Cloud Wars Episode II – The Swedes Strike Back

Back in April I correctly predicted that Spotify would soon offer their mobile service to all customers, including free accounts, following their restrictions placed on non paying users; this is a huge step for them in the ongoing battle to get a full cloud service out there. To be clear, this update does not allow non-paying users to stream music that they do not own – only the tracks they have synced from their personal computer to their device. The desktop version of Spotify has been able to sync a users owned music over WiFi to a the mobile device for some time, a smart move on Spotify’s part to save streaming bandwidth costs. This new update now includes iPod syncing, something that has required the owners to always be tied to iTunes. Today’s announcement is really significant in terms of getting users into the Spotify ecosystem and in my opinion really puts Lorentzon & Ek’s company out there as the leaders in the cloud race.

Apple, Amazon and Spotify already account for 90% of  worldwide digital music revenues for and I think this move could prove to be a significant shift in Spotify’s publicised revenue problems if they can get customers to move away from Apple. This is all the more likely given their pending US launch and the hype around the lack of launch for the last yeat. Having worked on the original purchasing implementation, which was powered by 7digital, it was actually quite interesting to see how many purchases were made through it when users could still listen for free – it really points to users’ preference to own their music over the “rental” streaming model.

I think the most interesting outcome from all of this will be the backlash reaction from Apple. In the past, Apple have changed the way that music is stored on iPods during software updates to prevent third-party software from being able to move music onto the device. It wouldn’t take much for Apple to do this and I wouldn’t be surprised if the next software updates will cause problems for the engineers  over in Gothenberg & Stockholm.

The other question surrounds the iOS app and whether Apple will allow future updates to it or if they will even just remove it from the app store entirely. At 7digital we’ve struggled to get our iOS app through the submission process; an app that does considerably less to compete with iTunes and the iPod compared to that from Spotify. Unless Spotify has an agreement with Apple – which I find highly unlikely, I wouldn’t be surprised if the app store guidelines change to say if your app name contains the word ‘Spot’  and your logo is green then it can’t exist in the app store.

On top of this there is the well documented case of Apple wanting 30% of any app subscriptions which would effectively ruin Spotify’s model as they will not be able to operate on these terms. I guess the ball is now in Apple’s court.


Mobile in China

Seems like today has been a day for inadvertently gathering mobile knowledge, I found out the following:

1) China One Mobile is the world’s largest mobile phone company with over 600 million subscribers as of today. In comparison AT&T in the US has around 95.5 million and the largest UK mobile Telecom Everything Everywhere has only 28 million. In China the second and third largest mobile providers still have around 170 million  and 95 million customers each respectively.

2) Apple have sold over 18 million iPhones since Christmas – their largest area of growth was in China at 250% .

3) The Chinese ecosystem for  Android apps is massively fragmented. As there are so many devices on the market they don’t all get approved by Google so don’t get to install the Android Marketplace. There are hundreds of sites offering .APK files for manual installation. This must make updating applications a nightmare to manage and would probably lead to many installed apps never getting updated.  Has anybody created a centralised system for managing the distribution of applications to multiple app marketplaces yet?

4) Of China Mobile’s 600 million users 476 million used it’s wireless music service over the last quarter which offers downloads from 2 yuan – approx £0.20/$0.30. Meanwhile Apple also took over $1.4 billion through iTunes alone which is neither linked to mobile or China directly, but I find it an astonishing figure that cements the importance of a well executed content strategy on any platform.

5) Much of the growth for China Mobile is into rural areas, they have said they will spend up to 132b yuan (£12b) on their network in rural areas to maintain their lead over China Telecom and China Unicom, it’s closest competitors.

The NFC arms race

The renewed thought of Amazon creating their own device has made me realise how they are actually one of only a handful of companies currently able to challenge Apple’s dominance in the device arena, specifically around the emerging field of contact-less payments.

The next iPhone purportedly contains NFC technology which would allow the device to act as a contact-less payment method. This is already currently available in some Android devices, but due to the open nature of the platform there’s no single company who is going to actually implement the underlying payment service.

image courtesy of maclife

In order to own an iPhone you need to have an iTunes account, whilst it’s not necessary to add a card to the account I would expect all of those users who own an iPhone (or an iPad) will have at least one card registered. Apple can therefore hit the ground running with the iPhone 5 and become one if the biggest payment services in the world overnight.

Google on the other hand have little to challenge with in comparison, they have never really dealt with consumer transactions at scale; Google Checkout has never found much traction against Paypal. Due to the open nature of the Android OS, operators will want to build their own solution to charge purchases to their customer’s phone bills, which will serve to dilute Google’s ability to develop the Checkout platform.

Amazon, however, do have the customers, they also have a payment method for every single one of them. If they were to introduce an Amazon device this year, it would allow them to run head to head with the iPhone in what could potentially be the start of a very disruptive period for the finance industry.

Paypal are in a strong position with their existing user accounts for payments but obviously aren’t into manufacturing devices. They could benefit from either a manufacturer tie in or creating device specific apps that use the NFC chip to charge the user’s Paypal account. Consumer adoption is likely to be limited and the experience would be second rate to one at device level.

Facebook Places

Facebook Places, Deals and NFC could be huge

Facebook have recently brought on Goldmann Sachs as an investor which could potentially be linked to their strengthening of Facebook credits which, this year, will become mandatory for any purchasing inside Facebook apps. ASOS and now French Connection have built complete eCommerce platforms inside of Facebook and if it’s users are buying credits to use inside these Facebook apps this has the potential to make Facebook one of the biggest banks in the world. If that’s the case then I wouldn’t be surprised if we see them start using NFC technology which coupled with the Facebook Places/Deals platform would make them a strong contender in this race.

NFC based payments itself could pull up lame at the first hurdle as the entire success or failure of all of this rests on adoption of the technology by both the retailers and more importantly the consumers.

Just stop giving in to Apple’s demands!

So the internet has been awash with condemnation at Apple’s recent decision to impose it’s monopolistic tactics onto content publishers with their announcement to kiabosh any out of app purchasing. And somewhat rightly so; 30% is a lot of margin to be giving away, especially when the margins are so tight anyway that a sale can often result in a loss.

The fanbois may argue that Apple has the right to charge what they want as they have spent money building their platform over the years and I would say that they are right. Apple spent millions billions in R&D to create the iPhone, iPod, iPad and the iOS and it’s their prerogative to make it work for them financially.

However, that’s certainly not to say that publishers should just stand by and let the “suits” from Infinite Loop have their own way. The music industry learnt this lesson a long time ago, after they let Apple define the rules and set the path for digital music downloads for almost a decade. It finally seems to have started to pick itself up and work its way out of that hole, although I do worry it’s is a bit like an absentminded old man who regularly forgets that the kettle gets hot when its boiled and happily picks it up with both hands whenever it whistles.

Apple won’t drop their prices voluntarily, despite mounting pressure and the more favourable Google rates, because they just don’t have to. Unfortunately it isn’t a fair market so they won’t be forced to change their pricing through natural market forces. My point here is, that if publishers don’t like the 30% surcharge that Apple is about to impose then they should pull their content from the platform. If no one provides their content through iOS devices then those devices become less appealing and as happens in a normal fair market economy Apple will be forced to drop their prices to get the publishers back on board.

Working for an iTunes competitor I am somewhat biased on this, but if the already slightly senile music industry doesn’t want Apple to right the rules for the subscription streaming market in the same way it did with a la carte downloads then they should stand their ground. They should look to pull their content from the iTunes platform or at least stop the impending Apple streaming service from launching. Services like Spotify, MOG, Rdio at al. won’t be able to afford to give £3 per month to Apple whilst giving the lions share to the labels. The aforementioned must also avoid backing down on what they take from music subscriptions just to make this work under the Apple dictatorship or they’ll end up bending over again while the Cupertino giant gets its way.