ will be available for under $50 with contract giving the vendor a much needed boost in the smartphone space. Samsung meanwhile continues to shine at Sprint occupying the lucrative $149 spot with its Transform™. All three devices of course require a Sprint Everything Data plan.

However, for me the more significant impact is that operators and oems are finally realizing that customers don’t buy phones or services or apps… what they really want are positive experiences

… be that socially connected, sports, education, health and fitness, fashion etc. This is something that our User Experience team has been evangelizing for the last 7+ years. Whether its 80k apps on Android or 250k on Apple store or 10K on RIM, one common experience has been exasperation at the huge waste of time, energy and emotions in finding ANYTHING!!! Which happens first, eyes glazing over or fingers cramping with so much scrolling? Either way the net result is often a disappointing experience which the early smart phone coolaid drinkers have learned to live with.

Newbies to the smart phone arena, will certainly have less tolerance and spend less time to personalize their device and enable applications. Sprint ID is well tailored to the next wave who are taking tentative steps into the smart phone space

David Kerr

dkerr@strategyanalytics.com

The inevitable movement to tiered pricing which started with Verizon Wireless acknowledging its plans to do so for LTE and has been accelerated with the much anticipated data plan announcement by AT&T this week.  So, what next?

• Will we see significant priced based competition for mobile data among the top US operators?
• Will we see significant movement in share of adds for AT&T as iPhone wannabees are tempted by a plan of only $15?
• What impact will lower data plans for smartphones have on AT&T’s Quick Messaging Devices and Verizon Wireless equivalent?
• How long before we see family data plans and shared usage across multiple devices?

The move by AT&T is a smart play to extend the smartphone momentum as the low hanging fruit of Apple aficionados, multimedia techies and style seekers willing to pay top dollar has been significantly penetrated.

There is no doubt that the iPhone remains the coolest device on the marketplace and the end to end user experience remains easily the best in class. So, reducing the TCO to attract the next 20% of customers to a paid data plans while educating customers about data usage levels and managing the traffic risk is very smart business in my opinion.

The lower price points will help AT&T maintain its current leading share of smartphone users and may be attractive to casual social networkers

• Although the 50 photos allowance is not exactly generous! For casual messenger, and social network status checking and moderate email the new DataPlus plan is quite attractive overall and will likely attract a portion of customers who would otherwise opt for a Quick Messaging Device from AT&T or a competitive offering from Verizon Wireless.

I do expect to see some modest price competition among the big operators

• with T-Mobile most likely to drive prices lower given their need for scale and to protect their predominantly youth centric customer base. but also expect an increasingly strong Verizon Wireless handset line up to compete strongly.

The impact on Quick Messaging Devices is in my opinion likely to be modest

• as a traditional qwerty remains overwhelmingly the input of choice for heavy messengers in the US although there is definitely room for lowering the $10 mandatory data plan on featurephones

Family data plans and data plans which allow access across multiple devices are in the pipeline

• but will probably not make an appearance until 2012+ as part of LTE offerings.

From a device vendor perspective, the move to lower priced iPhone plans is likely to put further pressure on vendors like LG who have yet to make a credible offer in this space as well as RIM who will find more competition in the consumer space.

The lower pricing on data plans will be music to the ears of ambitious new entrants like Huawei, ZTE who plan to bring mass market priced devices to the US & Europe. The lower TCO of smartphones as a result of downward pressure on service prices boost their addressable market.

• We are now seeing a huge rebound of criticisms about customer service, implementation and execution, moaning and complaining for existing t-mobile customers who have to pay more than a new customer to get a cool device and strong complaints from developers about availability of SDK and support.
•  Naturally, the questions about Google's ability to execute on direct sales are being raised but these shall pass very quickly in our view.

• Consensus is that Nexus will be successful by high end tier Smartphone levels (single digit volumes in 2010 but upside potential when it rolls out beyond TMO in US and to more open markets in Europe). Nexus is likely to sell more through operator channels than direct overall. Handset volume though is not the metric by which Google will measure Nexus success nor should operators as Nexus sales are a means to an end.  If Google is successful and Nexus ends up driving usage and value for operators, they will support it with subsidies.  Otherwise, operators can passively watch Google evolve its own-branded offering with little to lose. Tier One handset vendors (SAM, LG) may have the most to lose as Google’s marketing muscle and brand coupled with compelling devices and experiences will be a strong competitor for Operator slots, subsidy dollars.

• Handset revenues and profits are a nice to have for Google. Key to their success and long term ambition is too boost the mobile browsing ecosystem. More open devices capable of browsing/search/maps from Google or others is positive for Google.  Google needed to update and get close to parity in terms of an engaging, fun, easy browsing UI with competitive links to key apps like maps, media etc and this device achieves that goal. Google is great at creating a buzz and the media is ready to talk about something other than Apple.

• Google Nexus and indeed the whole Android approach is not about controlling/owning the user (contrast this with Apple). Google’s key metric is advertising revenue. Google's vision is well publicized: the browser is how they will deliver services, even on mobile, and apps are a stop-gap measure as far as Google's strategic vision is concerned. Google is banking on HTML 5 as their solution to fragmentation but we believe they are drinking too much of their own coolaid here and underestimating the importance of apps. Google’s key goal is to increase eyeballs and advertising.

• Some key elements that have not been addressed which we believe are key in Google’s future evolution and will be key to watch relate to Voice and what Google does its Gizmo5 acquisition to push Google Voice into a full VoIP proposition. This is where Telcos should be most worried and where we have yet to see all the pieces positioned on the battlefiled.

As we rapidly close the cover on one of the toughest years the telecommunications, content and internet industries have ever seen, SA takes a look ahead beyond the recession to detail the key megatrends for the mobile industry in 2010.

We see a tough but positive mobile ecosystem outlook with devices recovering stronger than services. More consolidation is likely among network operators, while profits for device vendors will continue to flow away from handset only vendors in favor of device/services integration specialists. Emerging markets will continue to dominate volume with strong 3G rollout competition expected. The global market for services, applications, devices and infrastructure will post modest growth of approximately 3% in 2010.

The total mobile industry revenue including services, infrastructure and devices was flat in 2009. We expect a modest growth of 2.8% in 2010 to $1140B.

· In 2009, only strong growth in data spends by users ensured that total industry revenues did not decline. Data revenues grew 9.5% in 2009 and are expected to grow at a 13% rate in 2010 reaching over $200B.

· Handset market sell through revenue will rebound well in 2010, posting growth of 4% while the infrastructure market will continue to struggle and will decline slightly.

Key issues shaping the 2010 landscape include:

• Operators needing to balance the the strong rise in Capex requirements driven by the data traffic explosion against slow revenue growth. The likely outcome being significant M&A, network sharing and even applications development.
• Handset OEMs will be forced will put the early stake in the ground for new device categories. Traditional OEMS will continue to struggle to match the Apple & Google vertical integration strategy which has proven so successful.
• As the big five vendors focus on smart phones and content/services in the open markets, a race develops to get services/apps onto feature phone products or other operator customized devices
• On-portal traffic continues to grow but is outpaced by off portal session growth. Contextualization and personalization of the user experience will determine winners and losers.
• The rapid diffusion of Flash and HTML 5 on handsets could negate much of the need for mediacos to use open platforms/app stores in mature markets.
• In the business sector we see SMEs and Manage Mobility as key battlegrounds. We see growth in hosted services for SMEs (e.g. Unified Communications infrastructure-one phone mobile and fixed, one voicemail etc.  Personal v corporate liable devices (iPhone v BlackBerry) becomes a major issue.
• In the Emerging Markets area we see consolidation & 3G expansion in urban areas as key battlegrounds. With improved financing prospects, there will be significant consolidation among regional operators and rationalization of holdings.