By the end of last year (2005) there were in excess of 2 billion mobile phones switched on world-wide. Voice is still the primary source of revenue for telecomm firms but this is changing. We are also slowly changing from a world where communication is verbal to a world where information is delivered visually. What are the consequences of this shift?
One upon a time (sometime last century) the music industry had a business model. Record companies signed up bands, paid them an advance (against which they offset all expenses – like recording albums) and sold records to adoring fans. Sometimes this didn’t work, but the profitability of a handful of albums offset the many failures. Problem was, as a band, you were either a rich rock star or an invisible failure. The gap between artist and audience was also immense. Not any more. MySpace.com (bought by NewsCorp for US $580 million) is yet another example of how the Internet is changing the rules of markets and connecting people (and, crucially, groups of people) who would like to know about each other. MySpace, in case you’ve been away in space, is a social networking or community site that converts electronic word of mouth into, among other things, album sales and concert tickets. The site has around 30 million pages of which about 400,000 belong to bands. It also has more ads than any other site on the entire web (12% if you’re counting) and is signing up 3.5 million new users a month. Sometimes the site even ranks ahead of Google in terms of monthly page views. So what’s going on here? Well for one thing, Generation Y isn’t watching much TV anymore. In fact programmed media, TV schedules, record companies, albums and mass-marketing are becoming irrelevant, replaced instead with TiVo, P2P, AOL, iTunes and sites like Myspace. For example, a band called Hawthorne Heights recently sold 500,000 copies of their debut album without being signed to a major label and with almost zero TV or radio airplay. What they did use was MySpace, which connected the band to potential fans who could download free tracks, buy albums, T-shirts and concert tickets. Watch this space …
Will VoIP do to telephones what the PC did to computers? It’s still too early to say but the quick answer is probably yes. In case you’ve been napping Voice-Over-Internet-Protocol (VoIP) has been widely promoted as the next big idea – a killer Internet application that will reshape the global telecommunications industry and any company that comes into contact with it. A case in point is eBay’s acquisition of VoIP provider Skype for around US $2.6 billion. Not bad for a loss-making company. But that’s the price companies are willing to pay to protect themselves from disruptive technologies or to align themselves with the growth opportunities offered by a rapidly maturing Internet. VoIP means that people can make telephone calls over the Internet for free – so distance and call duration are irrelevant.
It’s predicted that by 2015 all calls will be free, which is creating something of a headache for telecommunications companies. Traditionally, the business model employed by phone companies is to use voice as the major revenue generator and to then focus on maximising revenue per customer. However, the model used by Skype throws this out of the window. Skype’s aim is to be the largest communication platform in the world. In the short term this is limited to voice communication, but there’s no reason why it can’t include video or text as well. Skype has no cost per customer because users buy their own hardware (a computer and Internet connection) and there’s no marketing cost either because customers recruit other users. The last time I looked, Skype had around 50 million users and was adding to this at the rate of 150,000 per day. This isn’t the death of telephony, but it’s certainly the end of telecommunication companies as we know them. In the future voice applications will probably be given away free as part of a larger bundle of services, so companies that offer mobile-only access could be in trouble. People may also ditch telephone numbers in favour of ‘name addresses’, much in the same way that numbers have already moved from being physically tied to a building (a house or an office) to the individual. So how long before we see Apple computer bringing out an iPhone?
In the future all information (content) will be free. Users will only pay for functionality (e.g. search) or personalization. We will see more newspapers becoming free to read (e.g. Metro) or free to place ads (e.g. Loot) although a substantial proportion of ad revenue will move online where it will be customized. Paradoxically, we will also see more high end media charging readers for pure information (ad free content).
If you’re reading this there’s not much point in talking about the blogging phenomenon apart from to say that they can boost your business or destroy it almost overnight. In the last few years no less than 8 million blogs have been created and one survey estimates the number of blogs currently being created to be about one every 3 seconds. Admittedly most of these blogs seem to be written by sixteen year old girls talking about Britney Spears but there’s also a serious side – tens of millions of people potentially talking about bad experiences with your product (or good experiences). One micro-pundit has even suggested that companies should employ someone whose job it is to put the word ‘sucks’ after their brand name and enter it into google to see what people are saying. The best known example of how a swarm of bloggers can ruin your company is Kryptonite bike locks. In the space of just 10 days a posting on a blog saying that the company’s product was defective was spread virally and seen by 1.8 million people. The result was a crippled reputation together with a forced product exchange that cost the company US $10m. On another occasion bloggers claimed the scalp of a CNN executive who allegedly claimed that the US was targeting journalists in Iraq. These examples are interesting but the bigger picture is fascinating – people are getting fed up with what’s on offer from the mainstream media so they’re creating their own. Traditional media, and ‘expert sources’, will thus lose their monopoly on content as ordinary individuals go online to express their own news and opinions. We could therefore see vast numbers of people checking blogs before buying anything or going anywhere (they already do). What are the consequences of this for traditional media, retailers and manufacturers?
Of all the media trends that are around at the moment one of the biggest is digital video. This is variously called video-on-demand, mobile video and Internet video. Whatever you call it, it’s changing the media landscape forever thanks in part to devices like Apple’s video iPod and tie-ups like the recently announced deal between Pixar (owned by Steve Jobs) and Disney, which could put Apple firmly in the driving seat when it comes to unlocking Disney’s digital attic. Of course there are still issues like bandwidth, but the rapid uptake of broadband will partly solve that problem. Implications? We’ll be watching a lot more ‘old’ (retro) TV and film content as the digital archives are opened up. We’ll also be watching what we want, when we want it on whatever device we want which will lead to a further decline in families sitting down to watch TV together. Families will still be watching TV but they’ll be watching different shows on different devices in different places. At some point (5 years, maybe 10?) you will be able to access every television programme and every film ever made and viewers will be producing their own content and directly influencing what other people watch.
If Rupert Murdoch is predicting the end of newspapers as we know them, then we should probably listen. In 1960, 80% of Americans read a daily newspaper. Today the figure is closer to 50% – and falling. Globally circulation is falling too. Between 1995-2003, global newspaper circulation fell by 5%. In Europe the fall was 3%, and in Japan, 2%. Many young people (‘digital natives’ as Mr Murdoch calls them) don’t read a newspaper at all and, if the current trend continues, the last newspaper (probably read by a ‘digital immigrant’) will be thrown into a bin sometime in the year 2040. So what is going on?The explanations are varied and legion. More people are reading news on the Internet, fewer retailers deliver newspapers door-to-door (less children doing paperounds), less people are using public transport (and drive to work listening to the radio instead) and less people are sitting down to breakfast at home (less opportunity to read newspapers). And you can’t just blame the Internet either because the decline in newspaper circulation predates the web. It’s not all bad news though. Some local papers are thriving and in the UK sales of ‘quality’ papers are actually increasing thanks to innovations like compact editions. However, Internet-based news and opinion does have a significant advantage over paper-based products because of functionality and interactivity. Phrases like ‘conversation’ and ‘discussion’ really mean something on blogs because readers can actually contribute. OhmyNews in South Korea, for example, is produced by 33,000 ‘citizen reporters’ and read by 2 million Koreans. Add to this developments like photoblogs, video blogs and podcasting (blogging with sound) and newspapers are looking like yesterday’s news. Incidentally, to put this piece into perspective, it’s interesting to read in Prospect magazine that in 1892 London had 14 evening papers. Now it has just one.
One of the great features of the Internet is how it allows people who don’t know each other to instantly share things with each other, sometimes enhancing them along the way. Old examples include Flicker while new examples include Spore, a game which allows users to ‘evolve’ the players (characters) used in the game. These are very significant trends. User-generated content (also known as open source, collaborative design or customer-created content) is changing the debate about file-sharing because these users are not copying content but creating new content themselves. This kind of ‘bottom up’ innovation raises all sort of interesting legal questions about who owns the resulting content or innovation. Or as Jonathan Schwartz, president and COO of Sun Microsystems puts it, ‘we are now entering a participation age … (where) the endpoints are starting to inform the center’. For example, a newspaper in the US has taken the idea of customer co-creation a step further by asking its readers to choose which story is printed on the front page each day. The Wisconsin State Journal (the state’s second biggest selling newspaper) allows readers to go online between 11am and 4pm each day to vote for one of five top stories. The ‘winner’ usually appears on page one the following morning. Consequences? Sports stories have started to appear on page one. We’ve seen reader-created newspapers in South Korea and a magazine for MTV and Nokia in Europe that’s written and illustrated by customers but this appears to be a first. Where is this trend going? Nobody can say for sure, but open collaborate projects are certain to grow which will in turn drive new business models and ways of making money from free or ‘openly’ created content.