The history book of the mobile handset industry has gone through two turbulent chapters to date; the first na ve years of manufacturer rule ended abruptly in late 2002 with the launch on Vodafone Live! and the Orange SPV. In the second chapter, mobile operators in Europe and later in the US seized the upped hand in their dealings with handset suppliers. Without exception, OEMs and ODMs have been willing to produce customised handsets given a minimum purchase volume commitment. Operators had to develop new skills, adapt their organizations, foster multi-year relationships with OEMs and master complex processes of 6-month handset development. To overcome the many challenges existing today, the history book is entering a new chapter; that of container projects.
The status quo To date, tier-1 operators have been issuing handset manufacturers with long lists of requirements specifying not only the branding and device settings, but also custom applications that ship with each handset model. For example Vodafone group have been issuing terminal requirements every six months that comprise 4,000+ lines of requirements. The operators motivation for handset customisation has been threefold: – brand devices with the operators’ favourite red, orange, yellow, blue or magenta to (hopefully) increase customer loyalty. – build-in support for operator services such as T-Mobile’s Web ‘n Walk or Verizon’s Get It Now to increase ARPU. – bring services to the ‘front page’ of the user’s attention as with Orange’s Home Screen or Alltel’s Celltop, in order to increase discoverability and accessibility of services, and thereby ARPU.
So how has handset customisation been achieved ? Operators have been using three approaches to specifying the handset features and behaviour to handset manufacturers: – use-case-based specification, as with T-Mobile UK’s list of websites that must be rendered and the time-to-render, for compliance with the operator’s Web-n-Walk service. – technology-based specification, as with T-Mobile US’s MyFaves list of technical feature specs that have been reportedly passed to manufacturers for creating the MyFaves experience – vendor-based specification, as with Orange’s preference of the Abaxia Mobile Portal client software on all of its Signature handsets based on Windows and Symbian.
Application-based customisation has been becoming a popular among operators – at the Handsets World conference in May Vodafone’s Patrick Chomet presented Vodafone’s new strategy for handset customisation, which includes provisioning four types of applications on handsets: a) a small number of core applications with a ‘deeper’ user experience, b) a full internet browser, c) an on-device portal for browsing and buying content and d) an application launcher and store-front for service discovery.
These methodologies have been practiced by tier-1 operators who have had the purchasing power to commit to handset volumes required by handset OEMs in turn for the copious efforts needed to implement the hefty operator specifications. Tier-1 manufacturers have typically demanded 100,000+ volume commitments which are achievable for operators with $7B handset investments per year like Vodafone, but not so for tier-2 operators with one or two millions subscribers. Consider the following two examples: Orange in early 2006 reported that it had convinced five out of its top-10 handset suppliers to support a controversial high-capacity SIM feature, leading the market one year before a similar standard was even adopted in the market, and four years before the (USB) standard is expected to reach mass-market penetration. On the other hand consider the example of a tier-2 Austrian operator who in early 2006 had to discontinue the on-device portal application which had been featuring on the operator’s open OS handsets for almost a year, because of the 4-6 weeks time-to-market delay that was caused by the acceptance testing for each new handset model featuring the software client.
This approach to handset specification has been partially succesful. It has taken tier-1 operators 5 years to develop the manufacturer relationships, the technology know-how, the organisational maturity and to master the process that allows them to bundle all their product and service wish-lists into a list of several thousand lines of requirements which is updated every six months. The challenges and the stories of trial and error have been so many that are impossible to list in a single post. We can however summarise the four key issues that are leading to a change of operator strategy: 1. Ensuring that the the time to market remains unchanged for operator-specified handsets vs those that are distributed via independent distributors and retailers (e.g. Carphone Warehouse). According to a Vodafone presentation at Handsets World, it used to take us two years to move from concept to mass-market availability for a Live service . 2. Limiting the costs of interoperability testing (IoT). Typically a handset will require three months of IoT and tens of DHL’ed packages exchanged between the OEM and the operator before the binary image is finalised. The set of several thousand requirements will have to be tested (usually manually) against each handset that is part of the season’s portfolio. 3. Ceasing control of the software suppliers that form part of the operator’s suite of preferred applications that feature on the handset – such as the Opera browser for T-Mobile, Cibenix or SurfKitchen for on-device portal functionality, and PacketVideo for video-streaming functionality. With tier-1 operators across the globe, including Vodafone, Orange, T-Mobile US/UK, Alltel, Verizon, Telstra and Optus who are mandating specific apps to be featured on their ‘signature’ handsets, management of ISV suppliers is of critical importance to operators. This includes not only app specification, but also control of licensing, marketing arrangements and network integration. 4. Platform fragmentation; Vodafone group report that is has to support around 20 software platforms across its handsets today.
Container programs: the new chapter As of late 2006, a number of operators globally have embarked on what essentially constitutes the next chapter in the history book of handset customisation: container projects. Containers are platform approach to handset customization; a reference software platform which acts as the container for applications and customization elements and is then retro-fitted onto the operator’s handset portfolio. There is no formal announcements and no common definition of what constitutes a container program for example Microsoft refers to the same concept as the operator defined software image . I believe container programs consist of two pillars:
1. A choice of specific software platforms. Orange, Vodafone, Telefonica, T-Mobile and TIM have all publicly endorsed Nokia s S60 platform as a preferred platform. Vodafone and Orange have gone further to also list Windows Mobile and. Naturally these advanced OSes may constitute only 15% of the operator s user base for 2007. Selecting specific platforms means operators can pre-integrate their preferred applications and settings onto these platforms, which are then ported onto devices. Endorsing a specific platform means that the operator wants to reduce the platform fragmentation across the device sales base, but it does not alone imply a container program. Indeed a second fundamental pillar of a container program is:
2. A fundamental change in the process of managing partners . Up to now, the handset OEM has integrated operator-specified applications into the platform and managed all integration, licensing and testing. With container programs, the operator undertakes licensing of partner applications, integration on its short-listed reference platforms, testing and certification.
Simply put the container model is an operator-specific integration layer which sits on the device operating system; the intent of which is to decouple the service deployment lifecycle from the device delivery lifecycle.
To better appreciate what this means in the handset value chain, consider the following ‘before’ and ‘after’ diagrams, adapted from Microsoft’s insightful presentation at the recent Handsets World conference in Amsterdam.
Presently I m aware of at least two European operators who have embarked on container projects, with one operator planning to launch devices based on this new model in H2 2007. According to Microsoft, there are a total of 5-6 operators working on container projects today. In Korea, this model has been practiced since 2004 with the WiPI layer (originally intended to replace BREW), moving to Japan in 2005 with DoCoMo s MOAP layer (on top of Linux and Symbian), in 2006 with KDDI s BREW-based layer and in 2007 with Softbank s Aplix-based layer.
There are a number of advantages to operators in this approach, as mentioned in Microsoft s presentation at the Handsets World conference: – reduced interoperability testing, and therefore reduced time-to-market – lower costs by bringing new ODMs to market without huge investments – higher revenues by faster rollout of new services across the platforms – lower per unit royalties due to aggregate application licensing or buy-out arrangements – better control of OTA updates – better knowledge of software elements
Naturally, the challenges are equally noteworthy. Operators have to burden the responsibilities of the system integrator s role, i.e – security and system integrity assurances, – testing and certification of applications – warranties and related liabilities – software license management – manage business failures of partners
What next ? Is this new strategy in handset customization going to survive ? I would argue not. Firstly, operators have extremely limited know-how in software (in the same way that handset OEMs don t know how to run networks). Secondly operators are high-inertia organizations where sales cycles are extremely long (typically 12+ months) it s like try to steer a speeding truck without slowing down. Thirdly, operators will find it too costly to run partner application licensing, integration, validation and in-life support and will be feeling the pressure when the OEMs won’t be accepting liability for software-related business failures. In Korea where WIPI has been used as a service layer on handsets for the last 3 years, the challenges are becoming obvious even to the consumers; the general concensus in Korea is that WIPI adds a cost of $30-$40 to the retail price, and delays handset launch. Due to these challenges WIPI is no longer mandatory in the market.
The challenges faced by operator container projects is an opportunity for what I call a handset system integrator (HSI): an organization which combines professional services with software know-how (see Teleca, SysOpenDigia and Sasken) and is able to execute container programs on behalf of the operator. I would argue that operators should start outsourcing container projects to HSIs sooner than later.
In the meantime, handset OEMs are finding new ways to fight back in the never ending power game for customer control. Here s two: firstly, OEMs are already back into the service business (see Nokia Content Discoverer and Nokia Catalogs who sell post-sales inventory to partner service and application providers). Secondly, Nokia has been known to use a pre-inserted removable card to install its own applications on the handset when the user switches it on for the first time (now that s ingenious!).
The mobile industry never seizes to amaze..
Andreas