Messaging Monetization Remains an Issue for App Providers and ISPs

Monetization long has been a key business challenge for most Internet applications, features and services. 

That is true for new over the top messaging platforms and has started to be a problem for mobile service providers who find text messaging usage and revenues dwindling. 

That remains true for mobile applications such as messaging, with the salient exception of text messaging, among the few messaging services with a clear direct revenue model.

Messaging is viewed by some as mobile's killer app. The problem for access providers is that it might prove a killer app for third party app providers, not Internet service providers. 

Text messaging, though a key source of mobile value in the past, will be so important a direct revenue generator for mobile service providers in the future, either. 

In fact, text messaging is becoming more a key feature than a major revenue source for many mobile service providers. 

In  many ways, that would fit the pattern of email, which drove adoption of dial-up Internet access. Email the feature drove adoption of Internet access the service.

That seems still to be the pattern. More than 50 percent of total commercial email opens occurred on mobile devices in the first quarter of 2013, according to Experian Marketing Services. That is another example of an indirect revenue model. 

U.S. Government Has been Gathering Data from Internet, Telco, Media Firms

Verizon Wireless has been forced to hand over daily call detail records to the U.S National Security Agency. The order, a copy of which has been obtained by the Guardian, requires Verizon on an “ongoing, daily basis” to give the NSA information on all telephone calls in its systems, both within the US and between the US and other countries.

The U.S. Justice Department also secretly obtained Associated Press call records.

Google is fighting efforts by the Federal Bureau of Investigation requesting information about Google users. The secretive and warrantless electronic data gathering also has been declared unconstitutional in a federal court.

Is it all just a coincidence? You don't have to be a "conspiracy" theorist to see a pattern of overreach. What all three efforts seem to have in common is a broad search for information without a specific and clear relationship to an on-going criminal or clear national security investigation. 

Millions of U.S. residents therefore are having their records collected indiscriminately by agencies of the federal government, even when they are not suspected in any way of doing anything remotely criminal or dangerous to national security. 

Civil libertarians are right to be outraged and concerned. 

What France Telecom Interest in Cross Selling Cable Tells You About the Market

France Telecom thinks it has to sell triple-play bundles, but wants to avoid making acquisitions to do so. Why it wants to do so explains much about the strategic context of European communications. 

Basically, the existing market for most fixed network voice, fixed network video entertainment and mobile services is shrinking slowly. When that happens, service providers are faced with higher overhead costs and stranded assets, every year, as fewer customers generate revenue on a fixed base of assets.

While it might make sense in some cases to make acquisitions, either to create more scale, enter a new geography or acquire a needed capability, in some cases an acquirer might not want to deploy capital in that way. 

In other cases, regulators might bar such acquisitions. 

So France Telecom (Orange) is considering cross licensing between itself and cable TV providers, for example. That would allow each party to sell triple-play bundles, a proven way to attract and retain consumer customers, at lower costs than outright acquisitions. 

That approach also arguably avoids significant capital investment (both in network facilities and licensing agreements). 

The point is that rational actors will invest differently in growing businesses than in static or declining businesses. And it is hard to avoid the conclusion that in Western Europe, both mobile and fixed network businesses are not growing. Whether they are static or declining is the relevant issue. 

Must Regulators Choose Between "Competition" and "Investment?"

Though the assertion is contested, European service providers say a fragmented market prevents European Union service providers from achieving economies of scale that would allow them to invest faster, and invest more, in Long Term Evolution and other advanced network platforms.

In other words, regulators have to make a choice. They can continue to regulate in ways that promote competition by setting low wholesale rates, or they can regulate to promote investment by allowing widespread industry consolidation.

Addressing the argument that the markets require robust competition to promote lower prices and better services, the GSM Association argues “there is no statistically significant relationship between market concentration and prices.”

In other words, there is no direct relationship between the number of competitors in markets and the consumer benefits (lower prices, better and more varied services), the GSM Association argues.

At least in European Union countries, that might be explained by scale economics. The typical EU service provider is much smaller than an AT&T or Verizon Wireless, for example, denying EU service providers the ability to scale their operations in ways that enhance revenue and lower costs.

In fact, argues GSMA, the relationship between market concentration and consumer prices is inversely related. In other words, more-concentrated markets tend to have lower retail prices.

That is an argument also made by economists at Phoenix Center for Advanced Legal & Economic Public Policy Studies.

Also, GSMA argues, qualitative improvements (more features, same price; more bandwidth, same price) might also be said to more prevalent where contestants have the ability to invest more, because they earn more.

“Policies that sacrifice long-term dynamic efficiency for short-term gains in static efficiency (setting prices at or near short-term marginal costs) risk being pennywise and pound foolish,” GSMA argues.

In other words, in seeking the lowest-possible wholesale costs, to promote price competition, arguably also sacrifices service provider investment over the long term. That is why, GSMA argues, service provider investment in the EU tends to lag investment levels seen in the United States.

In markets characterized by network effects, such as communications, regulatory policies that limit firms’ ability to capture economies of scale and scope “may be particularly

pernicious,” GSMA says.

The reason is that limiting economies of scale (subscriber mass) and scope (ability to sell more products to the existing customer base) can mean service providers never can justify investing in capabilities to provide new services and features.

There also is no consistent relationship between market concentration and innovation, the GSM Association argues.

In dynamic markets such as mobile wireless, market concentration and performance are not inversely related, the association argues.

Enterprise Hardware and Software Supplier Revenue Drops 11%

Aggressive price competition in enterprise hardware and software markets has shrunk supplier revenue as much as 11 percent over the past year, Synergy Research Group says.

Across some of the largest enterprise market segments prices have plunged by an average 17 percent since the end of 2011, despite volume growth in enterprise voice, Ethernet switching and telepresence.

But Synergy Research Group analysts also say a shift to cloud computing is having an effect as well.

But it would be safe to predict additional pressure as software defined networking starts to take hold. Basically, the idea behind SDN is that network element control functions are centralized, allowing lower-cost “in the network” elements to be used, frequently also allowing a multi-vendor approach to the simpler network elements.

That means widespread SDN should lead to enterprises and other organizations being able to buy and use lower-cost devices and network elements such as routers and switches.

Mobile Broadband Access Revenues Will Surpass Fixed Revenues in 2013

Sometime this year, In 2013, mobile Internet access revenues, at US$259 billion, will account for over half of total end user Internet access spending, overtaking revenues from fixed broadband services, in the United States and South Korea, PwC now forecasts. 

By 2015, mobile broadband spending will exceed fixed broadband spending in the United Kingdom. 

By 2017, nearly 286.7 million U.S. users, or 87 percent of the population, will use mobile Internet devices, while about 85 percent of homes will have broadband access using fixed networks.

Mobile Internet access spending will top $54 billion in the United States in 2013, compared with $49.6 billion in fixed network Internet access spending.

In 2012, fixed broadband access represented $46.5 billion in revenue, slightly outpacing mobile revenues at $44.5 billion.

The only real question has been when the crossover would happen, much as the crossover in use of fixed network voice and mobile voice occurred. Ovum has predicted a 2014 crossover, for example, the point at which service providers would make more revenue from mobile than from fixed broadband services. 

There are some nuances. In virtually all markets, use of smart phones could explain the growth of revenue for access services. But access revenue is not necessarily directly related to the amount of usage. 

In addition to smart phones, more consumers are adding mobile connections for their tablets. 

Mobile connections for tablets grew 48 percent in the first quarter of 2013 compared to the first quarter of 2012, and are used on 12 percent of U.S. tablets, according to NPD Connected Intelligence.

Tablet connections tend to use 850 MB of mobile data per month, compared to 1 GB on smart phones, according to NPD. That shows the variance between access revenue and the actual amount of data consumed on phones as compared to tablets.

But most data consumption, in terms of volume, still happens on the fixed network. Tablet Wi-Fi data use averages around 10 GB of data per month, or more than 2.5 times the amount of Wi-Fi data being used on smart phones.

“The difference in consumption on the Wi-Fi side comes from much higher video consumption on tablets (4GB per tablet per month), which accounts for 40 percent of all tablet data traffic, compared to less than 10 percent of data consumption on smart phones.” said Eddie Hold, NPD Connected Intelligence VP.

The connected tablet market is currently dominated by and AT&T and Verizon Wireless, in large part because most consumers purchase the tablet connection from their smart phone service provider.

It is highly likely that AT&T and Verizon Wireless are benefiting from their shared data plans, which make it relatively easy to add another device to a data plan. About a third of Verizon Wireless customers now are on “Share Everything” plans that make adding a tablet relatively affordable, at about $10 per tablet per month.

Still, given the fact that most tablets get used inside the home, where Wi-Fi typically is available, demand for mobile broadband likely will remain fairly muted. “Most consumers haven’t found that key application convincing them to add a cellular connection,” says Eddie Hold, vice president, Connected Intelligence.

To be sure, use of tablets when on the go and at work will increase as more people get them, and more discover they can dispense with use of a PC.

According to a Google survey from March 2011, people were generally using their tablets at home. 82 percent said they primarily used their tablet device at home, followed by 11 percent on the move, and seven percent at work.

A survey by Forrester Research in 2013 suggested that work-issued tablets get used 48 percent of the time at a desk during a typical work week, while 68 percent of the time in a work week,  tablets get used at home.

Trends might be different in emerging markets, though, in large part because Internet access primarily will be a function of mobile access, at least in the near term. Longer term, fixed wireless should be a bigger factor.

The Asia Pacific region will add nearly half of all new connections between 2013 and 2017 (1.4 billion) and will remain at just under 50 percent of global subscribers. Almost by definition, a growing percentage of those connections will generate Internet access revenue.

Latin America and Africa combined will add the next 20 percent of subscribers, representing 595 million new connections, according to the GSM Association.  

The growth in data traffic is supported by an increasing number of mobile broadband connections, which have grown seven fold since 2008, from just over 0.2 billion to 1.6 billion, and is expected to grow at 26 percent annually.

The average mobile Internet connection speed has more than doubled between 2010

and 2012 and it is forecast to increase seven fold by 2017, reaching almost 4 Mbps

on average.

Smart Phones Will be Majority of Phones Sold in 2013, Globally

2013 will mark the first year that smart phone shipments surpass those of feature phones, with smart phones expected to account for 52.2 percent of all mobile phone shipments worldwide, IDC now predicts. 

Emerging markets will account for 65 percent of all smart phones shipped during 2013, up from 43 percent in 2010. 

Smart phone shipments are expected to grow 33 percent year over year in 2013 reaching 958.8 million units, up from 722.5 million units last year. 

As you might suspect, a growing volume of sales in emerging markets will mean lower average device selling prices. 

In fact, smart phone average selling prices (ASPs) have declined to $372 in 2013, down from $407 in 2012 and $443 in 2011. 

Smart phone ASPs are expected to drop as low as $309 by 2017 with emerging market demand the main catalyst for the change. Average smart phone selling prices are expected to decline by about nine percent in 2013, IDC predicts.

iCharts

Mature Markets includes: USA, Canada, Western Europe, Japan, Australia, and New Zealand.

Europe is Falling Behind, GSM Association Argues

Drawing valid comparisons between countries, in terms of communications development, quality and pricing are difficult for any number of reasons. Some measures of “development” or usage are relevant on a household basis. But differing average housing densities materially affect per-capita metrics.

Average national revenue and cost of living indices likewise affect price levels. Average loop lengths and population densities affect the costs of deploying networks, both mobile or fixed.

Large continent-sized countries will tend to lag small, highly-dense countries and city-states on most measures of network performance or advanced network deployment, simply because of scale issues.

Regulatory and national investment priorities likewise will have a material effect on the quality and speed of advanced networks and services. Also, nations differ in ability to use infrastructure for maximum economic effect.

Even allowing for such important differences, relative rankings can change, and significantly, over time. Not so long ago, many critics pointed out that U.S. consumers lagged far behind Japan, South Korea and most Western European countries on any number of metrics, ranging from use of mobile services to use of mobile messaging to magnitude of Internet speeds.

Critics still point out that U.S. prices for any number of services are higher than elsewhere, or that average access speeds are lackluster. All that said, we should not be too alarmed that new studies suggest Europe is “falling behind” the United States in the use of mobile networks, especially the next generation of networks.

Over time, the differences will evaporate, just as differences have evened out in the past. And some differences principally are caused by prevailing levels of wages and prices in any particular country. In most countries, for example, when Internet access prices are three percent or less of typical household income, broadband adoption soars.

What matters is the retail price of broadband as a percentage of household income, not the absolute price.  

As recently as five years ago, the European mobile market was performing as well as, or even better than, the United States, any observer can conclude, looking at mobile service adoption or consumption of mobile services such as voice, texting or mobile Internet.

However, since then, the situation has dramatically reversed, a study sponsored by the GSM Association suggests.

The United States has opened up a “large lead in deployment of next-generation technologies,” the study suggests. By the end of 2013, nearly 20 percent of U.S. connections will be on Long Term Evolution  networks, compared to fewer than two per cent in the European Union, the study suggests.

U.S. mobile access speeds are now 75 percent faster than the EU average, and the gap is

expected to grow.

Also, the United States is deploying LTE at a much faster pace than the EU, the study argues. By the end of 2013, 19 percent of U.S. connections will be on LTE networks compared to less than two percent in the EU.

Some of us would say the problem will be rectified soon enough, and that the “gaps” will narrow to the point of meaninglessness, as similar gaps between Western European and U.S. markets were erased in the past.

Also, many studies are commissioned for some business or political purpose. The GSMA study is no different. It occurs in the context of a heated struggle to convince EU regulators to allow much more market consolidation, to allow faster innovation in next-generation networks.

That isn't to dispute the findings; simply to note the context.

Have Cloud Apps Started Disrupting the Computing Upgrade Cycle?

Technology analyst Brian Proffitt suggests cloud apps now are disrupting the computing hardware upgrade cycle, which might explain the weakness of Windows 8 adoption. Simply put, and as has been the case for the last several Windows upgrade cycles, users are finding their apps work well enough that there is no need to upgrade hardware to run new software. 

That wouldn't be unusual, and represents a consumer trend that mirrors what should happen i the business networking space, others would suggest. 

Baird Equity Research Technology has argued that "cloud services will drive a shrinking IT spending pie," since companies will replace server and networking infrastructure with cloud services.


That means spending will shift from owned hardware and software to services. 

"We estimate that for every dollar spent on [Amazon Web Services], there is at least $3 to $4 not spent on traditional IT, and this ratio will likely expand further," Baird analysts predict.

In part, that might explain any number of things, from shrinking PC sales to slower operating system upgrades. 

Cloud-based apps, in other words, have begun to affect the hardware upgrade cycle because cloud-based apps do not require hardware upgrades as much as locally-resident apps often do, are upgraded automatically in the cloud and rely as much as the Internet connection as processor speed and memory. 

Over the next three to five years, technology spending in both consumer and business markets will transition from PCs to mobile phones, from servers to storage, from licensed software to cloud, from fixed voice and data connections to mobile. 

EU Network Neutrality Rules Would be Less Restrictive than U.S. Rules

It appears that any European Union version of network neutrality would have some distinctive features, compared to the rules fixed network providers (cable and telco) must follow in the United States, if the framework now proposed by European Commission Digital Agenda Vice President Neelie Kroes is adopted.

Among the most-noticeable differences is that although fixed network ISPs can provide only “best effort” access, EU network neutrality rules would allow quality of service tiers. At the moment, mobile service providers can offer such features, while fixed network ISPs cannot.

“I you've just bought a videoconferencing system, you'll probably also want an internet service that guarantees the right quality, end-to-end,” said Kroes. “If someone wants to pay extra for that, no EU rules should stand in their way; it's not my job to ban people from buying those services, nor to prevent people providing them.”

In other ways, the EU rules would be similar, requiring plan transparency, for example. “Before you sign up to an internet contract, you want to know key details,” said Kroes.

But EU rules probably will regulate terms and conditions of service in a way U.S. rules do not. With an eye to allowing consumers more ability to switch ISPs, the EU will be looking at excessive charges, modem rentals or control of email addresses that tend to create barriers to switching behavior. In the U.S. market those might not be in the domain of network neutrality but more consumer protection.

As do U.S. rules, EU rules would prohibit the blocking or other degradation of lawful services such as voice over Internet Protocol (VoIP) or over the top messaging services.

Traffic management to avoid congestion will be allowed, as network management is permitted on U.S. networks, under network neutrality rules.

But there are key nuances. Under EU rules, it appears Kroes supports rules that would allow ISPs to separate time-critical traffic from the less urgent traffic. Under U.S. “best effort only” rules, that is not allowed.

The EU rules might also allow creation of access services customized for different types of lead applications, ranging from light email or Web surfing plans to video entertainment intensive plans. “Operators need to respect these different needs, and to do that they must also be allowed to innovate to meet those needs,” said Kroes.

On balance, the EU rules would be less restrictive of ISPs, allowing more use of quality of service and assured levels of service features, while also making clear that all lawful applications must be free of interference, compared to U.S. rules.

Justice Department tries to force Google to Hand Over User Data

U.S. citizens no longer trust their government, polls suggest. A recent national survey by the Pew Research Center for the People & the Press found that 53 percent of respondents think the federal government threatens their own personal rights and freedoms. 

Just 28 percent of respondents surveyed by the Pew Research Center rate the federal government in Washington favorably. That is down five points from a year ago and the lowest level of trust percentage ever in a Pew Research Center survey.

A new lawsuit illustrates why the lack of trust exists. The U.S. Justice Department lawsuit, filed April 22, 2013, attempts to force Google to comply with Federal Bureau of Investigation demands for confidential user data. 

The FBI uses so-called National Security Letters, a secret electronic data-gathering technique that does not need a judge's approval and recently was declared unconstitutional in an unrelated court case.

NSLs  supposed are used only in national security investigations, not routine criminal probes, and there's no upper limit on the amount of data a single NSL can demand. Also, any recipient of an NSL, which do not require warrants, also make criminal the act of revealing that an NSL was issued. 

50 Mbps Services Dropping to About $1 to $1.60 Per Mbps Per Month?

Cable ONE says it has eliminated fixed usage caps for its high speed Internet access plans, and instead suggests that its plans assume a 300 GB maximum on monthly usage on its 50 Mbps plans. The 50 Mbps plan sells for $50 a month (before the taxes and fees) when bundled with voice service. 

Cable ONE also is launching new 60 Mbps and 70 Mbps plans, though pricing was not immediately made public. 

One might conclude that the dropping of the usage cap and the expansion of speeds is, at least indirectly, a response to Google Fiber. In 2010, for example, 50 Mbps service in the U.S. market cost about $145 a month, or nearly $3 per Mbps of access speed. 

The latest Cable ONE offer pegs bandwidth at $1 for each Mbps of access speed, when access service is bundled with a voice plan. 

Verizon FiOS likewise now is available, on a promotional basis, for about $1.20 per Mbps of speed for about a year, on contract, with second-year prices of about $1.60 per Mbps of speed. 

Line's "Chat" Revenue Model: Stickers and Messaging to Followers

"Monetization" is a very big deal for most Internet app firms, and a reasonably big deal for any would-be Internet access provider, simply because any entity requires a sustainable revenue model of some sort to stay in business and create new features. 

Line, the Taiwan-based messaging provider, now appears to be generating revenue by selling businesses access to Line users. 

A company buying a Line corporate account can send buy plans allowing sending of 15 messages or 30 messages a month to its followers. For those who select a limit of 15 messages, the cost would range from NTD 150,000 ($5014) – for up to a maximum of 100,000 fans – to NTD 450,000 ($15,047) – for more than 600,000 fans. 

The developing adage that if a user is not paying for a service, then the user is the product, applies to Line and many other application providers. 

But Line might make more money selling sponsor "stickers." For example, a firm might pay NTD 1 million ($33,438) for the right to develop eight stickers available for download for one month and which users can use up to six months.

Line's "Chat" Revenue Model: Stickers and Messaging to Followers

"Monetization" is a very big deal for most Internet app firms, and a reasonably big deal for any would-be Internet access provider, simply because any entity requires a sustainable revenue model of some sort to stay in business and create new features. 

Line, the Taiwan-based messaging provider, now appears to be generating revenue by selling businesses access to Line users. 

A company buying a Line corporate account can send buy plans allowing sending of 15 messages or 30 messages a month to its followers. For those who select a limit of 15 messages, the cost would range from NTD 150,000 ($5014) – for up to a maximum of 100,000 fans – to NTD 450,000 ($15,047) – for more than 600,000 fans. 

The developing adage that if a user is not paying for a service, then the user is the product, applies to Line and many other application providers. 

But Line might make more money selling sponsor "stickers." For example, a firm might pay NTD 1 million ($33,438) for the right to develop eight stickers available for download for one month and which users can use up to six months.

How Tim Cook Sees Apple's Values

It is a given that Apple is different, post Steve Jobs. Equity prices aren't everything, but Apple's stock price suggests investors are uncertain about the company's prospects, with Tim Cook as CEO. The comparison is unfair, in many ways. 

Some of us would argue that although it largely is true "nobody is indispensable," it is not always true. Steve Jobs was an extremely unusual CEO. So would there be a regression to the mean, in terms of CEO "potential impact?" Almost certainly. 

The issue is how well Apple can manage its future without Steve Jobs. In that regard, Cook argues that Apple will in the future have to rely on many contributions, with teams--and teamwork--more important than in the past. 

That likely would be the only logical answer no matter who was running Apple.