Subba’s Serendipitous moments

September 30, 2009

Vodafone takes the battle to the mobile phone vendors

A few months back one of analyst friends asked me whether it is possible for the mobile service provider to create their own App Stores and be successful. My opinion to him was they can do it or rather they should do it, else they have not even joined the battle for customer loyalty. The talk turned to Singtel which is one of the largest operator based out of Singapore and it has a global presence due to its joint ventures and acquisitions in many countries. I remember telling him that it should be one of the large operators who will have the reason to do it.

Now Vodafone has done it. Vodafone 360 is a mobile web service that provides music downloads, integration with Facebook and Twitter, and supports several handsets. In a way it is competing with Apple’s App Store, Nokia’s Ovi and other App Stores created by the mobile phone vendors.

Now Vodafone’s Telco 2.0 model (called efficient pipes) is nothing new. A lot of mobile service providers thought about that but shied away from taking the plunge. Now Vodaphone which has over 300 million consumers in over 30 countries has taken the challenge.

As Apple and Nokia increase their emphasis on the App Store and have made a success of it (Apple’s App Store’s success is chronicled here), the mobile service providers can’t afford to be silent spectators.

But whether the service providers with their current competencies would have the ability to build an App store and an application eco-system is a big question.

BlackBerry’s opportunity is now.

I was taken aback when I saw the RIM’s stock suddenly drop 17% last week. By all accounts, it had a strong Q2 results: Q2 revenue was up 37% y-o-y and 2% q-o-q to $3.53 billion on shipment of 8.3 million units. Net income was $475.6 million or $0.83 per share versus $495.5 million, or $0.86 per share last year and $643.0 million, or $1.12 per share in the prior quarter. Gross margin improved to 44.1% from 43.6% last quarter due to reductions in raw material costs and shifts in the product mix. The company ended the quarter with $2.5 billion in cash, up by $78.5 million over last quarter.

It gave a conservative forecast for the quarter ahead. I think the analysts were expecting bigger revenue growth. And this explains why the stock got beaten.

Looking beyond the immediate quarters, RIM faces several strategic challenges and threats — iPhone getting entrenched within the corporate enterprise which was RIM’s sweet spot, imminent price wars with Apple and Palm and the emerging Android phones likely to hit the market anytime.

Unlike Apple, RIM hasn’t made much strides with the App Store. Apple’s success is highlighted here. RIM’s App Store was launched only in April and has seen about 20 million downloads compared to Apple’s 2 billion downloads. It needs some serious work here and may be a cutting edge application. It also needs to pay serious attention to building an application eco system for business applications.

I think their deal with Verizon will be watched with interest as Verizon already has deals with Palm and Motorola’s Android. RIM is apparently coming up with several new models, but the competition is hotting up.

I think the next 2 quarters would be key for RIM to regain the momentum it seems to have lost. The opportunity is now.

Apple’s App Store reinvents the mobile phone

Here are the impressive statistics on the Apple’s App Store based on Apple’s recent announcement:

Number of applications available: 85,000

Number of countries from where App Store is accessible : 77

Number of participants on the App Store : 125,000

Number of downloads : 2 billion.

“App Store has reinvented what you can do with a mobile handheld device, and our users are clearly loving it.” says Steve Jobs.

I talked about the game changing nature of the iPhone and the App Store here.

What is incredible is the rate of growth. From just 500 applications in July 2008, it surged to 15,000 apps downloaded half a million times in 6 months. 3 months later it had its billionth download and 35,000 apps. A further 5 months later both the downloads and the apps have doubled.

Well, I wonder what would be the growth trajectory of the App Store once iPhone is launched in China?

Now that every cell phone vendor has his own App Store the mobile operator is just left to be a dumb pipe.

May 20, 2009

Show me the money YouTube!

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Most of us love both Facebook and YouTube. It has become part of our daily consumption. Some are addicted to Facebook, some are to YouTube and some to both. Both of them have been category leaders with little competition. Yet, both seems to have the same problem — How to convert their traffic, the loyal visitors and their brand into actual revenues for their shareholders.

The Facebook success and the challenges have been discussed here at length. YouTube has changed the face of entertainment. It has created a complete new dimension in shared experience, made everyone a rich media content producer and consumer with just a few clicks. Yet a business model eludes YouTube.

A good 2.5 years have elapsed since Google acquired YouTube for a cool $1.65 billion. Google hasn’t taken any specific steps to monetize YouTube. It probably doesn’t need to, because its revenues (estimated at anything between $100-200 million) are insignificant . According to comscore, 100 million viewers watched over 5.9 billion videos in the U.S. alone in March 2009. It has 10 times the number of visitors as the next biggest site. Despite that, it has no advertising nor any model to charge for premium content. Yet to cater for the surging content library it has to make continuous investments in infrastructure in storage and bandwidth mainly estimated at $400 million. Well, Facebook is lucky because it has a rich daddy in Google who.

YouTube also faces new competition from Hulu — a joint venture of NBC and News Corporation which features NBC and Fox TV shows and others. Currently YouTube is also trying to get premium content and signed up deals with Sony, MGM and others. It also proposes to charge payment for premium content. Will it be successful?

The conditions at Facebook and YouTube begets an important question — They have successfully challenged tradition and created new categories. They have also been terrific success.

But when will they show us the money?

April 1, 2009

Gideon Yu — the Facebook CFO quits suddenly!

A veteran CFO of one of the hottest companies at a critical juncture quits. Such abrupt high level departures at a critical stage indicates more things than it meets the eye.

Mr. Gideon Yu is a star CFO with stints in Google, YouTube and Yahoo and was responsible for raising capital, which Facebook needs as I wrote here.

I guess his leaving has something to do with the fund raising as the latest news in NY times seems to indicate.

The quote by the Facebook spokesman is classic PR speak: “Gideon Yu, said the company did not need to raise more cash to get to profitability but would entertain the idea. “It’s all going to be a function of valuation and a valuation we are happy with,” he said.

March 31, 2009

Facebook’s positive and unique problem

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Most sectors globally are seeing a reduction in demand. Businesses are cutting down on expansion plans. Yet Facebook the poster child for social networking, continues to soar.

It signed its 200 millionth user this month, doubling its size in just 8 months. It has now established itself as the world’s most extensively used avenue for personal networking and has surpassed competitors like MySpace, hi5, Orkut etc.

Each day they are signing 500,000 users bringing in traffic, photos, data etc.

More users are getting addicted to Facebook. More than half the users use the site everyday and spend an average of 20 minutes on the site.

It is the 5th most trafficked site in the U.S. and is the largest photo sharing site on the planet.

Microsoft invested $240 million for a 1.6% equity stake in 2005 when Facebook was just making revenues of $50 million, effectively valuing them at $15 billion.

Who would not envy Facebook’s growth?

Yet paradoxically, growth seems to be the real problem.

Even with such a large subscriber base, it is not profitable. Its 2009 revenues are projected to be $350 million (based on very optimistic estimates) and its costs are spiraling upwards since it just needs to put in more infrastructure to cater to the bludgeoning subscribers. Experts reckon that the costs to run the infrastructure would be $600 million. Currently, it is still struggling to find a profitability model.

Based on Businessweek’s recent article, it is hunting for more money. It would be difficult to raise equity at the earlier valuation of $15 billion in current business environments. Hence it is looking for debt financing to lease the computers to run its sites.

The revenue projections are primarily based on advertising and is primarily for the U.S. audience which is estimates to be around 60 million. it looks like the growth in the U.S. has flattened and all the international users are not necessarily factored as prospective users for the revenue model.

Its revenue models– primarily advertising (self serve ad system) and their talks with various advertisers have been ‘soft” given the current business environment. A new kind of engagement advertising is being tested out, and is unproven.

More fundamentally, the company has been having an unprecedented challenge: It created a community and now the community has become so powerful that it is challenging the company and forcing the company to retract from several key business initiatives. It had to withdraw the Beacon advertising system in 2007 and also withdraw its earlier move to take commercial control over the user content.It also had to deal with a huge user protest over some design changes.

So, where is Facebook headed with all these positive challenges?

Will it reinvent the social networking space with some new killer applications.or just go the way other social networking platforms like Friendster and MySpace?

Will it be a candidate for acquisition either for Google or Microsoft or AOL?

What is needed to be done to monetize their user base, given that users have become dominant and aggressive in the way they would like to be treated?

And finally, is social networking as a business model viable?