Google Wallet is Failing

Google Wallet, it is probably fair to say, has failed to get traction. The Starbucks app, in contrast, or PayPal's payment platform, continue to stand out as successful mobile payment platforms.

Starbucks has about 10 million users of its mobile payment app. 

In fact, some would say Starbucks dominates mobile payments. 

PayPal expects to process $20 billion worth of transaction value in 2013. 

The fact that some big initiatives, sponsored by big companies, do not get traction is to be expected. We remain at a very-early stage of the evolving mobile payments business. 

In all cases, the solution has to solve a significant problem, in a way that provides more value to users. In the U.S. market, that is a challenge, as few consumers probably would claim the "payment process is broken." 

In the absence of a clearly broken process, any new way of doing things has to create and deliver high amounts of new value, to overcome adoption hurdles. 

Can Anybody Catch Verizon Wireless and AT&T Mobility?

Attackers in the U.S. mobile market have to be optimistic when facing AT&T Mobility and Verizon Wireless, because a rational observer might have a hard time figuring out precisely how any of the smaller providers realistically can overtake the leaders.

AT&T expects postpaid wireless net adds of approximately 500,000 when second quarter 2013 data are reported. AT&T also says  Inc. it has seen “strong” customer additions in the second quarter for U-verse broadband and TV subscribers, year over year.

AT&T also expects second-quarter mobile EBITDA margins to be comparable to the first-quarter. AT&T continues to expect revenue growth of about two percent for the quarter, but profit margins are expected to be down, year over year.

In its first quarter of 2013, Verizon Wireless saw an 8.6 percent year-over-year increase in both service revenues and retail service revenues, with 32.9 percent operating income margin and 50.4 percent segment EBITDA margin on service revenues (non-GAAP), both record highs.

Verizon Wireless added 677,000 retail postpaid net additions, up 35 percent year over year.

Those sorts of figures also point to reasons why it will remain difficult for T-Mobile USA, Sprint or Dish Network to reshape market shares in the U.S. mobile market. The two largest service providers simply continue to take more market share from the smaller providers.

Market share matters. As a rule, market share and profit margin  are related. So as AT&T and Verizon Wireless take more share, their profit margins should grow. In fact, theory would suggest that AT&T and Verizon Wireless, based on their current market shares, should earn profits at twice the rate of the smaller carriers.

T-Mobile USA operating margin was about 25 percent in the fourth quarter of 2012. Verizon Wireless reported first quarter 2013 EBITDA, equivalent to  “operating margin,” of 50 percent on service revenues.

Conversely, it will become harder for Sprint and T-Mobile USA to maintain their own margins if AT&T and Verizon Wireless continue to take more market share.

And new entrants such as Dish Network will start from zero, with no chance of profits for some time.

You might say that is the reason some attackers do not aim to overtake the leaders in an existing market. They want to remake the market, as Skype has done in international long distance. Instead of leading the existing market, the strategy is to essentially destroy the existing market, creating a new market with vastly different revenue and operating cost requirements.

Security Agencies Collecting Credit Card, Internet App and Phone Data from AT&T, Sprint, Verizon, Google, Apple, Microsoft, Yahoo, Facebook, AOL, Skype and YouTube

The U.S. National Security Agency has been collecting millions of customer records from Verizon, AT&T and Sprint, as part of a effort ostensibly for protection from terrorists.

But civil libertarians might now see a dramatic danger that collateral information also is being collected, and could be used in other ways by a growing “administrative state” than now has become a “spying state.” 

Federal agencies also have been collecting emails and Web search data from nine Internet app providers as well. 

Under the Foreign Intelligence Surveillance Act (FISA), the U.S. intelligence community has add access to the servers of nine Internet companies, including Microsoft, Yahoo, Google, Facebook, PalTalk, AOL, Skype, YouTube and Apple.


Data about credit-card transactions also has been collected, and the current extent of continuing operations is unknown, the Wall Street Journal now reports.

Officials claim the program is “targeted” at terrorism suspects. 

But that isn’t the problem. The problem is that data on all sorts of U.S. citizens and residents also is collected, and apparently is retained. 

That means we have to “trust” agencies not to misuse that information. 

"Everyone should just calm down and understand this isn't anything that is brand new,'' said Senate Majority Leader (D., Nev.)


Maybe it isn't citizens who should "calm down."

Security Agencies Collecting Credit Card, Internet App and Phone Data from AT&T, Sprint, Verizon, Google, Apple, Microsoft, Yahoo, Facebook, AOL, Skype and YouTube

The U.S. National Security Agency has been collecting millions of customer records from Verizon, AT&T and Sprint, as part of a data mining effort ostensibly for protection from terrorists.

But civil libertarians might now see a dramatic danger that collateral information also is being collected, and could be used in other ways by a growing “administrative state” than now has become a “spying state.”

Federal agencies also have been collecting emails and Web search data from nine Internet app providers as well.

Under the Foreign Intelligence Surveillance Act (FISA), the U.S. intelligence community has add access to the servers of nine Internet companies, including Microsoft, Yahoo, Google, Facebook, PalTalk, AOL, Skype, YouTube and Apple.

Data about credit-card transactions also has been collected, and the current extent of continuing operations is unknown, WSJ.com now reports.

Officials claim the program is “targeted” at terrorism suspects. But that isn’t the problem. The problem is that data on all sorts of U.S. citizens and residents also is collected, and apparently is retained.

That means we have to “trust” agencies not to misuse that information.

"Everyone should just calm down and understand this isn't anything that is brand new,'' said Senate Majority Leader Harry Reid (D., Nev.)


Maybe it isn't citizens who should "calm down."

Over 5 Months, 10% to 20% of Major ISP Customers Upgraded to a Faster Tier of Service

Based on the latest study of major U.S. ISPs studied by the Federal Communications, one might say that about 10 percent to 20 percent of major ISP customers upgraded their connections to a faster speed tier over the five months since the last study.

That is likely a combination of ISPs upgrading speeds and moving customers to the higher tiers, as well as some consumers choosing to buy a faster grade of service.

U.S. Access Market Faces a Qualitative Change

Quantitative changes sometimes lead to qualitative changes, as when higher Internet access speeds allow viable video streaming services or other cloud services to exist, or when computing costs drop multiple orders of magnitude, while performance increases by orders of magnitude.

The latest Federal Communications Commission report on U.S. Internet access performance also suggests the impact much higher bandwidths will have on the access market. 

One might argue that when speeds grow from 1 Mbps to 5 Mbps, or 5 Mbps to 10 Mbps, or 10 Mbps to 15 Mbps, the possibilities for business models get better in a sort of linear fashion. That might not be true as speeds grow to hundreds of megabits per second up to 1 Gbps.

At least in terms of market structure, some contestants, including satellite and fixed broadband providers, will be rendered mostly irrelevant, most places, when the market expectation is that hundreds of megabits per second, up to 1 Gbps, is the norm, or at least the marketplace reference.

In short, structural changes, not simply quantitative changes in typical access speeds, are going to reshape the fortunes of various market contestants over the next decade or so.

Consider only what already is the case for data consumption by users on different networks. Fiber to home network and cable network consumption levels over a month’s time are nearly identical, with the 50th percentile of users consuming about 40 Gb per account.

Consumers on digital subscriber line networks consume just half that amount at the 50th percentile: 20 Gb.

But notice the outlyer: satellite customers consume about a gigabyte, on a level with data consumption of smart phone owners.

So here’s the clear implication: as networks get faster, users consume more data. One should expect, over time, that users on networks featuring 100 Mbps to 1 Gbps are going to consume even more data than fiber to home and cable network customers already do.

There is no comparable technological fix for satellite networks, even though higher-capacity satellites are being launched.

"Interactive TV" Turns Out to be "the Internet"

Television interests have been trying to create “interactive TV” for decades, in the belief that such interactive features and personalization would create huge new advertising and marketing revenue streams.

But the future often unfolds in ways not anticipated. As it turns out, for interactive TV as for many other businesses, the Internet is creating precisely the business value once envisioned for another way of doing things.

These days, most consumers watch television while also using a smart phone or tablet. There is “interaction” all right, but not directly with the TV, as once was envisioned for “interactive” TV.

People are interacting with friends and augmenting TV experiences, but using the Internet and Web apps, not applications embedded into the content.

According to Business Intelligence, 85 percent of smart phone users do something related to TV they are watching, at least once a month.

More than 60 percent report doing so on a weekly basis and 39 percent say they do so daily.

But we often are surprised in the technology and communications business. Virtually nobody expected that people throughout the developing world would so rapidly adopt voice and text communications using mobile networks and devices.

The rapid acceptance of touch-based tablets came only after more than a decade of failed attempts to create a tablet device market. And most probably are surprised at how fast tablets are displacing PCs in everyday use, in many regions.

Few might have expected so rapid a change in broadband access markets since the advent of Google Fiber, even though 1-Gbps access networks were in operation before Google Fiber launched.

The point is that unexpected, destabilizing change is not unusual in the communications or computing businesses, nor does the future unfold in the linear way we sometimes expect or prefer.

New Low Cost iPhone in Colors?

Remember the iMac? Maybe Apple's new lower-cost iPhones will take their cue from the iMac. 

The lower cost iPhone might then have something going for it other than lower retail price. 

The iMac, some might recall, was the machine that many believe saved Apple at a time when its future was quite cloudy. 

Some might see the analogy to Apple's current situation, in some ways. 

Recall what Steve Jobs said of the iMac, at the time: "The back of this thing looks better than the front of the other guys'."

Aside from the birth of the "i," the iMac probably represented the  first of Apple's recent industrial design innovations. 

D-Day

On June 6, 1944, perhaps the most-important and singular D-Day ever to occur, 160,000 Allied troops landed along a 50-mile stretch of heavily-fortified French coastline to fight Nazi Germany on the beaches of Normandy, France.

More than 9,000 Allied soldiers were killed or wounded on the day some would say World War II in Europe turned in a decisive direction. Some 150,000 died in the western European theater alone, by the end of World War II.

"Unintentional" Market Disruption Now a Growing Possibility?

Market disruption arguably is a very different thing than “competition in a market.” The former often leads to radical reshaping of markets, typically “destroying” much of the former total addressable market revenue.

“Normal” market competition typically puts pressure on retail prices, and causes more market segmentation,  but is relatively incremental in its impact.

Even when the strategic approach is “same service, lower price,” most efforts at competition simply aim for taking some share away from existing providers.

Incumbents may not like competition, but market share shifts, margin pressure and other changes do not necessarily cause the overall market size to shrink.

On the other hand, deliberately disruptive assaults often have an indirect aim of literally destroying a market. The new issue is whether, in a world increasingly based on Internet forms of competition, unintentional market destruction can result, even when a competitor would rather “only” take some market share.

You might argue is more rational for an attacking firm to take the “same service, lower price” approach because that might stimulate overall market growth, even as it creates an opportunity for the new entrant to take market share from incumbents.

That was the tack taken by virtually all U.S. competitive local exchange carriers and is typical of U.S. cable operator assaults on the small business Internet access and voice markets.

Apple is unusual in that regard. It attacked legacy markets by providing a “better experience at a higher price.” That is relatively rare in communications markets, but well understood in many other markets such as automobiles and luxury goods of all sorts.

Still, the more common approach in the communications market is the strategy of “take market share by offering equivalent value at lower prices.”

Some assaults are deliberately disruptive, such as Skype’s attack on long distance calling, collaborative approaches to building networks such as Fon, Republic Wireless or FreedomPop approaches to the mobile business, Some might say SoftBank’s approach in the Japanese mobile market was intentionally disruptive in this sense.

Perhaps the new issue is whether disruption can occur even when market participants “only” want to protect or gain market share. One thinks of the U.S. long distance market, for example. It arguably never was MCI’s strategy to destroy long distance profits to the point where long distance ceased to be an independent product category.

But that is what happened.

More recently, Internet-based attackers have been more willing to radically disrupt pricing in markets, because radically-lower capital, marketing or operating costs make such assaults possible.

Perhaps the new issue is unexpected disruption of markets, when that was not intended.

It probably is true that most of the time, new entrants are viewed as representing only one more source of incremental competition, since the initial value proposition is quite limited, compared to that offered by the market leaders.

Of course, as now is well understood, attackers tend over time to add features and capabilities that make additional market segments take notice. Eventually there can be nearly head to head competition offered by the attacker, across market segments and price ranges.

The perhaps new angle is whether more markets are susceptible to unintentional disruption. SoftBank, for example, might originally only thought it could succeed in taking market share from other incumbents.

But one might wonder whether market disruption now is happening, whatever SoftBank originally thought it could achieve.

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.