Mobile VoIP About to Explode?

Mobile VoIP Forecast

Mobile VoIP subscribers will grow from 47 million in 2010 to almost 410 million by 2015, Infonetics Research forecasts. That is not a good thing for service providers.


Mobile service providers globally earn about $500 billion a year providing voice services.


In 2010, mobile operators made $13.21 per user, per year, from mobile VoIP services. That works out to about $1.10 per user, per month, demonstrating how little revenue there is to be made from over-the-top mobile VoIP services. Mobile VoIP forecast.


Consider that, even after a 20 percent decline over the last three years, monthly average mobile revenue is about $27.77 a month. That points out the complicated business impact of IP telephony and VoIP. 


So what happens if 363 million more mobile VoIP users are active by 2015? Assume the same revenue metrics for the additional 363 million mobile VoIP users, which is $13.21 per user, per year, compared to a typical payment of $27.77 a month for legacy voice services, or $333.24 a year.


If the 410 million mobile VoIP subscribers use nothing but VoIP, they would spend $131 billion less with mobile service providers than they used to.


That suggests a loss of about 26 percent of total mobile service provider revenue in four years. Mobile VoIP About to Explode?

Content Ecosystems are Unstable: Watch Amazon

Most observers, looking at the matter of online or over the top video, and its potential impact on cable TV, telco and satellite video providers, will grasp the potential for disruption in the video business. Music and print content businesses already have been "disrupted." Could books be next?

Some will argue, with the rise of Amazon.com, and the demise of Borders, that the disruption already has happened. But some think additional far-reaching disruption is coming. After all, changes in distribution are one thing. But new patterns in product development and creation are perhaps more fundamental.

In Amazon's case, some would argue that the Amazon.com brand, back office, logistics operation and now Kindle devices allow Amazon to become a publisher, not just a distributor. To use the analogy, perhaps Apple iTunes becomes a music publisher; Google becomes a media company; Comcast becomes a studio; Verizon Wireless becomes a bank or TV network.

That should immediately strike you as a dangerous example of growing channel conflict, and you'd be right. Amazon has the distribution network and growing success in e-book publishing building blocks in place. Above all, the trade publishing houses seem to lack Amazon's ambition, some might say. Amazon might want to make money from the entire publishing chain, not just distribution.

Indeed, one reason content ecosystems are unstable is that as revenue and profit margins compress, expanding into an adjacency in any ecosystem starts to make more sense. There are potential conflicts, to be sure. But the lure of incrementally-important revenue and the ability to raise margins can be irresistible. 

Does Amazon Want to Monopolize The Entire Publishing Chain?

OSI is a Business Model

The Open Systems Interconnection model (OSI model) is the foundation for the way all software gets written these days. But the OSI model also is, in many ways, a way of describing the current communications business ecosystem as well.

The OSI model idea structurally separates seven functions, with "application" at layer seven and physical layer at layer one. That should strike you as describing the relationship  between  "over the top" applications of every sort and the network used to deliver the app.

As applied to any business using a software-heavy product, that means there can be a separation of facilities, entities using facilities to create "communication" or "content" services, and application creators. The form will follow the function, you might say. 

For software developers, service providers and consumers and users, the advantages of using the OSI model are numerous. OSI Model 

Features and apps can be created or changed without requiring modification of other parts of the complete communications "stack." In other words, a user can switch from one supplier of a word processing or instant messaging app to another without "changing networks." 

If a user wants to switch from Microsoft Office to Google Docs, that doesn't mean a PC or network access provider also has to be changed. 

A user can switch from one device to another without disrupting use of desired apps. Twitter should work on any brand of smart phone, or any brand of tablet or PC. 

At one level, everybody in the ecosystem wins. Because there is a compartmentalization of functions, changing one app for another, or a wireless network for a fixed network connection, should not disrupt use of an application. 

It's harder in practice than it is in theory. It still isn't easy to start a session of some type on a single device, then seamlessly transition to a different network and another device, without disrupting the session.

Some of you will quip here that it isn't always easy to sustain a single session, on a single network, using a single device, either. That's also true, but is not a defect of OSI! 

However, in principle, and over time, in practice, a user should be able to start a session of some sort (voice or video or Web app) and then maintain the session even when switching from one network to another, from fixed to mobile, for example. 

But there also are clear business implications. Though in the past networks got built to support one major application, these days networks are simply built to support any type of application, whether that is voice, video, Web sessions, text, documents, photos, music or any other types of digital information.

These days, it is technologically possible, and increasingly will be possible in business terms, to deliver anything, to anybody, on any device, in fairly elegant way at times, in reasonable ways at other times. That has serious business implications.

It means that firms "not in my business" can get into your business. Competitors increasingly do not need to "own and control" all the assets used at every level of the OSI software stack, including the physical layer assets. 

By the same token, think of collaboration using voice, messaging and web assets as an application. Webex is one example, but so are phone calls. A layer seven app can be run over any compliant network. You might note that bandwidth on every network is not yet consistently sufficient to support a collaboration app in such a way. That is true, but also changing. It won't be a problem much longer. 

And whether it is yet widely understood, or not, sooner or later app providers whose major products include entertainment video, voice, hosted PBX, videoconferencing and messaging will want to deliver those applications over the top. That also has implications.

In the legacy world, physical layer access was a matter of geography. A supplier needed permission from a government authority to operate a network, to support an application. Cable operators needed municipal permission to build a network to sell television. Telcos needed certificates of convenience and necessity. 

Cloud computing and OSI, plus widespread and universal broadband, changes much of that older model. A company that might also be a telco or cable company or ISP, might or might not "own" physical assets when creating and then delivering applications. 

A  product of the Open Systems Interconnection effort at the International Organization for Standardization, the OSI model is a way of allowing developers to create software in an abstracted way, without having to know all the details of other parts of how a particular network works. 

It also is an analogy for the way the communications and entertainment business already is starting to change. "Over the top" is not just something "other companies" do. It is something layer one asset owners also are starting to do. The only question, over time, is when over the top gets embraced more widely as "my" business strategy, not just "the other guy's strategy."

What is Twitter, Really?

What is Twitter? Sure, it is a "social network," but lots of people also say blogs are social networks. Initially, the idea was that Twitter was Facebook in 140 characters. These days, most observers would tend to agree that Twitter is something different, which only raises the question of "what" Twitter actually is.

These days, some would say, Twitter might be seen less as a social network on the Facebook model, but something that is as much broadcast network as a "social network." Of course, these days all social networks seem to be "media" as well as the digital equivalent of any real world place where people casually hang out and talk.

These days, the term "information network" seems to be the accepted term. Dick Costolo, Twitter CEO, says “there’s this huge opportunity for us to surface all this great content.” The difference might be subtle, but it's a bit like the difference between "what you doing right now?" and "what's happening right now?"

The former is an example of personal communication. The latter is "media."

Will Twitter Become Profitable?

Advertising is Revenue Model for Most Social Networks, So Far

Observers used to worry about how social networks such as Facebook, LinkedIn, Twitter and now Google+ would create a sustainable revenue model. So far, the answer has turned out to be "advertising." But there are some additional questions that arise from such asnwers. 


Sometimes it is hard to precisely figure out what business social networks are part of. 


Sure, at a high level, every business has the primary task of creating a customer. At a fundamental level, that's the "business" every business must master, with profits being the price of continuing to create and sustain those relationships. Beyond that, every discrete business can be categorized by its products, revenue models, technology approaches, geographies served, revenue and customer segments, among other potential taxonomic approaches. 


Google is a hard firm to characterize, for example. It makes its money from advertising. Normally, if you ask what sort of company makes its money that way, the answer is "media." But Google always says it is a technology company, not a media company.


There are reasons. Valuations of media companies carry lower multiples than technology companies. The content Google wants to index comes from content and media companies that aren't comfortable with the idea that Google is a competitor. So Google has a couple of good financial reasons for positioning itself as a technology company, not a media company. 


But Google is the biggest technology company you've ever heard of that makes its money from advertising rather than hardware or software. It's just hard to categorize. The issue isn't exclusive to Google. Is Apple a media company because it sells music, video and games? 


Is Amazon "just" a retailer now that it creates and sells Kindles, and sells magazine, newspaper, book, music and video content? 


Back to the original question, what is a social network? Social networks make their money on advertising. And what sorts of companies historically do that? Media companies. 

Social media revenue 

Twitter Ad Revenues to Near $400 Million by 2013

Twitter will earn $139.5 million in global ad revenues this year, up 210 percent from $45 million in 2010, according to a new forecast from eMarketer. By 2013, eMarketer estimates worldwide ad revenues at Twitter will reach nearly $400 million.

That will matter for most end users who like Twitter but don't want to pay a subscription fee. Advertising likely remains the most logical revenue model for many mass market applications and services, though the "freemium" model that builds on subscription revenue or commerce revenue seems to run a close second in start-up thinking.

“Since their debut in April 2010, Twitter’s 'Promoted' products have proven successful in the US,” said eMarketer principal analyst Debra Aho Williamson. “Marketers have shown solid engagement rates with Twitter advertising—in some cases better than those on Facebook—despite Twitter’s relatively smaller audience.”

Twitter Ad Revenues to Near $400 Million by 2013

"Unintended Consequences" of Financial Reform Laws

Bank of America Corp. plans to charge its customers a $5 monthly fee for making debit-card purchases starting early in 2012, the Wall Street Journal reports.

The fee will apply to customers with various checking accounts during any month they use their debit card to make a purchase. The fee will not apply to customers who do not use their debit card to make a purchase or who only use it to make ATM transactions. The fee also will not apply to customers in certain premium accounts.

Bank of America is trying to cushion revenue losses it expects to incur from new caps on the fees merchants pay when a customer uses a debit card at their stores. In June, the Federal Reserve Board finalized rules capping such fees at 24 cents per transaction, compared with a current average of 44 cents.

Other banks have introduced or are testing new fees in response to the debit-fee caps, which stem from a provision known as the Durbin amendment in last year's Dodd-Frank financial regulation overhaul legislation.

The moves illustrate the unintended consequences that tend to develop from "well meaning" regulation. The Durbin amendment ostensibly was an attempt to "protect" consumers and retailers from "high transaction fees." But the rules also represent an immediate $6.6 billion reduction in bank revenue.

So what will the banks do? Raise other fees to recoup the losses. Retailers might still be happy to pay the lower transaction fees. But the shortfall will be made up directly by customers.

BofA to Charge Debit-Card Fee - WSJ.com (subscription required)

You may remember the "Negroponte Switch," the notion that broadband services formerly provided "over the air" are moving to fixed network delivery, while narrowband services formerly provided by fixed networks are moving to wireless delivery.

The idea is over a decade old, but still resonates, with the added observation that video and broadband services also are moving to virtually all devices connected to the network.

See http://en.wikipedia.org/wiki/Negroponte_switch for background on the idea.

Still, some of the major business implications are becoming clear enough for some startling new predictions. PRTM, for example, now argues that, over the next decade, mobile networks will become the providers of "universal service," while fixed networks become specialist providers of video and broadband services, much as the Negroponte Switch" a decade ago would have predicted.

There are all sorts of implications. Fixed-line providers are going to have to work hard to ensure a significant role for themselves in the fixed-line broadband ecosystem, since so many broadband-based applications can be delivered "over the top."

:Read more here..

Startups: When Desperation Leads to Success

Angel investor Mike Maples talks in this video about "pivots," those gut-wrenching, desperate changes in business model that entrepreneurs sometimes make when things really aren't going well. Sometimes a beloved idea has to be abandoned or modified in serious ways to get to a larger business.

Pivots are really hard and painful to do, without a doubt. They aren't planned, they weren't intended or foreseen. But sometimes it is the difference between huge success and middling along. Pivots also are risky. They are emotionally hard to do, since it often means abandoning a dream.

Mike Maples: “You Have to Be Willing to Throw it all away”

In Case You Were Wondering Why Air Travel is No Fun

This chart pretty much tells the story about why air travel is not fun anymore.

Though one can make a good argument that it is better for the nation when more people can fly routinely, airline pricing has not kept up with the costs of operating airlines.

It is a business that in most years does not actually make money, for those reasons.

What Keeps Service Provider Executives Awake At Night? A Service Provider Survey by Metaswitch Networks - Thoughts on Carrier Evolution - Carrier Evolution

Service provider executives surveyed by Metaswitch Networks say uncertainty about new services and revenues, plus competition, remain the top concerns over the next decade. That has been true for most of the past decade, and the survey results confirm that the search for new revenue sources and the pressure of competition remain dominant facts of life in competitive and changing marketplaces.

The significant new difference is that telecom regulators—and what they might do—now are among the top three concerns. Of the three top concerns, though, only service innovation and the organizational response to competition are under direct control.

Click the image for a larger view. 

What Keeps Service Provider Executives Awake At Night? A Service Provider Survey by Metaswitch Networks - Thoughts on Carrier Evolution - Carrier Evolution

Net Neutrality is a Fight Over Ecosystem Revenue Share

The net neutrality debate is, at its heart, an argument about the distribution of future revenues in the broadband ecosystem. Sure, there are technical issues, such as how best to manage scarcity of bandwidth at times of congestion.

And there are legitimate concerns about potential anti-competitive behavior.

But at its heart the arguments are about gaining the best positioning with the new ecosystem. Were it not for mobile services, communication service providers would be in big financial trouble.

Broadband services have helped, but are a fraction of the voice revenue now dwindling away. To replace lost voice revenues, access provider broadband revenues would have to triple. To many observers, that must mean revenue shared with business partners, as it is hard to see end-user payments tripling.

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Gap Between Revenue and Bandwidth is The Heart of the Matter

One doesn't have to love, or even like, any of the communication providers out there to acknowledge that there is a key business problem here that directly affects any user's ability to get the most out of their communication spending and experience.

The global voice market is declining, first on the fixed line networks and now starting on the mobile networks as well. You don't have to care about that. But if you want better services, you have to acknowledge that if current revenue gets cut in half, then perhaps to a third, the people who run networks will have a hard time investing in better networks. This is not a matter of sentiment but of economics.

Everybody knows that the replacement revenues will have to come from the broadband, video, content mobile, data and commerce services realms. So the practical issue providers have is to scale the new revenues at least up to the point where voice revenue is now. Along the way service providers will have to cut costs as well, but the key issue is new revenues.

And the problem there on the bandwidth services front is that across all networks, revenue does not scale linearly with bandwidth supplied. Since nobody seems to think that can be changed too much, the burden of growth will come on the new applications and services fronts.

That means most issues related to terms of service or price of service are simply efforts to better match cost and revenue for the access part of the business. Nobody thinks the whole problem can be fixed that way, but it is part of the solution, in addition to deploying more-efficient networks and creating new services that people are comfortable paying for.

You don't have to love or like any particular service provider to hope service providers can figure this out. Unless of course you have a way of creating your own services.

What Becomes of Microsoft?

Investors largely believe Microsoft will gradually become the equivalent of a technology utility, a boring but necessary provider of the software that runs the world's business community, says Henry Blodget. A smaller, more optimistic crowd is still arguing that, one day, Microsoft will be able to turn its fortunes around, and fight its way back into an industry leadership position.

Blodget suggests a much darker potential scenario, where difficulties in the company's core operating system and Office franchises simply become less important in the world which seems to be developing, Blodget argues.

The Internet has continued to free app-makers from dependency on Windows or any other desktop platform while Apple's iPhone has revolutionized the mobile business, unleashing a whole new wave of personal computing devices.

Apple's iPad seems on its way to supplanting the low-end PC business.

Importantly, none of these trends depend in any way on Microsoft's original monopoly and cash cow, Windows, Blodget says. "Microsoft is nowhere" in mobile or tablets, he says.

Google, meanwhile, is trying to do the same thing to Apple that Microsoft did to Apple 15 years ago: Separate software and hardware and create a ubiquitous software platform for the world's developers to build

To be sure, lots of smart people thought that was exactly what would have to Netflix, and the doomsday scenario has so far refused to play out. But analysts get paid to analyze and create scenarios. This scenario might seem far fetched as anything other than a scenario many analysts get paid to imagine.

But it does illustrate the dangers for any dominant franchise when computing models shift, as nearly everybody now believes is about to happen. Nor does history offer much optimism. Never in computing history has the leader in one computing era emerged as a leader in the new era.

That will not stop firms such as Microsoft, Cisco and Apple or Google from trying. But they will have to make history to emerge as leaders in the next era.

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Does Moving Content Online Make Newspapers Viable?

Can you make an unattractive product attractive simply by moving it online? So far, the answer seems to be "no," at least for most newspapers with the salient exception of the Wall Street Journal.

Half or more of the circulation at most newspapers is composed of individuals who are aged 50 and older. This concentration means that newspapers on average have twice as many senior readers as exist in the population as a whole, and that, by logical extension, they are not engaging the younger readers that they must attract for a prosperous future.

There are implications here for the communications business as well. All products have a lifecycle. Several years we might have argued that legacy voice was a product in the declining part of its cycle, while VoIP was just at the start of its cycle.

These days, some of us might go further and argue that all forms of landline voice are in a mature phase in the developed world, and that mobile voice has become the replacement product, though mobile voice also is relatively mature in the developed world.

In part, it depends on how one defines the "market." One can argue VoIP is a new product, or view it as the latest version of an existing product. You would get different answers about where each of those "products" is in its lifecycle depending on your choice of definitions.

These days, I lean towards seeing VoIP as the latest version of an existing product.

Reflections of a Newsosaur: Make no mistake: Newspapers are still in trouble

Global Broadband Access Market Up to $414 Billion by 2020

The global broadband access market, including both fixed and mobile modes, will increase from $274 billion in 2010 to $416 billion in 2020, an increase of 52 percent, according to the Telco 2.0 Initiative and Disruptive Analysis.

More than half the revenue growth will come from wholesale and “two-sided” fees for improved access capacity and quality. This could include fees paid by business partners who want access to network service provider features and services.

By 2020, mobile broadband will be worth $138 billion, or 32 percent of the total broadband access industry revenues.

The analysts predict growth of “bulk wholesale” revenues, where capacity might be purchased by a third party as a component of some other service. Services provided to electrical utilities or other parties with telemetry needs are other examples.

“Comes with data” business models such as used by Amazon Kindle to sell content also will play a bigger role. Here, a product vendor or service provider contracts for data capacity with the broadband provider, and bundles it in a combined offer while the user does not have a subscription or direct relationship with the telco.

“Slice and dice” wholesale is more complex, and more controversial. This involves operators selling data capacity in fine-grained “parcels” to parties other than the user, who is typically also paying for some level of access.

This type of “two-sided” business model could involve deals with consumer electronics vendors for extra high-quality streams over existing broadband lines, or to content or application providers where they pick up the bill for data transmission rather than the end-user.

Any way one looks at the matter, it appears that various wholesale or enterprise revenues are going to be a bigger part of the overall mobile revenue stream in the future.

Mobile App Store Downloads 7X Bigger by 2014

Mobile app store downloads will increase by a factor of seven between 2009 and 2014, according to Pyramid Research. In 2010 Pyramid Research projects that 36 percent of paid apps will be downloaded through app stores and 86 percent of free downloads will take place through them.

App stores have become an important element in the mobile value chain in part because a wide range of easily accessible apps has quickly become a prerequisite for handset and platform vendors. Vendors also gain a new revenue stream, a powerful customer loyalty tool, an important gateway to additional revenue streams and an attractive resource for potential operator partnerships.

Advertising revenue is expected to play a big role in allowing developers to create revenue streams from free apps.

Developers will be the biggest winners, not only as they gain a higher portion of revenue but also because competition among stores will greatly improve support, payment terms and transparency.

Most third-party stores and aggregators will lose out over time to vendor and operator-sponsored stores, though Getjar might be the salient example of an exception to the rule.

21 Billion Mobile App Store Downloads in 2013

Mobile application downloads will  reach four billion in 2010, rising to 21 billion by 2013, says Gartner. Those downloads will be driven by worldwide smartphone shipments surpassing 390 million by 2013, growing at a rate of 20.9 percent per year.

According to Gartner consumers will spend $6.2 billion in mobile app stores during 2010, about 20 percent of all apps downloaded. There will also be $600 million dollars worth of advertising revenues generated by those downloads.

Gartner forecasts the total download revenue will increase to nearly $30 billion by 2013. The number of free or
ad-funded apps will increase to 87 percent by 2013. There also will be an increase of business models where the download is free, but there are additional charges associated with use of the applications.

In some cases users will have free access for a period, to be followed by purchase. In other cases users can use the free version, with limited functionality, but can get access to full functionality by upgrading for a fee.

Subscription services, or charging for content within an application are other revenue models. Some apps might also charge for access to new levels or areas within the application.

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Are Location-Based Services All Hype?

Location is a feature, not a business. Real-time and location-based marketing in all its forms might be the huge business many expect.But much attention at the moment is focused on the "research project" aspects of location, and not on the crucial issues of how to sustain the use of such features on a wide basis over time, and how to make it useful for average users. We aren't there yet.

Are Location-Based Services All Hype?

How are Telcos Like the London Times?

"Newspapers have found that chasing page views in the hope that advertising will save them is hopeless," says John Gapper, Financial Times columnist. And the newspaper industry's encounter with the Internet is very-much akin to the telecom, publishing, music and retailing industry's similar encounter: aside from removing a good deal of profit margin from the legacy business, the new Internet ecosystem will force providers to embrace new revenue models that supplement the traditional sources.

Where newspapers have had two sources--subscribers and advertisers--in the future they might require additional sources. Think about Bloomberg, for instance, which offers business information services but also television, radio, the Internet and printed publications.

Likewise, where most telecom providers have in the past had only one major revenue source, namely subscribers, in the future they likely must create additional revenue streams by providing valuable services to business partners, thus becoming "two-sided" or "multiple revenue stream" operations.

The point is that the Internet undermines the old revenue ecosystem and demands creation of a new model. It typically is the characteristics of success using the new model that remain murky.

Giving up on Internet-driven readership, News Corp. will soon put The London-based Times behind a firewall and even will prevent Google and other search engines from indexing the paywall content. television, radio, the Internet and printed publications.

The point is that News Corp has concluded there is no viable business model in the new Internet distribution system, save the closed model that essentially retrenches from wide Internet distribution.

Some might argue that is fundamentally what will happen with most service provider revenue from voice services as well. It will not prove viable except as a more-limited service more focused on some higher-paying customers, as much traffic bleeds off to free and low-cost alternatives made possible by the broadband accessed Internet.

News Corp estimates that the marginal revenue from an occasional browser is less than one tenth of a penny a year. Group M, the media buying agency of WPP, refers to the bulk of news surfers as “useless tourists” who not only pay nothing but have little advertising potential.

“Free distribution of premium content is like eating your babies," says Group M. "You will give value away until you go bust.” It's recommened strategy to avoid what it calls a “permanent oversupply of digital inventory” on the open web is by using a paywall to “lift the publisher out of remnant inventory and restore a much smaller but aggregated audience.”

Trade wide distribution for a smaller number of customers willing to pay, in other words. "Nice to have" must become "must have" for the strategy to work.

News Corp seems clearly to have concluded there is little money in online news, given the number of "free" providers. Providers in other industries, including telecommunications, will face different tactical issues, but the same strategic issue.

Over time, choices will have to be made about where it is possible to provide value, and where revenue streams therefore can be created and sustained. Willy nilly embrace of new channels likely will work no better than it has for most newspapers that have gone "online."

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