In late nineties, there were only a few established Internet success stories in the consumer space like eBay, Amazon and hotmail, which in fact became the basis for billions of dollars of investment into probable success stories. Almost a decade hence, It is hard to say, if they were accidental successes or were designed to succeed. Never the less, they could not show the way to the others to succeed.
Dot Com crash was certainly not the first and the last market bubble to burst. The others with a similar history include The Tulip and Bulb Craze (Holland -1634-1637), The South Sea Bubble (UK – 1711), The Florida Real Estate Craze (US – 1926), The Great Depression (US 1929) The Crash of 1987, The Japan Real Estate Crash (1989), The Asian Crisis (South East Asia- 1997), and The Dotcom Crash (Worldwide – 2000-2002). One thing that all these crashes have had in common is that a hyped value bubble was allowed to build till it became unsustainable. Each of these crashes went through some what similar stages – lead up to the build, bubble building, soaring stocks, free spending, tightening of belts, crash and aftermath.
In general when the balance between the money invested and tangible value of the business gets disturbed beyond recovery, the crash becomes inevitable. The key driver for the imbalance is the stock price, which may not reflect the actual state of the health of the business but when the truth dawns, everyone start tightening their belts. Often, this is either too late or is counter productive and instead accelerates the impending doom.
In the case of dot mobile, it is currently in the bubble building stage, where the VCs and the private equity funds are liberally pouring money into new technologies and service provider initiatives. The truth is that the global market has only experienced a very few successes in the last five to six years including ring tones, ring back tones, SMS and Blackberry. SMS is still the single largest generator of mobile data revenue, contributing as much as 75% to the mobile data revenue in most markets. It is also true that the established operators are launching new mobile data services left and right, hoping that at least one succeeds.
Today, the status of mobile data is not very different from that of Internet in late nineties. There were hoards of technologies and so were the technology vendors and technology service providers, each obsessed and harped technology and not what the customer wants and will adopt. The imbalance between the investment and the return came from the fact the user adoption was either hyped or much over expected. The entrepreneurs and investors today as well as at that time failed to recognize that more than 80% of any market is made up of technology conservatives, who are excited by technology but take their own time to adopt it. The real returns from these technologies come, when the users integrate them into their lifestyles and businesses.
The story is in fact repeating, the operators and service providers are not giving out the true usage picture of their mobile services that could be used to gauge success. The criteria used by some is that if a subscriber has used a service, even just once, during its life cycle, is considered a user and is added to the list of the users. The others are a little more pragmatic and consider a user that uses a service at least once in a month is an active user. The other trick is to offer these services at a very low monthly subscription say a dollar or two. The users often get excited by the technology and opt for a year long contract but barely use the service once or twice during the period of the contract. Even if the users do not get into a year long contract, they do not mind being billed a few dollars for a service that they have subscribed to but are not using. A new scam got just reported on the Australian TV – one of the largest ring tone companies in the world was flooding mobile phones with unsolicited ring tones and then was getting their users billed through mobile operators. The charges appear as a single line item on a bill, which often gets overlooked. The message is if you “can’t sell them” then “at least bill them“. Call them scams, bubbles or hypes, they do not last for very long – the Australians are now revisiting their bills and asking for their money back.
If we look back, the B2C businesses suffered much more in the dot com crash than the B2B businesses. As matter of fact the Internet based B2B businesses kept growing, though at a slower pace, even after the crash. The technology adoption in B2B scenarios is relatively quicker because the “boss” or the “bottom line” wants it.
The question now is when will the mobile bubble burst or will it burst at all. The best thing that can happen to it is that the technology obsessed investments in mobile data businesses may experience a correction – the wisdom may dawn upon the promoters to have a more pragmatic approach towards balancing investments vis-à-vis actual returns. The other factor that can avoid this crash is a realization among the operators that they require high technology marketing models to design and build value propositions of their mobile data products and not the mass consumer market models that they were used for voice. Failing to do that, it is a crash that has to happen in 2010, plus or minus a year.