Mobile gaming in Japan: A different world

From time to time I like to drop in on What Japan Thinks, a website that translates into English an enormous number of market research studies conducted in Japan. That's where I recently came across an astonishing survey conducted earlier this year on mobile game use in Japan.

In the US, game-playing on mobile phones is seen as a fairly popular activity, and I think the view in Europe is similar. But neither place holds a candle to Japan, if you can believe the survey. Here are some highlights:

More than 90% of the people surveyed play video games. That seems like an incredibly high figure, but the survey was conducted by InfoPlant, a reputable Japanese market research firm. The survey base was supposedly users of DoCoMo mobile phones, which sounds a little unconventional but is a fairly representative sample of the overall Japanese population. It's better than surveying PC useres, which is what's typically done in the US. PC usage rates are a lot lower in Japan than in the US, so surveying via mobile phone actually reaches a greater share of the population.

It's surprisingly hard to find directly comparable game-playing statistics for other countries, but the reports I could find implied lower levels of activity:

--A report from the Entertainment Software Association , a trade group, claims that 69% of US "heads of households" play video games.

--Back when I was at Palm, we had access to Forrester Research's excellent consumer tracking surveys. At that time (a couple of years ago), they said 32% of US households had videogame consoles, and 24% had handheld game systems.

--At Palm we also did our own surveys of consumer interest in mobile gaming. We found that about 13% of the population in the US and Europe were mobile entertainment enthusiasts -- people who were willing to pay extra to have an entertainment device with them when they were on the go. We never ran the survey in Japan, and now I wish we had.

The InfoPlant survey figure appears to indicate that there's a much higher percentage of gaming enthusiasts in Japan than we have in the US and Europe. That fits the stereotype of gaming in Japan, but I always question stereotypes like that unless they've been tested objectively.

At least three-quarters of the people surveyed play games on mobile devices.
Mobile phones are the devices most often used for game-playing, but about half of the respondents said they also own a dedicated mobile gaming device like a Gameboy (about double the ownership rate Forrester found in the US). Half of those users, a quarter of the Japanese population, said they use their game devices frequently.

Here's the breakdown of gaming device usage by sex (numbers total to more than 100 because many people play games on more than one type of device). Game usage on mobile phones and portables was a little more popular among women, while console gaming was more popular among men.

On what kind of machine do you usually play games?

Women prefer Nintendo.
There are some interesting differences between men and women in what brand of mobile gaming device they use. The women were a bit more likely to use Nintendo products, while the men were more likley to have Sony PSPs.

Select all the portable game machines you own.

In case you're wondering what a Wonder Swan is, it's a mobile game system sold by Bandai in Japan.

Most people use mobile game devices at home, not in transit.
This is a great example of why I distrust stereotypes. The stereotype of Japanese mobile gaming is that most people would do it on trains, while they slog through their commutes on those endless subways beneath Tokyo.

The survey confirmed that some people genuinely do use mobile games in transit, but the most common usage of a mobile game platform is at home. I guess the pattern would be to come home, stretch out on the futon, and play a little Pokemon:

Where do you usually play on your mobile device?

I wish we knew more about why people would use a mobile game system so heavily at home. Is the TV being used for other purposes? Or in a relatively small Japanese home, does the portable game system just fit in better?

Old folks dig the DS. The greatest surprise to me was a finding that Nintendo DS ownership is vastly higher among older people than young people. The chart below shows the percent of people in each age group who own Nintendo DS systems:

Percent of respondents in each age group who own a DS:

What Japan Thinks attributes this to Brain Age and other "brain training" games for the DS that are supposed to protect against mental decline as you age. Apparently this is driving vast usage of the DS by older Japanese people.

It's a fascinating difference from the US, where the DS is generally seen as a kids device, at least for now.

What it all means

As I noted earlier, without knowing more about the study's methodology, it's hard to say how much we should trust it. But even if some of the numbers are off by a bit, I think they teach a couple of good lessons:

Convergence doesn't necessarily destroy specialized products. Mobile gaming is heavily deployed on Japanese mobile phones, and yet standalone mobile game devices continue to sell well. Why? I think it's because the mobile consoles do things that the game-equipped phones can't. Convergence kills markets only when the converged product is a complete and affordable replacement for the dedicated one. That's very important to keep in mind when you read the forecasts saying things like, "cameraphones will destroy sales of digital cameras." That will happen only to the extent that cameraphones have all the same features as standalone digital cameras. If the camera vendors keep innovating, I think they can survive indefinitely.

Don't assume a market's boundaries are fixed. The standard assumption in the industry has been that mobile gaming is primarily a kids and young adults thing, with GameBoy + Pokemon being the prototypical example. Even the PSP, which shoots for a more mature audience than GameBoy, is still aimed at hardcore gamers. But Nintendo has been very up-front about aiming both the DS and the new Wii console at mainstream adults. That strategy has apparently been very successful for the DS in Japan, and you can read an update on Nintendo's Wii marketing plan, targeting soccer moms, here.

(I first started believing that Nintendo's Wii strategy might work when my wife abruptly told me she wanted one for this Christmas. She said it's a great way to get exercise if you don't want to go through the hassle of traveling to a tennis court. About half of her friends agree and also want Wiis. This from women who have never shown serious interest in a game console before, and who barely even know what an Xbox is. Remarkable.)

It's very common for tech companies to assume that the people who make up a market today will always be the core of the market in the future. But that's like driving a car by staring at the rear-view mirror; you can only see where you've been.

Looking ahead and growing a market is a lot harder to do, but it's one of the most effective ways to fight a larger competitor who's invading your turf. If the other guy has a volume or resource advantage, the worst thing you can do is stand still and let them spend you into the ground. Change the rules of the competition by innovating in unpredictable ways, or by growing the market in a new direction. That turns the biggest advantage of a large corporation, its scale, into a disadvantage. The larger a company is, the slower it reacts, and the more its internal politics will interfere. If you change the rules frequently enough, the big guys will never be able to get their cannons fully aimed at you.

That's what Nintendo is doing in its fight with Microsoft and Sony. There's no guarantee it'll work, but I admire Nintendo's vision and courage.

Hollywood's view of the Web: Through a glass, strangely

The LA Times is a wonderful place to watch the entertainment industry try to figure out the Internet. Some issues that aren't a big deal in Silicon Valley fascinate them endlessly, while other things that Silicon Valley thinks are important are completely ignored.

A great example of this process is the newspaper's recap of 2006 on the Web, "Ten moments the web shook the world."

"This was the year wishful thinking -- that this Internet phenomenon might just go away -- evaporated, and those media companies still standing began to seek anything that might see them through the deluge."

So what made up the deluge, according to the Times? Some highlights:

Snakes on a Plane is described as the first time that the Web took control of the production of a movie. Most folks in the blogosphere viewed Snakes as a cool example of participatory marketing, but if you view it through the eyes of a Hollywood producer, it's a threat to power.

LonelyGirl15. This mysterious personality on MySpace was the subject of endless coverage and speculation in the Times throughout the summer. They analyzed it with the same intensity that many websites reserved for Britney Spears' underwear. I think the idea of someone using the Web to launch an acting career blew their minds.

The rise of celebrity websites. The Times viewed this as the year in which celebrity-focused websites first started to drive (read: debase) the standards of what constitutes a celebrity. People like Paris Hilton (and our gal Britney) proved to be willing to do just about anything to get a little online attention.

The common theme in all of these cases is the loss of power by parts of the traditional entertainment industry: producers, agents, and journalists. For years the Web has been eating away at power structures in lots of industries, but this was apparently the year in which Hollywood first really felt the impact.

The Times asks: "As traditional media interact with new media and vice versa, whose values will infect whom? Will old media arrive like the cavalry on the scene, Good Book in hand, to lift up the Web rabble with the promise of Bedrock Standards and High Production Values? Or when the drawbridge is lowered just a little bit, will the masses simply storm the castle and repaint it electric blue and pink?"

That's easy to answer. I heard the same questions almost 20 years ago when desktop publishing started to challenge the printing industry. The answer is that you'll get both -- the high-standard material will coexist side by side with amateur hour. People will prove to be very accepting of poor production values if the material is compelling in some other way (YouTube already demonstrates this, where we cheerfully watch video of such poor quality that you'd call the cable company and complain if it came over your TV).

There will always be a market for the best productions, but in the future I think it'll be much harder to get away with charging high-quality production prices for shows or movies that aren't truly entertaining, because people will have a cheap alternative. The threat isn't to HBO, it's to the CW.

Understanding Palm: What Ed Colligan really said

I sympathize with reporters sometimes. If you attend an event, you're expected to write about it -- even if there isn't any news. That's what I think happened a few weeks ago when Palm CEO Ed Colligan did a breakfast Q&A for the Churchill Club, a local discussion forum here in Silicon Valley.

About 50 people attended, and while Colligan said some interesting things, an informal breakfast talk is not the sort of place where you deliver major news. But two reporters from the San Jose Mercury News were there, and they had to write about something. So they picked on Colligan's answer to a question about competition from Apple and others entering the mobile phone market. He pointed out that it's hard to make a successful phone product.

Unfortunately, there's no effective way to answer one of those theoretical competitive question when reporters are in the room. If you say, "we're very worried about the new competitors," the headlines will scream, "Palm CEO says company is doomed." If you say you're not concerned, the story will be, "Palm CEO overconfident." I've been there. You can't win.

Sure enough, the Mercury-News headline read, "An Apple phone? Palm CEO says, 'What, me worry?'"

Then, of course, the culture of Internet outrage ran with the story. The high-visibility Mac weblog Daring Fireball (#345 on Technorati's worldwide list) headlined its commentary, "Palm CEO Ed Colligan’s Head Seems to be Stuck Somewhere." No need to read the article; you can tell what it's going to say just from the headline.

There were three ironic things about all of this:

1. The question didn't actually focus on Apple. Colligan was asked about all of the new competitors who might be entering the market: Apple, Google talking about free phones and hiring Andy Rubin of Danger, and so on. "The phone market could look intensely crowded."

Colligan's response: "It's also intensely big, we just have to get our fair share." "Let me tell you this, it's not as easy as it looks." He cited the Motorola Q as an example -- it was supposed to take over the world but didn't. "I just would caution people that think they're going to walk in here and do these.... I don't think it'll be so easy as everybody thinks. It's a tough space...I'm not trying to be cocky about it. It is a tough business. We've really struggled through that." "We struggled for years figuring out how to make a decent phone."

He said making world-class radios that work consistently on world networks with all the right applications is very hard.

I thought that was a pretty nuanced, honest answer to the question. He didn't sound dismissive to me; he was just pointing out that it's hard to make a phone. He's right that until you've lived through the process of producing a phone, you have no idea how many little decisions have to be made, how many things can go wrong, and how many tweaky little features the operators will make you add. Although you might think phone features are standardized, in reality they often require all sorts of small customizations for every operator. That's incredibly expensive to do, the process is hard to learn, and if you fail on even a couple of small things the operator may refuse to sell your phone. It's several times more complex than creating a PC, and I believe no company can easily ace all of that stuff on the first try.

2. Even if that had been the question, it was the wrong question. The Treo is an e-mail phone for people who want business productivity. If Apple's making an iPhone, it'll be a music phone for people who want entertainment. Those are completely different markets. If you think there's a huge competitive overlap between them then you've got your head stuck someplace. (Colligan didn't say that, but I wish he had.)

3. The competitive comment was not the most interesting part of the talk. Not even close, in my opinion.

If you want to hear the whole speech, you can listen to it here. Or if you want to save an hour of MP3 time, below is my summary of what I heard, with some color on what I think it means. (Most of what follows is paraphrased. The text in quotes is pretty close to what he said, but I probably missed a few words here and there. My comments are in italics.)

My nomination for Colligan's most important quote. "We're not in the handset business, we're in the mobile computing business....Voice is a killer app of the future of mobile computing. That's how we look at the world."

Think about that for a while. It's not as newsy as an imaginary cheap shot at Apple, but that quote says everything you really need to know about Palm: Mobile computing first, voice telephony second, and if you don't want that you should buy something else. I can tell you from personal experience that's how most of the folks at Palm really think.

Technologies and trends

Eric Schmidt of Google says that in the future cell phones will be free and ad-supported. Do you believe it? "Everything in the world looks like an ad" to Eric because he's in the business of selling ads. Google sees a phone as a great way to target ads, but the phone is one of the few private spaces left. People may resist intrusions there. The ads will have to be incredibly creative in order to be accepted.

Colligan then branched to a discussion of Google Maps on the Treo, which he says is a great application. He wants to use it to look up nearby pizza restaurants and then phone an order to one of them automatically. He was very enthusiastic about this sort of functionality.

On voice over IP. People don't want to give up the ability to use the phone anywhere. He's skeptical that there will be enough coverage to make WiFi phones a replacement for cellular anytime soon. "Maybe on college campuses." Mesh networks will take a long time to deploy.

What's the market for video on mobiles? Short clips, a la carte selection. I agree. I can picture people watching short YouTube-style content on a mobile a lot more readily than a half-hour TV show. It's bon-bons, not a full meal. Mobile games are the same way -- quick reward, nothing too involved. That's why Bejeweled has been so successful.

On 3G. He loves EVDO. It's very fast. Less enthusiastic about UMTS – it's more of an incremental bump in performance, but there are latency problems. You need HSDPA to get reasonable performance.

About the iPhone. The rumor mill says that Apple will produce an unlocked GSM/GPRS phone sold at retail, so users can buy phone service separately and slip their SIM card into the phone. Colligan said he thought that would be very difficult to sell, that the only approach in the US if you don't want to sell through the operators is to focus on WiFi only. Did he have some inside information on what Apple's doing? Was he trying to seed some skepticism about Apple's product? Was he talking about what a non-operator Palm product would be like? Or was he just trying to answer honestly? I don't know.

On the Motorola Q. (The general tone of rumors around the mobile industry is that the Q is a failure, with low sell-through and lots of returns. Colligan did nothing to contradict those rumors.) Integrating a whole mobile computer and OS is difficult. Also, it's nice to make a thin product, but not if you make the battery so small that the device can't get through a day's use. It's hard to balance all the features and user experience and get them all right. "I think they got some of those things wrong."

Are we in another tech bubble? Things are exuberant, but not irrationally so. There's not too much excess yet. But there is too much money chasing too few ideas. "I look at the traffic patterns" on Bay Area freeways, and traffic has been getting worse. That means the economy is heating up.

About the operators

On mobile phone subsidies paid by the operators. He wishes subsidies would go away. He would prefer to sell through retail rather than through operators. "I love retail. We have a huge retail presence. We'd love to have the retailers have more power." He wants to compete head to head with other device companies without the operators saying what features to put on the device.

But on the other hand, he said, the operators spend a lot of money advertising your products, which is a good thing.

European vs. US operators. Coverage is better in Europe. "In Europe, nobody says, 'how many bars do you have?'" In Europe there's one mobile technology, and more operators. The US is split between two phone technologies, and has fewer operators.

Will the operators lose control over the market? "The sentry breaks down over time." I thought that was a nice zen-like way of saying "yes." He avoided a Mercury-News headline screaming "Palm says carriers are doomed," which would not have helped him sell Treos.

He went on to contrast the PC model (open gardens) vs. the videogame platform model (apps controlled by the vendor). Who's to say which one will do better in phones long term, he asked.

Working with Microsoft

About Microsoft. Windows Mobile is "becoming a bigger and bigger part of our business." They are very good launch partners. "They are great the day you come out...beyond my wildest dreams." (He implied that Microsoft is a lot less helpful after you've launched.) The relationship has been difficult to develop because Palm actually partners with Microsoft at an engineering level, which most Microsoft customers don't do.

Do you worry about Microsoft being a monopolist in phones? "No. Not in this space. There are so many countervailing forces that they'll never get to that position."

Is Palm OS easier to use than Windows Mobile? "I think David Pogue is right" that Palm OS is easier. But it's a matter of customer choice; some people like the Start button. He wants to create a situation where a Windows user chooses the OS platform he wants, looks for the best device on that platform, and finds that "Palm makes the best Windows product."

On Palm and its future

Future Treo products. Palm is working on products that will combine WiFi and cellular. "Stay tuned." I took that to mean a Treo with WiFi built in. I hope the operators will be willing to sell it.

Beyond smartphones. "Are there are other segments of the market that we could go after with new designs and new form factors and are we going to do that? Sure. Absolutely."

"We're a mobile computing you can expect us to do more products...that leverage the fact that every one of you is going to have a broadband modem in your pocket which is instantly accessible to the Internet and the outside world. We think that's a pretty cool thing and we're working on products that take advantage of that."

"They (users) have a high-speed their pocket...Boy, is there things we can deliver to them, and is there compelling experiences that we can deliver to them, that are going to help us differentiate our products? I think there are, and we're working on things like that."

Same vague hints that Palm has been giving for a year: Broadband modem, lots of local storage, think what we could do for that. What I think I'm hearing is: A mobile product with WiFi, which Palm pairs with Web services that deliver content and do other things for the user. I wish I knew what those things are -- that'll be the interesting part.

Do Palm PDAs (no phone built in) have a future? It's been shrinking, because we've been cannibalizing it with the Treo. But it's still a $300 million business. My translation: We'll keep offering them as long as people buy. But we're not putting a lot of energy into them.

On the LifeDrive: "Too big, too late to the game" compared to iPod. Wow, if they expected that thing to compete with the iPod, they were even more naive than I thought. They didn't have the iTunes-like service, and they tried to be all things to all people. I hoped they learned the right lessons for their next generation products.

Is Linux in Palm's future? We look at Linux as being an interesting community to leverage. (He then branched to a discussion of Palm OS.) There are a lot of users who have loyalty to Palm OS and love it. "We want to take the Palm OS forward." That little quote makes a lot more sense now that we know he was in the process of buying rights to Palm OS Garnet. But what does he mean by leveraging the Linux community?

Is Palm for sale? Companies don't get sold, they get bought. We're trying to execute against a brand, to build a great brand. I think the implication was: 'we're not trying actively to sell ourselves, but we're publicly traded and would have to listen if somebody offered a bunch of money over the market price.' I have heard companies be a lot more vehement about "we're not for sale." So I'd call this a non-denial denial. Or maybe he was just trying to be polite.

Required reading for Palm executives. Colligan is having the Palm executive team read the book "From Good to Great" because it focuses on execution and is very practical. "What we need to do better is disciplined execution." (Shortly after his talk, Palm announced that it would have an earnings shortfall because a product was coming to market late. So you can understand why he's focused on execution.)

That's it. Nothing revolutionary, but I think it does help you understand the company. Like it or hate it, they really don't see themselves as a mobile phone company. They are a mobile computing company, and telephony is just a part of mobile computing. A lot of my phone-centric friends in Europe are going to throw up all over that idea, but I kind of respect it. I think Palm is not big enough to win as a mobile phone company, but as a mobile computing company it's a world leader.

The question is whether they can develop mobile computing into something distinct enough to stand as its own category. The jury's still out on that. I think a lot will depend on what they release in 2007. If they can establish a new product line beyond phones, they'll have a much better chance. If they can't...well, we'll find out how patient their investors are.

Will flat-rate pricing make mobile data take off?

No. It's a nice start, but the operators need to take several other steps as well.

Recently flat-rate pricing for wireless data service has become a big issue in Europe and some other parts of the world. Data service to mobile phones there has often been metered, with users paying by the megabyte. This led to some frightening stories on the Internet of people accidentally ending up with 800-Euro monthly phone bills for browsing too much. Needless to say, this has made many people very cautious about using mobile data.

Recently T-Mobile in Europe offered a flat-rate data service, in which the user pays a single fixed monthly fee for virtually all the data access they want (the limit is about a gigabyte a month, which is a lot for a mobile phone). Then on November 16, Hutchison Whampoa, the owner of the "Three" wireless network in Europe and Asia, announced its own flat-rate plan (more details below).

The Mobile One network in Singapore just cut its unlimited 3G data price by about 2/3, to around $13 a month, in order to compete with fixed broadband services. And on December 1, the CEO of Vodafone went even further, predicting that within a few years we'll have flat-rate billing for all mobile services, including both voice and data.

All of this sudden price activity, especially the announcement by Hutchison, has created a big stir among mobile-focused commentators in Europe. For example, here's a sampling from a mobile discussion board run by Oxford University:

"I'm astonished, frankly.... this is clearly the mobile internet 'done right.'"

"It seems like a seminal event!...Now we have the makings of a new day in our industry.... Has mobile operator 3...discovered the holy grail of the mobile phone industry?"

"When all mobile operators realise they have no choice but to give in too, a torrent of innovation will rush forth I'm sure."

"I strongly applaud this development, and am looking forward to the next stage of competition in 3G/mobile with open gardens and flat data rate packages."

Are they right? Has Hutchison revolutionized the mobile Internet?

I don't think so. Unfortunately, just offering flat-rate pricing is not enough to make mobile data take off. This is one area in which the US mobile phone market has been a leader, believe it or not. The top four mobile operators in the US have offered flat-rate data for years, ranging in price from $15 to $40 a month. Some of them even let you use your mobile phone as a modem, something that Hutchison bans.

The result? Some happy Blackberry and Treo users, but nothing like a mass migration toward mobile data. In fact, the most aggressively priced data service, Sprint's seductively fast 3G network, is rumored to be producing some of the most disappointing subscriber growth.

Flat-rate pricing is a necessary condition for the success of mobile data, but it's not enough. In order for it to take off, the operators have to do some other things as well. I'll discuss those below, but first for context I need to give you an overview of Hutchison's new offer...

Hutchison's X-Series: Open network, all you can eat data

Hutchison Whampoa announced that Three is moving to flat-rate, all you can eat data with a very open business model. The most eye-popping things they promised were unlimited Skype calling over IP, and unlimited instant messaging. Those are both heresies to the operator world. Hutchison's rhetoric was also heretical:

"This charging structure overturns the traditional telephony model of charging per minute, per message, per click, per event and per megabyte."

"What is free to use on the net ought in principle to be free when you use it on the mobile net."

Hutchison made its announcement accompanied by a laundry list of prominent Web brands, including Google, eBay, Yahoo, and MSN, plus the prominent startups Sling Media and Orb. Some of them will be offering specially-configured services bundled with the phones. The first phones offered with Three's new "X-Series" service will be the N73 from Nokia and the w950i from SonyEricsson.

The price of the service is pretty nice. For five pounds a month (about $10), you get 83 hours of Skype a month, 10,000 MSN Messenger messages, and a gigabyte of browsing and e-mail downloads. That's equivalent to unlimited use for most people, unless you're downloading YouTube videos all day.

The Skype and MSN components are potentially frightening to operators, because they compete directly with the voice and SMS services that provide most operator revenue. The overt embrace of those services is, I think, the most radical of Three's changes.

For ten pounds a month ($20), you get everything above plus 80 hours of SlingBox and Orb service, allowing you to use your mobile to play TV shows, MP3s, and other files stored at home.

Although browsing is unlimited, Three notes that not all websites work well on mobile browsers (a polite understatement), and says it blocks access to adult websites. Also, you're not allowed to use your phone as a modem for your laptop computer.

What it means

A change in attitude. I think the most important impact of Hutchison's announcement is not the service itself, but the new agenda it sets for mobile operators. Hutchison was one of the first operators to deploy 3G, and had been an outspoken critic of open Internet access on mobile devices. In 2004, Three COO Gareth Jones said, "People don't want open access, that's not what our customers tell us they want. Anyone in their right mind who tries to do anything on the Internet with a screen that size has to be nuts."

Given that background, the vehemence of Hutchison's new commitment to openness amounts to a declaration of surrender. I think that changes the competitive situation for mobile operators in Europe and Asia. Hutchison is now competing in terms of who can be the most open, rather than who can come up with the most clever bundle of closed services. Assuming that Three doesn't explode or go bankrupt in the next six months, it is putting enormous pressure on the other operators to match or exceed its openness. That change in dynamic makes it much more likely that the mobile Internet will be freed to evolve as quickly as the wired Internet has.

Flat rate is not enough. But just charging a flat rate isn't enough to make mobile data take off. If it were, mobile data would be taking the US by storm.

I think the most important fact about mobile data right now is that we don't know what users will do with it. Hutchison was right several years ago that just blindly transferring the Web to a phone won't please a lot of people. Screen size and the lack of a keyboard and mouse make the mobile browsing experience very different from browsing on a PC. Limitations in coverage, especially for 3G, make the thin apps development model used by web applications much less attractive on a mobile than it is on a constantly-connected PC.

Historically, the software leaders in one computing platform are almost never successful in a new one. When PCs switched from the command-line interface to graphical interfaces, the established software leaders -- Lotus, WordPerfect, Ashton-Tate, and so on -- were almost all swept aside. When the Internet arose, virtually none of the graphical applications leaders were able to make themselves leaders in Web apps. Now that the mobile Web is appearing, it is naive and foolish to think that the desktop Internet leaders will automatically be the leaders in this new space. They don't understand it, and their existing desktop-based businesses are a hindrance to learning.

What needs to be moved to mobile networks isn't just the Web's applications or price structure, it's the Web's open business model. We need to run a huge number of experiments in order to figure out what applications users will want in mobile data. No single company is capable of doing all that work on its own. The only way to make the experiments happen is to set up a vibrant, chaotic ecosystem in which thousands of developers will be free to rapidly try and fail at a huge number of things. It was that sort of random experimentation that permitted leaders like eBay, Amazon, and Google to emerge on the wired Internet while companies like RealNames, AltaVista, and Chemdex were left behind.

Five steps to make mobile data a success

In addition to offering flat-rate data, here are the other steps a mobile operator must take in order to make that mobile data ecosystem work:

1. Provide a consistent architecture that works offline. This is probably the most critical need. Web applications depend on having a constant connection between the user's computer and the Internet. That's not practical for the mobile Web. Even in countries with heavy 2G coverage, there are lots of gaps in the 3G network, and will be for many years. Mobile Web apps need to work like RIM's e-mail client, which stores both the program itself and the user's data locally and then sends the data to the network when a connection is available.

That means just bundling a browser is not enough. The phones will also need software installed on-device that can manage applications and data when the user is offline. That could be an operating system like Windows Mobile or Palm or Symbian, it could be an applications layer like Adobe Apollo or Java, or it could be other software that the web community will create if given the chance. This software layer will need to be consistent across phones, just as HTML is consistent across all browsers.

Three has already failed this test in the first two phones it picked for X-Series. The Nokia N73 runs Symbian OS with Nokis'a S60 software on top of it. The SonyEricsson w950i runs Symbian OS with its UIQ software on top, which is not compatible with S60 software. Guess what – Three just announced that the N73 is available now, but that the w950i is indefinitely delayed. Three didn't give the reason, but I'm not surprised, since all of the client software has to be rewritten to run on the SonyEricsson handset.

I don't think any operator is capable of setting a platform standard on its own, but they should be encouraging the rapid evolution of a standard, by making their phones open to new software (just as open as the PC is), by offering to help deploy new tools, and by providing free testing to make sure they work on the wireless network.

2. Kill security certificates. The line between websites and applications is blurring, as Web 2.0 architectures allow much more processing to be done on the client device rather than a server someplace in Idaho. Google is pretty much a traditional website, but Google Maps is a hybrid, and Skype is a full PC application that talks to the Web. In the future it will be impossible for a user to tell exactly where an application ends and the Internet begins.

But today the operators treat websites and applications completely differently. The new flat-rate data plans let you browse just about any website you want. But operators are starting to insist that applications obtain a security certificate before they can be installed. The certification process is slow, inconvenient, and unreasonably expensive for small software companies and those that create a lot of applications. Since small software companies are the most innovative, this has an enormous chilling effect on mobile innovation.

This approach is also completely inconsistent with the way the Web works. Can you picture a website paying for certification before it can run on your browser? How many sites would bother? If the operators insist on certificates, they will make the mobile Web a small and uninteresting subset of the real Web, permanently. Certificates have to go.

3. Unlock the user's data. This is the other security-related problem area. Many operators make it very difficult for an application to access the user's data stored on the device, such as the address book, the dialer, and the user's current location. But many of the most interesting new mobile applications need to be able to work with this information. Users should be informed when they give an application access to this information, but it should be very easy for them to say yes.

Like the previous point, this one is scary to the operators, because they worry that a rogue application could make thousands of phone calls or send huge numbers of premium messages, building up a huge bill.

Although that's a legitimate fear, strangling mobile data is a self-defeating solution. The operators will need to adopt the same security model used on the Web -- let the user do what they want, and defend the device via security software.

This isn't as dangerous as the operators fear it will be. We've used the same model for more than a decade on the fixed line phone and data networks, and millions of fully open Palm OS, Symbian, and Windows Mobile devices are on wireless networks today. Despite this, no one has taken down either the wired or wireless networks.

4. Make it easy to discover new content and services. The mobile data ecosystem will evolve faster if it's easy for users to find new services and applications. Today the content discovery tools and software stores on mobile devices, if they are installed at all, are often buried under several layers of icons, or are very hard to use. We need the mobile equivalent of an -- an online content store that's easy to find, browse and search, and that makes suggestions to you based on what you've used in the past.

5. Get ready to go to a flat rate for everything. Vodafone's comment shows that they understand this: the logical outcome of putting the open web on a mobile device is that voice and data merge under a single flat fee. If a Skype call is free, then eventually all calls need to be free, or the users will just switch everything to Skype. Same thing for SMS messages once they're directly in conflict with instant messaging. The operators' old financial model won't evaporate overnight, but it's now officially dying. And it's in Three's interest to move to the new model as quickly as possible -- the sooner it adopts the new model, the sooner it can cannibalize the customers of other operators. I think the race is now on for full flat-rate mobile pricing in Europe. Because the operators there are more competitive than the ones in the US, I think it's very possible that Europe's pricing evolution will move faster than in the US. But the same principle applies everywhere in the world: the operator that moves to the new model fastest stands to gain the most customers.

Let's hear it for desperate operators

Some people have been asking why Three chose to make such a radical change. It may be genuine vision, or it may just be desperation. Press reports say that Hutchison had been hoping to spin out the Three networks, but had to cancel the plans because Three is not making money. If that's the case, Hutchison may have decided that it might as well take a chance on aggressive new pricing.

Unfortunately, if Three is counting on the new pricing alone to bail it out, then I think it'll be disappointed. It needs to take all the steps I've outlined above. But I like the idea of desperate operators being willing to experiment. If we get enough of them desperate, someone will probably eventually make all the right changes. I like to believe it's just a matter of time.

Testing a new template

I'm testing a new template for Mobile Opportunity. If you'd like to check it out, you can see a prototype version with some dummy content here. You can post feedback as a comment to this message, or post a comment on the prototype blog. Thanks.

If everything works, I'll move to the new format in about a week.

Phones = cars

"Phones are the new cars. The car's history suggests that the phone's future is about divergence, not convergence." -- The Economist, December 2, 2006

It looks like the world is finally starting to understand that the future of mobile data is about segmentation rather than finding a single killer app. Because different people want to do different things, it's impossible to make a single mobile device that pleases everyone -- just as you can't make a single automobile that's simultaneously ideal for sports car fans, SUV drivers, and delivery vans.

This is the norm for most product categories. As a new market matures, it divides into segments. I'm not sure why so many people expected the mobile market to converge into a single design. Maybe we were all expecting mobiles to develop the way PCs did. But PCs are starting to look more and more like the exception rather than the rule. For most products, divergence rather than convergence is the dominant reality.

Getting this message across to the mainstream press has taken more than four years. I first started talking about the car market as an analogy for mobile data in mid-2002. For the record, here's a slide I created for PalmSource's main strategy presentation that year:

I'd like to believe that the Economist picked up the idea from me, but it's far more likely that they cooked it up on their own, since it's pretty obvious once you've talked to enough mobile data users.

Once you start thinking about segments in the mobile device market, the next critical question is what the main segments are. The Economist didn't have much insight here. Instead, their article was a very competent overview of all the traditional possibilities -- the "remote control for your life," the "life recorder" (personal video archive), e-wallet, and so on.

The idea they covered that I'm most skeptical about is that in the future we'll all wear glasses on which information about the things we look at will be projected. Living in a nation where more than million people a year pay to have their eyes cut open with a knife and blasted with a laser, all so they won't have to wear glasses, I really doubt that we're all going to start to wear glasses just so we can see hypertext links projected against the walls of restaurants.

To cull the huge list of products that could happen down to a list of things that are more likely to happen, you need to look at users' psychology and what problems they are trying to solve in their lives. I've taken a shot at doing that sort of segmentation in previous posts, and I think they three main segments are mobile entertainment, mobile communication, and mobile information management. You can read the details here.

Who knows, maybe that's what the Economist will be writing about in four more years. ;-)

Palm gets its OS back

"Palm Signs Perpetual License for Palm OS Garnet Source Code" -- Palm press release

Now the circle is complete.

Way back in the days before the Internet bubble, Palm was a single integrated company run by its founders, making its own hardware and OS.

Today, Palm is once again a single company, run by its founders, with its own hardware and OS.

If it weren't for Eric Benhamou being on Palm's Board of Directors, you could almost pretend the last eight years didn't happen.

The details of the license agreement, explained in an admirably detailed Q&A posted by Access, raise some interesting possibilities. Here's what I read into them (and this is just my speculation; I don't have any inside information):

--Palm OS on Windows? Most important, Palm has the right to put Palm OS Garnet on any other operating system. As others have pointed out, that means they could create a new Linux-based device and run the Palm OS applications base on it. I believe they can also put Palm OS Garnet on Windows Mobile, which is going to turn the stomachs of many Palm OS enthusiasts but is extremely interesting to me.

Palm doesn't have a Palm OS-compatible 3G phone today for the GSM countries. In those countries, it can offer only Windows Mobile. But Palm can now theoretically offer Palm OS on top of its Windows devices. There are drawbacks -- the most prominent being that Palm uses 240x240 screens on its Windows Mobile devices. So we'd need new hardware, or some sort of awkward resolution hack. But I'll bet that Palm can still do that faster than it can rewrite Palm OS itself to run on 3G GSM.

I don't know what Microsoft would say about that. Probably something unhappy; they wouldn't like being treated as plumbing for someone else's OS.

Palm could also do Palm OS on Symbian, which might be less unappetizing than you'd expect. I think you'd completely hide the underlying Symbian OS, using it just as plumbing and phone management while you let Palm OS handle the UI and applications layer.

The key task for Palm will be finding a way to get all the basic phone software support for as little cost as possible, so they can concentrate on the value-added user functionality.
Palm can now play the field and choose whichever plumbing it likes best. It's a pretty liberating thought to me, and I bet it feels that way to Palm as well.

--Is it a full divorce? Palm and Access pointedly didn't say if Palm will use the new Access Linux Platform. It's still possible they might do it, but it's also possible that this agreement is the final divorce settlement between the two companies.

--Garnet has legs. I have a deep sentimental attachment to the Palm OS Garnet code base. The OS has its limitations, but for basic applications you can get a lot done with very little programming effort, especially compared to a nightmare case like writing native Symbian apps. Palm will apparently now start adding new features to Garnet, which is great (although it does create the risk of fragmenting the code base).

We now have three companies putting various levels of investment into Palm OS Garnet: Palm itself, Access, and StyleTap. An interesting situation for a dead, obsolete OS.

--Will Access make Palm OS Garnet into a layer? Now that Palm's using Palm OS Garnet as a software layer in top of other things, will Access license other companies to do the same? I have seen no signs that they will, but I think a Palm apps layer could be a lot more useful on mobile devices than Java has been. I argued for this for years within PalmSource, and I still think it's a good idea.

Anyway, I'm sure the old-time Palm engineers are glad to have their code base back, and I'll be very interested to see what they do with it.