Over the Air and Emerging Markets

Two weeks ago in London, I presented at Over the Air on Emerging Market Opps. I thought I’d highlight a couple of the case studies here and embed the presentation (that I hastily put together on the plane 🙂

SMS GupShup – I was amazed to learn that this social network of only 2 years, now represents 7-8% of all SMS volume in India – insane! Who says it’s too late to start a social network? Given Orkut’s and Facebook’s strong presence in India, you’d be skeptical that a new social network would be able to make a dent but SMS GupShups unique approach by making SMS the primary interface worked. Users can chat over SMS and subscribe to various SMS content feeds. SMS GupShup generates revenue primarily through SMS ads appended to each message and/or via sponsored SMS messages sent by SMS GupShup groups.

Nokia Comes with Music – Anyone who has ever worked in the music industry knows that the intersection of music and technology has been an up-hill battle in terms of generating revenue. Numerous startups have died at the will of the labels and others live on a shoe-string trying to make their business model work. In any case, most labels/publishers do not generate any revenue in emerging markets let alone many advanced markets. These markets thrive on piracy apparently with micro-economies of shops that can install pirated music onto your phone for a fee. In an attempt to solve this, Nokia launches Comes with Music which basically means if you buy this specific Nokia phone, you get unlimited full-track download which is naturally restricted by the amount of available storage on your device (but you can of course delete and download more). The cost of the unlimited full-track download service is baked into the cost of the device (estimated to be a $50 premium over the same phone without Comes with Music). Nokia takes a portion of this $50 and returns the remainder to the labels/publishers. Fascinating model and no idea how well it’s working and whether ad-supported music streaming will impact full-track download?

Full presentation with many more use cases below:

The real interesting question out of the Over the Air group was weather these solutions were only stop-gaps and not sustainable in the long-term. For example, SMS as the primary interface or as the communication layer makes sense but once data becomes cheaper and more pervasive and smartphones begin to penetrate, users will flock to the mobile web and apps? The counter argument is that these companies will obviously adapt and leverage their brand accordingly.

Are Platform Game Lobbies the Next Social Graph?

When speaking with the larger social gaming companies and asking why mobile hasn’t been a focus (to date), the response is interesting and a validation of how fragmented the mobile device and platform landscape is. Typically, the answer is something along the lines of “…we launch an average Facebook game and we make $3M per month, we launch a hit mobile game and we make $1M per month…” – not withstanding the higher COGS with mobile because of the greater R&D costs.

A hit game on Facebook is potentially $6M+ per month (or more) and you’d be hard-pressed to find any mobile game in history that has made those kinds of dollars – I can’t think of any unless you amortized Jamdat’s acquisition of Blue Lava Wireless for the mobile Tetris license in 05 🙂 In any case, the reason for such a discrepancy in revenue potential is for a single reason: the size and availability of the social graph. Sure, mobile may also have greater challenges with billing but the opposite could be argued with one-click micro-transactions on iPhone and each of the platforms, operators and OEMs all caching credit cards. And yes, many mobile social games and applications have integrated with Facebook Connect but unfortunately it’s too late with the initial viral land-grab being inhibited by a new set of Facebook rules oriented around preserving the personal nature of the Facebook Wall. As one colleague over lunch put it the other day, “…Facebook is constraining the virality of new applications by introducing more and more rules whereas mobile is just finally opening-up…”

Welcome game lobbies such as the iPhone Game Center and WinMo7’s integration with Xbox. Note, I did smirk when these were first announced earlier this year – does anyone remember companies like M7 Networks which powered Sprint Game Lobby? Sprint used to mandate that each mobile J2ME game had to include the game lobby libraries to allow users to post high-scores and potentially enable head-to-head gaming. This was a grand vision but really was only the first phase – take the Sprint Game Lobby and integrate today’s viral and notification mechanics and you have the next social graph.

Little has been released about the mechanics of the new game lobbies but assuming that users can opt-into the game lobby and buddy lists can be created than a new social graph has formed. Mobile social games can then tap this social graph not to differently to how they tap the Facebook social graph using Facebook Connect. Although this social graph may be smaller (eg not Facebook’s 500M+ users but rather 50M+ iPhones or 10M+ WinMo7 est.), the reward may be greater with potentially very open virality and notification rules. Whereas social games on Facebook now rely on cross-promotion and advertising, mobile social games may be more akin to Facebook 1.0 where the Wall is saturated with application and game notifications (or SPAM to others). And as long as the platforms can continue to focus on a write-once, run anywhere paradigm (eg one way by maintaining screen geometry etc as I mentioned in a previous Venturebeat article), then this social graph will continue to expand. Couple this with the cached micro-transaction capability of mobile and you now have your next land-grab. Facebook revenue potential is going flat and mobile is about to explode!

Now assuming that publishers continue to build iPhone, Android and others, will the interoperable game lobby exist? If so, then we will have the largest potential social graph ever that is more personal than any Facebook experience through a PC.

Looking forward to playing with these game lobbies once released and selfishly hyped to be able to see my Xbox avatar on WinMo7!