Massive Disconnect Between App and Physical Layer Business Models

There is a massive disconnect between revenue and cost drivers in the mobile content ecosystem, and that disconnect now has to drive strategy for some of the providers in the ecosystem.

Consider only the key difference in metrics used in the advertising, content and commerce industries and the networks business where it comes to “usage.”

For advertisers, marketers, content providers and commerce businesses, what matters is user engagement (where they spend their time).

For advertisers, content providers or e-commerce providers, minutes of use (engagement) matters, since the markets move to where the users are, and where they spend their time.

For network facilities operators, capital investment comes first, where it comes to looking at usage, since usage primarily is a matter of capacity.

For “pipe providers,” it is the volume of bits consumed that matters. In other words, how much traffic, and where it flow, matter first. Only secondarily does “revenue” enter the discussion. Capacity must be deployed where there is need for it, and only secondarily because that correlates, more or less, with revenue.

For content providers, advertisers and e-commerce firms, usage means direct revenue opportunity; the chance to reach large audiences.

For transport and access providers, time of engagement matters only scarcely. What really matters is the volume of usage, since there is a weak relationship between “volume of usage” and “volume of revenue.”

So there is a big business model disconnect. For advertisers, content providers and commerce providers, usage creates direct business opportunity.

For transport and access providers, usage first creates need for capital investment, only secondarily revenue opportunity.

In other words, for app layer or “business layer” entities, “time invested” drives several business models, ranging from advertising to e-commerce. As the generalization suggests, “money follows attention.” So the attention itself creates revenue potential.

For physical layer facilities providers, “time” hardly matters, while “volume” is everything, primarily because volume dictates investment. But volume only indirectly creates business opportunity.

That provides one more bit of evidence that business models--and revenue--increasingly lie in the applications and services people want to consume over the internet, and not the pipes that connect people to their content.

It also suggests why “moving up the stack” or “moving up the value chain” is so important for tier-one service providers. For small providers of access, even that option is mostly unreachable. For providers without scale, only cost control and marketing prowess will matter.
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