The future of the mobile internet: An interview with Arthur Goldstuck

I had breakfast with internet guru Arthur Goldstuck this morning and, together with Avusa’s Colin Daniels, we got into a fascinating debate about the future of the mobile web and internet. Eventually calls will be over the internet as opposed to the traditional cellular networks, and perhaps we may even see the end of the SMS, to be replaced with IM. Coupled with this, you could expect mobile call costs to plummet. You can also expect that mobile internet useage will far exceed that of desktop computers. This is happening in Japan already where their present is the rest of the world’s future:.

Here is an interview I did with Arthur based on our discussion:

1. What is driving mobile internet growth worldwide?

There are three basic drivers: one is the improving capability of handsets to access the Internet. E-mail on a cellphone is almost a given, and web browsing is beginning to go that way. The second driver is the explosion of content and applications that allow users to get more out of the handsets and also to personalise them and turn them into extensions of their identity, as well as gateways to a world of information and personal management. The third driver is the great need in unconnected regions to access the kind of information, tools and communication that the Internet makes possible. That will be a major driver in Africa.

2. In Japan more people access the web via mobile phones than desktop computers… do you see this trend taking hold elsewhere, and in South Africa?

In the long term, the Japanese experience will be repeated everywhere. In the short term, everyone will be wondering how it happened in Japan but nowhere else. The answer lies in the business strategy implemented by NTT DoCoMo at the turn of the century, the low penetration of the Internet among Japanese youth at the time, and the combination of graphics-based phones and compelling content – made possible because there were enormous financial incentives for the content owners from DoCoMo, which in turn gave Japanese phone users endless reasons to go with these graphics-based phones at a time when the rest of the world was marvelling at washed-out colour screens. So it is not a trend that will come naturally in other parts of the world, and certainly not in South Africa. But bring down the cost of data access, and provide an enabling environment for development of compelling content that appeals to the grassroots user as well as the urban sophisticat, and you will see the trend at least beginning in the short to medium term.

3. When do you predict internet access via mobile phones to overtake internet access via desktop computers here?

If you analyse the numbers, rather than go with what sounds obvious or desirable, you discover that there is no short-term likelihood of Internet access via cellphones overtaking access via computers (laptop and desktop). Right now, we have about 4-million Internet accessing it via computers, and probably a maximum – optimistically – of 4-million people who have cell phones that would allow them to browse the Web. The experience on the current generation of phones is dismal, so we certainly won’t see en masse conversion of that current user base to phone browsing in the next three years. However, the new generation of phones emerging now makes browsing a much more comfortable matter, and probably every purchaser of a new phone from this year on will be using it to access the Internet. Run the numbers, and you find it will take 5 to 10 years for cellphone-based Internet access to even approach the level of Internet-based access. Ten years from now, the Internet will be geared as much to mobile devices as to desktop or laptop devices, however those may appear a decade from now. At that point, it will be no contest. The handset will be the default device for accessing the Internet.

4. In the future… will calls be mostly internet based and will we be using IM rather than SMS?

Yes, Instant Messaging spells the end of SMS as we know it today. The patient is dead, but doesn’t know it yet, so the corpse is still running around the hospital wards. The saving grace for the networks is that, as with Internet access, most phones in use in the market do not support most IM applications. They are all preparing for the inevitable, though, with both MTN and Vodacom introducing IM – but largely in response to the huge success of MXit, rather than because they see it as an opportunity. SMS revenues will continue to climb for a while, but when IM begins to cut into them, the pricing model for SMS will change radically, new uses will be found for it, and it will probably be resurrected for a second life.

5. Will the business models of traditional mobile network providers come under pressure in the future as users are increasingly able to bypass the networks by, for example, connecting to a rival Wimax or Wifi network and making a call over the internet?

There is no question that most cellphones in the future will be capable of using WiFi or similar to access the data stream, which means that they can use Voice over IP and IM to bypass the networks’ main revenue sources. Business models will have to change radically to leverage the data stream and drive volume of usage of data to make up for declining revenues from traditional calls. But to do this, the price of data must keep coming down, rather than going up, and that mans margins will be under constant pressure. It is clear that the network of tomorrow will not look the same as the one of today. But bear in mind that the networks are less than 15 years old – another 15 years from now, they would need to have evolved regardless of what the data stream allows. This is one of the reasons for Vodacom launching a major ISP and MTN Network Services eyeing Verizon Business in South Africa.

6. Is this why some mobile network providers are investing in ISPs?

See above.

7. Do you think cellphone calls in the future will be a lot cheaper as a result of the internet?

They will have to be cheaper, or they will be bypassed.

8. Are the handset makers and the cellphone networks the media companies of the future?

No, they are the media platform providers and enablers. The media companies of the future are the content creators of today, including record companies, book publishers and lonely bloggers. The networks are in the business of connecting people. Yes, they do believe they will become media companies, and the likes of Vodacom have tried hard to prove they can do it, but they can only get away with it now because they are able to control so many aspects of their customers’ phone lives. Once the data stream is opened up to cellular users, the genie is out of the bottle, and the bottle maker can no longer also be the genie. Media is about content. In the 1990s, the mantra on the Internet was that “content wants to be free”. That’s not true, even if consumers of content want it to be free. But content does want freedom to travel the data stream. Content needs signal. The networks will provide the signal. The handset manufacturers will provide the hosting device. The three entities can all do very nicely off each other, if they don’t fall for their own hype about owning the entire value chain.

9. Mobile networks and handset makers use their ownership of the platform and channel to direct their subscribers to their own web and media properties. Is there a competition issue here?

Yes, this is an unsustainable model. By opening it up, they will grow the pie for everyone. By keeping it closed, they will strangle their own blood supply.