Can Barnes & Noble Make "Freemium" Work?

Barnes & Noble and Amazon do not use a pure "freemium" model in selling their tablets and e-readers. A classic freemium strategy would entail giving away the product for free, then building revenue on ancillary products. 

On the other hand, lots of observers believe that Barnes & Noble now is selling some of  its tablets for less than production cost. The logic, which mirrors Amazon's strategy of selling tablets at cost, or perhaps slightly below cost, is that seeding the market with lots of devices creates a bigger platform for selling content. 

Many criticize Amazon for that strategy, but it seems to work for Amazon. Amazon "probably makes enough money from that business to subsidize e-reader losses," argues Douglas McIntyre. 

The issue is whether Barnes &Noble can do the same. It's not exactly a classic freemium strategyk, but is quite similar in principle. 

In Broadband Access Business, "Average" can be Quite Misleading

Hong Kong to has the highest average peak broadband connection speeds in the world, at 49.2 Mbps, with South Korea at second with 47.8 Mbps and Japan at 39.5Mbps, according to Akamai data. 

The number of households buying services advertised at more than 10Mbps is substantial in all three markets. In Hong Kong, 28 percent of customers buy services operating at faster than 10 Mbps. In Japan, 37 percent of consumers buy services running faster than 10 Mbps. In South Korea 53 percent do so.

The average connection speed was 9.3 Mbps in Hong Kong, 15.7 percent in South Korea and 10.9 percent in Japan."

The implication is that, as with most phenomena related to broadband access, "average" does not tell you very much. Whether the issue is supply or demand, a very small number of instances accounts for a huge amount of consumption, while a large number of instances represents quite modest demand. 

About 97 percent of smart phone users, for example, consume 1 Gbyte or less of data each month. The top one percent consumes nearly double that amount. 

In 2010, Comcast notes that the typical user consumes 2 Gbytes to 4 Gbytes a month. 

What's the Difference Between Over the Top and Carrier Apps?

Deutsche Telekom took a step into mobile gaming:with a €2 million investment in Flaregames and now has gotten a  worldwide license to create a browser-based game based on the popular Asterix Belgian comic books, as part of a larger expansion of its gaming activities.

By definition, the games are "over the top" apps. That raises the question of the difference between over the top apps and carrier apps, from a carrier's business perspective.

To be sure, carrier views have been shaped largely by the fact that the first wave of OTT apps have competed directly with carrier voice and messaging offers. In the past, the adjectives "low gross revenue, low margin" have been an unstated part of the understanding carrier executives have of over the top apps or even broadband access services, as exemplified by the disdain for the term "dumb pipe."

And yet, what is a broadband access service, especially in a fixed network context, other than simple access? The features, values and apps come from all the apps and services a Web browser or app can supply. If the adjectives "high gross revenue, high margin" were appended to the phrase "dumb pipe," how many carrier executives would not want to be in the dumb pipe business?

Also, even so, simple access is just one of multiple services offered by most carriers, and Internet access is but one of them. The Deutsche Telekom gaming initiative is one way a particular carrier is moving to create "high margin" OTT apps it owns. 

Increasingly, what matters is not the manner of delivery, or even the substantial disruption of carrier service pricing, or the type of app, but the ownership. 

In point of fact, OTT represents the foundation of software architecture, where apps are intentionally designed to run over virtually any physical network. So the manner of delivery no longer is a useful way of understanding the difference between carrier-owned and third party owned apps. 

The disruption of pricing is a key issue, especially for all legacy apps, but that is a problem carriers simply must grapple with; it cannot be wished away. One might argue that, going forward, it is the matter of ownership that is key. 

Over the top voice and messaging apps are feared not because they are available to any potential user with a broadband connection, but because those apps are owned by a third party.

To be sure, disruptive pricing impact is certain to occur, as OTT providers reset consumer expectations about what apps or services such as voice or messaging should cost, and what the key feature set should be.

Increasingly, though, it is helpful to keep in mind that though carriers are right to be concerned about low gross revenue, low margin OTT apps that cannibalize existing carrier services, they should not similarly view with disdain other OTT apps that offer high gross revenue, high margin and do not cannibalize legacy services. 

In other words, the clear disruption of carrier voice and text message services should not cloud vision about other OTT apps. 

To be sure, over the top voice and messaging is a concern of mobile service provider executives around the world, for good reasons. Over the top mobile voice and texting apps now affect traffic for almost 75 percent of mobile service providers operating in 68 countries surveyed by mobileSquared as part of a project sponsored by Tyntec.

About 52.1 percent of respondents estimate over the top mobile apps have displaced about one percent to 20 percent of traffic in 2012. That’s a clear issue since traffic lost means lost revenue as well.

Almost 33 percent of respondents expect one percent to 10 percent of their customers will

be using OTT services by the end of 2012, with 57 percent of respondents believe 11 percent to 40 percent of their customers will be using OTT services in 2012.

But 10.5 percent of service providers anticipate more than 40 percent of the user base will be using OTT services by the end of 2012, the survey found.

In 2016, 100 percent of respondents believe at least 11 percent of their customers will  be using OTT services. In fact, 42 percent of operators believe that over 40 percent of their customer base will be using OTT services in 2016.

All that is a genuine worry. But OTT is not everywhere, and always, something a carrier should avoid or oppose.

Will Scale or Scope Characterize Mobile Strategies Next 5 Years?

Leading U.S. service providers have for more than a decade focused their growth strategies on "scope economies" rather than "scale economies." Simply, "scope" means you sell more products a relatively fixed set of customers. "Scale" means you get more customers. 

For leading cable companies, the problem is partly that the U.S. Federal Communications Commission has clearly signaled that no single U.S. cable company will be allowed to control more than 30 percent of all U.S. cable subscribers. For Comcast, that essentially has meant that no more cable companies can be acquired.

AT&T recently encountered resolute opposition to its proposed acquisition of T-Mobile USA, a move that would have lead to even more industry concentration than the U.S. Department of Justice believes is permissible. 

But there are other issues. As cable has encountered market share erosion, first to satellite providers and now to telco TV providers, and as telcos have lost share to cable voice services, each type of firm has had to lean on "scope" mechanisms, namely selling additional services to a smaller number of customers. 

Amidst growing signs that the U.S. mobile service provider market is becoming unstable, in terms of market structure, the issue is what will happen, in terms of growth strategies based on either scale or scope. 

What appears to be clear is that AT&T and Verizon will have trouble justifying growth by acquisition, namely, adding more subscribers by buying additional mobile companies, with their customers. Even Sprint might have trouble convincing regulators it can combine with a firm as large as T-Mobile USA. 

That suggests that mergers to create larger entities will have to happen either as Sprint or T-Mobile USA buy smaller regional carriers; as regional players combine; or as new contestants enter the market in part by buying up existing mobile carrier assets. 

There could be a new wave of mobile virtual network operators as well, but those efforts will not likely disrupt market structure in terms of shares held by the top four providers. The point is that, at least for the top four mobile service providers, scale no longer will be the normal and primary means for revenue growth (with the exception of Sprint or T-Mobile USA buying smaller regional mobile service providers). 

Instead, scope economics will prevail. In other words, adding more subscribers won't go too far before regulatory resistance is encountered. Instead, the top four providers will have to add more services. 

What does seem likely is a scale approach by newer entrants and the regional providers, below the big four players. 

 "What is clear for now, in our view, is that the current strategy, indeed the entire current business, isn't working," said Craig Moffett, an analyst at Sanford C. Bernstein. 

Moffett seems to be referring to the whole business operated by regional U.S. wireless carriers. To be sure, Moffett has been saying that the U.S. mobile business is saturated since at least 2009. 

The immediate stress is heavy for the regional mobile providers, often using prepaid models. Regional or prepaid service providers clearly have had a tougher 2012 than had been the case in the mid-2000s, for example. 

Leap hasn't been profitable since 2005, for example. MetroPCS profits dropped 63 percent during the first quarter of 2012. That suggests to some observers that consolidation among the regionals is inevitable. 

Web 3.0 Will be Mobile, Commerce Driven

Our ways of describing "eras" of computing, or software, or communications, sometimes are too much affected by hype. But sometimes there is a huge kernel of truth to a taxonomy.

So one might say Web 1.0 was about web connectivity. Web 2.0 might be characterized as  "social," says Jay Jamison, BlueRun Ventures partner. 

Web 3.0 will be "mobile," says Jamison. Aside from the obvious notion of an era characterized by use of smart phones and other "smaller screens," the notion is that apps and services will be real-time, ubiquitous (always connected, always with you), location aware, able to integrate sensors and using high quality cameras and audios. 

For some of us, that means the mobile web will b e highly organized around commerce, including advertising and promotion that drive commerce.

Your current location, weather, traffic, local merchants other friends nearby, how often you’ve been to this specific store or location will enable a new level of commerce opportunities for potential advertisers and merchants. 

That's why some of us think mobile commerce, including mobile payments, mobile wallet, location-based advertising and promotion, will be so important.  

"Mobile Payments" Increasingly is About Other Things

Ever since the mobile payments business began its ascent of the  "hype" meter, there has been volumes of debate about where the value of "mobile payments" actually lies. For many suppliers, the value remains in the transaction fees purchases drive.

For many others, including perhaps most other potential interests in the ecosystem, the value lies elsewhere. Advertising, promotions or loyalty are some of the ways mobile commerce, in a broad sense, can be realized. 

Some would argue the value lies squarely in the ability of mobile commerce tools to allow merchants to find customers, have customers find them engage customers and enhance the shopping experience. 

Merchants care about knowing as much as they can about a customer that has walked through the front door of the shop. Retailers care about allowing customers to find exactly what they want, as fast as possible, perhaps find products they didn't know they needed, then buy quickly and efficiently, without standing in long lines. 

Retailers care about maintaining relationships with those shoppers after they leave the store. 
At the end of the day, most of the potential value of mobile commerce will involve all sorts of things besides the actual way a customer makes a purchase. 

Experience might be the reason Starbucks essentially decided to outsource its payments operations to Square, instead of any other supplier you might name. Apparently, Starbucks thinks Square's interface and app make for the best end user experience, as a "payment app."

What European LTE has Changed

The most significant change in European wireless markets as a result of Long Term Evolution is the  phase out of unlimited data plans, the second most important consequence being a drop in prices. 

More than 90 percent of the LTE operators surveyed in Europe were found to use a speed-based element in their LTE tariffs, even though this type of pricing is rarely seen elsewhere in the world.

Typical advertised maximum speeds are 7.2 Mbps, 14.4 Mbps (HSPA), 42.2 Mbps (HSPA+) and 100 Mbps (LTE).

Tariffs are then priced in line with the advertised speeds. At 7.2 Mbps, a 10 GB monthly allowance costs $23 on average, rising to $44 for an 80 Mbps service (the highest speed at which a 10 GB plan is available). At the other end of the scale, an unlimited plan costs $35 at 7.2 Mb/s rising to $70 at 80 Mbps.

Conversely, at a per GByte level, the average price of data decreases as network speeds increase. The average cost per GByte at 7.2 Mbps in Europe is calculated at $6.20, dropping to around $1.15 per GB at 80 Mbps (LTE).

Wireless Intelligence says 4G LTE data costs $2.50 per GByte on average in Europe, around half the global average of $4.86.

The first commercial cellular LTE networks were switched on in Europe in December 2009 and there are now 38 live operators across 18 European markets, accounting for almost half of the global total. There were 88 live cellular LTE operators worldwide by the end of Q2 2012, according to Wireless Intelligence.

The most competitive LTE market in Europe is Sweden, where all four of the country’s mobile operators have launched the next-generation technology. The Swedish market-leader TeliaSonera had an estimated 170,000 LTE connections in the second quarter of 2012, accounting for almost three percent of its total subscriber base, while rivals 3 Sweden, Telenor and Tele2 have also launched LTE services.

As a result, a Swedish 4G data contract can cost as little as $0.63 per GByte per month (at both Tele2 and 3 Sweden). By comparison, the best value 4G data tariff at the world’s largest LTE operator, US market-leader Verizon Wireless, works out at $7.50 per GByte, Wireless Intelligence says.

Over the Top Voice, Texting now Affecting Revenue for 75% of Mobile Service Providers

Over the top mobile voice and texting apps now affect traffic for almost 75 percent of mobile service providers operating in 68 countries surveyed by mobileSquared as part of a project sponsored by Tyntec.

About 52.1 percent of respondents estimate over the top mobile apps have displaced about one percent to 20 percent of traffic in 2012. That’s a clear issue since traffic lost means lost revenue as well.

Almost 33 percent of respondents expect one percent to 10 percent of their customers will
be using OTT services by the end of 2012, with 57 percent of respondents believe 11 percent to 40 percent of their customers will be using OTT services in 2012.

But 10.5 percent of service providers anticipate more than 40 percent of the user base will be using OTT services by the end of 2012.




In 2016, 100 percent of respondents believe at least 11 percent of their customers will  be using OTT services. In fact, 42 percent of operators believe that over 40 percent of their customer base will be using OTT services in 2016.

The issue is what to do about the threat. In some countries, it might be legal for mobile operators to block use of OTT apps, as some carriers blocked use of VoIP. You can make your own judgment about whether that is a long-term possibility.

There are direct and indirect ways to respond, though. It is at least conceivable that some mobile service providers can legally create separate fees for consumer use of over the top voice and messaging apps. In other cases service providers will have to recapture some of the lost revenue by increasing mobile data charges in some way.

Verizon Wireless protects its voice and texting revenue streams by essentially changing voice and texting services into the equivalent of a connection fee to use the network. Verizon charges a flat monthly fee for unlimited domestic voice and texting.

The harder questions revolve around whether any service provider should create its own OTT voice and messaging apps, even if those apps compete with carrier services. Aside from potentially cannibalizing carrier voice and data services, this approach arguably does take some share from rival OTT providers.

On the other hand, it is a defensive approach that essentially concedes declining revenue, with some amount of ability to capture revenue in the “OTT voice and messaging” space.

Some larger service providers might find they are able to consider a partnering strategy with leading OTT players. To some extent, this also is a defensive move aimed at recouping some lost voice and messaging revenues. In other words, if a customer is determined to switch to OTT voice and data, the revenue from such usage ought to flow to the mobile service provider, if possible.

But there is a notable difference to the branded carrier OTT app approach. In principle, such OTT apps can be a way of extending a brand’s service footprint outside its historic licensed areas, into countries where it is not currently licensed.

Instead of functioning as a defensive tactic that recoups some share of OTT revenue in territory, OTT voice and messaging can be viewed as an offensive way of providing voice and messaging services out of region, says Thorsten Trapp, Tyntec CTO.

Over the longer term, it might also be possible for mobile service providers to replicate the network effect that makes today’s voice and messaging so appealing, namely the ability to contact anybody with a phone, anywhere, without having to worry about whether the contacted party is “on the network” or “in the community” or not.
The RCS-e/Joyn effort is an example of that approach.

Likewise, mobile service providers might be able to create a mediating role that bridges a closed OTT community by enabling third party access to some other third party community using the mobile phone number.

A Different Take on "3 Screens"

A decade ago, the phrase "three screens" normally referred to movie theater screens, TVs and PCs, and was an attempt to capture the importance of the PC as a display device for entertainment video. 

That is not untrue, but these days the notion of three screens has other implications. Looking only at the way people consume Internet news, "three screens" now refers to the process whereby tablets, PCs and smart phones all are widely used access methods. 

Perhaps the biggest behavioral change is the shift to tablet-based consumption, which not tracks phone consumption quite closely. Sample data from the U.K. market for July 2012 suggests that tablets and phones are the most-used devices during "non-working" hours, while PC access is the most used method during workday periods. 

Yahoo CEO Marissa Mayer Wants Focus on "Users"

At some level, you wonder whether it could really be so simple that Yahoo has to focus on its products, and what users want to do with those products, as the way out of the mess Yahoo seems to be in. At another level it seems blindingly obvious 

"I want you thinking about users," Yahoo CEO Marissa Mayer repeatedly has told Yahoo workers. That tells you something about all the other strategies Yahoo has seemed to cycle through in recent years. None, apparently, focused simply on products people want to use. 

Mayer's "near-singular emphasis on products and users" is a departure, many would argue. That's probably as good a critique of the immediate past strategies as anything. Trying to better "monetize" products that don't provide clear value and a compelling reason for using those products is bound to be challenging in the extreme. 

In the end, fixing Yahoo won't be as simple as "focusing on products and users." Revenue models  still will matter. But it is refreshing to hear a simple and fundamental call to focus on user experience first. 

Over the Top Messaging is Becoming a Problem in Western Europe

Text messaging services offered by carriers face growing challenges in Western Europe, with less robust growth even in Eastern and Central European markets that had been growing faster. Virtually all observers might agree that high charges for cross-border messages are the problem that over the top messaging solves for end users. 

Affluent Asia-Pacific Mobile Users are Heavy Mobile App, Skype Users

Over the top VoIP services such as Skype are a major draw for users around the world who need to make cross-border calls, for obvious reasons. And users in China, Malaysia, Indonesia and India are no different. While much Skype usage originates and terminates on PCs, mobile usage of Skype seems might be quite prevalent as well, in those four countries.

Some 44 percent of surveyed mobile consumers with mobile Internet in Malaysia use over the top VoIP services, as do 38 percent of respondents in India, with 69 percent of VoIP-using respondents saying they use Skype, Analysys Mason says.

It isn't clear whether that refers to any use of Skype or other over the top calling apps, or the percentage who use mobile VoIP. In fact, it seems rather doubtful that mobile VoIP constitutes "most" of the Skype usage in those countries.

Much could depend on whether those relatively affluent consumers responding to the Analysys mason poll are akin to "early adopters" with behavior patterns quite different from those of mainstream users.

The impact of over-the-top (OTT) communications services, such as WhatsApp Messenger and Viber, is growing, but used unevenly.

About 11 percent of smart phone owners use mobile VoIP applications regularly, compared with only five percent of mobile users as a whole. 

Usage of over-the-top services [Source: Analysys Mason Connected Consumer Survey 2012

1 Various questions; Denmark, France, Germany, Poland, Spain, the UK and the USA; n = 7485.

Of 107 million mobile VoIP users expected by 2012, more than half will reside in North America and Europe, owing to the fact that 3G, which is required for mobile VoIP to be effective, has been rolled out in those regions, according to Juniper Research.

But Juniper Research also agrees that the Far East and China will account for most of the remaining mobile VoIP growth, followed by the rest of Asia-Pacific.



 Africa and the Middle East, the Indian subcontinent, and Latin America will round out the remaining growth, with roughly equal percentages, Juniper has predicted. 

“Affluent” consumers in emerging Asia–Pacific countries spend 48 percent more time using communications  and media services than those in Europe and the United States, a study by , Analysys Mason suggests. On average, survey respondents with Internet connectivity in major emerging APAC markets spent 13  hours a day using telecoms and media services, compared with 8.8 hours for consumers in Europe and the United States.

The Analysys Mason conclusions were drawn from an online survey of 4,000 consumers 18 and older in China, India, Indonesia and Malaysia.

The caveat is that the survey sample arguably over-selected for “relatively affluent” consumers, Analysys Mason notes.

On average,  total exposure to telecom and media apps and services was highest in Malaysia (14.6 hours each day), followed by Indonesia (14.2), India (13.3) and China (9.9).



The survey also found that usage of mobile content and apps was high among connected consumers, which is probably no surprise. In China some 78 percent of respondents used mobile apps, while and 79 percent of respondents in India said they use mobile apps.

More than 56 percent of survey respondents used a smart phone.

About 11 percent of respondents that buy both fixed and mobile broadband services are planning to give up their fixed broadband service, but that is balanced by13 percent of respondents that have only mobile broadband who report they are considering also buying fixed broadband.

Starbucks Adds Square for Mobile Payments

In a move that in one sense shows the scale of Starbucks mobile payments operations, and might ultimately suggest other opportunities, Starbucks is outsourcing its mobile payment operation to Square. 

Users will simply use the Pay with Square app in place of the current app. At least so far, the advantage for Starbucks might be more tactical than strategic. Some think Starbucks will get better rates on each payment, than it had been able to do using its prior in-house method.

Others might suggest that the cost of supporting the mobile payment operations has grown to the point where outsourcing that particular function makes more sense than doing it in house. 

Basically, the Pay with Square app will be used by Starbucks in a "stripped down" version, allowing users to display a Square bar code that works with the existing Starbucks bar code scanners. 

Starbucks has said nothing about using the Square credit card dongles, or changing out its current point of sale infrastructure. 

In similar fashion, many of the full Square analytics features will not be used, since Starbucks seems comfortable with its own analytics. 

But the move does suggest Starbucks sees some future upside to using Square. What isn't clear is whether that is a tactical decision, such as often made by firms when they switch from an in-house or proprietary application to a "standards-based" alternative, or something more. 

Apple, Samsung, Android Still the Story in Second Quarter 2012

Apple, Samsung and Android remain the story in the global smart phone business in the second quarter of 2012, according to IDC.

In the second quarter, Android had 68 percent market share. All other operating systems lost 15 percent market share, compared to the second quarter of 2011. 

The IDC figures also show Research in Motion's market share decline from an 11.5 percent share in 2011  to 4.8 percent over the last 12 months, Symbian dropping from 16.9 per cent to 4.4 percent.




Smartphone OS World market shares Q2 2012 and 2011

Tablets Indirectly Threaten HP's Business Model

Tablets are not a direct cause of HP's strategic disarray. PCs and the consumer hardware business arguably are the problem, clashing with HP's ability to become a pure-play enterprise services supplier. 

But tablets represent both a threat to the PC revenues and a device that relies on the cloud services that HP might alternatively focus upon. The problem remains that HP is a firm with conflicting pressures and interests. 

HP is still the biggest maker of PCs in the world – excluding tablets – but Steven Milunovich at UBS Investment Research reckons the tech giant should get rid of its PC hardware business and focus on services related to cloud computing and business products. 

Of course, that course has been at least temporarily rejected. Former CEO Leo Apotheker proposed doing so and was dumped. New CEO Meg Whitman reversed course. And now Milunovich essentially argues Apotheker was right. 

Doing two things stops HP doing either well, he argues: "HP lacks the pure enterprise focus of IBM and EMC yet will have trouble competing for consumers without strong tablet and phone businesses like Apple and Samsung," 

So, indirectly, tablets represent the latest twist in the rather lengthy story of HP vacillating about its strategy. Without a robust tablet and smart phone business, the consumer business looks vulnerable, longer term. But since the PC and printer business is about half of HP, the continual debate about remaining in the consumer and enterprise businesses 
is tough to resolve.