Apple Understands Product Life Cycle and Executes

Despite some complaints from iPad users upset about Apple introducing a new and "better" iPad at intervals of less than a year, Apple does cannibalize its own products at a prodigious rate, and has done so for some time.

While cynical observers might say cannibalization is a great way to force customers to upgrade, others might also argue that Apple cannibalizes products and models as a way of protecting its overall share in the device market. 

Others might say Apple under Steve Jobs, at least, understood the notion of a product life cycle and executed on its with perfection. Apple further seems to have understood and implemented product strategies that match the ways customer adoption changes over time from early adopters to majority. 

Starting with the iPod, Apple has lead with its most powerful, most expensive model first, aiming at early adopters, then introducing less costly versions as the market grows, capturing larger segments of the consumer base that do not value technology prowess so much as value. 

The iPhone launched as Apple was achieving peak iPod sales of about 22 million units. It was exactly the right time for Apple to cannibalize its own business, in that view. 

A Look at "Post PC" Device Sales

By 2016, tablet sales are projected to exceed sales of PCs, according to NPD. 

Overall mobile PC shipments will grow from 347 million units in 2012 to 809 million units by 2017.

Notebook PC shipments are expected to increase from 208 million units in 2012 to 393 million units by 2017, while tablet PC shipments are expected to grow from 121 million units to 416 million units in this period, for a compound annual growth rate of 28 percent. 

A key driver for tablet PC growth is adoption in mature markets (including North America, Japan and Western Europe), which will account for 66 percent of shipments in 2012 and remain in the 60 percent range throughout the forecast period. 

Tablet PC shipments into mature markets will grow from 80 million units in 2012 to 254 million units by 2017.

                                          Worldwide Mobile PC Shipment Forecast (000s)

Source: NPD 

“Consumer preference for mobile computing devices is shifting from notebook to tablet PCs, particularly in mature markets,” said Richard Shim, NPD senior analyst . “While the lines between tablet and notebook PCs are blurring, we expect mature markets to be the primary regions for tablet PC adoption.

                                        Emerging and Mature Market Tablet Shipments (000s)

Source: NPD

Gartner projects worldwide media tablet sales to end users are forecast to total 118.9 million units in 2012, a 98 percent increase from 2011 sales of 60 million units, for example. 

Service Providers Clearly are Cutting Spending

What seems like an endless wave of job cuts in the telecom equipment supplier industry has been going on for more than a year, separate from the background shrinkage that has been going on for more than a decade.

Among the latest is Ericsson, the largest global supplier of mobile network infrastructure, according to Bloomberg.

Ericsson AB reported a 43 percent decline in third-quarter profit as wireless operators curbed spending in a sputtering economy.

Net income fell to 2.18 billion kronor ($324 million) from 3.82 billion kronor, Stockholm-based Ericsson said today. Gross margin, or the percentage of sales remaining after production costs, slid to 30.4 percent from 35 percent, missing the 32.2 percent average of analysts’ estimates.

The clear evidence of investment in Long Term Evolution notwithstanding, it is clear enough that other projects are being postponed. Telecom capex fell in the wake of the Great Recession of 2008, as would be expected. Spending picked up by 2010, but it now appears more stringency has returned. 

The problems arguably are centered in the European markets.

Severe competition between smart phone and tablet makers will intensify in the period leading up to the Christmas and holiday season, likely signaling a tougher earnings climate.

Apple, Samsung and HTC gave cautious guidance on their fourth quarter prospects. Major new device launches and the impact of a slowing global economy are seen as issues. 

Total worldwide handset shipments reached 410 million units in the third quarter of  2012,  Strategy Analytics says.Overall global shipments of mobile handsets were virtually flat in the second quarter, rising only one percent to 362 million units, according to Strategy Analytics.

But some might note that smart phone sales in some markets, such as the United States, have been slowing for years

CEO Says Sprint Did Not Gain Control of Clearwire

Though Sprint now owns what might under other circumstances be a controlling interest in Clearwire, both Sprint and Clearwire say that is not the case.

Clearwire CEO Erik Prusch addressed that issue on Clearwire's latest earnings report. "I want to be crystal clear, Sprint has not gained any additional governance rights or board seats through their agreement to purchase Eagle River shares," said Prusch.

"The strategic investor group board seats and governance rights do not transfer when shares are sold," said Prusch. That means Sprint does not gain additional board seats whenever it buys investment stakes held by other Clearwire investors, says Prusch.

It appears that some of the confusion grows from earlier decisions by Sprint and Clearwire whereby Sprint agreed not to have management control of Clearwire. Also, Sprint has in the past declined to take steps to control Clearwire or buy the company outright.

Still, many believe, despite the logic of the latest Clearwire statement and its factuality, in a de jure sense, that the de facto reality could be different. 

Samsung, HTC, Apple Warn Abouit 4Q Earnings

Severe competition between smart phone and tablet makers will intensify in the period leading up to the Christmas and holiday season, likely signaling a tougher earnings climate.

Apple, Samsung and HTC gave cautious cautious guidance on their fourth quarter prospects. Major new device launches and the impact of a slowing global economy are seen as issues. 

Total worldwide handset shipments reached 410 million units in the third quarter of  2012,  Strategy Analytics says. Overall global shipments of mobile handsets were virtually flat in the second quarter, rising only one percent to 362 million units, according to Strategy Analytics.

But some might note that smart phone sales in some markets, such as the United States, have been slowing for years. 

Clearwire Scales Back LTE Deployment, as Planned

Clearwire plans to have 2,000 Long Term Evolution sites on air by the end of June 2013 and expects to start receiving Sprint prepayment installments in June 2013. That plan is a reduction in sites from the earlier plan to light about 5,000 LTE sites.

Clearwire has decided not to attempt to create a full national LTE network, but instead will focus on a smaller number of markets where Clearwire could hope to provide wholesale service to other carriers.

Order of Magnitude Better Wireless Bandwidth by Tweaking TCP?

Researchers at MIT, the University of Porto in Portugal, Harvard University, Caltech, and Technical University of Munich have developed, and have started to license, a new coding approach to TCP that they claim can improve mobile and wireless bandwidth efficiency by an order of magnitude.

Testing the system on Wi-Fi networks at MIT, where two percent of packets are typically lost, Medard's group found that a normal bandwidth of one megabit per second was boosted to 16 megabits per second. 

In a circumstance where losses were five percent—common on a fast-moving train—the method boosted bandwidth from 0.5 megabits per second to 13.5 megabits per second.

The technology is said to work by transforming the way packets of data are sent. Instead of sending packets, the system sends algebraic equations that describe series of packets. 

So if a packet goes missing, instead of asking the network to resend it, the receiving device can solve for the missing one itself. Since the equations involved are simple and linear, the processing load on a phone, router, or base station is negligible,

The licensing is being done through an MIT/Caltech startup called Code-On Technologies.

As with all new technologies, it isn't clear whether similar results will be seen in the "real world," in commercial, mass deployments. But significant improvements should be expected. 

Apple: The Company That Used to Make Computers

Apple's latest earnings report shows where Apple makes its money: phones and tablets. It still sells computers, but that is not what drives revenue. 

What Will Softbank Do with Sprint, Clearwire?

Whether you think Sprint's latest third quarter earnings report was modestly good or modestly bad almost does not matter at this point. What matters is what Softbank is willing to do with the Sprint and Clearwire assets.

Some believe, based on past evidence, that Softbank will try to disrupt the U.S. mobile market, probably using pricing in some way.

That was what Softbank did earlier in the Japanese market. That might lead some observers to speculate about whether the Softbank-owned Sprint will try to become the “Free Mobile” of the U.S. market.

In France, the Illiad-owned “Free Mobile” has disrupted the French mobile market. Already, FreedomPop is trying to disrupt mobile broadband pricing, as the Illiad Free Mobile effort already has done in the French mobile market.

In 2006, when Softbank decided to buy Vodafone KK  assets, it likewise was criticized in some quarters for undertaking a risky gambit.

Some will argue Softbank is taking another huge risk by entering a country where iit has no previous operating experience, and by assuming a huge new debt load, after only recently shedding a similar debt load.

Softbank argues it is a reasonable risk, and that its prior experience taking on NTT Docomo and KDDI show it can compete in a market dominated by larger service providers.

Softbank, many believe, will use the same strategy it used in Japan, which some would describe as providing a large number of complementary features or services to create a “sticky” relationship with the end user.

Others will point to the pricing strategy. In Japan, Softbank’s 2006 acquisition of the Vodafone unit was not universally considered wise. But in just one year, Softbank managed to boost its subscriber base from 700,000 in fiscal 2006 to 2.7 million.

By the beginning of 2008, Softbank had grabbed 44 percent of Japan’s new mobile subscribers, well ahead of KDDI’s 35 percent and NTT-DoCoMo’s 11 percent.

Some think Softbank will be willing to launch a price war.  In Japan, Softbank was willing to sacrifice voice average revenue per unit  to make market share gains.

Back in the 2006 to 2008 period, Softbank was willing to accept a $13 a month ARPU decline to build market share.
Spectrum will among the assets Softbank will be able to leverage. 

Some Things Don't Change: Sprint Subscriber Losses From Nextel

To the extent that Sprint is losing customers, those losses are attributable to Nextel, not "Sprint." As has been the case for some years, Sprint has been gaining subscribers, but those gains are offset by departing "Nextel" customers. 

In other words, net gains on the "Sprint" side are offset by declines on the Nextel side of the company. 

Apple iPhone is Top Mobile Ad Device Platform

The Apple iPhone is the top smart phone device, where it comes to mobile advertising performance, according to a new report from Opera.

The iPhone has an average cost per thousand of $2.85. Though it is closely followed by Android devices at $2.10. 

Devices with larger screen size and touchscreen input, and those with features that allow more interaction between the advertisement and the device’s functionality (click to call, expand, play video) have better revenue potential than other devices. 

OS Share	% of traffic	% of revenue	eCPM
iOS	46.53%	61.41%	$2.49
— iPhone	29.88%	43.54%	$2.85
— iPad	6.86%	14.26%	$3.96
Android	24.43%	26.56%	$2.10
J2ME / Other	21.27%	9.86%	$1.01
RIM OS	6.32%	1.79%	$0.64
Symbian	1.37%	0.37%	$0.59
Windows Phone	0.08%	0.01%	$0.20

The high CPM achieved by the iPad illustrates the principle that bigger screens matter. Delivering an average CPM of $3.96 across the Opera mobile ad platform. 

In 2012, Apple iOS has delivered a clear majority of rich media ad impressions compared to Android devices. Image-based content also clearly boosts engagement and dwell time. 

Dwell time & interaction rates

Monetization by site category

The United States and Canada generate the majority of ad requests, with 73 percent of the global total. U.S. CPM is also the highest ($1.98), closely followed by the EU5 ($1.94) — and both top the global average of $1.90.

Percent of impressions

Top 20 Countries by Impressions

1. United States
2. Canada
3. United Kingdom (EU5)
4. Indonesia
5. Japan
6. Italy (EU5)
7. Mexico
8. India
9. China
10. Australia
11. Netherlands
12. Spain (EU5)
13. Germany (EU5)
14. France (EU5)
15. Singapore
16. Saudi Arabia
17. Republic of Korea
18. Iceland
19. Philippines
20. Malaysia

eCPM by Region

region	eCPM
Global Average eCPM	$1.90
US eCPM	$1.98
EU5 eCPM	$1.94
Rest of world	$1.57

Necessity is the Mother of Mobile Pricing

Most people would accept the notion that retail prices for any product, good or service are related somehow to the costs of supplying those products. That does not always mean the actual retail price is directly related to the cost of supplying the product. Grocers commonly choose to price a few items at a loss to get shoppers into stores, on the assumption that they will make money on the other products shoppers buy while in the store. 

One might also observe that profit margins for products that use a shared platform are not always the same. Some products offer higher margins, while others have lower margins. The reason many grocers sell finished meals is that the margin and gross revenue for meals is higher than for the raw ingredients used to make those meals.

Mobile service providers, in fact fixed network providers as well, will face those issues in the decade ahead as the mainstay voice product loses the ability to support the bulk of network and operational costs. 

The problem for the U.K.'s EE and every other mobile operator in a developed market is that voice revenue is static, or dropping, while data isn't contributing enough to fund the network, so something has to give, The Register reports. 

Network sharing and outsourcing support can cut costs a bit, but ultimately customers will have to pay more for their data, the argument goes. 

Is it Already "Too Late" for Mobile Service Providers in Mobile Payments?

Brand new markets are chaotic, and especially most new markets that involve the Internet, applications and mobile in a broad sense. That generally works out in practice to contestants trying to innovate "at Internet speed," a problem for telecom service providers. 

That might lead observers to suggest that it is possible mobile service providers already have fallen far behind the strides made by payment networks, retailers, banks and application providers in the mobile wallet or mobile payment space. 

"Not many ventures have demonstrated good success so far," says Sandy Shen, research director at Gartner. But the market, and the contestants, continues to get traction. 

For Western Europe as a whole, Gartner forecasts that in 2012 the number of near field communications users will be 22.8 million and the transaction value for mobile payments including text messaging, WAP and NFC will be $20.3 billion (€15.7 billion) in 2012.

One might argue from history that it is unreasonable to expect telcos to "lead" any big new market, at first. That does not mean telcos will, or will not, ultimately carve out a role, or even a significant role, in the business

It does mean that expectations of "immediate" success do not correspond to the way telcos historically have achieved success in any of their leading markets or product segments. 

Telcos tend to wait for emerging markets to clarify, typically only after others have shown a revenue opportunity of some size exists. Then they move. Nor do telcos always move "organically." Very often, they "buy their way into new markets" by acquiring other firms in the emerging markets. 

One would be on rather firm ground in suggesting telcos might wind up as major participants in mobile commerce, mobile wallets or mobile payments in ways they have not yet revealed or decided to embrace. 

As Expected, AT&T Expects "Scope" to Replace "Scale"

AT&T’s third quarter 2012 revenue was up by 6.6 percent year over year. Some might call that a modest growth. Others might call it an essentially "flat" performance. What is clear is that there were continued significant changes in the revenue contributors. 

AT&T considers mobile services, fixed network data and business services, particularly managed information technology services, its growth drivers, for good reason.

Mobility, fixed network data and business managed services represented 81 percent
of total AT&T revenues and grew 6.4 percent versus the same quarter a year ago.

Mobile services represented 53 percent of total revenues, up two percent, year over year. Fixed network data services, including both consumer and business managed services, represented 28 percent, up one percent, year over year.

Fixed network voice (and all other miscellaneous revenue) generated 19 percent of total AT&T revenues, down from 22 percent, year over year.
Some might say those changes illustrate a common problem in saturated markets. Early on, the game in a new market is "scale," the getting of more customers. When a market is mature, the game shifts. When it is hard to get a new customer, the emphasis shifts to "scope," selling more products to the existing base of customers. 

In changing markets, the emphasis likewise shifts from selling legacy products to selling new products. AT&T is seeing both trends: scope instead of scale and product substitution. 

Why "Premium" Channels Might Be Early to Go "Consumer Direct"

Up to this point, U.S. video programmers have largely resisted moves to shift delivery channels for their content away from video service providers for one simple reason. Doing so serves their financial interests.

So what observers will continue to watch for are any developments that weaken the revenue stream generated by the video service distributors.

Up to this point, it looks as though the  "premium" channels, not supported by advertising and requiring an incremental charge, are likely to be early bellwethers. Netflix certainly believes that will happen.

The reason is that such channels are most similar in fundamental ways to the value provided bu product substitutes such as Netflix, featuring heavy amounts of movie and other prerecorded material, rather than "live" events and content such as sports, news and weather. 

"Cord frayers" are those customers  who have downgraded their cable TV packages instead of cutting the cord completely. And it makes sense that adoption of Internet streamed video might have a correlation with such behavior, if in fact online-delivered video is a functional product substitute. 

According to an October 2012  study by company Market Strategies, 25 percent of  U.S. Internet users have dropped premium channel service in the past two years. 

The Market Strategies survey found that 46 percent of respondents cancelled one or more premium channels and, to save money, 44 percent downgraded to a less expensive TV package. 

 

As you might guess, "cord frayer customers" watch slightly less live TV than other viewers. That makes sense if Netflix and other services are largely substitutes for pre-recorded content, rather than live content. 

When asked if they watched less regularly scheduled TV or pay per view because of streaming, 33 percent of cord frayers said “yes,” compared to only 20 percent of other video customers. 




All of that suggests that the premium channels ultimately will be among the first major programming suppliers to make a major move to embrace "direct to consumer" distribution using streaming.