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The Amazon Strategy

By Brian Carter, Vice President, SapientNitro

Who will control the mobile experience, and how will they do it?

The mobile evolution

The changes taking place within the mobile space are nothing less than fast and furious. The current
trends surrounding mobile are likely to impact all our clients and their online and commerce
strategies. Let’s dive right into the analysis.

First, what do I mean by “mobile?” For this discussion, mobile refers to portable, network-connected
“smart” devices — primarily smart phones — but it can also include other classes of devices to
the mobile category like the iPad and Kindle. Players include (but are not limited to) everyone from
platform vendors to commerce vendors to advertisers. Amazon, Verizon, Apple, Nokia, RIM, Google —
the list goes on and on. It seems that everyone has a finger in this mobile pie.

And, besides the fact that everyone wants a piece of mobile, growth is rapid. From a platform
perspective, the tide is lifting all the boats, although some more than others. For example, one
platform making leaps and bounds is the Android. One that’s not? Windows Phone 7.

Related to this is the quick shift to “smart” devices. The Nielsen Company reports that in Q2 of 2008,
only 10 percent of the U.S. population used smart phones. By the end of 2011, it is projected that 49
percent will own smart phones. This is an exciting time for the mobile landscape, and it won’t be long
before smart phones become the dominating platform in the mobile arena.

The disruptive consequence

Mobile carriers, platform vendors, hardware makers, and service providers are desperate to control
your online experience — and your data. The result of this evolution is and will continue to be fairly
disruptive. The power of these smart mobile platforms is driving a shift toward task-specific apps
versus a generic browser experience. It’s worthwhile to ask the question: How do people consume
content now? The move to mobile represents a major shift in how customers are accessing and
consuming information. It’s also important to note that mobile bandwidth usage is skyrocketing, which
puts extreme stress on carrier networks.

Current trends in mobile evolution

Three trends stand out currently as the most dominant.

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1. Carrier relevancy
Carriers are terrified of being marginalized like a lot of their wireline networks. They do not
want to become “dumb pipes,” where consumers are simply running the applications they
want to run and are not interested in vendor-specific add-ons. In an attempt to avoid this,
vendors often customized phone features to tie users to carrier offerings that are redundant
and usually inferior.

Someone who’s doing it right is Sprint. This company is starting to understand what their
customers are looking for and differentiating themselves from the other networks by building
a faster network, aggressively rolling out 4G, and bundling data, voice, and messaging plans at
more cost effective levels. Consequently, they are turning around many subscriber problems.

Someone who’s doing it wrong is Vodafone. They recently rolled out an update on the HTC
Desire. Users anticipated an update to version 2.2 of Android (i.e., Froyo) but instead got
Vodafone’s 360 services. Some of these services could not be uninstalled. Perhaps a year ago,
it wouldn’t have mattered because users didn’t have an expectation that their mobile devices
would be upgraded over time. But this result was different. Vodafone had to roll back the
update and were forced to allow users to opt in to their 360 services. The bottom line is that
users want standard platform experiences (e.g., Android, iOS, etc.) and not vendor specific
features that constrain user choice.

2. Net neutrality
Wikipedia defines net neutrality as “a principle … that advocates no restrictions by Internet
service providers and governments on content, sites, platforms, the kinds of equipment that
may be attached, and the modes of communication.”

Net neutrality proponents argue that they paid for access and want to use the applications
they choose. Opponents (often the networks themselves) argue that they own the networks and
should be able to set the rules. Up until now, net neutrality hasn’t been relevant. But in
the mobile world, limited bandwidth and numerous conflicting business interests are
creating issues.

One issue is that carriers are not uniform in the treatment of certain types of data,
applications, and devices. For instance, most carriers restrict the use of Skype in order to
protect their revenue from voice plans. And, for quite a while, AT&T prevented iPhone users
from using Slingbox (it allows the user to connect to a cable box and watch TV on their
portable device) over 3G. Evolving policy around net neutrality is likely to remain a low priority
for clients now but should be watched closely.

3. Integrated ecosystems
What we’ve seen in the mobile space is the process of figuring out what to sell, and then
figuring out how to build an ecosystem around it in order to drive a unique experience for
the customer. Let’s take a look at three cases that take different approaches.

Google’s mobile strategy

Google is in the business of selling ads. Android was created to help Google sell more ads. Their
strategy is to provide a free platform, in which they can exert some control and protect their ability to
drive advertisements.

In order to foster a more ad supported application platform, Google has made it difficult for application
developers to sell applications. In many countries, it is not even possible to sell apps through the
Google marketplace. Only 13 of the 46 markets that have an Android marketplace even support paid
applications. In contrast, Apple supports paid apps in 90 countries. Consequently, 57 percent of
applications on Android are free (ad supported) versus only 28 percent for Apple’s iOS platform.

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Apple’s mobile strategy

In contrast to Google, Apple is in the business of selling hardware. In order to help sell iPods, Apple
licensed music catalogs and created an experience around consuming and organizing content within
iTunes. Over time, movies, apps and e-books were added.

While it seems like Apple would make huge revenues off of iTunes and apps, they are happy to break
even on content sales in order to drive hardware. And Apple’s solution has proven very sticky for users.

However, Apple’s legendary insistence on control has resulted in friction with content providers.
Time Magazine is one example where tension with Apple is running high. The magazine is running into
barriers while trying to implement subscriptions to their digital edition through iTunes. A magazine’s
holy grail of data is to get subscriber demographics, which they use to maximize their advertising rates
and target advertisers. But Apple’s desire to control customer data runs counter to magazines’ need for
customer demographic data. So, the question remains — who controls the customer relationship and
the customer data? Issues around the gathering and use of PII (personally identifiable information) are
likely to remain a thorny area since all parties have something to gain from controlling the customer
relationship.

Amazon’s mobile strategy

Amazon is in the business of selling “stuff.” In particular, Amazon sells a lot of books. In order to kick-
start the e-book market and stake out a dominant role, Amazon created its own hardware, the Kindle.
Before this, remember, the e-book market was nearly non-existent. So, like Apple, they got into the
hardware market. It’s interesting to note that Apple built media to support hardware, but Amazon built
hardware to support media.

Amazon then made a brilliant move unlike either Apple or Google. Once they had established the
market, they divided the Kindle division into two; one group focused on software and the other on
hardware. The software group adopted the Google strategy: get the software on as many pieces of
hardware as possible. And the hardware group had to compete on the merits of its products. In other
words, Amazon could, if market forces dictated, drop its hardware and continue to focus on a core
business, which is selling e-books.

Closing thoughts
Telecom and platform vendors, handset and computer developers are positioning themselves to
provide mobile solutions that allow a high level of influence over users. And our media clients face a
dizzying array of issues around licensing, subscriptions, and advertising. The current trends in
mobile are impacting how we all shop online, consume content, connect with friends, and all other
aspects of Internet life. It will be interesting to see how it all plays out in the next few years and bears
close watching.

ideaengineers.sapient.com

Brian leads Sapient’s Delivery Shared Services Team which is responsible for
providing teams the tools, infrastructure, and technology services needed to
support clients. Brian is also responsible for Sapient’s private cloud computing
infrastructure and delivery risk & compliance programs. Joining Sapient in 2001,
Brian spent two years in the Government Services business before taking on a
variety of global roles related to methodology, risk, technology, infrastructure,
and compliance. Brian is a member of Sapient’s technology leadership team.
Specific areas of interest include software development methodology, mobile
computing, and consumer technology trends.

© Sapient Corporation, 2011