Advertising and Commerce are Business Models for Many Apps, Just not Facebook, at the Moment

For applications and services that do not envision a "subscription" revenue model, and assuming "donations" is not feasible, either advertising or commerce (selling things) consistently are viewed as the best alternatives. 

Of course, what is necessary might not be sufficient. In other words, successful apps and services not using a "subscription" revenue model will mostly have to rely on either advertising, or commerce, or both. But not every firm that tries, will succeed.

So far, Facebook might be considered by some a firm that has not yet "succeeded" with its advertising or commerce models. That doesn't mean Facebook will fail, only that it has not yet clearly succeeded. 

According to the survey by youth marketing agency The Beans Group, 91 per cent of 16- to 24-year-olds in the United Kingdom say they are not interested in buying products or services directly through Facebook. 

The apparent  lack of confidence in Facebook commerce likely is a surprise to some brand marketers.  Ant Stone, content marketing manager at STA Travel, says: “We are making an assumption that everyone is on Facebook or Twitter and we want to provide the same sort of services that we provide outside these channels, so we are reflecting our retail space on Facebook.

“This study  might prioritize the areas we step into first. We might not go for the f-commerce route, we might spend more time and resource in the smartphone quarter,” he says. 

According to Vision Mobile, "purchasing,"  either in form of in-app purchases or an actual application purchase, are the two most popular revenue models for app store developers. 

iOS and Android Adoption Explodes Globally

The global smart phone business still appears to be a two horse race. In fact, the rate of iOS and Android device adoption has surpassed that of any consumer technology in history, according to Flurry.

In fact, smart device adoption is an order of magnitude faster than that of the 1980s PC rate of adoption, twice as fast as the 1990s Internet access adoption and three times faster than social network adoption.

Overall, Flurry estimates that there were over 640 million iOS and Android devices in use during the month of July 2012.

If Semiconductor Sector Contracts, Can Consumer Electronics Be Far Behind?

IHS iSuppli recently downgraded its outlook on the semiconductor market, from three percent growth for 2012 to a contraction of 0.1 percent. 

That would represent the first annual decline since 2009. “The expected decline in 2012 represents a major event for the global semiconductor market,” said Dale Ford, senior director at  IHS. 

Apple Patent Win Over Samsung: Only Slight Impact?

It might be too early to predict the actual impact of the largely successful Apple patent infringement suit against Samsung. Some think the whole Android ecosystem will be negatively affected; others think that is unlikely. Some think any Android supplier whose devices “look like” an iPhone will have trouble.

The win, for better or worse, is likely to maintain, if not intensify, the rate at which patent lawsuits in the mobile business are filed. Some might argue that could slow innovation in the handset business. Others thinks the desire to avoid such entanglements could increase the amount of innovation in the handset business.

Service providers might reasonably assume their exposure to Apple’s power in the ecosystem now is increased. That is likely to reinforce efforts by service providers to support rival operating systems, manufacturers and devices, a move that already is underway.

The cost of building many smart phones could increase, if Samsung and others have to start paying new royalties to Apple to avoid future patent infringement lawsuits.

Piper Jaffray's Gene Munster predicts "only minor impact" on Samsung and Google from the recent patent infringement win by Apple.

"We believe that Samsung is likely to make software modifications to devices to work around the patented software features in question," says Munster. "For devices that infringe on design patents, we believe those devices may no longer be sold in the US; however, it does not appear that newer devices, including the Galaxy SIII are impacted."

Other opinions span a range of predictions, some suggesting rather mild impact; others predicting more serious damage. JP Morgan is among firms that believe the patent infringement decision is a negative for the Android ecosystem as it likely puts more pressure on Android OEMs to clearly differentiate devices.

Barclays argues that “this event alone” will have a minimal near-term impact on Android’s global momentum in the smart phone arena. Samsung will face some issues, but most of the devices cited in the case are older models. Significantly, Samsung’s current flagship phone, the Galaxy S III, was not included in the infringing devices.

UBS thinks the decision could result in a royalty revenue stream of perhaps $250 million a year for Apple.

Macquarie Equities Research thinks the decision will negatively affect the search distribution arrangements between Google and Apple. But that testiness was evident even before.

YouTube will not be a native app on iOS 6, for example.

There also is the question of potential benefit for the hiccup will be beneficial for Nokia, Microsoft or others in the ecosystem that seem to significantly different from the Apple iOS “look and feel.”

Maybe Samsung's Patent Loss to Apple Won't Be That Big a Deal?

Piper Jaffray's Gene Munster predicts "only minor impact" on Samsung and Google from the recent patent infringement win by Apple.

"We believe that Samsung is likely to make software modifications to devices to work around the patented software features in question," says Munster. "For devices that infringe on design patents, we believe those devices may no longer be sold in the US; however, it does not appear that newer devices, including the Galaxy SIII are impacted."

But we still can speculate on whether the hiccup will be beneficial for Nokia, Microsoft or others. 

T-Mobile USA Expects 50 U.S. LTE Markets in Service by End of 2013

T-Mobile USA plans to have its new 4G Long Term Evolution service up and running in the vast majority of the top 50 markets in the United States by the end of 2013. T-Mobile USA will launch LTE on Advanced Wireless Services (AWS) spectrum next year and move its "High-Speed Packet Access-Plus (HSPA)" service, which is marketed as "4G," to 1900 MHz.

People Spend 35 Minutes on Social Networking, Consumers 40 Minutes Each Day

Business users spend an average of 35 minutes each day on business-related social networking sites, while consumers are spending an average of 40 minutes a day on social media sites, according to the Radicati Group.

The number of Social Media users worldwide is expected to rise from 1.6 billion users in 2012, to 2.3 billion by 2016, Radicati predicts.

Typical Business User Sends 36 Emails, Gets 78 Each Day

The typical person at work sends 36 email messages each day, and receives 78 email messages a day, with roughly 19 percent of emails received considered spam by the recipient. Business users average 5.5 malware incidents each month.


Despite the growing popularity of social media most business users, 60 percent of survey respondents said they are sending and receiving less email because of social media. 

Instant Messaging (IM) is also widely used for business communications, with 73 percent of survey respondents reporting they have an average of 8 IM conversations per day with an average of 5 different contacts.


The Radicati Group lsurvey was conducted with respondents from 67 business organizations of all sizes worldwide, representing a total of 957,786 business users.

FCC Ponders HigherTaxes on Broadband Access

The Federal Communications Commission is considering a proposal to impose a new tax on broadband Internet service, to support the Connect America Fund. 

Consumers already pay a fee on their landline and cellular phone bills to support the FCC's Universal Service Fund. The fund was created to ensure that everyone in the country has access to telephone service, even if they live in remote areas.

Last year, the FCC overhauled a $4.5 billion portion of the Universal Service Fund and converted it into a broadband Internet subsidy, called the Connect America Fund. The new fund aims to subsidize the construction of high-speed Internet networks to the estimated 19 million Americans who currently lack access. 

The FCC issued a request for comments on the proposal in April 2012. 

Mobile Data to Grow 18 Times Over 2011 Levels

What Happens to Samsung Now?

By winning its patent infraction lawsuit against Samsung, Apple has "won," nearly every observer likely would say. Though it remains unclear precisely what could happen, there is another hearing scheduled for Sept. 20, 2012, on whether there should be a U.S.ban on sales of all 25 Samsung products that infringe Apple patents. 

Those devices include the Galaxy line and the Galaxy Tab, as well as 23 other devices. 

Since Samsung is the second most profitable manufacturer of smart phones, that would be a big problem. Few think that is the most likely outcome, though. The $1.05 billion damage award, if it stays at that level after certain appeals, will transfer a chunk of cash to Apple.

But Apple has lots of cash. The longer term outcome is some licensing royalty stream paid by Samsung to Apple, which will raise Samsung's manufacturing cost. Samsung also will have to create some work around processes. 

In all likelihood, the patent verdict also means other Android manufacturers will wind up paying royalties to Apple, as well. That will have the effect of raising manufacturing costs for all competing Android devices. 

Some believe the decision only highlights the broken nature of the current patent system that allows the patenting of operations and processes that should not be patented, but leave that aside, for the moment. 

Some optimists might argue that the long term damage to Samsung is containable, if Samsung can avoid draconian bans on importation of its products. Consider the lawsuit, the damage payment and future royalties as an alternative to Samsung having purchased all those patents directly. 

Consider that Microsoft paid $8 billion to buy Skype, and become a player in VoIP and messaging. It's hard to say right now how much the future licensing royalties might be. But consider the alternative: Samsung might alternatively have had to create a global, branded operating system, user interface and form factor of its own. 

Android, and the software and hardware tweaks it now will likely have to make, still will allow Samsung and other smart phone manufacturers to compete at far lower costs than would otherwise have been the case. Consider all the money spent on the Palm OS, Symbian or RIM OS. 

That is probably small consolation to Samsung. The tragedy would be if Apple's patent winnings were to somehow destroy Samsung's smart phone business at a time when Samsung has been able to win consumer allegiance, while making a profit, at levels no other supplier has achieved so far. 

Apple Wins Big in Patent Infringement Lawsuit Against Samsung

A U.S. jury has found that  Samsung acted willfully to infringe at least three of Apple's patents; found the  Apple patents valid and awarded Apple $1.051 billion in damages. 

The jury found the Galaxy tablet did not, however, infringe any Apple patents.

The jury also found that Apple did not infringe Samsung wireless standards or features patents

Separately, a South Korean court has ruled that Apple and Samsung violated each other's patents, has prohibited the companies from selling the infringing devices in South Korea, and has awarded both companies fairly insignificant damages, the Wall Street Journal says.

The three-judge panel in the Seoul Central District Court also ruled that there was "no possibility" that smart phone buyers could confuse devices from the companies.

Full details still are being released, and we must expect perhaps years of subsequent litigation, but Apple seems to have a big victory against its most potent competitor in the smart phone business.

What Happens in a Competitive Market When the "High Cost" Supplier Loses Lots of Customers?

The thing about leverage is that it works both ways. What helps accelerate business results on the way up also accelerates a decline. Dell, for example, benefited for a long time by using a "build to order" strategy that limited cash tied up in inventory and also created cash "float" when its retail customers paid Dell before Dell paid its suppliers. 

While the company was growing fast, Dell was getting paid to make products faster than it is paying to make them. All that goes in reverse when sales slow. Now Dell is seeing the process in reverse. Lower retail sales mean less cash is coming in the front door, while supplier payments for older and larger orders are going out the back door. 

You might argue a similar process is at work in the fixed network telecom business. Incumbent telcos are losing customers, market share and gross revenue to cable companies and competitive suppliers including competitive local exchange carriers, for example. 

And that means fixed costs are spread over a smaller base of customers. You know what that means: incumbents will have to find new services to sell, or must raise prices on the remaining customers to cover the overhead. 

The process is most clear in the voice business, where telcos once had 90 percent or higher share of consumer and small business voice accounts, and now have perhaps 60 percent to 40 percent. All other things being equal, that means the sunk costs and overhead supporting the voice network have to be spread over a smaller base of customers. 

The other problem is that nobody ever argues that incumbent telcos are the "low cost providers" in any market. Since, in a competitive market, over the long term, the low cost provider generally wins, that poses another layer of trouble. Not only are fixed costs going to become a problem, but incumbent telcos also face institutional barriers to reducing those costs. 

Mobile, cable and CLEC contestants, for example, generally operate with non-union work forces and generally have leaner work force structures (fewer employees per $100,000 of revenue)  as well. 

Thus begins a vicious cycle. Telcos raise prices to cover overhead. Higher prices drive customers off the network. That means overhead per remaining customer gets higher. So prices have to be increased, which causes more customers to flee, and so on. To be sure, all other things are not equal. Telcos are creating new products to replace lost revenue. 

But you see the problem: large fixed costs are a real problem for any business that starts to shrink. 

High fixed costs are a potentially devastating problem for competitors who start with the disadvantage of the highest cost structure in a market, with the heaviest regulatory burdens and price controls. 

For Banks and Payment Processors, the Task is "Avoiding Zero"

In the start-up business, there is an aphorism that suggests the most important thing for a start-up team is to "avoid zero," a way of warning teams that, no matter what, the first objective is not so much to execute fully on the original plan, but avoid wiping out the investment by failing completely.

In more established businesses under attack by disruptive competitors, the task is somewhat similarly to "avoid zero" in the sense of the underlying revenue model withering to "near zero" levels. 

That might not be a huge concern for most in the payment processing business, but the danger of downward pressure is obvious. And most observers would agree the pressure will have some effect. 

One of the most logical competitive positioning statements a company can offer a merchant is "lower transaction fees." And even though many would argue there is precious little wiggle room on that score, some contestants already are offering to attack the payment transaction fees in a major way. 

LevelUp, for example, is trying to beat competitors by jumping straight to a zero-percent charge for processing a transaction.

Though it used to charge businesses two percent per transaction, LevelUp has decided to "eat" the transaction fee, LevelUp still will have to pay its partner payment networks their customary fees. So how is LevelUp looking to modify its revenue model?

Basically, instead of charging for transactions, LevelUp will instead try to create revenue through special campaigns operated on behalf of its merchants. For instance, a local retailer could offer $2 off a $10 item for anyone using LevelUp. The customer would pay $8, and LevelUp would take 35 cents per dollar from the campaign. 

That proposition isn't riskless, either. But if successful, LevelUp would start to create pressure within the ecosystem for lower transaction fees, at the very least. 

FCC Approves Verizon Purchase of Cable AWS Spectrum

The U.S. Federal Communications Commission has approved a modified plan for transferring spectrum from a consortium of cable operators to Verizon, and though not strictly related, a set of agency agreements whereby the cable companies and Verizon can resell each other’s services.

The approval also clears the way for spectrum transfers to T-Mobile USA and and an exchange of spectrum between Leap Wireless and Verizon as well.

The decision was expected, once the cable companies and Verizon agreed to limit the terms of the agency agreements and any systems developed between the cable operators and Verizon as a result of their collaboration for a limited number of years.

Verizon will purchase spectrum in the Advanced Wireless Services band from Comcast, Time Warner Cable, Cox Communications and Bright House Networks, while selling some of its spectrum to competitors T-Mobile USA and Leap Wireless.

The FCC's approval forbids Verizon from reselling cable products and services where Verizon FiOS service already exists, principally. The U.S. Department of Justice earlier had demanded those same concessions as part of its clearance of the deal on antitrust grounds.