Thursday, October 18, 2012

Internet Now Affects Most Businesses in Same Way as "Deregulation" Used to Affect Some Businesses

Historically, formerly highly-regulated industries have faced major deregulation with some predictable results. Virtually all highly-regulated industries, whether formal monopolies or not, have had high cost structures, typically because rates and service quality were regulated. 

Deregulation has lead to needs for lower cost structures because competitors attack with lower prices. Typically, profit margins also drop, even when gross revenue does not.

Industry boundaries also tend to change, as new suppliers enter the market, as entities are allowed to compete in new geographies, serve new customers or provide products prohibited in the past.

As a result of revenue, profit margin and other competitive pressures, legacy market leaders are never completely happy with their share of ecosystem revenue in a business that either is contracting, or undergoing major restructuring, as the global telecom business surely is experiencing. 

You might say that a major business impact of the Internet is that it effectively represents a "deregulation" of just about any business it touches. It leads to all the functional marketplace changes a highly-regulated industry faces upon deregulation.

New competitors enter the market, profit margins fall, industry boundaries are changed, products and pricing strategies are altered as new pricing competition is introduced.

In fact, of the dozen or so changes a newly deregulated industry will face, competition from players outside the industry is commonplace. These days, the effective impact of the Internet is that it “deregulates” all industries, businesses and processes.

In the global telecom business, there have been complaints for years from telecom executives that third party app providers build businesses on the back of telco-provided access services, but that the access providers do not share in the revenue created.

In a potentially new development, some application providers might be taking a similar view, sensing that they create huge value for telcos, but do not participate in the access revenue stream, for example.

Strand Consult now speculates on whether Facebook, for example, is willing to look beyond advertising as a source of revenue, and whether Facebook would become a mobile virtual network operator, as a way to create a new revenue stream, as well as recapture some of the value it believes it is creating in the ecosystem.

As some have speculated about the value of Facebook creating its own branded smart phone, Strand Consult now speculates about the value of Facebook becoming a service provider.

Becoming an “MVNO is a logical step for Facebook the world’s largest communication platform,” Strand Consult analysts argue.

One billion users already consider Facebook as their de facto telephone book for friends and family and use the platform for communicating by SMS, text, image and video, the firm argues.

Aside from its huge user base, Facebook has credit card credentials on file already for millions of its users, many of whom purchase premium games, driving one sixth of Facebook’s revenue.  

How much could Facebook earn as an MVNO? Facebook currently earns annual revenue per user of $4.  An MVNO can earn between $10 a month and $50 a month per customer with an operating margin between 20 percent and 25 percent.

The global telecom industry has over the last few decades been formally deregulated. But most industries eventually will discover the Internet has effectively deregulated their industries as well.

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