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When GAAP and MSM Intersect: Business Catches up to Demand for Software UpdatingBy Lori SylviaEVP Marketing, Red Bend Software We envision a world where software updates occur every second of the day, improving the mobile user experience while generating additional value for mobile providers. The technology is here today to enable this vision, with OMA DM servers adopted widely by tier-1 and tier-2 operators globally and with about half of handsets already supporting over-the-air software updating. Now, the business environment is catching up to market demand for software updates, as reflected by some recent changes to GAAP (Generally Accepted Accounting Principles). In the old days when hardware ruled, consumer electronics manufacturers would sell a device and recognize the sale of that device in that month. Then, software got more sophisticated and more essential to the functionality of a product. If OEMs delivered software updates to the device after it was sold, it meant OEMs had to spread the revenue recognition throughout the device’s lifetime. Years ago, we heard more than one OEM cite the accounting implications if they were to deliver FOTA updates. FOTA technology was used primarily as an insurance policy to prevent a product recall. But soon the leading OEMs and operators realized the strategic value of delivering continuous software updates. Today, FOTA is much more than fixing defects. It’s used to deliver new features as well as to improve a device’s performance. New advancements in the technology enable updating individual software components over the air (SCOTA) on-demand to support consumers personalizing their device with new applications and services. Software updating has become an important way to keep consumers satisfied with their mobile service and loyal to the experience they get from their handset maker. Changes to the GAAP rules now allow manufacturers that are delivering software updates to recognize more revenue sooner, even if they are offering those updates free of charge (otherwise bundled in the original price), and even if the contents of the software updates are unspecified at the time the original device is sold. One of the most vocal advocates of this change has been Apple. The company provides free software updates to iPhone users. Because some of the value of the iPhone is delivered after the product’s initial sale and because the software updates are not sold separately, the former GAAP rules forced Apple to bundle the value of the iPhone with the software updates and spread the revenue over the 24 month AT&T subscription term. Now, Apple and other manufacturers will be able to separate the value of the device from any future software updates. The product’s sales can be recognized in that quarter, while only the value of the device’s future software updates will be deferred. Software updating is becoming increasingly commonplace in mobile phones and is spreading quickly to other wirelessly connected devices. New business models will emerge that capitalize on this powerful capability to meet the increasing demands of mobile consumers. Mobile devices are no longer static products whose functionality is set when the device ships. Mobile Software Management is the key enabler that allows mobile providers to deliver more value to their consumers throughout the entire mobile user experience. Labels: accounting, Apple, ATT, FOTA, GAAP, iPhone, Red Bend Software, SCOTA
Reflections on 2008; Anticipation of “the Day After”Yoram SalingerCEO Red Bend Software Reflecting on 2008, unquestionably the state of the world economy had a significant impact on the mobile ecosystem. As such, mobile technology companies, especially handset manufacturers, are changing the way they conduct business. They will be cautious in the first half of 2009, reducing spending, controlling operations, and preparing to react as the economic crisis continues. They will cut the expectations of phone shipments to the market, as they did in 2008. Consumers are also changing their behavior. As a result, the replacement cycle of the phones will change; consumers will not be purchasing new mobile phone models or upgrading as often as they have. In 2008, we saw this occur in Japan when the operators abandoned their subsidies. As a result, there was about a 40 percent decline in new mobile phone purchases. Japanese operators are now faced with severe competition to retain customers and acquire new ones. In 2009, they will need to offer new services to boost their revenues and look overseas to grow their customer base. Despite the slowing pace of replacements, mobile phones are perceived to be essential parts of our lives, no longer a matter of convenience. For some consumers, their mobile phone is their only communication device. For others, it is has become a platform for commerce and socialization. While some OEMs were especially hit hard by the economy, others flourished. Take Apple and its iPhone. Apple has stayed on top despite the financial crisis. They have done this because they cultivated a great experience. And core to this great user experience is the additional applications that Apple offered. During the summer of 2008, Apple announced it had generated $30 million in one month by selling 100 million downloads from its Apple App Store for its iPhone and iPod Touch devices. The proliferation of other mobile application storefronts like Google’s Android Market, Microsoft’s Skymarket, Nokia’s Mosh and the Ovi initiative is allowing consumers to freely customize their phones with new applications and services. The expected result for these companies is noteworthy. For example, the App Store alone is expected to be a $1.2 billion business by the end of 2009, states investment firm Piper Jaffray. Even though Apple evolved as a significant player with an end-to-end proprietary system, it has several obstacles to confront. How will the iPhone reach Nokia’s level of mass market shipments? How will Apple evolve long term in the industry? Apple was not the only disruptive force in the mobile industry in 2008. Open source software changed the economics of the mobile platform in 2008. There was the Google Android launch and the birth of the Symbian Foundation. Because OEMs will build more phones on Android and Symbian, these platforms will become more community driven. But the big question is: Will the manufacturers release the code back to the industry, further driving collaboration and innovation while decreasing costs, or will they leverage it to their advantage? For 2009, both consumers and mobile companies will be careful with their money. But when consumers are ready to make that purchase, they’ll find more compelling options than ever before, specifically increasingly affordable smartphones and new kinds of innovative wireless devices to surf the Internet or read an electronic book. According to ARCchart, by 2013 non-handset devices—everything from data cards to game consoles to ebooks and M2M applications—will account for $93 billion in service revenue generated by operators. This is an exciting area of growth for our industry. Mobile software management will provide device manufacturers, mobile operators and ISVs greater flexibility and control over managing a device’s software throughout its lifecycle. They will be able to create new revenue opportunities and improve customer satisfaction through personalization. Features can be offered for a one-time fee or through a subscription service. Further on the bright side, we will see some recovery in 2009 because at the end of the day, the mobile phone is a lifestyle product. By 2010, there will be 4 billion mobile phone subscribers. Their mobile phones have become sophisticated computing devices—equipped with powerful software, enabling rich user interfaces and advanced features and applications, from streaming video to location-based services to music players. And these rich capabilities only serve to further integrate the mobile phone into our daily lives. Have you ever left the house without your phone, and not gone back to retrieve it? While there is certainly a level of fear, uncertainty and doubt, companies that prepare for “the day after” during this economic downturn will be the visionaries. The first to react will be the thought leaders because they will be able to identify opportunities through partnerships, mergers or acquisitions. These are the companies that will be proactive with feeding the market with new platforms, devices, features and services. And Red Bend Software will be one of those companies. Labels: Apple, device management, Google, mobile, mobile software management, Red Bend
Apple Changes the Rules (again)…By Richard KinderVP, Technology Red Bend Software Another day, another business model innovation from Apple. Having shaken up the mobile world with a reported strategy of taking a cut of ARPU generated by iPhone users, Apple is now monetizing its software assets in other device types.
Not only would these improvements benefit the user experience, but making updates available more frequently and more conveniently (when not at home, for example) could help to drive the attach rate up and generate Apple additional revenues from device software. Labels: Apple, Google, iMac, iPod, iPod Touch, software
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