This article by Marek Pawlowski, founder of MEX and Editorial Director at PMN, explores the strategic changes required to expand mass market usage of mobile services, looking at the importance of fully understanding the definition of user experience, the companies best placed to succeed and the reality of the iPhone impact.

Capability is different from compulsion

The mobile telecoms industry has succeeded in innovating tremendous technological capabilities. The range of applications and services which can theoretically be delivered over wireless networks is staggering. However, there has been a collective failing in the mobile business to evolve from delivering capability to delivering compulsion. Quite simply, the vast majority of features go unused by most customers.

This crucial difference springs from an inability to put the customer view at the heart of the industry, resulting in business models which focus first on rewarding the creators of particular technologies rather than meeting the needs of users. It is this attitude which constrains the adoption of new services by a wider audience, promoting an approach whereby companies feel their job is done once they have produced a stable technology. The industry spends many billions each year on R&D to create new products, but has consistently failed to deliver them to the market in a compelling way.

The real impact of Apple’s iPhone

The arrival of Apple in the mobile industry has provided both a provocation and a benchmark. Here is a company which prides itself on an abilility to create irrational desire for its products among customers. It has also proven itself adept at commanding premium pricing and building a business model which allows it to profit from delivering a complete package of hardware, software, services and content. Of course, Apple is in the lucky position of having deep pockets, no legacy mobile telecoms portfolio to constrain its approach and a pre-seeded market of existing Apple users almost guaranteed to buy a few million iPhones.

With the amount of press coverage Apple’s iPhone has received, much of it speculative and inaccurate, it is easy to imagine the significance of the product has been overplayed. Network operator executives and senior management from the handset industry have become practised at repeating their PR department’s standard iPhone quote: “It is an interesting product, but even if they hit their targets for sales it will still only represent a tiny fraction of global handset shipments…” This same spin has been repeated in various languages thousands of times since the iPhone launched and yet, for all their protestations, the old guard of the mobile business is rapidly trying to restructure the industry to replicate Apple’s integrated approach. People are quickly waking up to the reality that 100 users who buy a whole range of additional services are more profitable than 1000 who just want cheap voice.

The iPhone is a great example of how to move from capability and compulsion. There are already tens of millions of users out there equipped with Windows Mobile smartphones and high-end products from Samsung, Sony Ericsson and LG. All of them are capable of accessing a wealth of additional software and services, but we know from various independent studies that iPhone users are much more likely to utilise additional non-voice services. Where other handset manufacturers provide their users with the raw capabilities, Apple offers users a compelling reason to explore new things.

Is the iPhone App Store a revolution?

Much has been made of the iPhone App Store, which provides direct access to a central catalogue of software and services from the handset itself. However, this is neither a new concept (most operators and manufacturers have been offering something similar for many years) or the whole reason why consumption of additional software and services is much higher on the iPhone. Indeed, first generation iPhone users were already compelled to use many more features and spend much more time with their handsets long before the App Store was available.

Apple’s ability to compel customers to do more comes from a complex blend of advertising, user interface innovation, developer relations strategy and, to a lesser extent, new technology. It works because in all of these areas Apple has never lost sight of the customer perspective. New features have sprung for an ability to see the world through the customer’s eyes, to understand the nuance of their experience, rather than a need to introduce new technology.

Understanding the true complexity of customer experience

This is what we mean when we talk about the complexity of customer experience. It is not something which can be radically improved overnight by introducing a great new user interface or changed by hiring an industrial design firm to create a cool new form factor.

You could transplant the iPhone UI and App Store into an equivalent Nokia or Samsung handset and it wouldn’t succeed without the myriad other elements which comprise Apple’s overall experience.

Users are not compelled to do new things by the arrival of new technology alone. Creating or enabling new behaviours needs the complete package of usability, promotion, partnerships and service. An apt metaphor is the chef who spends weeks in the kitchen perfecting a new recipe and then neglects to provide his diners with cutlery or tables, let alone serving staff to deliver it to the plate. The cuisine may be extraordinary, but it is nothing but extraordinary useless without the components which complete the experience.

When a product like the iPhone attracts so much mainstream media attention it is easy to see why it becomes the focus of so many industry editorials.

Which companies are best positioned?

However, many of the moves which may have the most profound impact on the mobile user experience are occuring outside of Apple. Nokia, for instance, is moving with surprising rapidity to transform a sprawling multinational focused on technology R&D and supply chain efficiencies into a modern, customer-focused products and services enterprise.

The fruits of this transformation are only just starting to appear, but they are springing up more and more often as the pace of change accelerates. In the space of about 18 months, Nokia has moved from a strategy built around churning out devices based on its own platforms to a new approach where the platform is essentially commoditised, open and available to all – the new differentiator is Nokia’s ability to identify customer needs and deliver complete packages of hardware, software and services which meet those desires.

There are already some great examples. SportsTracker came out of Nokia’s new Beta Labs project and has proved a huge hit, providing users with a way to record their journeys, workouts and tourist trips using GPS. On its own, this piece of software is relatively uninteresting, but Nokia has coupled it with a web-based interface which allows users to upload their routes into a Google Maps mash-up, share them with friends and keep a journal of all their trips. It has also integrated a photo geo-tagging feature, so any photos taken on the journey are overlaid on the route map.

Nokia has succeeded with SportsTracker because, as a handset manufacturer, it has been able to put all of the components in place at the right time: it has specified GPS on many of its handsets to provide the crucial hardware technology, it has invested in developing the web interface and pre-installed the client application on its devices. Crucially, it can still afford to make SportsTracker ‘free’ to the customer, because it has developed the operational efficiences which enable it to derive sufficient profit from the hardware sales to cover its software development costs.

The forthcoming ‘Comes with music’ offering is another example of Nokia applying this new business model to deliver a great customer experience. The proposition is very simple: when you buy a compatible Nokia handset, you get get unlimited access to a catalogue of downloadable music for a year. At the end of the year, you can keep the tracks you’ve downloaded and choose if you want to extend your subscription to continue accessing new music.

New business models favour forward-thinking handset manufacturers

The beauty of this approach is in the way it is marketed to the consumer. From the customer perspective, the idea of paying a premium to purchase a desireable piece of hardware is perfectly acceptable. The logic of the transaction makes sense: money in exchange for goods. Many customers will, in fact, perceive the ‘Comes with music’ service to be a ‘free’ benefit. Of course, the customer is actually paying a reasonable price for it, but that cost is embedded within the hardware sale, so it seems like its free. In doing this, Nokia neatly avoids the big stumbling block which prevents so many users from exploring additional elements of the user experience: if they don’t perceive it to be free, they won’t use it! Ask anyone under the age of 30 when they last actually paid for a piece of music and you’ll see why this is so important.

The old model for delivering capabilities (click for full version).

The new model for delivering compulsion (click for full version).

This is why there is good reason to be bullish about the prospects for Nokia, a hardware manufacturer which has caught this wave early. If Nokia continues to manage its supply chains and manufacturing costs with its customary excellence, the company will be one of the best placed players within the industry to lead the move from capability to compulsion.

As a manufacturer, it is well placed to drive the necessary technology and usability changes and it can make money even when it provides most software and services at a price the consumer perceives to be ‘free’. Operators and content providers simply don’t have the business models to do this. As long as customer perception continues to align with the idea that the greatest value is in the physical device, the handset manufacturers will be best placed to capture the lion’s share of the value.

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