There’s a remarkable piece by Russell Beattie from last week, talking about the business model Vodaphone is trying to build around its 3G mobile services. I’ve seen this movie before, and what they’re trying to do probably won’t work, and that’s a good thing, because there’s a better way.

Vodaphone’s trying to wall off their garden by making it free to browse their stuff (you just pay for what you buy) while you pay per byte every second you’re outside the wall. This is mobile-network culture, in spades. Anyone who’s been near this business knows that the networks want passionately to own the customer, top to bottom: they want their logo on the phones and they don’t want the customer doing anything with the phone unless they’ve approved it and are getting a cut.

Remember AOL? · In 2004, America Online doesn’t matter much any more. They’re not where the action or the revenue growth is. They were the ultimate expression of the walled-garden game, and they played it bigger and better than anyone else ever has, and it turned out to be a losing hand. Why do the telephone operators think they’re going to be smarter than AOL was?

AOL is still here, but everybody’s now forgotten all the other walled-garden attempts, people who thought if they put together a search engine and some sports and sex and gardening and shopping and news and day-trading, they’d have “stickiness”.

Some of the efforts were big and well-staged (remember MCI.com?), and some were unbearably lame; I remember having to fight through three levels of garden walls to get out of some hotel’s “Internet service” and onto the actual Internet.

My bet is that the network operators’ walled gardens end up being more like that hotel than like AOL.

How To Make Money · All the proven paths to making money on the Net end up being bets on growth and traffic volume. The formula isn’t that complex: you encourage the Net to grow and you cash in by selling infrastructure, bandwidth, or advertising. Yes, some of these businesses are becoming commoditized, but like Jonathan keeps saying, there’s nothing wrong with that.

Speaking of Jonathan, there are probably senior people at Sun who would prefer I didn’t give network operators a hard time, because some of them have been terrific Sun customers, and we love them. So in that spirit, I’m trying to give them a formula for making more money than their walled garden ever will. Here it is:

  • Open up on the client side: let your customers plug in whatever damn kind of phone they want, and run any damn kind of app on it they want.

  • Open up the network: make it really easy to deploy services and applications. Run classes for developers and give away SDKs and have prizes for coolest app-of-the-week.

  • Rework your pricing models. Make bandwidth cheap, then cheaper, but stay away from flat-rate unlimited-data plans.

  • Build lots of helpful infrastructure. Offer staging and caching services (be Akamai), and split-revenue advertising infrastructure (be Google). There are opportunities in hosting and billing and accounting, but the end of the day, you’re just trying to drive more bits through your wires.

  • Go work with EBay and Amazon and Salesforce to make sure people on your network can get there fast and use the services easily. Don’t ask for any money, remember you’re in the bandwidth business.

Once Again, in MBA-Talk · At the end of the day, the core competence of a network operator is operating a network: providing connectivity and bandwidth. Why should they think they’re going to become world-beaters offering games and ringtones and location-enabled apps? In fact, their garden walls have a net effect of discouraging bandwidth usage, that is to say people driving people away from their core competence.

How To Get There From Here · The networks probably aren’t going to open up on their own; they think they know the winning formula, and they’re just too large and conservative to make the big bet on the big opening. Of course, if just one big network took the plunge, the rest would quickly notice that their lunch was being eaten and get with the program. But it probably won’t happen.

So I suspect that the only way forward is some combination of consumer revolt and government regulation. The consumer revolt will happen sooner than anyone thinks; Russ Beattie is the canary in the coal-mine. Whichever government is the first to get a clue will be doing its citizens a big favor. Plus, it will have the most profitable mobile-network operators in the world.


author · Dad · software · colophon · rights
picture of the day
November 15, 2004
· Technology (85 fragments)
· · Telephone (8 more)

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I am an employee of Amazon.com, but the opinions expressed here are my own, and no other party necessarily agrees with them.

A full disclosure of my professional interests is on the author page.