• Price: Price-insensitive markets (e.g. most of North America and Europe) view their phones as jewelry. At $99  (iPhone 3G) it is not a very expensive piece of jewelry.  Highly price sensitive markets (Southeast Asia and South America) will see Android coupled with copycat devices.
• Carrier Distribution: Carriers remain a vital distributor in most markets. They have financial (generously provided by OEM and web companies) and strategic (keep Google honest) incentives to distribute multiple platforms.
• Open Platforms Win: An overstated arguement.  The 20% of apps that matter will get ported to all platforms with over 10% share and the 3-4 incremental days that it takes to get an App into the iPhone App Store is annoying but mostly inconsequential.  As the mobile browsers continue to expose more device APIs the Android is open argument wears thin.   OK, so you say well I want to go really deep into the mobile OS and create my own layer above the OS.  There are very few companies who have the resources and skill-sets to do this. OEM’s like Motorola are trying but don’t have the right skill-set.  The companies who have the resources and skill-set to this are the exact same companies who have launched their own mobile OS.
• Data Lock-In: Data you create on your device will not stay on your device the same way that data you generated on your PC 20 years ago remained there.  As the world moves to the cloud in 2010 these client level data lock-in advantages are muted.   More important are the cloud based data lock-in (e.g. Y!Mail, Gmail, etc.).  The device is just access point.
• Application Lock-In The argument goes something like.  Users spend lots of money on Apps and music and given these investments will be locked into the platform where they made these investments. To build significant application lock-in users will need to be spending far more then $50 a year on Apps [source].  Recall, to create strong switching costs 10 years ago users spent hundreds of dollars on Microsoft Office, Adobe Creative Suites.  Could it really be anything less?

[For good history and insight into mobile fragmentation see Richard Wong's TechCrunch post and presentation]

But for me, the iPhone has become like those pair of jeans that grow so comfortable you just don’t want to give them up.   Given the hundreds if not thousands of weekly interactions one has with their iPhone it becomes part of your muscle memory and switching to a new mobile platform (i.e. new experience) becomes a significant investment in time and energy.  This is experience lock-in.  This lock-in is likely stronger then PC experience lock-in because your mobile phone is an extension of your body in a way that a PC is not.

I know people who can barely use a PC to send email but would never give up their Blackberry or iPhone.  Apple has a significant experience lock-in.  Can it capitalize on this quickly enough in some of its key markets (North America, Western Europe, and Australia).  The $99 iPhone is a good start.

To create higher levels of defensibility they need more deals per city. With only a deal a day per city (~50 or so cities) the activation energy a competitor needs to catch up is fairly small (sales force and some search marketing spend).  If they had more liquidity on the supply side (thousands of deals per day) it would be very hard to create this kind of supply with a sales force.

PS:  I highly recommend Quora.com.  If your following the right topics and people the conversations are thoughtful.  Ping me if you want an invite.

• Clear why I am getting this email:  ”You signed up for our list via Coda”
• Empathy:  ”we’ll write at most a few times a year, and only for big news.  No minor updates. We know your Inbox is crowded.”
• Call to Action: The button entitled “Unsubscribe from eList” is embedded prominently in the email.  I don’t feel like they are trying to sneak anything by me.
• Short and Sweet: See for yourself.
• Formatted for PC & Mobile: Most of my email consumption is happening on my iPhone and they nailed it.
• Simple graphics: No big and splashy images, just some elegant graphical accents.

Mobile Advertising

• Mobile coupon redemption will hit $6B by 2014 according to Juniper Research [source].  Unless there is a new compelling scenario (e.g. eBay scenario helped create PayPal) this will be a very slow road.
• Mobile will grab 11.7% of all digital ad spend by 2014 [source].  Mobile ad monetization is actually an area where lots of product innovation needs to happen.

Carriers and Connections

• Mobile carrier wireless data revenues grew 27% y/y in Q3 2009 hitting $11.3B. While AT&T (with exclusive iPhone) is growing their data revenues fastest 6% q/q, but Verizon and Sprint are not far behind 5% q/q.[source]
• T-Mobile (33M customers) even with some nice G1 Android phones lost 77,000 customers for the first time in history [source].
• WiFi Hotspots hit 1.2B connections growing 47% in 2009 [source].  This is obviously good but big opportunity to provide centralized authentication and billing.  Its crazy that you need to create an account and enter credit card for each WiFi Hotspot provider.

Mobile Devices

• In 2010 over 1B mobile devices will connect to the Internet vs. 1.3B PCs that are connected to the Internet. Mobile devices growing 2.5x faster then PCs so it won’t be long before more mobile devices are connected to the Internet then PCs. Happening incredibly fast.  [source]
• 200M “Smartphones” (iPhone, Android, etc.) will ship in 2010 [source].  One smartphone generates as much data usage as thirty feature phones so this is analogous to shipping 600M feature phones [source] In my opinion this divergence will increase dramatically as the content (apps and web services) improve over the coming years.

1.) Upfront License Fee:

• The most common due to the early success of the iPhone App Store infrastructure.
• Easy to grok for consumers - you pay $X you get this product.
• No trial period limits addressable market - some people need to try before buying.
• In the App Store there has been downward spiraling of prices towards $0.99 - without a runaway hit (1 million downloads) it will be very hard to make a living.

2.) Paywall (aka In-App Purchases)

• Another form of a license fee, yet a delayed one that encourages some level of trialing.
• Exposes additional content to the user e.g. a new level of a game, increased functionality, and more content (e.g. more article)
• Early data indicates a 1.9% conversion rate [source]

3.) Virtual Goods

• User purchases goods within the service e.g. more poker chips, equipment in a mob game, car accessories in a game, etc. These work well within role playing games where humans dress-up their personalities with paid virtual clothing. Game-makers also intentionally devise ways to slow down key actions within the game triggering an impulsion to purchase goods to save time.
• Zynga reported <3% conversion rate across all games [source] (I would suspect that mobile games have higher conversion rates given the tight purchasing integration)
• Com2U reported 35% conversion rate for their HomeRun3D app which far higher then the industry average [source]

4.) Search & Display Ads

• Most advertisers are simply extending their search & display ads to mobile without customizing them [source]
• With mobile search volume increasing dramatically (30% q/q and more in countries like Japan) and improved ad customization tools (AdMob has made good progress) advertisers will start to customize their mobile ads [source]
• If you believe the pundits mobile search ads will dominate 70% of mobile advertising by 2014 [source].  If this happens I believe this is due more to the familiarity advertisers have developed with the search product and convenience of extending their existing ad campaigns to mobile.  Recall, display ads dominated Web 1.0 simply because they felt like ad products advertisers were used to buying in the offline world.

6.) Leads into Brick n’ Mortar Shops (Going in the opposite direction)

• Most ads aim to connect users to a virtual event - a web page to buy, download, or register for something.  This goes in the opposite direction; it is an ad category based on connecting consumers to a physical presence in order to complete a transaction in a brick n’ mortars establishment.  Other then OpenTable that has built a profitable business in this space everything else is experimental:
  • Click-to-call (Google, Yahoo, and AdMob support yet oddly value a call the same as a click. Calls are less prone to fraud beyond other benefits)
  • Nearby product inventory set-aside (Krillion)
  • Restaurant reservation(e.g. OpenTable)
  • Redeemable coupon/deal (Foursquare, Loopt, and many others)
• With the exception of OpenTable determining the probability that a consumer completes a transaction in a brick n’mortar shop after clicking or calling is ad-hoc, at best.
• Apps like FourSqaure and Loopt are experimenting with redeemable coupons that simply require a user to show their coupon (from their phone) at the point of purchase.  This is a viable boot-strapping solution in the short term, yet over the long term it does not provide the level of data accuracy or freshness needed to build profitable campaigns.
• Getting these ads to scale will require frictionless ad management tools and accurate and real-time data that provide merchants their true customer acquisition costs, otherwise their ad spend will be guess-work.  With retail store operating margins of 2% [source] too much guess work is lethal. Getting to scale means providing advertisers accurate and fresh data that only happens with direct integration with point of sale systems.
• With millions of OpenTable reservations happening via mobile devices OpenTable can transition from a flat $1.0 per reservation to a dynamic pricing model.  Consider the following scenario:  if a user is on their mobile, a few miles away, looking for a table for three in a few hours when 35% of your restaurant is expected to be empty, and the average diner spends $20/head isn’t that reservation worth more then a $1.0?

7.) Promote Myself Ads (aka User-Based Advertising)

• A form of a personal classified ad that allows the user to promote the thing they care most about: themselves.  So far, there is nothing inherently mobile about this product yet early data suggests that users are more willing to spend money on this type of product when using their mobile device: a Flirtomatic mobile user is 3 times more likely to spend money with Flirtomatic then a web user [source].
• Flirtomatic’s user-based-ad products encourages a user to submit bids in order to promotes their profile to the top of the search results for a 4 hr period. The CPM rates for this user-based-advertising are 3-4 times the CPM of brand ads [source].

8.) New Ad Formats: Mobile Video

• Beyond text and simple display ads there is a market for mobile video ads that provide a deeper sense of the product or service a user is considering.  If your getting off an airplane in JFK after a long flight the last thing you want to do is sit in a smelly town-car for one hour in traffic.  A 15 second video ad showing you the cars and drivers, the number of available cars that could be waiting outside in 15 minutes, and ratings from recent customers would help you decide which car-service to use. Furthermore, it allows the car-service to compete on something other then price — service.

• TheFind.com daily queries from a mobile device increased from 5,000 to 200,000 [Source WSJ]
• PayPal mobile payments increased 650% y/y since Nov. 16th PayPal Mobile has done 500,000 transactions [Source WSJ]

As more data becomes available will add it above.