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Future of mobile Internet is through social networks

By Paul Amsellem

You have most certainly seen the ads on television or in the newspapers over the past few months of wireless carriers singing the praises of the iPhone 4, or Apple’s marketing of the iPad.

This substantial shift, initiated by Apple to develop the use of mobile terminals for new applications which go beyond those of the traditional telephone, is related directly to Apple’s ambition to democratize the use of smartphones and, at the same time, dominate the market of mobile applications via its iTunes distribution platform.

We can make all the negative remarks in the world about Apple and the decisions it sometimes makes at its own discretion involving the selection of applications, their prominence and suggested rankings on iTunes, or further, on the content or technology to be used or not.

Still, Apple offers to content editors the capacity to distribute its products on more than 90 million terminals installed worldwide.

Apple pie
It is true that by taking a 30 percent margin on applications which the user must buy, with all other things being equal, Apple’s margin is comparable to that earned by a large traditional retailer which sells merchandise to the global mass-market.

When Walmart or Carrefour decide to carry a product in one of their stores, their gross margin, direct or indirect, largely exceeds 30 percent.

Even Amazon, master of the art of selling cultural content, makes an equally substantial margin on such sales.
That being said, Apple has not only created a new distribution channel, it has also brought about the creation of a whole ecosystem, employing tens of thousands of people involved in everything from the graphic design of applications, their technical development to their marketing.

In the early 2000s, when Bouygues Telecom, the no. 3 French carrier, launched i-mode to develop the use of the mobile internet, it did nothing more than what Apple has succeeded in doing today.

We can even say that Apple has been successful where Bouygues and the other members of the alliance were not.

I am much more doubtful about Apple’s decision to enter the mobile advertising market by acquiring Quattro Wireless, seeking to become the king of mobile.

Clearly, the business of making the best mobile terminals and devising the best software applications for Apple is not at all the same as selling advertising on these applications.

So why did Apple decide to do this? I think there are three reasons:

First of all, because the quality of the advertising – its conception and design as well as the way it is integrated into the applications – is not on par with what Apple is able to do.

Take the example of “Wired,” the U.S. magazine well-known by techies everywhere. The iPad version of the magazine integrates high-quality interactive advertising sold by the magazine, something that no French publication has been able to do.

Second, even if Steve Jobs has announced that he has given more than $1 billion dollars to Apple’s developers since launching App Store, most of these developers are disappointed by the amount of income generated by their applications.

Will Apple do better by selling the advertising itself? I doubt it.

In any case, Mr. Jobs will be able to buy time and say to them, “Yes, you guys haven’t made enough money, but is Apple going to do it for you?”

I doubt it, even though Mr. Jobs has an incredible talent for shaking up the industry. Can he have as great an effect on the big players as the brand’s fans do whenever a new Apple product hits the market?

Finally, and this is perhaps the best explanation, Apple was determined to respond to Google’s acquisition of mobile ad network AdMob in the United States.

This point is more complex than it appears.

Are the two tangoing?
In my view, far from competing with each other, the actions of Google and Apple in the mobile universe are perfectly coordinated and planned.

Let us not forget that Eric Schmidt, the departing CEO of Google, only last year left Apple’s board of directors.
The two companies know each other well and continue to collaborate closely together. Let us not be fooled.

The default search engine on Safari, the Apple browser on the iPhone, is still Google.

Furthermore, the mapmaking application is Google Maps, one of the default messaging applications is Gmail and the video default application is YouTube: all are owned by Google.

The interdependence of the two companies can lead only to the conclusion that they share a common objective: to divide the smartphone market between them, the high-end going to Apple and the middle and lower-end of the market going to Google.

Of course, given the high risk that the U.S. antitrust authorities would be interested in asking them a few questions, it is obviously not such a good idea that the two companies contemplate more such collaboration.

In the U.S. over the last eight months, the two companies captured more than 40 percent of the smartphone market.

The big losers in this battle are clearly Microsoft, Nokia and, to a lesser degree in the short term, but clearly over the middle term, Research In Motion, maker of the BlackBerry, which failed to capitalize on the phenomenal popularity with young consumers of its Blackberry Messenger – something the company obviously failed to anticipate.

In this mad race to bring to market a new phone which would be the iPhone killer, the various manufacturers are running straight into the fatal embrace of Google, continuing to develop products using Android which will be forever inferior to those that Apple is capable of producing.

These products which will never be on the level of Apple’s operating system, not because Google cannot also produce the same quality products, but because it does not want to, at least not for the moment.

So how to get out of this rut?

The major carriers decided to join with Orange in creating a new operating system to rival that of Google and Apple. It was wasted effort and the project was dead on arrival.

No such project in the telecom sector succeeded for the reason that the interests of major carriers are often at odds and because they are strong competitors as well.

The same type of alliance of telecom operators was made in the area of mobile search engines, which also died an early death.

Can Nokia come back? Yes, but how long will it take?

Can we count on the development of an operating system such as Linux to compete with that of Apple or Android? I doubt it.

Finally, one last possibility would be the appearance of a new player with strong tech-savvy, a global brand and a well-established global consumer base, which, following its listing on the stock market in 2012, should find new sources of expansion: Facebook.

Let us remember that it was Google’s going public which led to the company’s push into markets other than just search.

I would bet that Facebook takes steps in this area, probably by acquiring failing or underperforming players and by developing its own terminals, and, why not, its own operating system with applications yet to be invented, but based on the experience with use of the internet and mobile communications that society has accumulated over many years.

Facebook being by far the most used and downloaded mobile application in the world. It has more than 200 million mobile users.

If such an event comes to pass, we may see another upheaval in the use of the mobile Internet, which will not be based mainly on the use of mobile applications as it is today, but on an intelligent mix of messaging solutions – SMS and MMS, tools which have not changed in years and whose potential remains enormous – and the mobile Internet, literally speaking, otherwise known as mobile surfing, which has had a hard time even today democratizing.

Microsoft, a shareholder of Facebook, could, of course, help Facebook in this direction and find a crafty new way of competing with its rivals Apple and Google.

Windows Phone 7 gives top billing to social networks and hubs of personal information. Reading between the lines, could this not this be the first sign of this new possible option – Microsoft and Facebook launch the FacePhone.

Paul Amsellem is founder/CEO of, Paris. Reach him at [email protected].