The Connected Consumer Ecosystem War

“If I can operate Google, I can find anything… Google, combined with Wi-Fi, is a little bit like God. God is wireless, God is everywhere and God sees and knows everything. Throughout history, people connected to God without wires. Now, for many questions in the world, you ask Google, and increasingly, you can do it without wires, too”

Alan Cohen, V.P. of Airespace, a Wi-Fi provider, in the New York Times in 2003.

Well, things have changed since then. Eight years later Facebook shows social trumps search and Apple shows apps trump the Web. The Google/Web and the Microsoft/Intel hubs no longer dominate the connected consumer ecosystem. Google and Microsoft are losing market dominance to Facebook and Apple. So what is this ecosystem, what are the standards, who are the actors, and what is happening and why? This is the first of a series of blog posts designed to provide a more holistic view of what The METISfiles calls the connected consumer.

A connected consumer interacts with and consumes digital content through a connected device. There are 2 billion Internet users worldwide according to the latest statistics.

The ecosystem that makes this possible is shown in the graph below.

Connected Consumer Ecosystem

The ecosystem consists of infrastructure (cloud), content (content, web), connectivity (Internet, access) and device (app, browser, OS, device) parts. A short description of the different parts and their function in the ecosystem follows below.

Cloud

Cloud. Provides global data store and compute capability. The METISfiles defines consumer, customer and enterprise clouds. A consumer cloud is a cloud where consumers have no privacy, no guaranteed quality of service, which is based on shared infrastructure and built on custom developed hardware. We recently wrote about the Apple iCloud as an example of a consumer cloud.

Content

  • Content. The global pool of digital content and services, monetized through advertising, subscriptions or ecommerce.
  • Web. The global hypertext application that runs on the Internet, made possible through the HTML standard.

Connectivity

  • Internet. The global system of interconnected computer networks made possible through the IP protocol. The Internet is governed by non-profit organizations such as ICANN, IETF, InterNIC, and IAB.
  • Access. The local connection that provides access to the Internet. Access flavors come in fixed (cable, DSL, fiber), wireless (Wi-Fi) and mobile (3G, 4G) varieties. The METISfiles writes about how the access (operator) world is increasingly forced to unbundle capacity and content from connectivity.

Device

  • App. A software application (app) that runs on a device.
  • Browser. App for browsing the web. The most common browsers are Explorer (Microsoft), Firefox (Mozilla), Chrome (Google), Safari (Apple), and Opera (Opera Software).
  • OS. System software that operates a device. The most common PC OS platforms are Windows (Microsoft) and OS X (Apple). The most common mobile platforms include iOS (Apple), Android (Google), Blackberry OS (RIM), and Symbian (Nokia). Up and coming OS platforms are Chrome (Google) and Windows Phone (Microsoft).
  • Device. Local store and compute capability with I/O functions. Several device platforms exist. The PC platform, including desktops, notebooks, netbooks and tablets. The mobile platform, including smartphones and tablets. Other platforms include gaming consoles, connected TVs, eReaders, cable modems, DSL modems and set-top boxes. The METISfiles recently wrote about up and coming mobile device platforms in the emerging Personal Information Device market.

Connected Consumer

  • A connected consumer interacts with and consumes digital content through a connected device.

Ecosystem Hubs

An ecosystem consists of hubs or connectors that drive and influence ecosystem behavior. Examples of hubs are:

  • The web hub, including cloud, content, and web. This hub is primarily monetized through advertising, subscriptions and ecommerce. Content and services are separate from device and access method. Browsers provide access to web content. Google is an example of a successful web hub player.
  • The access hub, including access to operator services and to the Internet. This hub is primarily monetized through selling access subscriptions bundled with (web) content and services and devices. Some examples:
    • (Digital) cable TV. Cable TV access is bundled with network content.
    • Mobile operator. Mobile access is bundled with device and voice, Internet, and SMS capability.
    • Fixed operator. Fixed access is bundled with voice and Internet capability.
  • The device hub. This hub is primarily monetized through selling devices and software. An example is the PC ecosystem. Software (apps) is pre-bundled with the device. Apps run mostly on the device rather than share data and computing with the cloud. Microsoft and Intel are examples of successful device hub players.
  • Those companies that are able to drive and govern a hub are rewarded with greater market power, profits and revenues than those that are not. The Wintel (Microsoft Windows and Intel) combination has successfully led the PC hub for twenty years. Google has done the same for the web hub for ten years. Operators have led the access hub in this century and for most of the last century.

Ecosystem Wars

But there are power struggles within the ecosystem and within hubs. In addition, new hubs are emerging:

  • The position of the PC as the leading platform in the device hub is challenged by the mobile platform that includes smartphones and tablets
  • The power of the access hub is diminishing as increasingly content and services are unbundled from access networks
  • The position of the browser as the primary method to browse content and services is being challenged by the emerging app hub

The above has repercussions on digital content and services vendors’ reach. By creating HTML based content and services content vendors were able to reach all connected consumers in the past, provided the access service was net neutral. In an app hub, content vendors need to create apps for each operating system.

Device vendors used to only provide access to HTML content and operator services. In a mobile/app governed hub, the device still does that, but also provides a tighter way of coupling content and device through apps. Content vendors now need to go through appstores to create tighter coupled content. Alternatively, the HTML5 standard, that allows tighter coupling of device and web, provides an opportunity for the web hub to compete better with the app hub.

Operators used to bundle content, access and device. In a net neutral and unbundled world, the device and content are being unbundled from access. An example is for instance the Amazon kindle that bundles access and content, but also a player like Skype that sells unbundled voice.

Big Battles

Here are some examples of major strategic moves within battles going on at the moment.

February 2011. Microsoft’s alliance with Nokia is a clear sign that Microsoft is tightening the link between mobile hardware and Windows Phone 7. With Windows Phone 8 this integration is likely to be strengthened even further.

May 2011. Microsoft’s acquisition of OTT voice, video and chat provider Skype challenges operators that sell access plus voice bundles.

June 2011. Rather than have Apple take a 30% cut of in-app subscriptions for iOS publications, the Financial Times launched a HTML5 Web app that bypasses the Apple appstore and enables readers to access content across tablets and smartphones.

June 2011. Google introduces Google+. Google+ is squarely aimed at taking users from Facebook.

August 2011. Google announces its acquisition of Motorola Mobile. The acquisition gives Google the control over vital mobile patents but also enables Google to create a tighter coupling between its Android mobile OS and Motorola Mobile tablet and smartphone hardware.

September 2011. Operator Telefonica restructures into four new divisions. A new division, called Telefonica Digital, is a key element of the restructuring. With its HQ in London, Telefonica Digital is tasked to be the place within Telefonica where new business lines in the areas of cloud, entertainment, advertising, mHealth, m2m, and financial services will be created and managed.

Later this year. Amazon is slated to launch a tablet at a price of around $250. The tablet is based on a tweaked version of Android. Amazon has integrated all of their services on the device: content store, book reader, music player, movie player and app store are all Amazon owned and branded.

More Research

The above is only a brief introduction to the connected consumer ecosystem. The METISfiles will write more about the ecosystem wars and how they relate our connected worker research theme in the future so stay tuned!

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About Pim Bilderbeek