http://www.mortgagebankers.org/tools/FullStory.aspx?ArticleId=20520#full
By Mark P. Dangelo
Recent announcements by Apple and Google on their application requirements and revenue percentages for consumer channels have publishing firms determining their subsequent actions – business models, content dispersion, and yes, legal recourse.
However, what is really at stake, underneath these growing number of announcements is not just revenue, but who really controls the channels and points of contacts for consumers. Who, in the end, influences and manages the consumers’ information, behaviors, credit, products, and services? Has the “i” revolution become a paid, invite-only revolution?
Coming on the heels of FCC net neutrality rulings, it appears those who offer mobility devices have a license to monopolize consumer channels and the devices attached to them via Wi-Fi and 3G/4G. In essence, mobile operators have freedoms to deny or grant access.
When viewed discretely – mobile technology advancements and net neutrality – these events seem unrelated. When taken collectively and in their entirety, it appears that 2011 has quietly ushered in the “Channel Battles.” Or, “how much will it cost you” to stay connected across the matrix of discrete channel types and maturity phases once understood to be free?
As groups and industries awaken to the realities too late, the convergence of market events now starts to represent a case of regulatory obfuscation. As we are now learning, there are “unintended and systemic consequences” far beyond the public demons of “evil bankers.”
Why is this Important?
It would be a mistake to think that net neutrality and vendor determined channel segmentation is only about the traditional fixed transport carriers. After all Apple and Google are not carriers.
With the latest FCC rulings issued, the network providers (e.g., Verizon, AT&T, cable companies, mobile operators, reconstituted RBOC’s) are now contemplating the business benefits on how to slice and dice the networks between “free” and those providers who pay extra for content pull and push (i.e., mobile). Selectivity and certifications now appear to be vehicles to govern channel accessibility.
Making the regulatory guidance less rigid and confusing, are those “traditional” fixed players offering both capabilities (i.e., fixed line and mobile) especially for the “last mile.” The FCC rules are complex – hence the potential for channel segmentation and a demand for mobile revenue sharing arrangements. This brings us back to the new criteria from groups like Apple and Google to require revenue sharing arrangements for their consumers and virtual networks – your customers and your applications.
In short, the idea of an unfettered channel to reach consumers is quickly disappearing regardless of regulatory intent – obscured by proprietary devices, tightly controlled app stores, various definitions and mobility options, and the insertion of multi-level channel brokers who filter information and identities depending on how much is paid.
In today’s globally interconnected societies increasingly dominated by knowledge and social information flows, the advanced consumer channels (and customizable delivery devices) will likely become the most important part of the value proposition for financial services during this decade. It is precisely these growing and wondrous outlets (principally mobile) where the battle for profits and market share will be waged.
As we know, if you control the channel, you control the relationship. And, in case you are wondering, mobile operators and app stores can apparently be as open or closed as they desire — as deciphered from the latest FCC rules. So how will financial services offerings, on-going support, customer information, and after-sale support be delivered in this world – at what cost?
New Wonders, New Players, Unfamiliar Arrangements
With predictions that Apple alone will control in 2011 perhaps over 70% of the emerging tablet markets and 27% to 35% of personal multimedia devices, advocacy groups are starting to cry foul over a perception of channel abuse.
We have seen reactions like this before. In the prior decade, politicians and industry organizations targeted Microsoft, IBM, Oracle, and others – those who formed the backbones of the fixed networks and point-to-point infrastructures of the past. As we go to print with this column, we can already see senior government officials trying to “review” the language within these new, unfamiliar agreements.
However, it is still too early to use the “anti” word (e.g., anti-trust, anti-competitive, et al) in markets and against the new generation of innovation vendors.
Why? These new consumer targeted markets are still undergoing hyper-expansion, while in an embryonic growth stage. Tablet computers are projected to capture 20% to 30% market share in just another two to three years – cannibalizing their success from a very slow growth computer market sized at 350 to 400 million units per year. The opportunity for new players – Samsung, Motorola, LG – in tablets alone threaten to change the channel discussion (as these new devices are rumored to be using Honeycomb, also known as Android 3.0).
But, to believe that rising concerns are about devices ( tablet or smart phone) operating systems would be a blunder. They are not like the PC’s and consumer usage patterns of the past. Technological advancements have created new profiles and accessibility options, which are tightly controlled and delivered via mobile or wireless networks. These new networks that regulations allow to impose restrictions, fee structures, and application certifications go far beyond what has governed electronic data exchanges since Judge Greene issued his ruling in 1982 to break up the old AT&T.
If we accept that the devices are just catalysts to entrench consumer relationships, the full concern of channel access becomes apparent. Organizations that control the information flow and access to data and information can wield new powers and profits that seemed unimportant back in 2007 when the financial crisis began.
Ask yourself, what will it cost in the future to deliver secure, certified financial applications when you have third-party channel brokers involved? Will these same brokers become competitors since they already have access to consumer finances via their app stores? How will their knowledge of buying patterns influence their promotion of existing and future competitors? After all, they have the data. They develop and control the relationships. They set the fees that are charged to consumers and to those seeking access to these growing markets.
It sounds like a model recast from Wall Street where they once controlled the data, created the marketplaces for exchange, had access to the consumers, and made money regardless of investor or corporate positions. Perhaps the exchange consolidations underway around the globe should take note.
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The financial services industry is on the cusp of a new perfect storm, which is forming across very unfamiliar markets. The channels are being throttled by events that when taken separately are of only minor irritation. When holistically linked, the threat to channel access becomes very clear.
In a song about 2112, in the end it was said by upstarts who challenged the establishment and overthrew the traditional power brokers, “…we have assumed control …” It appears that the channels of communications are rapidly being controlled – albeit a century early.
As we all know and can witness from very recent worldwide events, those who can control the emerging consumer channels can dominate discussions, actions, politics, and economic outcomes.
For businesses, a failure to address the fundamental shifts already underway will have pervasive and dire consequences against a shrinking homeowner base, rampant oversupply, zealot financial services regulators, and aging domestic populations.
The on-going, caviler approach to third-parties assuming control of the channel should have everyone concerned – especially within financial services. It begs the question, “Is advocacy only needed to deal with a challenge once it has become a problem and a roadblock?” Who is fighting for our future?
If left unchecked during 2011, it is easy to foresee tens of billions in yearly fees being paid to third-party channel providers for access to customers – your customers.
For an industry struggling with recovery, this is the last thing we need.