Will Google and Apple Force the Mobile Networks to Rethink Their Business Model?

For some years now, there has been a major division between the internet and mobile economies. The internet is largely free to user and the mobile isn’t. Google has made an art form of the free model, releasing all kinds of apps, including mobile ones at no cost. On the other hand, the networks charge for almost everything.

As one Orange executive once told me ‘We do not understand any customer unless there is a billing relationship’. In other words, unless the network is charging them for something they are not considered to be a customer. The iphone has moved the mobile smartphone market forwards, by offering a genuinely seemless mobile internet experience. Just like your PC the internet is just ‘there’, it’s always on.

As soon as that happens, adding all kinds of internetty applications – not just games, but maps, weather and so on, become standard. The evidence of the success is from the iphone Appstore and the results which show that Apple’s users access the internet considerably more than others. Whilst Apple’s entry into the phone market has been to produce a great handset and beautiful operating system, Google’s entry has been less glamorous, but potentially more significant.

Google started by building some excellent mobile applications – for example maps and email – and has now launched it’s own OS. And now everyone’s doing it! Expect 2009 to be the year of the smartphone and the year of the application store, Microsoft will be launching Bazaar this year. Low cost computer manufacturer Acer are launching their own smartphone and the inevitable application store.

The problem for mobile networks is that the offerings from these companies challenge their traditional billing relationship. Why pay for a call when you can use Skype (available for both iphone and Google phone)? Why use SMS when you can use instant messenger? Why send an MMS when you can email your pictures, or upload them to your Facebook? Why SMS to Twitter when you can send it for nothing with a Twitter app on your phone? Even location services, which were previously the (expensive) monopoly of the networks will be opened up with Google Latitude. Apart from the basic data cost (typically around £7.50-£15 per month), users can do pretty much everything on their smartphones without having to pay for them. The money in mobile will be in paid apps and mobile advertising. So the networks have a dilemma. Do they embrace the new free(ish) world of mobile or carry on regardless and make money while they can? Given their past form, I suspect it will be the latter.

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