Mobile Content, No Lifeline

For "mobile media" providers, it's not starting out to be a great summer.

The Wall Street Journal, among others, reported last week that "a wave of cellphone start-ups that were counting on TV, music and other premium services to attract users is floundering." That wave includes ventures launched with plenty of hype, including startups like Amp'd Mobile Inc. , which is backed by $250 million in funding but has signed up fewer than 10,000 subscribers in its first five months, and Mobile ESPN, which has been touted everywhere since February's Super Bowl but has similarly paltry subscriber numbers.

Both Mobile ESPN and Amp'd are MVNOs -- operators that provide cell service by piggybacking on the networks of major carriers. The mobile entertainment sector doesn't look a whole lot better for the carriers themselves, though: A recent report from Detecon says that the carriers' "walled garden" approach to providing exclusive content and entertainment tightly integrated with their service offerings is not working, as "off-deck" entertainment options proliferate and the mobile operators face competition from more powerful and versatile devices like BlackBerries, WiFi-equipped PlayStations, and iPods.

Even as the advertising to support free mobile content takes off, the carriers may not benefit. Another recent report, this one from the Shosteck Group , says that the mobile advertising market could reach $10 billion in the next four years. But while "mobile marketing and advertising could be an important driver of growth for mobile operators," the carriers may not see much of that revenue. In fact, the explosion of mobile ads and of specialized niche content providers could relegate the service providers to "fat pipe" status.

"Mobile operators could be driven towards becoming merely access providers, while others exploit the potential of the mobile Internet -- just as Google (Nasdaq: GOOG), eBay Inc. (Nasdaq: EBAY), and others have on the fixed Internet," said Jane Zweig, chief executive of the Shosteck Group, in a statement accompanying the report.

The question that the study raises is: "will mobile advertising be the salvation of the mobile operator's profitable business model … or will it be another nail in its coffin?"

If it's the latter, it will be a coffin of the operators' own design. The big carriers -- Cingular Wireless , Sprint Corp. (NYSE: S), T-Mobile US Inc. , and Verizon Wireless -- are seeing their historic revenue streams from voice and data diminish even as traffic increases, and they are frantically scrambling for new sources of cash -- Ringtones! Games! Sports scores! Mobile social apps! -- while to a greater or lesser degree ignoring the sort of roll-up-your-sleeves, enterprise-focused business models that, on the fixed Internet, has made companies like Oracle Corp. (Nasdaq: ORCL), IBM Corp. (NYSE: IBM), and Salesforce.com Inc. healthy profits.

The growth of the "mobile managed services" business, about which I've reported on Unstrung, is in welcome contrast to that trend. And to be sure, the carriers are in the business of providing mobile access, not solving everyday business problems. But then again, IBM was once in the business of making and selling big desktop computers.

— Richard Martin, Senior Editor, Unstrung

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