The large mobile service providers are not without significant persuasive tools where it comes to inducing customers to buy important new service plans that protect legacy voice and messaging revenues while tying mobile bandwidth consumption to retail prices.
One of those tools is use of Apple's FaceTime video calling feature. AT&T has announced it will limit how iPhone users can use FaceTime over AT&T's 3G and 4G networks when Apple's new iOS 6 software launches.
Users will not be able to use FaceTime over 3G or 4G unless they sign up for one of AT&T's new shared data plans. Users with an individual data plan will only be able to use FaceTime over Wi-Fi.
One suspects both Verizon and AT&T will have to do much more before usage of the new plans really becomes the norm. Right now the actual savings for switching to the new plans are fairly subtle, and therefore not so compelling.
More value will be needed, ultimately, and that probably will include a much clearer value-price relationship. Right now, a rational consumer would be hard pressed to identify significant savings or clear additional value.
Friday, August 17, 2012
FaceTime Now a Reason to Buy AT&T "Mobile Share"
Gary Kim was cited as a global "Power Mobile Influencer" by Forbes, ranked second in the world for coverage of the mobile business, and as a "top 10" telecom analyst. He is a member of Mensa, the international organization for people with IQs in the top two percent.
Telco Reinvention Trend Requires Enough Capital to Buy Way Into New Markets
Telco and cable revenue trends in the U.S. market continue to illustrate a fundamental principle some of us believe is foundational for both telcos and cable companies working in developed markets.
And that fundamental reality is that any service provider in a developed market must plan for a business environment where perhaps half of all current revenue has to be replaced by new sources over about a 10-year period. The corollary is that that rate of adaptation might have to be conducted more than once.
That might sound like a radical assumption, but it is precisely what happened in the U.S. service provider market when long distance revenues, which had driven industry profit, began a long descent. In 1997, long distance still represented about half of all industry revenues. But a decade later, mobile revenue had taken the place once held by long distance, representing in 2007 nearly half of U.S. communications service provider revenues.
Keep in mind that this “rule” applies most directly to service providers in developed markets. In developing regions, where service uptake still is growing, those challenges will take longer to develop.
The most-recent quarterly earnings report from Comcast shows the same sort of trend in the U.S. cable industry, where video revenues have shrunk to about 52 percent of total Comcast “cable operations” revenue , while other services now contribute 48 percent, and are growing.
In fact, including the NBC Universal contributions, it already is true that Comcast earns less than half its total revenue from cable TV distribution. In fact, cable TV video distribution operations now account for only 33 percent of total Comcast revenue.
That’s an example of the same process: the need for suppliers in competitive and mature markets to replace large amounts of revenue from lost legacy revenues.
Telcos already have been through one such transformation, as overall revenue now has shifted from “long distance” to wireless, at least for the tier one U.S. providers. The next set of transitions will see the revenue contributions from mobile voice and text messaging dwindle in favor of new sources.
There is an important caveat: it is much easier for a large service provider to make these sorts of transitions, than for a small provider to make such a fundamental transition.
There are examples of former “rural” telcos repositioning them as business service providers. Windstream and Frontier Communications provide obvious examples.
Warwick Valley Telephone Company, for example, calls itself a “cloud communications” company. It might be more accurate to say “unified communications” revenues, but cloud or unified communications revenues were $3.3 million in the second quarter of 2012, an increase of 169 percent from $1.2 million in prior year period, against total revenues of $6.9 million, WVT says. In other words, “cloud computing” revenues now were about 47 percent of total revenues, in the second quarter.
The increase in revenues of over $1 million is primarily attributable to the consolidation of financial results for the acquisition of Alteva and organic unified communications services revenue growth, partially offset by a decline of nearly $1 million in “telephone segment” revenues, the company says.
That’s important because the results were achieved by a major acquisition. “As a percentage of consolidated revenue, the UC segment contributed 47 percent of revenues in the second quarter as compared with 21 percent in the same period of the prior year and 46 percent in the first quarter of 2012,” WVT says.
The “Telephone” segment contributed 53 percent of revenues in the second quarter of 2012 as compared with 79 percent in the second quarter of 2011 and 54 percent in the first quarter of 2012.
The point is that some service providers will be able to dramatically recast themselves by making strategic acquisitions.
Tier one service providers are moving away from primary reliance on voice services, towards wireless data, video and other services and products. Cable operators are shifting to business voice and data services, and away from entertainment video. And smaller rural telcos are becoming business services specialists.
And that fundamental reality is that any service provider in a developed market must plan for a business environment where perhaps half of all current revenue has to be replaced by new sources over about a 10-year period. The corollary is that that rate of adaptation might have to be conducted more than once.
That might sound like a radical assumption, but it is precisely what happened in the U.S. service provider market when long distance revenues, which had driven industry profit, began a long descent. In 1997, long distance still represented about half of all industry revenues. But a decade later, mobile revenue had taken the place once held by long distance, representing in 2007 nearly half of U.S. communications service provider revenues.
Keep in mind that this “rule” applies most directly to service providers in developed markets. In developing regions, where service uptake still is growing, those challenges will take longer to develop.
The most-recent quarterly earnings report from Comcast shows the same sort of trend in the U.S. cable industry, where video revenues have shrunk to about 52 percent of total Comcast “cable operations” revenue , while other services now contribute 48 percent, and are growing.
In fact, including the NBC Universal contributions, it already is true that Comcast earns less than half its total revenue from cable TV distribution. In fact, cable TV video distribution operations now account for only 33 percent of total Comcast revenue.
That’s an example of the same process: the need for suppliers in competitive and mature markets to replace large amounts of revenue from lost legacy revenues.
Telcos already have been through one such transformation, as overall revenue now has shifted from “long distance” to wireless, at least for the tier one U.S. providers. The next set of transitions will see the revenue contributions from mobile voice and text messaging dwindle in favor of new sources.
There is an important caveat: it is much easier for a large service provider to make these sorts of transitions, than for a small provider to make such a fundamental transition.
There are examples of former “rural” telcos repositioning them as business service providers. Windstream and Frontier Communications provide obvious examples.
Warwick Valley Telephone Company, for example, calls itself a “cloud communications” company. It might be more accurate to say “unified communications” revenues, but cloud or unified communications revenues were $3.3 million in the second quarter of 2012, an increase of 169 percent from $1.2 million in prior year period, against total revenues of $6.9 million, WVT says. In other words, “cloud computing” revenues now were about 47 percent of total revenues, in the second quarter.
The increase in revenues of over $1 million is primarily attributable to the consolidation of financial results for the acquisition of Alteva and organic unified communications services revenue growth, partially offset by a decline of nearly $1 million in “telephone segment” revenues, the company says.
That’s important because the results were achieved by a major acquisition. “As a percentage of consolidated revenue, the UC segment contributed 47 percent of revenues in the second quarter as compared with 21 percent in the same period of the prior year and 46 percent in the first quarter of 2012,” WVT says.
The “Telephone” segment contributed 53 percent of revenues in the second quarter of 2012 as compared with 79 percent in the second quarter of 2011 and 54 percent in the first quarter of 2012.
The point is that some service providers will be able to dramatically recast themselves by making strategic acquisitions.
Tier one service providers are moving away from primary reliance on voice services, towards wireless data, video and other services and products. Cable operators are shifting to business voice and data services, and away from entertainment video. And smaller rural telcos are becoming business services specialists.
Gary Kim was cited as a global "Power Mobile Influencer" by Forbes, ranked second in the world for coverage of the mobile business, and as a "top 10" telecom analyst. He is a member of Mensa, the international organization for people with IQs in the top two percent.
Hard to Calculate Total Cost of Ownership, Return on Agility
"In the many meetings with customers in which I have done a deep dive on their architecture and applications to help them create an accurate cost picture, I have observed two common patterns: 1) It is hard for customers to come to an accurate Total Cost of Ownership (TCO) calculation of an on-premise installation and 2) they struggle with how to account for the “Return on Agility”; the fact that they are now able to pursue business opportunities much faster at much lower costs points than before," says Werner Vogels, Amazon CTO.
Amazon's TCO white paper attempts to quantify the return.
Capacity vs. Usage Comparison
Amazon's TCO white paper attempts to quantify the return.
Gary Kim was cited as a global "Power Mobile Influencer" by Forbes, ranked second in the world for coverage of the mobile business, and as a "top 10" telecom analyst. He is a member of Mensa, the international organization for people with IQs in the top two percent.
Can Mobile Banking Hit 25% of U.S. Homes by 2017?
Is it plausible that there could be 109 million mobile banking users in 2017? Yes, using some optimistic assumptions.Is it possible 25 percent of all households could be using mobile banking in 2017? Yes, using some perhaps optimistic assumptions.
If you assume there are about 135 million households in existence and that adoption mirrors the adoption of online banking, then 25 percent household adoption is possible.
If adopted as fast as online bill paying was, though it is likely mobile banking adoption will be lower than 25 percent in 2017.
Mobile banking adoption is highly driven by the number of younger consumers, the number of bank accounts they might use and the percentage that will choose to use at least one mobile banking feature, such as checking a balance or transferring funds.
If you assume 90 percent of consumers have bank accounts, and that 80 percent of Millennials, 60 percent of Gen X consumers, 40 percent of Baby Boomers and 20 percent of all others use mobile banking, then some 109 million consumers could be using some form of mobile banking. According to netbanker, 25 percent of U.S. households will use mobile bank access by about 2018, based on the adoption curve for online banking from 1995 to 2005.
source: netbanker
Mobile adoption Est. pop 2012 2017 Banked Total Mobile Bankers Gen Y 75,000,000 39% 80% 90% 54,000,000 Gen X 40,000,000 28% 60% 90% 21,600,000 Boomer 75,000,000 15% 40% 90% 27,000,000 Senior 35,000,000 8% 20% 90% 6,300,000 225,000,000 108,900,000source: http://snarketing2dot0.com
Gary Kim was cited as a global "Power Mobile Influencer" by Forbes, ranked second in the world for coverage of the mobile business, and as a "top 10" telecom analyst. He is a member of Mensa, the international organization for people with IQs in the top two percent.
13% of Mobile Payments Users in India, Kenya, Indonesia, Ghana, Nigeria Received Money Using Phone
Gary Kim was cited as a global "Power Mobile Influencer" by Forbes, ranked second in the world for coverage of the mobile business, and as a "top 10" telecom analyst. He is a member of Mensa, the international organization for people with IQs in the top two percent.
Legacy Networks are a Problem; Sometimes You Have to Fire Your Customers
Telecom service providers are used to technology transitions, but that doesn't mean it always is easy, especially when existing customers need to be weaned off current legacy technology as an older network is shut down.
The public switched telephone network, for example, will be shut down, and replaced by IP network services, at some point. The issue is when. At that point, all end user gear and carrier switches and gear based on PSTN standards will be rendered useless.
The analog mobile network was shut down and replaced by second generation networks using several air interfaces, including time division multiplexing, code division multiple access, PDC and iDEN. Personal Digital Cellular (PDC) and iDEN.
Now the 2G network faces its own sunset, by about 2017, in AT&T's case.
That means users have to be encouraged to migrate off legacy protocols and onto the newer networks.
"If you look at technology change, we have been in the IP world for a number of years, but we still have customers that are on IP/VPN, frame and ATM, but they have to go away," said Shammo. "We can't continue to invest in those networks and we can't continue to dedicate resources to that platform."
The public switched telephone network, for example, will be shut down, and replaced by IP network services, at some point. The issue is when. At that point, all end user gear and carrier switches and gear based on PSTN standards will be rendered useless.
The analog mobile network was shut down and replaced by second generation networks using several air interfaces, including time division multiplexing, code division multiple access, PDC and iDEN. Personal Digital Cellular (PDC) and iDEN.
Now the 2G network faces its own sunset, by about 2017, in AT&T's case.
That means users have to be encouraged to migrate off legacy protocols and onto the newer networks.
"If you look at technology change, we have been in the IP world for a number of years, but we still have customers that are on IP/VPN, frame and ATM, but they have to go away," said Shammo. "We can't continue to invest in those networks and we can't continue to dedicate resources to that platform."
Gary Kim was cited as a global "Power Mobile Influencer" by Forbes, ranked second in the world for coverage of the mobile business, and as a "top 10" telecom analyst. He is a member of Mensa, the international organization for people with IQs in the top two percent.
Smart Phone Owners Spend $38 Billion a year on International Calls?
Extraplating from the results of a survey conducted by Harris Interactive on its behalf, Rebtel estimates that U.S. mobile users could be spending $38 billion a year on international calls on their smart phones, annually.
Rebtel estimates that 21 percent of U.S. adult smart phone owners make international calls and spend an average of $156 every month doing so, Rebtel says.
If, according to the 2010 U.S. Census, there are 234.6 million adults age 18 or older in the United States, with 41 percent of the population owning a smart phone, and 21 percent of these people making international calls on their smartphones, then roughly 20 million Americans are spending nearly $38 billion a year on international calls on their smart phones annually.
Some might find that estimate fanciful. Visiongain calculates that in 2012 the global mobile VoIP market will see revenues of $2.5 billion.
Also, if U.S. mobile voice overall is about $120 billion, the Rebtel estimate would have international long distance comprising about 32 percent of all U.S. mobile voice revenues overall, a figure that seems unlikely.
According to the Federal Communications Commission, retained international revenues, revenues billed by U.S. carriers, less settlement amounts owed to foreign carriers for U.S.-billed traffic, plus settlement amounts due to U.S. carriers for foreign-billed traffic, amounted to $4 billion in 2009.
It is hard to reconcile total retained international calling revenues, on all networks, of $4 billiion, as reported by the FCC in 2011, with an estimate of U.S. smart phone calling of $38 billion.
Granted, it is harder these days to tally actual revenue, as more activity shifts to over the top IP mechanisms.
At some point, the estimates might be even harder to make, as mobile service providers switch from 3G networks for voice services, over to voice over LTE (voLTE), which will operate fundamentally in the same way as over the top mobile voice, the difference being the ownership of the services.
Still, the Rebtel estimate seems inflated. One has to assume that the sample was not representative of the typical base of smart phone users, or that respondents somehow misunderstood or inaccurately recalled their international long distance spending.
Maybe I am misreading the FCC data. Or perhaps the FCC data isn't capturing mobile calling data. But the numbers do not add up.
Rebtel estimates that 21 percent of U.S. adult smart phone owners make international calls and spend an average of $156 every month doing so, Rebtel says.
If, according to the 2010 U.S. Census, there are 234.6 million adults age 18 or older in the United States, with 41 percent of the population owning a smart phone, and 21 percent of these people making international calls on their smartphones, then roughly 20 million Americans are spending nearly $38 billion a year on international calls on their smart phones annually.
Some might find that estimate fanciful. Visiongain calculates that in 2012 the global mobile VoIP market will see revenues of $2.5 billion.
Also, if U.S. mobile voice overall is about $120 billion, the Rebtel estimate would have international long distance comprising about 32 percent of all U.S. mobile voice revenues overall, a figure that seems unlikely.
According to the Federal Communications Commission, retained international revenues, revenues billed by U.S. carriers, less settlement amounts owed to foreign carriers for U.S.-billed traffic, plus settlement amounts due to U.S. carriers for foreign-billed traffic, amounted to $4 billion in 2009.
It is hard to reconcile total retained international calling revenues, on all networks, of $4 billiion, as reported by the FCC in 2011, with an estimate of U.S. smart phone calling of $38 billion.
Granted, it is harder these days to tally actual revenue, as more activity shifts to over the top IP mechanisms.
At some point, the estimates might be even harder to make, as mobile service providers switch from 3G networks for voice services, over to voice over LTE (voLTE), which will operate fundamentally in the same way as over the top mobile voice, the difference being the ownership of the services.
Still, the Rebtel estimate seems inflated. One has to assume that the sample was not representative of the typical base of smart phone users, or that respondents somehow misunderstood or inaccurately recalled their international long distance spending.
Maybe I am misreading the FCC data. Or perhaps the FCC data isn't capturing mobile calling data. But the numbers do not add up.
Gary Kim was cited as a global "Power Mobile Influencer" by Forbes, ranked second in the world for coverage of the mobile business, and as a "top 10" telecom analyst. He is a member of Mensa, the international organization for people with IQs in the top two percent.
What's Value of Mobile Payments for Retailers?
For mobile payments and wallets to get wide retailer support, the value proposition has to be quite clear, since it is merchants, almost alone among ecosystem participants, for whom mobile payments means spending money (upgrading point of sale systems and software), not getting it (consumers might get rewards, processing networks and issuing banks protect transaction fee revenue).
Access to consumers' shopping habits is probably the biggest long term value, though some might expect lower transaction costs that will offset the costs of upgrading point of sale systems to accept mobile payments, in some cases.
"Who's buying, what the market segments are, where they are, what kind of things they're buying and how the information that's captured at the point of sale can be leveraged for things like offers, loyalty, rewards, and that kind of thing" is the value, according to Bill Maurer, who runs the Institute for Money, Technology and Financial Inclusion at U.C. Irvine, according to.Money Morning.
That would allow creating the sort of recommendation engines that Amazon and Netflix use to create context and shopping suggestions.
Access to consumers' shopping habits is probably the biggest long term value, though some might expect lower transaction costs that will offset the costs of upgrading point of sale systems to accept mobile payments, in some cases.
"Who's buying, what the market segments are, where they are, what kind of things they're buying and how the information that's captured at the point of sale can be leveraged for things like offers, loyalty, rewards, and that kind of thing" is the value, according to Bill Maurer, who runs the Institute for Money, Technology and Financial Inclusion at U.C. Irvine, according to.Money Morning.
That would allow creating the sort of recommendation engines that Amazon and Netflix use to create context and shopping suggestions.
Gary Kim was cited as a global "Power Mobile Influencer" by Forbes, ranked second in the world for coverage of the mobile business, and as a "top 10" telecom analyst. He is a member of Mensa, the international organization for people with IQs in the top two percent.
How the Internet Has Changed 2002 to 2012
Gary Kim was cited as a global "Power Mobile Influencer" by Forbes, ranked second in the world for coverage of the mobile business, and as a "top 10" telecom analyst. He is a member of Mensa, the international organization for people with IQs in the top two percent.
Thursday, August 16, 2012
Which is the Bigger Cloud Opportunity, Business Process or Software "As a Service?"
It isn't clear whether software as a service or "business process as a service" is the biggest cloud computing opportunity. Gartner has in the past argued that SaaS is the biggest opportunity. But Gartner now seems to believe BPaaS is the single biggest opportunity.
"Major trends in client computing have shifted the market away from a focus on personal computers to a broader device perspective that includes smart phones, tablets and other consumer devices," says Steve Kleynhans, Gartner VP. "Emerging cloud services will become the glue that connects the web of devices that users choose to access during the different aspects of their daily life."
To be sure, there also are ramifications for enterprise users as well as consumers. And that explains the huge interest in cloud computing, on the part of service and application providers.
Still, most of the revenue upside appears likely to accrue to hardware and software suppliers, according to a Morgan Stanley analysis. In the telecom space, the analysts expect key winners to include Rackspace, Equinix and competitive local exchange carriers and metro bandwidth suppliers.
Also, pubic cloud computing is likely to reduce traditional telco enterprise service revenues. Morgan Stanley further suggests that among IT decision makers, the large telcos remain behind Amazon and others in terms of “cloud mindshare.”
How much overlap there is between hosting and cloud computing services is an important issue for service providers. At one level, hosting is about server real estate and amenities. But cloud computing is about some other things, namely rental of computing cycles and storage, rental of operating systems and platforms, and rental of actual business apps.
Though service providers have embraced the hosting business and content delivery networks as “valued added parts of the transport and business,” it remains unclear how far they might ultimately go in the core cloud computing business.
The increasing number of devices used by any single consumer to access and use cloud computing resources means more access revenue, to be sure.
Gartner predicts that, by 2014, the personal cloud will replace the personal computer at the center of users' digital lives. That implies heavy and growing need for broadband access.
What also is clear is that service providers now see content delivery networks and cloud computing as new business opportunities, with ramifications for enterprise users as well as consumers. And that explains the huge interest in cloud computing, on the part of service and application providers.
Still, most of the revenue upside appears likely to accrue to hardware and software suppliers, according to a Morgan Stanley analysis, even as enterprises start to shift workloads to cloud approaches.
According to the Morgan Stanley survey, 79 percent of information technology workloads are running at on-premise data centers today, but over the next few years, respondents expect that only 64 percent of workloads will run at in-house data centers.
What’s more, 51 percent of respondents are running their entire infrastructure on premises today, but in three years some 70 percent of companies will have moved at least some workloads to managed hosting or public cloud environments, including infrastructure as a service, (IaaS), platform as a service, (Paas) or software as a service (SaaS).
That does not mean each of those ways of “doing cloud computing” represents the same amount of potential revenue for suppliers of the services. In the relatively near term, software as a service probably will represent most of the actual revenue for suppliers of cloud computing apps and services.
In fact, one might ask whether, on a global basis, cloud computing will be a significant revenue driver for anything but software as a service. According to Forrester Research, for example, by 2020 SaaS might represent $133 billion in annual revenue, while the other forms of cloud computing will register only in single-digit billions or low double digits.
In a similar way, some will argue that hosting and CDN services are more of a “value add” for connectivity services, rather than big new revenue drivers for service providers, in their own right.
The issue is which cloud computing suppliers or even data centers will benefit, particularly since cloud computing services today are more logically provided by Amazon and other suppliers, not “data center” suppliers.
On the other hand, AT&T hopes to capitalize on its position as a “one-stop shop” for IT and connectivity needs. The company has said that it is already number two in hosting globally, with more than 2.5 million square feet of data center space (38 data centers, with 15 outside the US, primarily in Europe and Asia).
Verizon’s purchase of Terremark likewise is expected to boost Verizon’s connectivity sales, not simply “hosting” revenue, especially with small and mid-sized businesses. Verizon operates 220 data centers in 23 countries, as well.
Metro fiber providers and independent hosting firms also will benefit, it is reasonable to conclude. What isn’t so clear at the moment is how much share telcos might gain in the IaaS, PaaS and SaaS business segments, which are less “real estate” plays and more “computing services” offers.
Cloud computing gets lots of attention these days in the service provider business. But it might be helpful to keep in mind that the actual amount of new revenue data center hosting or cloud computing actually will generate is likely to be modest, from a service provider perspective.
The more important angle is the “value add” for the other core connectivity solutions. Essentially, data center hosting services and content delivery networks "make the bits more valuable." And value is the antidote to commodity pricing.
The point is that although there are good reasons for service providers to see cloud computing as a viable and interesting new revenue stream, it is important to be careful and rational about the huge numbers one tends to see thrown around, related to cloud computing.
Gartner, for example, now expects enterprise spending on public cloud services to grow from $91 billion worldwide in 2011 to $109 billion in 2012, while by 2016, enterprise public cloud services spending will reach $207 billion.
That’s a substantial market, but a market with distinct segments, not all of which are easily adaptable to telco provisioning. So among the issues is the question of which of these markets are most congruent with what telcos already do.
Looking only at the segment names, it might seem as though infrastructure as a service is most congruent, and there is logic to that thought.
The largest segment, though, is “business process as a service.” Gartner says that BPaaS will grow from $84.1 billion in 2012 to $144.7 billion in 2016, generating a global compound annual growth rate of 15 percent.
BPaaS includes cloud-based enterprise processes such as cloud payments, cloud advertising and “industry operations” such as e-commerce enablement.
In terms of revenue generated, cloud advertising is projected to grow from $43.1 billion in 2011 to $95 billion in 2016, generating 17.1 percent CAGR in revenue growth through 2016.
Cloud payments are forecast to grow from $4.7 billion in 2011 to $10.6 billion in 2016, generating a CAGR of 17.8 percent worldwide.
E-commerce enablement using BPaaS-based platforms is expected to grow from $4.7 billion in 2011 to $9 billion in 2016, generating a 13.6 percent CAGR in revenue globally.
One might argue that payments, advertising and e-commerce are not necessarily areas where telcos have natural present advantages.
Software as a service will be a $26.5 billion market in 2016. SaaS-based applications include such functions as customer relationship management, enterprise resource planning, web conferencing, teaming platforms and social software suites, for example. SaaS-based CRM will grow from $3.9 billion in 2011 to $7.9 billiion in 2016.
Web conferencing, teaming platforms and social software suites will grow from $2 billion in 2011 to $3.4 billion in 2016. SaaS-based ERP will grow from $1.9 billion in 2011 to $4.3 billion in 2016.
Supply chain management will grow from $1.2 billion in 2011 growing to $3.3 billion in 2016.
Platform as a service might be just a $2.9 billion business in 2016. PaaS generally includes development environments, and also generally is the smallest of the opportunities. PaaS includes application development, database management systems, business intelligence platforms and application infrastructure and middleware.
Infrastructure as a service is forecast to grow to $24.4 billion in 2016. Gartner argues, and has the most obvious fit with competencies service providers already possess.
(IaaS) is a highly automated offering where compute resources, complemented by storage and networking capabilities, are offered to the customer on-demand, Gartner says.
With a projected CAGR of 41.7 percent, IaaS is the fastest growing of the public cloud segments. From $4.2 billion in revenue generated in 2011, IaaS is forecast to hit $24.4 billion in 2016. That includes computing services, storage and print server functions.
The computing subsegment is expected to see the greatest revenue growth globally, growing from $3.3 billion in 2011 to $20.2 billion in 2016.
The point is simply that the cloud computing opportunity is large, but also consists of segments that might be harder or easier for service providers to compete within. Very few of the cloud segments, even when using bandwidth, access and data centers, rely at the retail level on expertise in those areas.
"Major trends in client computing have shifted the market away from a focus on personal computers to a broader device perspective that includes smart phones, tablets and other consumer devices," says Steve Kleynhans, Gartner VP. "Emerging cloud services will become the glue that connects the web of devices that users choose to access during the different aspects of their daily life."
To be sure, there also are ramifications for enterprise users as well as consumers. And that explains the huge interest in cloud computing, on the part of service and application providers.
Still, most of the revenue upside appears likely to accrue to hardware and software suppliers, according to a Morgan Stanley analysis. In the telecom space, the analysts expect key winners to include Rackspace, Equinix and competitive local exchange carriers and metro bandwidth suppliers.
Also, pubic cloud computing is likely to reduce traditional telco enterprise service revenues. Morgan Stanley further suggests that among IT decision makers, the large telcos remain behind Amazon and others in terms of “cloud mindshare.”
How much overlap there is between hosting and cloud computing services is an important issue for service providers. At one level, hosting is about server real estate and amenities. But cloud computing is about some other things, namely rental of computing cycles and storage, rental of operating systems and platforms, and rental of actual business apps.
Though service providers have embraced the hosting business and content delivery networks as “valued added parts of the transport and business,” it remains unclear how far they might ultimately go in the core cloud computing business.
The increasing number of devices used by any single consumer to access and use cloud computing resources means more access revenue, to be sure.
Gartner predicts that, by 2014, the personal cloud will replace the personal computer at the center of users' digital lives. That implies heavy and growing need for broadband access.
What also is clear is that service providers now see content delivery networks and cloud computing as new business opportunities, with ramifications for enterprise users as well as consumers. And that explains the huge interest in cloud computing, on the part of service and application providers.
Still, most of the revenue upside appears likely to accrue to hardware and software suppliers, according to a Morgan Stanley analysis, even as enterprises start to shift workloads to cloud approaches.
According to the Morgan Stanley survey, 79 percent of information technology workloads are running at on-premise data centers today, but over the next few years, respondents expect that only 64 percent of workloads will run at in-house data centers.
What’s more, 51 percent of respondents are running their entire infrastructure on premises today, but in three years some 70 percent of companies will have moved at least some workloads to managed hosting or public cloud environments, including infrastructure as a service, (IaaS), platform as a service, (Paas) or software as a service (SaaS).
That does not mean each of those ways of “doing cloud computing” represents the same amount of potential revenue for suppliers of the services. In the relatively near term, software as a service probably will represent most of the actual revenue for suppliers of cloud computing apps and services.
In fact, one might ask whether, on a global basis, cloud computing will be a significant revenue driver for anything but software as a service. According to Forrester Research, for example, by 2020 SaaS might represent $133 billion in annual revenue, while the other forms of cloud computing will register only in single-digit billions or low double digits.
In a similar way, some will argue that hosting and CDN services are more of a “value add” for connectivity services, rather than big new revenue drivers for service providers, in their own right.
The issue is which cloud computing suppliers or even data centers will benefit, particularly since cloud computing services today are more logically provided by Amazon and other suppliers, not “data center” suppliers.
On the other hand, AT&T hopes to capitalize on its position as a “one-stop shop” for IT and connectivity needs. The company has said that it is already number two in hosting globally, with more than 2.5 million square feet of data center space (38 data centers, with 15 outside the US, primarily in Europe and Asia).
Verizon’s purchase of Terremark likewise is expected to boost Verizon’s connectivity sales, not simply “hosting” revenue, especially with small and mid-sized businesses. Verizon operates 220 data centers in 23 countries, as well.
Metro fiber providers and independent hosting firms also will benefit, it is reasonable to conclude. What isn’t so clear at the moment is how much share telcos might gain in the IaaS, PaaS and SaaS business segments, which are less “real estate” plays and more “computing services” offers.
Cloud computing gets lots of attention these days in the service provider business. But it might be helpful to keep in mind that the actual amount of new revenue data center hosting or cloud computing actually will generate is likely to be modest, from a service provider perspective.
The more important angle is the “value add” for the other core connectivity solutions. Essentially, data center hosting services and content delivery networks "make the bits more valuable." And value is the antidote to commodity pricing.
The point is that although there are good reasons for service providers to see cloud computing as a viable and interesting new revenue stream, it is important to be careful and rational about the huge numbers one tends to see thrown around, related to cloud computing.
Gartner, for example, now expects enterprise spending on public cloud services to grow from $91 billion worldwide in 2011 to $109 billion in 2012, while by 2016, enterprise public cloud services spending will reach $207 billion.
That’s a substantial market, but a market with distinct segments, not all of which are easily adaptable to telco provisioning. So among the issues is the question of which of these markets are most congruent with what telcos already do.
Looking only at the segment names, it might seem as though infrastructure as a service is most congruent, and there is logic to that thought.
The largest segment, though, is “business process as a service.” Gartner says that BPaaS will grow from $84.1 billion in 2012 to $144.7 billion in 2016, generating a global compound annual growth rate of 15 percent.
BPaaS includes cloud-based enterprise processes such as cloud payments, cloud advertising and “industry operations” such as e-commerce enablement.
In terms of revenue generated, cloud advertising is projected to grow from $43.1 billion in 2011 to $95 billion in 2016, generating 17.1 percent CAGR in revenue growth through 2016.
Cloud payments are forecast to grow from $4.7 billion in 2011 to $10.6 billion in 2016, generating a CAGR of 17.8 percent worldwide.
E-commerce enablement using BPaaS-based platforms is expected to grow from $4.7 billion in 2011 to $9 billion in 2016, generating a 13.6 percent CAGR in revenue globally.
One might argue that payments, advertising and e-commerce are not necessarily areas where telcos have natural present advantages.
Software as a service will be a $26.5 billion market in 2016. SaaS-based applications include such functions as customer relationship management, enterprise resource planning, web conferencing, teaming platforms and social software suites, for example. SaaS-based CRM will grow from $3.9 billion in 2011 to $7.9 billiion in 2016.
Web conferencing, teaming platforms and social software suites will grow from $2 billion in 2011 to $3.4 billion in 2016. SaaS-based ERP will grow from $1.9 billion in 2011 to $4.3 billion in 2016.
Supply chain management will grow from $1.2 billion in 2011 growing to $3.3 billion in 2016.
Platform as a service might be just a $2.9 billion business in 2016. PaaS generally includes development environments, and also generally is the smallest of the opportunities. PaaS includes application development, database management systems, business intelligence platforms and application infrastructure and middleware.
Infrastructure as a service is forecast to grow to $24.4 billion in 2016. Gartner argues, and has the most obvious fit with competencies service providers already possess.
(IaaS) is a highly automated offering where compute resources, complemented by storage and networking capabilities, are offered to the customer on-demand, Gartner says.
With a projected CAGR of 41.7 percent, IaaS is the fastest growing of the public cloud segments. From $4.2 billion in revenue generated in 2011, IaaS is forecast to hit $24.4 billion in 2016. That includes computing services, storage and print server functions.
The computing subsegment is expected to see the greatest revenue growth globally, growing from $3.3 billion in 2011 to $20.2 billion in 2016.
The point is simply that the cloud computing opportunity is large, but also consists of segments that might be harder or easier for service providers to compete within. Very few of the cloud segments, even when using bandwidth, access and data centers, rely at the retail level on expertise in those areas.
Gary Kim was cited as a global "Power Mobile Influencer" by Forbes, ranked second in the world for coverage of the mobile business, and as a "top 10" telecom analyst. He is a member of Mensa, the international organization for people with IQs in the top two percent.
Square Offers Merchants a Flat Transaction Fees
Square is now turning the tables by offering a flat monthly transaction fee of $275 for merchants who do more volume. Basically, Square is going to offer small businesses who make less than $250,000 per year worth of transaction the option of either paying the set 2.75 percent per swipe or one fixed price per month, at $275 per month, with no charge per swipe.With $250,000 in transactions, paying $275 per month works out to around 1.3 percent per transaction, which is significantly lower than the current rate of 2.75 percent.
If a business goes over $250,000 (and had opted into the monthly swipe fee) then the first dollar after will be charged the standard 2.75 percent rate.
One way or the other, the trend in transaction fees will keep dropping as the mobile payment business gets traction. Every newly competitive business has that impact on prevailing prices.
Gary Kim was cited as a global "Power Mobile Influencer" by Forbes, ranked second in the world for coverage of the mobile business, and as a "top 10" telecom analyst. He is a member of Mensa, the international organization for people with IQs in the top two percent.
Over the Top Apps Pose Huge Risk for Some 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.
But the potential danger will vary from country to country. Service providers in smaller countries, where lots of cross-border calling or messaging occurs, with high tariffs for cross-border traffic, will experience more danger than large countries with larger internal populations that can call quite some distance without crossing a border.
OTT apps and services also will cannibalize international calling revenues in any country with a large migrant population outside the home country. Think Filipinos working in the Middle East, or Indians living in the United States.
On the other hand, retail packaging can alleviate some of the potential risk, as Verizon Wireless is doing with its "Share Everything" plans.
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 version of this story originally appeared at Metaswitch Networks Carrier Evolution.
But the potential danger will vary from country to country. Service providers in smaller countries, where lots of cross-border calling or messaging occurs, with high tariffs for cross-border traffic, will experience more danger than large countries with larger internal populations that can call quite some distance without crossing a border.
OTT apps and services also will cannibalize international calling revenues in any country with a large migrant population outside the home country. Think Filipinos working in the Middle East, or Indians living in the United States.
On the other hand, retail packaging can alleviate some of the potential risk, as Verizon Wireless is doing with its "Share Everything" plans.
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 version of this story originally appeared at Metaswitch Networks Carrier Evolution.
Gary Kim was cited as a global "Power Mobile Influencer" by Forbes, ranked second in the world for coverage of the mobile business, and as a "top 10" telecom analyst. He is a member of Mensa, the international organization for people with IQs in the top two percent.
Top U.K. Texting Moments of the London Olympics
The infographic shows the biggest jump in message volume in the U.K. market began with the parade of nations.
Gary Kim was cited as a global "Power Mobile Influencer" by Forbes, ranked second in the world for coverage of the mobile business, and as a "top 10" telecom analyst. He is a member of Mensa, the international organization for people with IQs in the top two percent.
To Change TV, Change the Way People Pay
"If Apple really wanted to change the way people watched TV, it would change the way people paid for TV," argues Peter Kafka. That pretty much is the dilemma for anybody who really wants to disrupt the existing TV business.
To change TV, you have to change the way people pay, and the current arrangement is too lucrative for content owners and distributors to contemplate, unless Apple or some other company showed up with enough money to at least make a major change revenue neutral.
Of course, new formats, including "direct to YouTube," are in an experimental phase. That will continue to be an important venue for niche content.
So far, though, content creators tend to go where the money is, and that is traditional TV networks.
But Apple can’t do that. No single company can. The U.S. subscription TV business generates about $90 billion in annual subscription revenues. To offer a revenue neutral business model for the content owners, a disruptive provider would have to offer something on the order of $30 billion to $40 billion in revenues for the content owners, annually.
So far, nobody has been able to do so, at least in part because the assumption is consumers do not really want to pay for all that programming. They only want some of it. As in the music business, the equivalent of songs, not CDs, is the model. So any attacker would likely find that what it really could sell is less than $30 billion to $40 billion.
The business model would be upside down from the beginning.
There is another angle. Apple's talks with cable operators about a possible Apple set-top box will run into the same brick wall Microsoft did when it proposed a similar Microsoft decoder. The cable executives see the set-top as the gateway to their business, and were determined to keep Microsoft out. They aren't likely to view Apple as less of a threat.
To change TV, you have to change the way people pay, and the current arrangement is too lucrative for content owners and distributors to contemplate, unless Apple or some other company showed up with enough money to at least make a major change revenue neutral.
Of course, new formats, including "direct to YouTube," are in an experimental phase. That will continue to be an important venue for niche content.
So far, though, content creators tend to go where the money is, and that is traditional TV networks.
But Apple can’t do that. No single company can. The U.S. subscription TV business generates about $90 billion in annual subscription revenues. To offer a revenue neutral business model for the content owners, a disruptive provider would have to offer something on the order of $30 billion to $40 billion in revenues for the content owners, annually.
So far, nobody has been able to do so, at least in part because the assumption is consumers do not really want to pay for all that programming. They only want some of it. As in the music business, the equivalent of songs, not CDs, is the model. So any attacker would likely find that what it really could sell is less than $30 billion to $40 billion.
The business model would be upside down from the beginning.
There is another angle. Apple's talks with cable operators about a possible Apple set-top box will run into the same brick wall Microsoft did when it proposed a similar Microsoft decoder. The cable executives see the set-top as the gateway to their business, and were determined to keep Microsoft out. They aren't likely to view Apple as less of a threat.
Gary Kim was cited as a global "Power Mobile Influencer" by Forbes, ranked second in the world for coverage of the mobile business, and as a "top 10" telecom analyst. He is a member of Mensa, the international organization for people with IQs in the top two percent.
NFC and Internet TV Cause "Disillusionment;" That's a Good Thing
Some technologies are moving fast along the "hype" curve, indicating for Gartner that they are closer to having a real marketplace effect. Among those technologies are near field communications, apparently. Here's the July 2012 positioning on the hype curve.
In July 2011, here's where near field communications was positioned on the hype cycle curve:
You'll notice that NFC payment was at a peak of hype in July 2011. In July 2012 NFC and NFC payment are sliding down the "disillusionment" part of the curve, a necessary part of becoming important in the market. Internet TV likewise has moved into the "trough."
In July 2011, here's where near field communications was positioned on the hype cycle curve:
You'll notice that NFC payment was at a peak of hype in July 2011. In July 2012 NFC and NFC payment are sliding down the "disillusionment" part of the curve, a necessary part of becoming important in the market. Internet TV likewise has moved into the "trough."
Gary Kim was cited as a global "Power Mobile Influencer" by Forbes, ranked second in the world for coverage of the mobile business, and as a "top 10" telecom analyst. He is a member of Mensa, the international organization for people with IQs in the top two percent.
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