Andrea Bauer

Vodafone became a prominent beneficiary of the pound’s recent decline on Tuesday after saying profits this year would be higher than previously thought once overseas earnings were translated back into the weak UK currency.

Vittorio Colao, chief executive of the mobile phone operator, said he was on track to achieve the strategy outlined in November, despite a slight fall in underlying revenue in the final three months of last year.

Mr Colao said trends in the third quarter were similar to those in the second, with the recession making trading conditions challenging. Emerging market growth continued to be offset by “modestly declining revenue in Europe,” he said.

The group was on track to achieve cost savings of £500m by the end of the 2010 financial year and a £1bn by the end of the 2011. Mr Colao said the cost savings would include job cuts but he did not put a figure on the likely total.

Vodafone said its underlying guidance for the year remained unchanged, but added £500m to its estimate of adjusted operating profits, moving the range up to £11.5bn to £12bn. It added £1.8bn to its revenue forecasts, lifting the range to £40.6bn to £41.5bn.

Group revenue rose 14.3 per cent to £10.5bn in the third quarter. The vast majority of the increase came from exchange rate translation, with recent acquisitions also providing a boost.

The shares responded strongly, rising 9p or 7 per cent to close at 137.15p.

In the face of tougher competition in many markets, Vodafone was reducing prices to increase volumes which had helped increase minutes of usage by 10.3 per cent. It was also allowing customers to upgrade their packages without buying new handsets.

Mr Colao said equipment revenues had fallen by 17-18 per cent as there had been particularly weak sales at Christmas. Sales were polarising between expensive handsets with extra functions, and low-priced handsets, with mid-range models less popular.

In Europe underlying revenues fell 2.8 per cent but were up 13.5 per cent to £7.55bn thanks to currency translation. Spain continued to be particularly weak, Mr Colao said, but Germany improved.

Vodafone’s Africa and central Europe division increased revenues by 6.9 per cent to £1.39bn, an underlying increase of 3.5 per cent. A strong performance from the South African business Vodacom, where Vodafone is planning to increase its stake by 15 per cent to 65 per cent, was partly offset by a weak performance in Turkey. Mr Colao said service revenues in that country fell 13.5 per cent in an “intensely competitive” market, but he had changed the chief executive of the subsidiary.

In the Asia, Pacific and Middle East region revenues rose 26.9 per cent to £1.51bn, with 8 percentage points of the increase due to the inclusion of Vodafone’s acquired business in India. Underlying revenues rose 9.2 per cent.

In the US Verizon Wireless, Vodafone’s joint venture, increased service revenues in local currencies by 12.2 per cent. Since the end of the third quarter Verizon’s acquisition of Alltel has been completed, at a cost of $22.2bn (£14.6bn).

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Nokia, the world’s largest maker of mobile phones, said profits dropped sharply in 2008 and predicted the tough times would continue this year.

The Finnish company said operating profit for the year dropped from €7.98bn in 2007 to €4.96bn ($6.4bn) last year, while its closely watched operating margin fell from 15.6 per cent in 2007 to 9.8 per cent last year.

Nokia controls around 40 per cent of the world’s market for mobile phones and is regarded as a bellwether for the state of global consumer sentiment.

“In recent weeks the macroeconomic environment has deteriorated rapidly, with even weaker consumer confidence, unprecedented currency volatility and credit tightness continuing to impact the mobile communications industry,” said Olli-Pekka Kallasvuo, Nokia chief executive.

One particular area of weakness was China, which had previously been an engine of growth as its economy boomed, but where sales of its phones dropped 36.1 per cent in the fourth quarter of last year compared with a year earlier.

Mr Kallasvuo admitted emerging markets were being “hit hard” as consumers delayed upgrading to better phones.

But he insisted that the company was better placed than its competitors to ride over the rough ground.

“Companies in a relatively weak position in given markets are withdrawing and focusing on their so-called strongholds,” he said, mentioning large emerging markets as an example.

Rival handset manufacturers such as Sony Ericsson, Motorola and Samsung are all suffering amid the downturn, but Mr Kallasvuo said he believed Nokia’s economies of scale put it in a relatively stronger position.

He added that the phone maker hoped to gain market share during the crisis.

Nevertheless, Nokia said fourth-quarter operating profit fell 80 per cent to €492m compared with €2.5bn in the fourth quarter of 2007, underlining the accelerating impact of the financial crisis towards the end of last year.

Net sales dropped in the quarter 19 per cent year on year to €12.7bn, while its closely monitored average selling price was €71, down from €83 in the fourth quarter of 2007.

Looking forwards, there were few signs of the pressure alleviating, the company said.

Nokia said it expected 2009 industry-wide mobile phone sales to drop by twice as much as it had first thought, down 10 per cent from 2008 levels compared with an earlier estimate of 5 per cent.

It added its profit margin would also drop compared with earlier forecasts.

Its operating margin in devices and services will now be more than 10 per cent in the first half of 2009 and in the teens for the second half of 2009, rather than in the teens for the full year 2009 as previously targeted.

Nokia’s shares fell 9.1 per cent to €9.30.

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Advertisers are going to spend a lot of money mobile media this year, but it pales to the amount of cash they’ll be spending in just a few years. According to a new Strategy Analytics report, “Global Mobile Advertising Update: Outlook Bright as Inventory Expands,” advertisers may spend $1.4 billion on mobile media this year, and the firm predicts that mobile media advertising could account for a fifth of global spending on Internet advertising by 2011, to the tune of $14.4 billion.

“The outlook for mobile advertising spend has significantly advanced in the past 12 months,” says Phil Taylor, director of Global Wireless Practice. “The supply of advertising inventory is rapidly increasing as mobile publishers look to develop advertising as a revenue stream. Major mobile network operators like SprintNextel, Verizon Wireless and Vodafone have all accelerated plans to sell advertising within their mobile media channels and advertisers appear to be responding positively.”

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—MobiTV Adds CBS: MobiTV will offer a CBS channel as part of its $10/month services, offering full episodes of hits such as CSI: Crime Scene Investigation, Numb3rs, CSI: NY, and The Young and the Restless. The shows will be available on AT&T and Sprint Nextel the day after they appear on TV. It will also include video-on-demand news sport and comedy clips from CBS Mobile.

—Player X, Admob Team Up: UK-based Player X and mobile advertising company Admob to offer integrated marketing campaigns that include advertising across AdMob’s global network. The main centre will be the portal Player X runs for O2 UK, and the service will allow content partners to track conversions from their ad campaigns’ right through to download. (release)

More after the jump...

—T-Mobile Launches G1 YouTube Channel: T-Mobile has launched a YouTube channel to teach people how to use the G1, with customers able to post questions and receive written and video answers from T-Mobile’s experts and other customers. I’m not sure how much use it will get, but it’s likely cheap and the video part makes demonstrations easy. (Mobile Market Magazine)

—Kenya Bans Ringtones: Some African news sites are reporting that Kenya’s new Kenya Communications (Amendment) Act not only restricts media and gives the postal service strong powers to invade private communications searching for “obscene” content also makes it illegal to personalize a mobile phone: “Mobile phone owners are not allowed to change the facial appearance of their handsets or customise the phone features to their convenience. The law declares reprogramming of mobile phones illegal. You cannot even install fancy ringtones!” One commenter argued that the law is merely stating that “you cannot change the IMEI number or reprogam it”. I haven’t read the legislation, but wouldn’t be surprised if it was just incredibly poorly written. (The Citizen and Daily Nation)

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The number of iPhone applications recently reached 10,000, but these applications did not get there easily. Once a developer completes an app, its placement in the app store is subject to Apple’s unspecified review criteria. If it gets approved, chances of it being duplicated and made available for free are high.

TouchType, a program that allows iPhone users to type emails in landscape mode,allowed for an easier to use keyboard than the default touch keyboard. The $1 app made the developer 70-cents a sale. A week later Firemail was introduced, which did exactly what TouchType did but was available to download for free. It turned out TouchType was under Apple review for two months while it took Firemail less than a week to get approved. Apple didn’t respond to questions regarding this or similar cases.

Copyright is difficult to enforce for determing whose application is first in Apple’s store. In previous cases, people relied on getting out there first and establishing intellectual property rights. But in Apple’s case, this is hard to do. Maybe we’ll see law schools develop a concentration for iPhone App Store rights soon.

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148Apps, which tracks and reviews iPhone Apps, says 10,000 applications have now been released on the iPhone App store (the site is named after the fact that you can add up to 148 applications to an iPhone or iPod touch).

A tribute page shows a mini icon for every application. And it also gives some interesting data. About 24% of apps are free; 35% cost $.99. The average cost is $3.12, including free apps. About 34% are games or entertainment, and there are 49 weather related apps for the iPhone despite the fact that a weather app is built in.

If you’re an iPhone user, tell us the apps you can’t live without in the comments. The ones I use every day: Aqua Hoops, Recorder, SearchMe, iGolf, Google, Zombie (its cathartic), iThread (CrunchBase on the iPhone), and the social networks (Loopt, Facebook, MySpace).

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Since its launch last June, the iPhone App Store has had phenomenal success. Steve Jobs himself, apparently surprised, carefully mentions a business of one billion dollars.

If the scope of this success was not really foreseeable, Apple purposely managed every element that could lead to it.

Let's first briefly explain the iPhone App Store. Software developers are invited to develop applications that iPhone owners can download via iTunes. The developer sets the price for its application, which can even be free.

The business model is quite simple. Developers, after paying Apple a sign-up fee, receive 70% of the revenue generated by their applications. iPhone owners pay for each download (buy and download).

How does Apple protect this business? First, the developer signs a legal agreement. This is not just a confidentiality agreement: by signing it, he releases the Cupertino firm from any liability related to the service provided, he accepts cancellation at will and without motive, and finally gives away the right to develop and exploit competing applications. On top of the legal protection lays the technology: from the developer's kit to the iPhone, everything is proprietary! Finally, and more subtly, Apple controls the relevance of applications with the $99 sign-up fee. This prevents the emergence of sterile applications like the ones proliferating on Facebook. And if this not enough, there is always censorship.

Let's try to isolate the key success factors. Firstly, it did not come out of the blue. Apple reused the iPod + iTunes model and adapted it to the iPhone: instead of buying songs, the user buys applications. In addition, it backed it up with a VC firm which invested one hundred million dollars.

Moreover, Apple remarkably identified stakeholders' needs and created a network of shared interests. It leverages the iPhone owners' passion for their multipurpose handset, as well as the programmers longing to be widely distributed, paid and recognized.

These ties are then cleverly reinforced. This is where the firm's mastery of ergonomics plays a key role. The iPhone owner has many ways to access an application for which the purchase is just a click away. Its price, mostly between 0.99 and a few dollars, promotes spur-of-the-moment purchase. On the other hand, the developer focuses solely on the product development, for which a kit is available, as well as resources and a test bench, and its price: Apple takes care of the two other elements of the marketing mix, promotion and distribution. Ease of use builds up usage.

The other element is the smart business model. The purpose of free (as for the MP3s with the iPod) is well defined: develop turnout and usage, for both the store and the iPhone. This gives meaning, on the developers' side, to the brand policy. Attempts to work around this policy are sanctioned by a $299 sign-up fee for those refusing to be distributed in the App Store.

Obviously there are dark shadows such as the opaque selection and « exclusion » policies, the lack of consistency of applications' ergonomy or the recent security issues. These, however, do not seem to slow down the business success.

Posted by Mobile Innovation at 04:20 PM | Permalink | Comments (0) | TrackBacks (0)

When the economy takes a hit, so do cell phone sales. Last quarter, mobile phone sales in the U.S. dropped 15 percent to 32 million units, according to market research firm NPD Group. But in hard times, the strongest brands also take share. And that is exactly what Apple did.

The 6.9 million iPhones it sold last quarter catapulted the $200 device into the top spot among all cell phones, even beating out the much cheaper and still-popular Motorola Razr. (Yes, they still sell that thing. They just don’t make any money off of it.)

Here are the top five phones sold last quarter, according to the NPD Group:

1. Apple iPhone 3G
2. Motorola RAZR V3 (all models)
3. RIM Blackberry Curve (all models)
4. LG Rumor
5. LG enV2

Note that the BlackBerry Curve is No.3. Who says expensive smart phones are only for geeks? Everybody is getting one.

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You’re looking at the BlackBerry Application Center, RIM’s answer to Apple’s App Store and Google’s Android Market. Same basic concept as the other two—you browse and buy applications that enhance your BlackBerry experience.

The Application Center—we’re running out of variants of the term “application store!”—is set to debut with the BlackBerry Storm software version 4.7. All application data will be stored at the carriers’ locale; RIM is totally out of the loop as far as that goes. It’s supposed to differentiate the Application Center from the App Store in that regard—carriers can put the applications they want on their own little store.

So there you have it, RIM’s attempt to cash into the nascent application craze. I can’ tell if it’s going after Wall Street (well, what’s left of it) or Main Street with this, and the Storm more generally. As if this one BlackBerry (out of how many?) will capture the same type of minshare that the iPhone already. Then there’s the G1.

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Now that Apple has enjoyed some success with its App Store, smartphone manufacturers are starting to realize that having such a service is a worthwhile endeavor. An App Store with the right ingredients for success not only makes people want to buy the smartphone more than others, but it offers a new revenue-sharing opportunity that could become extremely lucrative.

Perhaps that’s why Microsoft’s new store for Windows Mobile 7, called Skymarket, leaked today. And it’s also why Google announced late last week that it was planning on launching the Android Market to compete with Apple’s store. Each and every company going after the mobile Web is trying to do what Apple has done with its own App Store.

If nothing else, the App Store has shown that there really is a recipe for success in this space. What is that recipe? At this point, success in the Mobile App Store market requires:

1. A popular device.

2. A single marketplace where users can find any application they want in one location.

3. A developer platform that’s both easy to use and powerful enough to create fantastic apps.

4. A dose of enterprise applications.

5. The ability to deploy the same applications on multiple devices.

6. The ability for users to download applications wirelessly to their device from a Wi-Fi or 3G connection.

Apple has most of these ingredients and is performing extremely well in the app market, but its competitors — RIM and Microsoft — seem lost. Both companies have applications that can be downloaded from countless places on the Web, the applications simply aren’t as usable as iPhone apps, and there’s no simple way to add applications to the phone without connecting it to your computer. (Update: To clarify and echo what some commenters have noted, BlackBerry owners can download apps over-the-air and do so on a daily basis.)

While Apple wins out in most of those categories, Microsoft and RIM can still stand up in a few where Apple isn’t quite so strong. For example, Apple’s applications appeal mainly to the consumer, but RIM offers the enterprise solutions that have been left out of Apple’s store so far. But in the end, it’s Apple that reigns supreme in the app store market and will continue to force the others to modify their offerings and catch up.

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The Android Blog is reporting that Google has officially announced the Android Market, an App Store like solution that allows publishers to upload programs and sell them online.

"Developers will be able to make their content available on an open service hosted by Google that features a feedback and rating system similar to YouTube. We chose the term “market” rather than “store” because we feel that developers should have an open and unobstructed environment to make their content available. Similar to YouTube, content can debut in the marketplace after only three simple steps: register as a merchant, upload and describe your content and publish it. We also intend to provide developers with a useful dashboard and analytics to help drive their business and ultimately improve their offerings."

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Apple’s iPhone App Store is now live. To access it, download iTunes 7.7. Once iTunes has upgraded, you can access the App Store.

You can “get apps” on iTunes now, but you’ll need the iPhone 2.0 software to actually use them on the iPhone, which isn’t yet available.

There are 27 pages of applications currently available. At first glance, there are very few non-English applications. Another interesting trend - a lot of books are listed as applications, most for $0.99.

According to Pinch Media, the App Store had 552 applications at launch. 135 of these apps are free, while the remaining 417 range in price from $0.99 to $69.99, with the vast majority ranging between $0.99 and $9.99.

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Today, Yahoo filed a presentation detailing its three-year financial plan that management gave to its board of directors in December, before Microsoft’s unsolicited bid. These rosy projections should be read in the context of that ongoing battle and Yahoo’s attempt to get a better price out of Microsoft. But this presentation also sheds some light on where exactly Yahoo sees its strengths.

Yahoo is projecting revenues after traffic acquisition costs (TAC)—i.e., what it shares with other Websites that run Yahoo ads—to grow from $5.1 billion in 2007 to $8.8 billion in 2010.

How does it plan to grow revenues by 73 percent over that period? Here are some slides from the presentation (which you can find here at the SEC’s EDGAR Website, or just search for Yahoo).

Yahoo argued to its board that it could exceed Wall Street expectations and accelerate revenue-growth to 25 percent in 2009 and 2010 and increase its operating cash flow from $1.9 billion this year to $3.7 billion in 2010:

Notice that for these projections to come true, Yahoo needs to increase its operating cash flow margins to 42 percent from 33 percent. That seems overly optimistic, especially now that the economic outlook is so uncertain.

To justify its projections, Yahoo is counting on better clickthrough rates on its search, display and video ads.

This next slide captures how that strategy has played out over the past couple years, with initiatives and deals categorized as either helping to build Yahoo’s audience or monetize that audience. (Notice the emphasis on Yahoo Buzz, Open Search, and Mobile—these are the things Yahoo is highlighting as growth drivers to its board. With mobile, in particular it feels like it does not get enough credit, and in another slide it notes that it has more than 600 million mobile subscribers have used its OneSearch product):

It sees its big opportunity in display advertising, where the top 10 players still control less than a quarter of the market and there is a lot of room for ad rates to go up:

At the same time, it believes that it can continue to close the gap on its revenue-per-search, which it estimated to be 60 to 70 percent lower than Google’s at the end of 2007 (so it still has along way to go, see comScore data here on comparable clickthrough rates):

Yahoo’s overall strategy boils down to two things: attract an even bigger audience, and sell that audience to advertisers:

Finally, Yahoo is not timid about investing in the future. It wants to nearly double capital expenditures to $1 billion by 2010, with 70 percent of that going to “innovation and production infrastructure” (not that they have much of a choice there. Google’s CapEx in the fourth quarter—$678 million—was more than Yahoo’s for the entire year):

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Despite a few hiccups and stores running out of inventory, Apple was able to sell one million 3G iPhones worldwide across 21 countries its first three days on sale. During that same time, owners of both the new and old iPhone were able to download 10 million apps from the newly launched App Store on iTunes, despite major problems with the iPhone 2.0 software update disabling many people’s phones temporarily on Friday.

That brings the total number of iPhones sold since the launch of the first generation phone to more than 7 million. Apple’s goal of reaching 10 million iPhones sold by the end of the year seems well within reach. In contrast, it took the first iPhone 74 days to reach one million sales, but it wasn’t sold in 21 countries. Apple watchers will be looking for clues about what portion of sales are in the U.S., versus in international markets.

The startup community will be more interested in the download numbers. The 10-million download figure includes both paid and free apps. Apple did not offer a breakdown, but it stands to reason that the free apps made up the vast majority of downloads.

But even if 10 percent were paid downloads, though, and assuming an average price of 4.99, that would be a $5 million weekend. Not a bad start. And it could have been more than that. Seven of the top ten paid apps, including Super Monkey Ball, Cro-Mag Rally, Tetris, and Band, are $9.99. (Coming in at No. 12 is another $9.99 game, Electronic Arts’ official Scrabble, which is also coming to Facebook).

Some of the apps seem to have been rushed out too early, with reports of some of them crashing. So the launch wasn’t perfect. But the demand for the new iPhone and all the apps made for it indicated by these early numbers support the notion that people desperately want the Web and better computing experiences on their phones. Of course, we knew that already.

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Stanislas Chesnais, CEO of Netsize, gave a talk on the European mobile content market, with some pretty interesting figures. Mobile data accounts for about 20% of operator revenues, on an ARPU of $42-60. More than 70% of mobile content is sold off the carriers’ portals, and Chesnais expected this figure to increase to around 90% in two years. What does this say about the walled garden?

As per usual it is the 16-26 year old age bracket which is the highest user group. These people and those following have grown up with mobile and know they’re going to pay for content (in the words of Chesnais, they’ve “been trained on how to buy things with mobile”).

There’s some interesting stuff going on with mobile payments, with Chesnais saying that it wouldn’t be a single dominant system but a number of different channels based on what is most appropriate. He said SMS payments will fade and be replaced with WAP billing (where people will be informed they’ll be charged for a page and then click, or not) and interactive video dialling and streaming. This is where you dial a number and the content is streamed to your phone, and you’ll be charged on a per-minute basis.
Of course, there have been several billing scandals which have damaged the mobile content industry in Europe, particularly the subscription model, so the industry is desperately scrambling to clean up its act. As a result, “acquisition costs will be higher,” said Chesnais. “If you cannot cheat the user your return will be lower than before, but in the long run it will be better.”

Other predicted growth areas are pretty much the same as everywhere: mobile tv, full track music downloads, music/video content downloads which will have payment bundled with data traffic charging, community management and multiplayer gaming, and gambling…this last relies on the efforts of several European countries (led by the UK) to encourage the EU to pass a directive allowing this.

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