Tim Harrison, Vodafone - Part Three

We used to have our own in-house testing system, which was effectively outsourced, but it was a very strict and proscriptive list of capabilities and performance levels we expected of all our applications. Back in the spring, we actually announced that we were joining the Java Verified Programme as well, as a partner. So we've been working very very closely with those guys to come up with a set of criteria that we were confident would be satisfactory to our needs, but also could be used in a wider industry sense. Basically, we ask that all our content now goes through the Java Verified Programme, which we've been very pleased with.

It's perhaps a sign of the market's immaturity that we, as effectively the retailer, amongst our other duties, are having to take responsibility for what should be an internal QA function, if you like, in a more traditional gaming environment. There is a line one has to be careful one doesn't cross over, because at the end of the day we can't take total responsibility for the end to end production of a game. However, we are managing all our content providers much more closely now, so we do actually sit down with them and they communicate to us timelines of when they expect to do alpha, beta, gold master versions, this kind of stuff, and we kind of sit along side them throughout the process.

At the end of the day, our customers, if they download a bad game off Vodafone Live the first person they look to for redress is Vodafone. It's not the game publisher. It damages the brand of the game, of course it does, but it also damages the Vodafone brand. That's why we think it's very important at this stage of the industry to keep a very close grip on quality. We are seeing companies out there who are consistently delivering very high quality games, both in the sense of gameplay and also in the sense of bug-free code and that kind of stuff.

The guys who can come up with really strong IP, deliver the games on time so we can get them to our customers when we tell them we're going to get them to our customers, minimal number of issues over bugs or games that fail to download or fail to run properly. That, I think, is something that is improving but needs to continue to improve if this market is going to start calling itself a maturing market.

Well, I think that one of the things we've tried to avoid doing is putting too much into there that is subjective. We don't want to tell a decent game developer how to create a game. That's not our core competency. However, where there are areas that it's very clear that our customers want certain capabilities out of their phone, then we want to share those with them.

An obvious example is something that might not be regarded as a bug, but we ask that all the games that we provide have a very easy way of turning the sound off. It's one of the most obvious things about a mobile game that when you start a game up, very often you don't even want the music to start - and a lot of the best developers are now putting screens at the beginning, so one of the first questions they ask you is "would you like the sound on or off?". So you're not sitting there, pretending to send a text from a meeting when you're actually playing a game, and all of a sudden... [laughs]

By the same measure, something that we've pushed very very hard for and is now really industry practice, is having multi-language SKUs. Splitting a game into its five constituent languages - English, French, Spanish, German and Italian for example - multiplies by five the workload in terms of operations. Yes, when phones had very small memory footprints it was challenging, but that's one of the areas we've been pushing very hard.

So, they're not necessarily requirements, they're not necessarily things that are tested against, but they're messages that we've been trying to communicate. Now that we've moved to the Java Verified Programme, which is an industry standard programme, a lot of that stuff that we originally asked for has now gone into that, so it is standard - but then again, also, some of the stuff has been removed, and we perhaps rely on a more commercial judgement to ensure that we get what we feel the customers want.

Oh totally! We consistently refuse to take games where we don't see the quality as being good. However, once we have accepted a game, we don't want to be meddling. Once we have accepted something into our process, we will make suggestions, in the way that a producer might make suggestions, but our gatekeeping comes at the early stages when we're presented with a concept. We look at track record - we look at the publisher and developer's track record. If we know that they've got a history of producing great content, then obviously that gives us a much higher degree of faith in how that product is going to turn out six months down the line.

The revenue share that Vodafone operates on is a figure that has come about by us looking at what our contribution to the value chain is, looking at the various functions that we perform within that, and looking at what the publisher or developer does within that value chain - looking at the conventional retail and distribution model, and moving that over. That's why the revenue share that we operate on, we believe, is the right revenue share.

However, it's absolutely correct that over the months to come, over the years to come, as the industry develops, different bits of that value chain will be performed by different players. So yes, I think that there naturally will be a shift in the way that revenues are split. It might even be that revenue share is a great model for an early industry, but it's not necessarily the best model for an industry in a state of maturity. For example, in the music area, where we run our full track service, the commercial deals there are not done on a revenue share basis - they're done on the basis of an agreed price per download, which is a model that makes more sense for that particular service.

Revenue share is always going to be something that's going to move around. Where we are at the moment, what we contribute to the value chain, what the rest of the industry contributes to the value chain - we believe the revenue share is correct. As the industry develops, as we see an increase in off-portal activity - where the content provider takes on more of the responsibility from a technical perspective, takes on more of the responsibility from the marketing perspective, takes on more of the risk - then obviously we may need to see an adjustment in the revenue shares to reflect the change in responsibility.

As I said, I think that as content providers take on more of the risk and the responsibility, then there's an argument to have a conversation about the revenue share. But certainly, in terms of Vodafone Live, our proposition is an end to end proposition, whereby we're responsible for a greater degree of the value chain than we are in an i-mode style environment, for example.

That's the reason; that's the chief reason for the revenue shares being different there, fundamentally. Vodafone Live is a service which is on-net - it's something where we're responsible for the hosting, we're responsible for the content delivery... We're responsible for a lot of elements that the i-mode service doesn't offer. Now the revenue share for i-mode - I'm not going to argue with O2, that's probably the right revenue share for the level of service they're offering. I believe that we need to have coexistence of all those services in the industry to actually grow it as a whole. I don't believe that we need to change the revenue share for the on-net proposition to drive the market forward.

I think if you ask anybody, they'll always say that they would prefer things to be cheaper. I don't think anybody is going to come to us and say "I would like things to be more expensive." So there will always be a continual downward pressure on prices to try and grow the customer base.

I think there are some games that are overpriced - but I think the fundamental thing comes down to quality. I think we need to raise the level of quality and therefore raise the value for money. I don't believe that there's anything wrong with the pricing as we have it at the moment. I think it's the right level of pricing, but we need to ensure that the level of consistency of quality is higher so a customer knows, roughly speaking, what they're going to get for their money. I think that's the most important thing the industry needs to redress.

Again, I come back to the point about the breadth of customers that you have. There is a proportion of customers who regard the current pricing as extremely cheap, I'm sure! There's equally a proportion of customers who think they're far too expensive and would never even consider spending that amount of money on a game for their phone. You can't make a general point about whether prices are too high or too low. We're happy with where they are at the moment, but we're the first to say that as the capabilities of the handsets improve, as the amount of money that needs to be spent on development improves, as the type of gamers that can be targeted - their seriousness about the gaming element of their phone - as that shifts and as that changes, we may well need to look at price, absolutely.

I think the industry has reached a certain phase whereby it has had a strong and steady growth in customers in the past three years. I think we're now at a phase where we've got a few catalysts that, if we handle them correctly, will really drive our customer base and the number of users into the next level beyond that.

I think chiefly it comes back to my point about quality. I think the actual quality of mobile games, and the quality of the end to end experience, needs to continue to improve to really start driving more mass market customers into it. I think certainly, the growth of 3G services, the increasing penetration of 3G devices -- which not only are in general better game playing phones, but they also offer better browsing and portal experiences - I think the growth of that will really help to start driving that. We need to see an equivalent growth in terms of the quality and the investment that goes into the content itself.

We still have a very fragmented industry out there. Consolidations have been happening, VC money has been flowing over the last six to nine months more into a mergers and acquisitions type situation rather than a start-up situation. But I think we need to see a continued consolidation in the market and increased investment in the quality of games, just as Vodafone will continue to invest in the quality of its terminals, the ease with which the customer can access content.

A difficult question to answer, because I don't want to upset anyone! I think though, there's no question that the five key European markets are the major markets for games - but that doesn't necessarily mean that they have, on a per capita basis, the most successful markets for games. Certainly, the UK and the German markets are very successful markets at the moment. However, the Spanish market has been growing significantly over the last six months as well, and you get markets like Greece, for example, which perform disproportionately well.

One of the things that we need to try and get to the bottom of is to work out exactly why this happens - but it does tend to be cyclical to a certain extent. You will find times when the UK is outperforming Germany, then Germany will outperform the UK - it's a constant friendly battle between those two markets to see who's number one at any given time.

So certainly, the five major European markets - but we're also seeing significant growth in some of the smaller markets as well, which is very encouraging.