Is Apple's Business Model About to Change?

Though it remains for the moment an unanswerable question, it is probably not too early to ask whether Apple's business model might change in the future, and at what pace.

Until recently, virtually all of Apple's profits were built on hardware sales. Everything else, system software or iTunes music revenue only mattered as a way to drive hardware sales.

The iPhone and iTunes are the best examples of how and where the change might come.

Apple might make $200 to $300 or so selling an iPhone, but $600 to $850 is more like the additional service revenue Apple receives from an AT&T iPhone sale, the difference being the value of the recurring service revenue Apple gets from AT&T, some analysts say.

For the 2009 quarter ending in June, Apple sold 5.2 million iPhones for a recorded revenue of $1.7 billion, or about $324 per iPhone.But iPhone-related service revenue was about$4.4 billion, compared to $3.3 billion in Mac sales. So at least for the moment, iPhone service revenues are a bigger revenue contributor than the Mac PC product line.

One wonders what will happen if Apple gets into the e-book reader business. What percentage of revenue might be earned from selling readers, or iPhones, compared to the recurring content business?

Apple could become a distributor and micro-payment agent for goods and services. All of this remains speculative, of course. It is not clear Apple always will be able to claim some portion of service provider revenues. But other content or application-related revenue streams might emerge to replace those recurring service revenues.

Big Changes In Mobile Business Last 2 to 3 Months

Piper Jaffray analyst Christopher Larsen has cut his rating on Sprint Nextel, arguing that industry dynamics have shifted significantly over the lat two to three months.

The trends of most importance are the higher subsidies service providers are providing on handsets as well as lower prices for attractive pre-paid offers that are likely to put pressure on postpaid pricing, especially as more data intensive handsets become available at lower price points.

The other trend of note is that although the prepaid business has traditionally been viewed as a segment comprised of lower-income or credit-challenged customers, that is likely to change. Already we see more smart phones available for use on prepaid plans, a departure from past practices.

To be sure, mobile service providers will continue to use handsets as a differentiator, but wider availability of capable handsets used with pre-paid plans seems inevitable. At the same time, $45 and $50 prepaid plans that also feature unlimited usage are going to destabilize postpaid pricing.

Facebook Can Get You Fired

About eight percent of corporate executives surveyed by Proofpoint say they have terminated

employees for disclosing confidential, protected or simply embarassing information put up on socialnetworking sites such as Facebook or LinkedIn, up from four percent who reported doing so in 2008.

About 17 percent of respondents said they had incidents of that nature this year, compared to 12 percent in 2008.

But email still seems to be a more-common reason for terminations of this sort. About 43 percent of respondents reported they had investigated an email-based leak of confidential or proprietary information in the past 12 months.

Nearly a third of them, 31 percent, terminated an employee for violating email policies in the same period, up from 26 percent in 2008.

About 18 percent of respondents say they had investigated a data loss event from a blog or message board in the past 12 months. About 17 percent disciplined an employee for violating blog or message board policies, while nearly nine percent reported terminating an employee for such a violation, up from a disciplinary rate of 11 percent in 2008 and a termination rate of six percent in 2008.

More respondents also reported investigating video-related exposure events. This year, about 18 percent have had to do so, up from 12 percent in 2008.

About 15 percent of respondents have disciplined an employee for violating multimedia sharing or posting policies in the past 12 months, while eight percent reported terminating an employee for such a violation.

Even short message services like texts and Twitter pose a risk. About 13 percent of respondents

investigated an exposure event involving mobile or Web-based short message services in the past 12 months.

About 38 percent of respondents say they now read or analyze outbound email before it is sent.

As more U.S. companies reported their business was affected by the exposure of sensitive or

embarrassing information (34 percent, up from 23 percent in 2008), an increasing number say they employ staff to read or otherwise analyze the contents of outbound email (38 percent, up from 29 percent in 2008).

In addition, companies are regularly ordered to produce employee email as part of legal actions,

exposing its contents to outside scrutiny. Nearly a quarter (24 percent) of large US companies report that employee email was subpoenaed in the past 12 months.

Malaysia Open Access Network Challenges Business Model

Service providers, end users and policy advocates will be keeping close watch on Malaysia's open access fiber network Jalenasn which will begin building as early as October, says Comms Day International.

Based on an open access model, Jalenas will only own and control the fiber infrastructure, leasing access instead to broadband service, applications and content providers who in turn will offer end user services.

The model probably is not directly applicable to U.S. markets, in part because measurable government support is required, in part because of massive service provider opposition.

But the plan will provide new real-world data about the economics of such methods, which require extreme operational efficiency by the infrastructure provider.

A similar wholesale access approach is being undertaken in nearby Singapore, and both Australia and New Zealand are weighing somewhat similar approaches as well.

The Jalenas network is owned by Pahang state-backed High Speed Broadband Technology.   
 
Ericsson will manage the project for at least the first five years, in yet another new twist. The Malaysian access network will be owned by one entity, managed by another, while retail services will be provided by other third parties.

FairPoint Unhappy About Broadband Stimulus Competition

FairPoint lobbyists and officials say the University of Maine System is unfairly competing with them for federal funds available as part of the American Recovery and Reinvestment Act "broadband stimulus" program.

“The fact is, we are competing with the University of Maine,” says Severin Beliveau, an Augusta, Maine attorney representing FairPoint. “I am concerned at what the university is proposing here, because it is receiving a form of subsidy, no, they are in fact receiving a subsidy from taxpayers, in competing with the private sector.”

Jeff Letourneau, the associate director of information technology at UMS, said the proposal is not the university’s but is from a private-public partnership and that the UMS is just one member.

FairPoint is developing a $20 million proposal that builds on its existing Internet infrastructure, the company indicates. FairPoint says the project will bring broadband access to 90 percent of Maine by 2013.

Though the first of the funds have not yet been awarded, organizations and companies now are starting to complain about the rules. FairPoint Communications, librarians and FiberNet in West Virginia are among those who have voiced complaints about the rules.

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Video Tipping Point in 2010?

The mass-market tipping point for online video will occur in 2010, when online video will be viewed by 50 percent of U.S. consumers, says eMarketer.

Online video also will achieve a 59 percent penetration rate in 2013, up from 47 percent in 2009.

The number of U.S. online video viewers will grow to 188 million in 2013, up from 144 million in 2009, says eMarketer.

Online video viewers will make up 85 percent of Internet users in 2013, up from 72 percent in 2009.

“This will put online video within range of Web activities such as search and e-mail, which are nearly at saturation points among U.S. Internet users,” says Paul Verna, eMarketer senior analyst.

The ability to share video through social networks, blogs, microblogs, e-mail and other social platforms will play a role. So will mobility.

All of that will hasten the day when changes must be made--especially on mobile networks--relating to end user consumption and pricing.

Is the USPS a Natural Monopoly?

Just thinking out loud, but is mail a natural monopoly?

The U.S. Postal Service has seen a precipitous drop in volume lately.

So they raise their prices, making other alternatives more attractive, which further depresses volume. It sort of looks like a death spiral.

Of course, "mail" can mean messages, so email is a functional substitute, as was facsimile.

And mail and packages can be delivered by any number of competitors (FedEx, UPS and others). To the extent that FedEx, UPS, the Internet and other alternatives aer widely available, perhaps "mail delivery" is not a natural monopoly.

Still, without large subsidies, the network is not profitable. It could not provide universal delivery without subsidies and it certainly does not ever make money. So it is one of the other models one has to look at when thinking about the future of the communications network business.

Communications Spend Down 1% in 2009, Up 2.6% Next 5 Years

Total U.S. communications spending will decline one percent in 2009 to $882.6 billion, but will grow 3.6 percent per year over the next five years to more than $1 trillion, according to Veronis Suhler Stevenson, a normally sober outfit.

The caution there is how one defines "communications." Estimates of this magnitude for the U.S. market necessarily include lots of other activities such as local area network and other premises networking services and products, and is not a direct proxy for "telecommunications."

This growth will make communications the third fastest-growing sector (behind mining and construction) of the U.S. economy through 2013, VSS says.

Telecom's Third Rail

There's a thoroughly uncomfortable question nobody in the telecom business wants to touch. Most people have heard the analogy that communications networks are fundamental underpinnings to future economic success, much as roads, railways or airline routes might be.

Most people are at least casually familiar with the plight of the newspaper business, which seemingly has yet to find a way to remain financially viable in a market that offers many substitutes.

Now there are the first projections that the advertising business, which except for normal economic fluctuations has grown for 30 years or more, might now face a future where brand spending actually decreases over time, in a structural, not secular shift.

So the uncomfortable question is whether the telecom business is in fact becoming a sort of infrastructure, like roads. And what I mean by that is that the business model for roads is largely indirect. True, there are some toll roads, but most roads, though an input to other revenue-generating enterprises, do not make money: they lose it.

So the "roads" or infrastructure analogy should be troublesome in the extreme. It at least implies an industry that has the profit sucked out of it, that is foundational and important, but not profitable in the way it has been.

At some point, should that continue, the industry as we now know it could not continue to exist. There would be a need for big pipes to virtually all locations. We need roads. But all the other economic activity would then be created by industries that support people driving cars.

This is something here more than the fear of being reduced to "dumb pipe" providers. Many businesses operate as low-margin "commodity" affairs, especially when they have large scale.

The newspaper analogy is more unnerving. That analogy suggests that communication networks could become something more akin to "roads," where there actually is no viable business model, and the infrastructure is a societal "cost" borne by taxpayers.

Perhaps you think governments globally have enough extra headroom to increase taxes to do such a thing. If there is no viable business model, that will be your only choice.

Being an optimist, I suspect the analogy is imperfect. I think executives will show enough creativity to avoid the worst case, and that regulators will be prudent.

What seems less debatable is the risk that if enough profit is drained out of the telecom business, even a robust "pipes" business might be tough to sustain.

That's an insight regulators in many countries have learned they must grapple with. Let us hope sane heads will prevail

iPhone Drives 41% Increase in Wi-Fi Sessions in 3 Months

In the second quarter, AT&T handled nearly 15 million Wi-Fi connections on its network, a 41 percent increase over the first quarter of this year. With approximately 25.6 million connections so far in 2009, Wi-Fi connections this year have already surpassed the 20 million connections seen in all of 2008.

In part, that may be the result of an iPhone firmware release that has made it easier for users to log in to AT&T hot spots.

Now, the iPhone automatically detects available networks and logs users in automatically.

Cricket Ratchets Up Prepaid Offers, Unlimited Web Now Included

Cricket Communications, owned by Leap Wireless International, has ratcheted up its own offers in the budding value and price wars in theprepaid wireless business.

Cricket’s $40 monthly plan, which already includes unlimited voice, long distance, domestic and international text and picture messaging, and nationwide coverage, now will include unlimited Web, unlimited 411 and unlimited service to more than 4,600 cities and towns across the US.

In addition, Cricket’s $45 monthly plan in these markets will now include the additional features of unlimited email, unlimited data backup and 30 roaming minutes per month. The $55 plan mirrors the $45 plan but also contains 200 roaming minutes per month.

The new plans take effect August 4, 2009, in select Cricket markets that cover approximately 72.3 million potential customers.

"The new features we have included in our service plans significantly increase the value we deliver to our customers," says Al Moschner, Cricket COO.

And that appears to be the story: the prepaid market is in a new stage of development where the "standard offer" is changing quite radically.

Affordable Smart Phones Next Big Thing?

Despite dramatic downward shifts in expectations for handset shipments in 2009 and 2010 as a result of the economic recession--some forecasts call for sales declines of perhaps 10 percent overall--smart phone growth continues.

In the U.S. market, AT&T has predicted that 75 percent of its device portfolio will be comprised of QWERTY input devices by the end of 2009, and those devices assume a broadband connection or at least heavy text messaging.

One can argue that the biggest They will, however, face strong competition from the BlackBerry Curve, LG Voyager and other devices designed for this growing segment of consumers interested in a better messaging and Internet experience with QWERTY inputs and at an affordable price.

The key benefit for operators in offering a greater array of smart devices is simple: increased spending on wireless data services.

On average, survey respondents who own smart phones spend 21.8 percent more on their mobile communications than feature phone users, says the Yankee Group. In part, that is because smart phone users have higher incomes.

But that will change. A new generation of more affordable Android devices, for example, are slated for launch in 2009 will be focused to attract customers who are in lower income brackets and who simply aren’t interested in spending $2,600 for their mobile phone service when the cost of a two-year contract is bundled with a particular smart phone.

And smart phone usage skews to younger demographics, primarily the 18 to 44 age demographic.

Some 41 percent of the 1,519 respondents surveyed by the Yankee Group also indicated they were either likely or very likely to purchase a smart phone and a data plan as their next mobile device.

Google Voice "Not Really VoIP"?

There has been a fair amount of chatter over the last week about Google Voice "not really being VoIP." That misses the point.

Users don't care about how we label things, nor do they care how things get done. They only care about value, utility, fun and other things of a useful nature.

Whether Google Voice is "really VoIP" or not misses the point. People like and use technology the way they want, not the way we think they "should."

YouTube Adds "News Near You"

YouTube is customizing its video feeds with a "News Near You" function that allows users to view clips related to their locations.

"News Near You" grabs video clips from sources within 100 miles of your computer’s IP address. YouTube promises to share revenues with TV outlets, but it’s a double-edged sword for local broadcasters, as is the case for print and other forms of news content.

The extra exposure and promotion, plus some possibility of increased advertising, will be helpful. What might not be helpful is one more reason for users to avoid broadcast outlets and rely on Internet mechanisms.

YouTube has deals with content sources such as ABC News, Reuters and AP. So far, about 200 news outlets have signed on to YouTube’s local video-casting initiative.

71% of Wireless Users Watch Video, 19% Have Uploaded Video

You likely would not be shocked to learn that 62 percent of Internet users watch online video. But you might be surprised to learn that wireless connectivity has emerged as a strong predictor of online video viewing.

Fully 71 percent of users with wireless connectivity watch videos on video sharing sites compared with just 38 percent of those who do not access the Internet wirelessly.

"Our latest data shows that 14 percent of cell phone users have watched video on their devices, slightly up from the 10 percent we found in 2007, Pew Internet & American Life researchers say.

Cell phone users are more likely to record video on their cell phones than they are to watch it, Pew researchers say. About 19 percent of cell phone users now say they have recorded video with their phone, in addition to watching video.

If you wonder why mobile service providers are racing to add bandwidth, that's why: video consumption and video creation.

Many users are turning to the Internet to watch entire television shows and movies, as you also might have guessed. Overall, 35 percent of adult Internet users say they have watched television shows and movies online.