Ringback tones the new killer ap? Is that new?

We actually found this Reuters/Billboard piece reproduced on the New York Times and read it with the feeling of a mother seeing her little daughter come home with her first drawing. After hearing for years that Ringback tones were big in Korea, then in Asia (article from Red Herring in 2005), the US of A are finally starting to catch up. Well done.

Reading the Billboard piece, where it all sounds like a great innovation that is finally coming mainstream thanks to the efforts of operators and music majors, we could not help but think that more than one important pieces were missing from this article. Let’s look more closely:

First, ringback tones are an old story

They started in 2002 in Korea and quickly reached over 40% penetration. We know this quite well and even co-published a report on this phenomenon in early 2005 (“Mobile music best practices from Japan and South Korea”).

Second, the “WiderThan Division” of RealNetworks deserves more respect

WiderThan used to be a subsidiary of SK Telecom, the leading mobile operator in Korea, and was sold to RealNetworks in September 2006 for 350 million USD. We think the main reason was that WiderThan had great platforms and know-how but had trouble selling them overseas. Well done for RealNetworks (and SKT).

Third, the claim that “the key to expanding the format is marketing” is very lousy

Why is that? One way to explain this is to talk about ringtones:

• Ringtones did not need marketing to succeed (actually, we tend to think that most successful mobile services do not need marketing – but this would require a longer explanation)
• Ringtones spread virally
• Ringback tones are much more viral by essence: anybody who calls you hear it, and people who call you tend to know and trust you (vs. ringtones that random people around you hear)

So ringback tones SHOULD spread much faster than ringtones, if only by their viral capabilities.

In addition:

• Ringback tones are a network-based service, which means you don’t need to change anything on the handsets to spread it (vs. need to customize ringtones to dozens or hundreds of handsets), so the technical barrier and production cost is even lower.
• As a network-based service, there is no download! So no network speed problem, or difficult ten-steps operation. So the usability is also much better.

All this already shows that Ringback tones are a service that is very superior to ringtones on many critical aspects. But there is more!

The fact that ringback tones succeed only now illustrates quite a few interesting things

If ringback tones are so good, why have they not spread earlier? Especially since it was a proven money-maker in several advanced markets. Well, here is the start of the sad behind-the-curtain story. It starts with looking at what the barriers for ringback tones to be implemented are.

One important point for ringback tones – being a network-based service – is interoperability: I am with carrier A, you are with carrier B, if I cannot hear your RBT, the perceived value of the service is much lower for me (and zero for you). It is the same with SMS: if it is not interoperable, it is much less useful. While it is as clear as Wahaha water to people dealing with social networks every day (and aware of Reed’s and Metcalfe’s Laws), it is not to telecom people who are used to walled gardens.

In addition, if ringtones were using mostly music scores to sell MIDI-like music (so no real need to negotiate with music labels), ringback tones usually make use of original recorded music, so no way around talking to labels. Being conservative beasts, it takes ages to build a decent catalog and one-stop-shop for users.

We won’t comment on price points – operators being unnecessarily greedy with any content or service mostly because they consider separate service P&L (“I am the music service manager”) instead of looking at the overall value of innovation in terms of indirect revenues such as gathering new users or raising the data ARPU. SK Telecom in Korea and KDDI in Japan understood that perfectly with music. The rest of the world’s mobile operators are still stuck in the “let’s make money from music!/games!/etc.”.

Another point is that ringback tones are essentially a 2G service. The problem with that? Well, if you release a new funky service on 2G, you are not going to help migrate your users to a 3G network this way, it might even keep them happy for another 6 months to a year! So better not do it too early, or – why not – let’s label it a 3G service, customers don’t really know what is 3G anyway so why not use label “3G” a 2G service and use it to promote 3G :-) ? Only lonely experts will laugh at the irony.

To summarize, the success of ringback tones is:

• Proven for at least 5 years in South Korea
• Not primarily due to marketing, as it is viral
• Limited by interoperability, songs catalog (sometimes also sound quality), price point and strategic decisions to not launch or not promote the service

Again, congrats to US carriers and record labels. It seems that blindness to Asian markets only delayed this success by at most 5 years. Ringback tones are super great as they essentially cost nothing to produce and distribute aside from a few platforms and servers here and there in the network, so the margins are totally indecent (like ringtones and SMS – and of course much better than CDs!).

To conclude, we would like to mention a recent meeting with a very large telecom hardware and software provider. We met with executives of this company about ten days ago and they were telling us about the trouble they have selling their RBT solution as when they talk with operators outside Asia, their prospects all say “yes, we know RBT, it’s an Asian thing. It’s not working here”. We could almost continue the story in our head with “…because Asians like karaoke”.

Of course our comment was that we could help build a case explaining how RBT can succeed outside Asia. The Billboard article comes just on time and is a marvelous illustration of what we call the “Not-invented-here Spiral of Oblivion” (until we find a better name for it – to join the list of Wikipedia’s cognitive biases).

The spiral goes like this:

• First make fun then stereotype a foreign thing
• Re-invent it later
• Have it spread
• Forget the whole story to start over with another case.

It happens so that Asia have seen a lot of cases follow this path. Among our favorite examples (we are happy to prepare case studies for interested customers):

• Text messages
• Ringtones
• Screensavers
• Ringback tones
• Games
• Games for girls
• Full song downloads
• Online casual games
• Digital goods (read our free sample cases on Cyworld and QQ)
• Citizen journalism

But there is more to come!

• Human-powered Internet search
• Meta-blogging
• Content scrapping
• Personal resource planning (PRP)

Explanations on those new concepts (from Korea) will come in a future post. To learn a bit more, feel free to visit our presentations on slideshare.