Microsoft’s XBLA problem is bigger than you think.
It’s bigger than the fact that XBLA is available on Xbox 360 consoles while iOS and Android games are available in your pocket.
It’s bigger than the fact that there are countless equally amazing, well designed, engaging and flat-out entertaining titles available at a fraction of the price of mainstream publisher titles (think CoD, Madden, etc.)
The root of Microsoft’s XBLA problem is that XBLA doesn’t engage major publishers who are clinging desperately to a hits-based model that is delivering diminishing returns in engaging new (casual-focused) audiences.
XBLA doesn’t receive the attention it needs in order to battle for customer engagement v. iOS and Android because it can’t. Microsoft has tied Xbox to hits titles. Extracting it from these relationships will have a direct, negative impact on the value of the Xbox franchise … in the short-term.
In the long-term, a tremendously engaged audience that is willing to pay serious money for games is being siphoned away by iOS and Android. Given early sentiment on next-gen titles, it’s likely these customers won’t be coming back.
In the long-term, Microsoft has not positioned XBLA to be the potential savior that it needs to be for not only the Xbox platform but also, potentially, the WP platform.
The road for next gen game consoles is likely to be very rough. Say what you will about Nintendo’s Wii U launch. It just may be more of a predictor than anyone in the industry cares to acknowledge.
I’ll be watching these trend lines very closely for the next 6 months.
Customer: “You mean I don’t have to sign a contract?”
Clerk: “That’s correct.”
Customer: “You mean I can pay for this phone, buy a plan, and leave without having to sign up for 2 years of service?”
Clerk: “That’s correct. The only decisions you have to make are which level of service you’d like and if you’d like to finance the phone instead of paying for all of it right now.”
Customer: “What happens if I change to another wireless company? Do I lose my phone?”
Clerk: “No, you don’t lose your phone. You’re just going to continue to make your monthly payment for the phone or you can pay it all off at once if you like.”
Overheard while looking at phones at my local TMO store.
How dramatically will MNO contracts change in the next two years?
Dramatically.
T-Mobile’s preliminary results for Q1’2013 showed some interesting numbers:
What’s most interesting in these preliminary results is the clear communication and focus of contract customers. This is one of the last quarters for TMO where contract customers are going to matter – and the emphasis on this “old” metric was somewhat nostalgic.
As TMO states, they really have joined a new club. In fact, one can argue they’ve started their own club – the club of productivity. Going forward the standard metrics of wireless operators – Churn, Customer Acquisition, ARPU – are going to hold true to measuring the company’s success. Additionally, it should be fully expected that there’s going to be a brand new metric TMO will also help pioneer – productivity.
Productivity isn’t a new measure for MNOs. It’s been in use for quite some time. Sadly, it’s been oversimplified in its definition as usage which, when translated into financial speak, delivered ARPU. A simple measure of the average revenue per user of the service, ARPU has been incredibly valuable. The operative term here is “has been”. While ARPU won’t go away anytime soon, it is going dramatically change into what will be defined as productivity.
Productivity is going to be a far more complex measure of the health of the MNO’s ecosystem. Instead of looking solely at ARPU, MNO’s are going to have a number of unique components that comprise their productivity measures.
The core productivity components will include:
As always, these measures will vary by MNO which will make apples to apples comparisons difficult – as usual.
So, what’s third-party revenue?
Third-party revenue is a brand new set of metrics which we will see gain serious traction, globally, in the next 8-12 months. Third-party revenue is loosely defined as the revenue driven by customers of the MNO to other service providers (e.g. app stores, content services, etc.). The more productive a customer is (the more they spend on their service + the more they spend on third-party apps and content) the more likely that customer is to a) stay with the MNO (reducing churn); and b) the more profitable that customer will be for the MNO. As customer productivity increases the MNOs will have a brand new opportunity to more aggressively leverage their scale in pursue of additional revenue share deals with ad, app and content networks (excluding Apple and iOS, of course).
Third-party revenue isn’t new.
Exactly. This performance data and revenue model has existed for a while. It’s been a significant contributor to bottom-line earnings for MNOs for many quarters now. However, for the first time, we are going to see MNOs and investors begin illustrating (read promoting) the effectiveness of their productivity.
So what does this have to to with TMO? Great question.
TMO, by eliminating contracts and offering unlimited services, is in a prime position to bring these metrics to market first. Having shed the burden of antiquated metrics, TMO has the opportunity to completely hit the reset button and bring forward their story – their way. Judging from the brand campaigns and speaking engagements of sr. execs, they’re well on their way here.
If you’re a content company looking for a partner who can drive usage / traffic, and you see TMO illustrating high productivity numbers, aren’t you going to be looking their way first?
If your TMO and you have the best data to illustrate why content should be promoted with your unlimited use devices, wouldn’t you do it, and wouldn’t you use this leverage in the negotiations to guarantee the best revenue and (ultimately) customer data share?
It’s going to take a bit for this type of productivity measure to hit mainstream, but start watching for it, now … and rest assured the handset OEMs are heading down the same path, too, for valuing the effectiveness of product lines. That’s a post for another time, though.
Catalyst: Client inquiry.
It’s certainly not a surprise that Google is updating the successful Nexus 7 platform – or that the company is aggressively driving prices down on the new device. The more hands Nexus devices are in, the more money Google stands to make from advertising. Add in the small factor that the more people become comfortable with and dependent upon Google services, the more future monetization opportunities Google realizes as well. Taken together, you now have a recipe for regular updates with rapidly declining (and ultimately highly subsidized) prices.
However, when you consider the 5″ phenomenon for flagship Android devices, the 7″ tablet market starts to get a bit sticky. Having both devices at the ready, I can say that I use my Nexus 7 and my iPad Mini very little. A Galaxy Note II serves more than well enough as a reader – which was the 7′s and the Mini’s primary function before the GNII was purchased – and is a far superior communicator (messaging, email, etc.).
In speaking with 4.7″ – 5.5″ Android device owners (GNII, Nexus 4, HTC, Moto RAZR, LG) who also own smaller tablets (either Nexus 7, Kindle Fire and/or iPad Mini), most have seen limited ongoing use of their tablets and increased reliance on their phones. At this point, a serious question needs to be asked:
Is there a long-term market opportunity for 7″ tablets?
Recognizing the sample size here is relatively small (n≈100), and that individual use cases will have a dramatic impact on adoption and use (especially for high-end media consumption (movies, games, etc.)) it’s becoming increasingly difficult to see all of these device bands continuing to exist 3-5 years out.
Why?
When you factor into the equation that the majority of device purchasers worldwide won’t own two distinct devices, it appears likely the 4.7″ – 5.5″ band will predominate, but why?
A few reasons gleaned from our primary outreach and third-party research:
Unit sales and use cases are going to need to be closely watched.
Catalyst: Google to sell second-gen Nexus 7 tablet from July: sources (Reuters)
The amazingly fast and global growth of over the top (OTT) messaging services (GroupMe, MessageMe, WhatsApp, iMessage, etc.) shouldn’t come as a surprise. In a knee-jerk reaction to the over-sharing present on most social networks, persistent individual and highly-selective group communications fill important and serious market needs for both businesses and consumers.
While adoption of these services will continue to accelerate for all of the major platforms, watch for equally accelerated fragmentation and consolidation to occur in very short order. Monetization pressures will become significant as the cost of maintaining global infrastructure to support rapidly expanding services is very real.
The greatest risk to the success of OTT messaging services, however, isn’t infrastructure costs. The greatest risk is indirect monetization (e.g. games). With indirect monetization the noise factor increases to a level approaching free, mass market social networks – diminishing the effectiveness and usability of the platforms.
Spurred by the recent announcement of Google Reader’s pending shutdown, the opportunity for direct monetization from end-users has never been higher, especially for OTT messaging services.
The need to pay for the critical services one uses is an embryonic trend – but it is one that will gain serious momentum in the next 12 months. The OTT messaging service providers would be wise to draft here – and quickly.
How soon will we see truly contextual ebooks?
The first step is to define what is, exactly, a contextual ebook.
For simplicity’s sake, we have defined contextual ebooks and contextual storytelling as works that take into consideration the reader’s environmental parameters (location, weather, landmarks, time of day, current events, etc.) and adjust the context of the story to the reader’s surroundings.
Simple in theory. Complex in implementation … until you look at the rapid rise of contextual apps like Siri and Google Now. These apps (and many more) are re-writing the mobile app landscape by defining a baseline of contextual engagement for app developers to build from.
Why would a contextual ebook / story be of value?
Would creating personalized context increase reading time?
Would reader satisfaction / engagement increase?
These are excellent questions – questions without immediately or readily available answers. We’re researching these questions (and more) right now to better understand the implications of the investment necessary to build this type of story.
A second line of questioning is along the discovery continuum:
Would a reader be more likely to recommend a work that moved them in a meaningful way?
It’s hard to argue with this point – as everyone recommends works (be they books, shorts, music, games, movies, etc.) that connect with us in the most meaningful ways.
What do we know?
We know advanced authoring platforms enabling this type of interactivity are available.
We know sensor-driven mobile devices are making these types of opportunities more realistic by the day.
We know the planning and preparation for the app / ebook development is paramount to success (in terms of ROI ).
We know there is significant interest / fascination in the concept from readers.
What don’t we know?
Who takes the plunge first!
One of the most common inquiries in the past 30 days has been: Is Samsung’s Galaxy brand more valuable than Android? The alternative “ask” is, What is the impact of the Samsung Galaxy brand on Google’s Android brand?
Given how frequent this inquiry has become, I thought I would share a bit of insight into how we’re approaching the topic.
To begin, we purposefully conducted some very informal surveys asking people whether or not they would prefer a Galaxy phone / tablet or an Android phone / tablet. The follow-on, regardless of response, was another simple question: Did they know Galaxy phones and tablets were Android phones / tablets?
Why such a simple initial engagement? The minute you step away from the “tech press” and talk with individuals who don’t follow the ebb and flow of technology, there is a dramatic drop-off in understand / recognition. With this foundational premise, we knew it would be best to start at the VERY beginning.
While we haven’t had enough time (yet) to dive deeply into this at a statistical level (e.g. roll this out to a truly statistically significant sample), it is worth noting that the findings clearly illustrate the Galaxy brand occupies a tremendously strong position in the market – one at least equal to (if not greater than) Android.
The most interesting finding was that a significant number of people didn’t know Galaxy devices were Android devices. The brand recognition of Galaxy over Android, in these cases, was almost absolute.
There is a tremendous amount of additional research and analysis to perform here. The initial insights, however, were definitely worth sharing with a wider audience as they’re fueling the deeper dives we’re taking into the impact of Samsung’s continued brand development on Android and the mobile ecosystem in general.
A few additional and early hypothesis / questions we’re working with in this area:
No matter how they paint a picture of a reinvention of their products and company, I can’t help but think of the one core problem for Blackberry – the company was built on the backs of corporate wireless device purchases. Unfortunately, this is a reality that no longer exists.
Today, with BYOD being the predominant means of enterprise wireless device selection, the cost of re-establishing Blackberry in the public conscience is massive.
When you compare Blackberry v. Apple and Samsung’s incredible ad spending and v. Google’s far reaching market presence – it’s hard to see how Blackberry can cost effectively cut through the noise and entrenched device, app and content user bases. (Android app support notwithstanding)
While a niche market opportunity certainly remains – and can be extremely profitable if executed properly – will a niche opportunity be enough to satiate investors for the long-term?