Going Mobile: 'MVNOs Feel the Heat, Stay in the Kitchen'

When it comes to consuming mobile phone services, we Americans like to keep things as simple as possible. Often enough, the choice comes down to a quick judgment call while standing on a street corner. Will it be the family plan proffered by Verizon’s bespectacled geek, or has Catherine Zeta-Jones has seduced the prospective customer into T-Mobile’s camp? Does Cingular’s orange mannikin trump Sprint Nextel’s yellow swoop? A decision is made, the subscriber-to-be enters one of the Big Three Plus One’s (T-Mobile is somewhat smaller than the others) convenient retail outlets, a contract of some kind is consummated, and the new convert leaves with whichever phone costs the least--or a Motorola RAZR, if he or she is of a younger persuasion. Horses For Courses The scenario outlined above has been streamlined for rhetorical purposes, but it’s representative of a majority of the simple transactions that have formed the commercial backbone of the US wireless industry for the past decade. The market provides consumers with several viable choices, yes--but in the consumer’s view, it hardly matters which carrier they go with, because they are functionally identical. A phone is a phone, voice is voice, and SMS is SMS, so the decision to bypass one store for another usually comes down to two factors: clever marketing schemes and the lowest of all common denominators, price. Consequently, choosing a carrier these days is kind of like deciding what color your new business cards should be: Bone, Eggshell, French Vanilla, or Classic White? There are differences, but they are subtle enough not to affect most consumers’ buying decisions. Mobile games publishers would love to think that mobile content is becoming an important differentiating factor, but most aren’t capable of lying to themselves that effectively. By way of comparison, the new crop of Mobile Virtual Network Operators (MVNOs), such as Amp’d Mobile, Helio, Disney Mobile, and ESPN Mobile, want to splash bright colors all over the Big Three Plus One’s nice, predictable, blank canvas, after buying network time from the big guys for their creations--and they’re going to use the whole box of crayons. Amp’d Mobile has cut live-broadcast deals with various extreme sporting events to attract male youths; Helio’s riding the Generation Z zeitgeist with MySpace; and Disney and ESPN’s services have features galore aimed squarely at the kiddie and sports freak demographics, respectively. Mobile Gaming - A Selling Point? Mobile gaming is definitely a go-to crayon in the MVNO stash, especially for Amp’d Mobile and Helio, which seem to be competing for the same pool of young, tech-savvy, video gaming customers. Industry wags have watched the two go head-to-head over the last year trying to outrace one another on the games front. The dueling services have stacked up many innovative features, including gifting and begging functionality, programs where you can win “loyalty points” by playing mobile games, and onboard professional reviews. Amp’d, Helio, and the rest of the MVNO gang are clearly taking great pains to turn mobile content from a vestigial afterthought into the main attraction; indeed, the features named above are exactly the kinds of consumer-satisfying, business-building infrastructure that every mobile games publisher has been howling about for years. So, you’d think that the publishers would be falling all over themselves to get prime billing on the new services, right? Wrong. I remember speaking to one prominent developer back in 2005 about the exciting business prospects offered by the MVNOs, whose hype machines were just starting to get revved up around that time. He agreed that the new content-centric attitudes and technologies embodied by MVNOs like Helio (then known only as SK-Earthlink) and Amp’d were pretty cool, but he shook his head when I asked him whether he was going to be first in line to put his games on the new services. “These guys are ambitious, and they have some great ideas,” he explained, “but guess how many subscribers they have right now? Zippo. It costs a lot of money to port my games onto their handsets, and that’s money I should be using to make new games for carriers that actually have customers.” Value Propositions? He made a great point that many in the mobile content industry still agree with: the content-centric MVNO has a lot of potential, but that’s all it is until they actually have enough customers to register on the radar screen. Verizon, Cingular, and Sprint Nextel are kind of boring, and they are certainly slow to liberalize their content models...but it’s awfully tough to argue with 100 million subscribers. Those are the kinds of numbers that turn marketing hype into cold, hard cash, and MVNOs don’t have them. In fact, a lot of prominent analysts are loudly doubting whether Amp’d, Helio, and the rest will ever be able to move the subscriber needle off of zero. Merrill Lynch has even called for Disney to kill off ESPN Mobile before things get worse for investors. This is premature. It’s hard to deny that the baby MVNOs have fallen on their faces out of the gate, but they still have plenty of cash to keep expanding in the medium term. Helio, for instance, is backed by the nearly bottomless pockets of SK Telecom, and Amp’d has rung up plenty of investment from Universal Music Group and various venture capital firms. Disney’s MVNOs, obviously, aren’t going anywhere until Disney decides to pull the plug, and that doesn’t seem to be a risk at the moment. So, the content-centric MVNOs will have a chance to set things right. Where do they start? Other analysts have suggested that these fledgling carriers need to improve their handset options, as well as focus on the prepaid subscriber plans that other businesses like Virgin Mobile have marketed successfully to the youth demographic. These strategies are certainly two important pieces of the puzzle, but I think the MVNOs would be better served starting from the bottom of the commerce pyramid, just like the Big Three Plus One has. Getting Things Right As outlined previously, the two keys to the mobile services game are still retail presence and pricing, and the MVNOs have really dropped the ball on both counts. If Helio and Amp’d thought they could get away with selling phones and plans on the Internet, they have been proven wrong beyond a shadow of a doubt. Americans may have grown comfortable with customizing and buying personal computers online, but the same cannot be said for phones. They want to enter a store, have a salesperson answer their questions, and pick up a box; that way, if something goes wrong or they don’t get what they want, they’ll feel like they have some human-based chance for recompense. The fact that consumers are required to sign long contracts enforced by fines only amplifies this feeling. Secondly, the MVNOs have not offered value propositions that can compete with the Big Three Plus One’s economies of scale. For instance, neither Helio nor Amp’d Mobile offers free phones of any kind, and the voice plans are much pricier than the mainstream carriers on a per-minute basis. Yes, the phones offered are really cool, and they have all kinds of multimedia capabilities and services that the big operators lack--but a lot of consumers will be skeptical, either because they don’t understand what the multimedia services can do for them, or because they don’t think they’ll work well enough to pay loads extra for. The basic pricing comparison is very important, and unless the MVNOs educate potential buyers effectively, they will lose it every time. A skilled retail sales force (preferably built of young, attractive hipsters) can explain why an MVNO’s service is so much more expensive by demonstrating its unique capabilities to the consumer; the new carriers should have recognized early on that “boots on the ground” are an absolute necessity for their cause. Correct Course Charted? Happily, it seems as though the MVNOs have started to make the necessary in-course corrections. Amp’d recently scored a retail deal to sell phones at Best Buy’s popular electronics stores, and Helio is opening up its own clutch of retail outlets designed by the same guys that do Apple’s amazing stores. These are excellent first steps on the road to expansion and profitability. It’s far too early to throw in the towel on the MVNOs--especially since their ideas and enthusiasm are helping to push the larger carriers towards opening up their content strategies. Even if the MVNOs never exit the flyweight class, that second-order effect alone may be enough to justify their existence. (EDITOR'S NOTE: This will be Steve's final column for Gamasutra, since he is devoting himself full time to his consulting work and business school activities, and we'd like to thank him for his amazing insight into the mobile game biz - we will keep an archive of his 'Going Mobile' column available indefinitely.) [Steve Palley is the Founder and Lead Analyst of Foci Mobile, a mobile games consulting firm. He was previously Chief Editor for Mobile Games at GameSpot and Wireless Gaming Review.]