Are We Looking at a Context-Driven Mobile Revenue Model?

You have to love a market that, when faced with seemingly insurmountable contradictions in business and technology trends, proceeds to generate new ones unapologetically.  We had that yesterday with the story that Sprint was considering shutting down the WIMAX assets of Clearwire, then another story that Google might be aiming to be an MVNO.  So how is it that wireless is “good” for Google and bad for Sprint?  Is it just WIMAX or something else?

WIMAX is a licensed wireless technology (at least in Clearwater form) that is likely best to support the access of “migratory” users rather than “mobile” ones, using laptops or tablets and not phones.  You could think of it as a kind of for-fee super-WiFi that could cover a much larger geography.  It’s that angle that seems to make Sprint’s decision odd—if people are jumping all over hospitality WiFi, then why kill off it’s bigger brother?

The probable reason is that hospitality WiFi is killing it.  There are only a finite number of places where yuppies and bored teens can roost to get online, and in most cases the establishments themselves are using WiFi access to attract them.  It’s free.  There are other locations like airports where network operators, cable companies or even municipalities have provided WiFi access that’s free or at least has only a modest episodic cost.  Sure, these choices aren’t going to cover that wonderful park in the city or a nice bench along the river, but they cover enough to dampen the whole WIMAX business model.

And remember, you don’t have to say that there’s no value for WIMAX, only that the spectrum would be more valuable if you used it for 4G, and that’s the deciding factor here I think.  If you look at return-on-cell, LTE is likely to do you more good, given the hospitality WiFi competition I’ve already noted.  So what this says is that the mobile user is more valuable than the migratory user.

But what can we deduce about Google’s purported interest in being an MVNO; there’s no spectrum or spectrum value involved?  For those who don’t know what that is, an MVNO is a Mobile Virtual Network Operator, a retail carrier who buys capacity on somebody’s wireless network to serve their customers instead of building out their own network.  Obviously Google would have to pay the wholesale partner for that capacity and the margins would be thin.  If Google picked only one partner they’d probably alienate every other carrier, who might then punish Google by removing or weakening their support for Android.  It’s said that Google is interested in offering its wireless MVNO service in its “Google Fiber” footprint locations, but that’s kind of impossible unless you think a mobile user in that footprint would never go anywhere else.  Google has to market and support any MVNO service nationally, IMHO.

What Google gains from MVNO status in my view isn’t fiber-footprint competition with the incumbent LECs.  Anyone who thinks Google wants to be a general access provider is delusional.  The current guys would fall into fits of unbridled joy at the mere prospect of such a move from Google because Google’s margins on that kind of business would be razor-thin and they’d have to become opponents of neutrality just to stay alive.  Nor do they want to compete with the wireless carriers; how could you undercut the guy you’re buying from, and anyway who has more wiggle room to operate at thin margins, Google or a LEC?

What’s likely underneath Google’s move is leveraging its brand.  Google wants to have a success in IPTV.  It wants to be a giant in mobile LBS, in advertising in general.  But deep inside Google knows that at some point every OTT player has the same underlying problem, which is that the global budget for advertising won’t keep their stockholders happy even if it all gets turned into online ad revenue.  The fact is that online advertising is probably lowering adspend because advertisers use online capabilities to target more tightly, reducing their costs overall.  If you stay ad-driven you’re a termite in a lifeboat—you inevitably eat your salvation.  Google has to sell something at some point. Selling means exploiting your brand.

But there are two questions arising from this.  First, Google could unquestionably deploy WiFi on a large scale, and has already done deals with retail chains and also “Muni-Fi” deals.  Given that most people do content-viewing and real searching while roosting rather than walking, could Google get more traction from its own WiFi?  Second, what is it that Google might sell to leverage with an MVNO deal?

The answers here could be related.  If you assume Google’s primary target isn’t the migratory user but the true mobile user, then it makes sense to think in terms of MVNO rather than to think about WiFi.  And second, if you assume that Google wants to sell contextual services to mobile users, then everything makes sense.

Contextual services are services that are designed to recognize what the user is doing when they make a request.  A user’s location is part of context, and so is the location of other users who are close socially, and local traffic conditions and weather conditions and perhaps who’s being called or chatted/SMSed with.  Google has a lot of stuff that establishes context in a search or query sense, and they may just be thinking about leveraging all of that stuff to create one or more mobile-paid services.

Microsoft’s Cortana personal assistant is something that just might have generated some Google concern, and of course there’s Apple’s Siri.  Everyone is trying to get to the “Her” stage, a personal agent that can accept speech questions and provide answers.  As I said in an earlier blog, “Her” is a Hollywood dream if you want to get gestalt with the gadget, but you could narrow the interpretive/response range if you could assume context generated the question.  Might Google see contextual agent applications as their money tree?  If they do, then MVNO makes sense for them.

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