Does "Piracy" Explain Music Sales Decline? Maybe Not

Music piracy does not harm the commercial music business, a new study by the London School of Economics and Political Science argues.

The evidence does not support claims about overall revenue reduction due to individual copyright infringement, the study claims.

Some will contest that claim, as there is no getting around the fact that recorded music sales, as have sales of video content in packaged good form, have declined.

The point is not so much that piracy “does not matter.” Perhaps the more important implication is that punitive measures against individual online copyright infringers does not have the impact claimed by some in the creative industries.

The study notes that concert revenue and now mobile contributed revenue is offsetting the decline in recorded music sales.

One needn’t endorse content piracy to believe that in a digital era, new forms of monetization already have arisen, though.

And though one might argue “piracy” accounts for the dramatic decline in sales of recorded music is “caused” by piracy, one might argue that what has driven the change is a preference for renting rather than owning.

In essence, both buying an iTunes song and listening to Pandora are forms of renting rather than owning music.

One might further claim that piracy is killing the print content business, but that business was in decline at least a decade before the Internet was commonly used by most people. And some now say consumer attitudes about owning real estate or automobiles also are changing. Piracy certainly is not involved there.

Is Hosted IP PBX Business Finally Getting Major Traction?

In any new market, for any new product or service, one typically looks for signs that adoption is about to move from early adopters to the mass market. Quite often, in the consumer space, that happens when total adoption reaches 10 percent of households. There obviously is no direct business-to-business product.

But one wonders whether hosted IP PBX, hosted IP telephony or unified communications as a service (you can pick your preferred nomenclature) has passed an important inflection point, at least in the U.S. market.

At the moment, hosted IP telephony providers seem to be seeing relatively strong double-digit rates of growth, at least in the U.S. market, with an average of about 20 percent revenue growth, per year. Even if one concedes that some of that growth comes from a low installed base, that is healthy.

That growth would stand in some contrast to some estimates of broader unified communications and collaboration revenue growth, which by some estimates continues to be a slow-growing market or alternatively a smallish segment of the communications or information technology markets. 

Of course, it always is difficult to ascertain with precision what revenue elements get included in the UC and C market. Many such estimates, especially in the smaller business market, include access revenue, since the broadband connection is bundled with the unified communications features and voice service.

Still, the reported 20 percent growth for hosted voice suggests it is possible an important adoption hurdle has been leaped.

On Second Anniversary of Steve Jobs Death, His Approach to Product Development Remains Singular

On the second anniversary of Steve Jobs' death, we might reflect on one attribute of Apple's product development process that continues to strike some of us as highly unusual, for a company of its size and influence.

If you have spent any time working with organizations that create products or services, you know that it typically is considered valuable and reasonable to ask customers and prospects what they want from the product, and then try to create those features for them. 

That takes the form of informal meetings with buyers and most other forms of market research. Unusually, Apple under Steve Jobs did not actually act that way, which is shocking. 

"Some people say, 'Give the customers what they want,' Jobs said. "But that’s not my approach."

"Our job is to figure out what they’re going to want before they do," said Jobs. 



"People don’t know what they want until you show it to them," Jobs famously said. "that’s why I never rely on market research."

That is a highly unusual, perhaps singularly unusual way of thinking about, and creating products. I can't think of a single other company that actually operates that way. 

People will argue about whether Apple created new markets or only reshaped them.  Nobody will argue that Apple won or lost based on a misreading of market research. It never really relied on user feedback. 

If you want to argue about whether some other company is "the new Apple," you would have to show me that such a firm has such a profound confidence in its own understanding and abilities that it will create without benefit of being "lead by customers."

Observers will differ about whether Apple can ever be the same company, after Steve Jobs. People will disagree about whether Apple can sustain its ability to envision and execute on industry-creating products. 

What most might agree upon is that no other large enterprise actually develops its products by envisioning what people will love, rather than asking them what they want. 

Granted, business to business markets arguably are different from consumer markets. But the extreme rarity of the Apple approach ("we know best") is among the enduring Apple legacies.

That "end users don't know what they want" approach is fundamentally foreign to B2B developers, virtually all of the time. Rational developers ask customers and prospects what they want, and try to give it to them. 

There's a role for that, of course. What remains unclear is whether disruptive new products get created that way. 

Cloud Computing Inflection Point?

If the predictions of a new Vanson Bourne study prove accurate, enterprise use of cloud computing in the United States, Canada, United Kingdom, Germany, Japan, Hong Kong and Singapore already has passed an important adoption inflection point, and is entering a phase of rapid majority enterprise adoption.

In fact, though 65 percent of surveyed organizations now use on-premises, owned and operated computing facilities, the study suggests we are but two years away from a situation where where cloud and in-house approaches briefly are equal, followed just three years later by dominance of cloud computing.

Also, the study suggests enterprises will outsource nearly 70 percent of their information technology  infrastructure by 2018, almost a complete reversal of the present practice, where about 65 percent of enterprises operate using internal and owned facilities, according to a new study by CenturyLink-owned Savvis.

That rate of adoption might strike some as implausible, suggesting that the Savvis-sponsored study includes a disproportionate share of early adopters. But the findings will make more sense if public cloud adoption is considered.

The study suggests adoption of public cloud approaches in fact has not yet hit the 10-percent threshold, even if private cloud, colocation and managed services already have passed the inflection point, using the 10-percent standard. 

That would be a major shift in virtually any industry, and will happen in just five short years, the study suggests. At the end of that period, enterprises in the studied countries will have shifted largely to use of outsourced cloud facilities as the dominant model, where today most operate internal facilities.

In fact, the study found that just five percent of enterprise respondents surveyed today depend on the outsourced cloud for the bulk of their IT resources. The shift to an outsourced, cloud-based model will represent the majority of organizations within about three years, the study suggests.

In 2009, about 60 percent of respondents said cloud would be a priority for their organizations at some point in the future, but 71 percent said it wasn’t near the top of their current list.

In 2010, 63 percent of organizations had started to use a cloud solution of some kind. By 2012 85 percent of respondents had some cloud apps in use.

In 2013, 89 percent of survey respondents reported that they are using at least some cloud apps. That suggests the next wave of growth will come from organizations that start to use cloud for additional apps that are more crucial.

Most organizations will use hybrid approaches to colocation and managed-service models, the study also suggests.

"The next five years will bring a dramatic shift in the way organizations approach IT," said Jeff Von Deylen, president, Savvis. "Clearly, cloud is part of the picture but it's not the whole picture. As businesses grow and move more IT infrastructure to outsourcing providers, they will adopt a strategic mix of colocation, managed-hosting and cloud services."

That is a classic case of non-linear adoption of a new technology, once an inflection point is reached.

But some might view the projection as unusually aggressive.

Most successful consumer technologies, for example, do experience a more-rapid adoption curve after the point where 10 percent of households have adopted. Cloud computing, if the new survey is characteristic of all enterprises in the studied countries, passed that threshold sometime before 2010.

After the 10-percent adoption threshold, the adoption rate dramatically accelerates.

But that is the issue. Does the sample survey represent all similar enterprises in the markets studied? And does the adoption of cloud technology represent the use of on-premises data centers, use of full cloud apps, volume of usage across all apps or volume across the mission-critical apps? There is much room for interpretation on that score.

Other forecasts are significantly less robust, at least measured as a percentage of total IT spending.

Savvis commissioned research firm Vanson Bourne to conduct the survey of  550 IT decision 

makers in the finance, media and entertainment, retail, healthcare, software and automotive industries.

Respondents generally report they have been outsourcing applications that are not mission critical. Up next are data-center facilities, storage and content-management applications, the study said.

Though in-house IT infrastructure models are most common today, colocation becomes the environment of choice in two years, managed services take the lead in five years and cloud eclipses all forms shortly thereafter, the study suggests.

As you would expect, while the top benefit of IT outsourcing remains "cost reduction or containment," said to be important by 42 percent of respondents, "improved quality of service" and "infrastructure scalability and flexibility" also rank high on the list of advantages, with each indicated "important" by more than 35 percent of survey respondents.

Nearly 90 percent of respondents say they use some type of cloud service today, with more than half doing so for storage and email applications. Slightly less than half of IT leaders employ cloud for intranet, website and microsite applications.

5 Billion Mobile Phone Users in 2017

In 2017, 5.1 billion people around the world will be mobile phone users. Asia, the region that will see the most growth, is already home to the most mobile phone users. Some 2.4 billion people in Asia use mobile phones, growing to 2.9 billion by 2017.

There's almost no surprise, in that regard. "Everybody" will use mobiles. 

Internet of Things Forecasts Vary by an Order of Magnitude

The Internet of Things (sometimes known as machine-to-machine communications) will represent technology and services revenues of $4.8 trillion in 2012 and $8.9 trillion by 2020, growing at a compound annual rate of 7.9 percent, globally, according to IDC.

IDC expects the installed base of the Internet of Things will include 212 billion "things" globally by the end of 2020.

Others think that figure is wildly inflated, and might suggest 50 billion connected devices, including PCs, smart phones and tablets, might be connected by 2020. That is the problem with such forecasts, which mix machine to machine (sensor apps) instances with devices people use (PCs, smart phones, tablets, game players).

Simply conflating consumer devices using the Internet with machines using the Internet confuses the issue. For one thing, service provider revenues are likely to be quite distinct when providing communication and other services to humans, and when providing enterprise customers with support for their sensor devices and networks.

The IDC forecast includes 30.1 billion "connected (autonomous) things" in 2020, consisting of sensors for intelligent systems that collect data.

With the caveat that many analysts and observers consider mobile Internet connections for tablets to be “machine to machine” connections, or part of the “Internet of Things” revenue segment, there is a reason “connected car” and M2M services appeal to mobile service provider entities, namely the sales model.

As is the case for communications service sales to large multinational enterprises, compared to consumers, the size of opportunities, and sales process, arguably are “easier” when selling solutions to business partners (enterprises) who then package services for actual sale to end users.

In other words, M2M and connected car sales are more akin to wholesale operations than retail operations, and more like enterprise sales efforts than retail sales.

Where enterprise sales can efficiently be conducted using in-house sales forces, consumer sales normally are handled by channel partners and retail operations. In the former case, a relatively small number of prospects exist. In the latter case, many millions of prospects exist, and cannot be marketed in the same way as an enterprise or wholesale account.

In other words, the potential revenue return from providing connected car services directly to General Motors outweighs the revenue return from selling connected car services to individual end users, one at a time.

More than 20 percent of vehicles sold worldwide in 2015 will include embedded connectivity solutions, the GSM Association suggests.

More than 50 percent of vehicles sold globally in 2015 will be connected, while every new car sold will be connected in multiple ways by 2025, a study conducted for GSMA now suggests.

Connected car services will constitute a €24.5 billion revenue stream, based only on in-vehicle services, such as traffic information, call center support and web-based entertainment (up from €9.3 billion in 2012).

Perhaps €4.1 billion will be earned providing connectivity, such as mobile data traffic (up from €814 million in 2012).

The study by SBD predicts 10 million cars sold in 2018 will be fitted with tethered solutions (nine percent penetration), up from 2.6 million cars in 2012.

In revenue terms, embedded systems are likely to dominate the sector over the next

five years. They will account for almost 83 percent of the revenues generated by connected cars in 2018. Tethered systems are set to generate 10 percent of the revenues and smart phone integration systems the remaining seven percent of revenue.

Target Launches Own Branded Mobile Service "Brightspot"

Target is becoming a mobile service provider, launching “brightspot,” a prepaid service,  joining Walmart with its Straight Talk prepaid service.

Target will sell two plans: a $50 plan with unlimited voice and text messaging and 1 GB of data on T-Mobile US networks, and a $35 unlimited talk and text plan with no data.

It isn’t clear whether brightspot will include access to the new T-Mobile US Long Term Evolution network.

Target Launches Own Branded Mobile Service "Brightspot"

Target is becoming a mobile service provider, launching “brightspot,” a prepaid service,  joining Walmart with its Straight Talk prepaid service.

Target will sell two plans: a $50 plan with unlimited voice and text messaging and 1 GB of data on T-Mobile US networks, and a $35 unlimited talk and text plan with no data.

It isn’t clear whether brightspot will include access to the new T-Mobile US Long Term Evolution network.

KPN Votes to Sell E-Plus to Telefonica

KPN shareholders approved the 8.55 billion-euro ($11.6 billion) sale of the phone company’s German business E-Plus to Telefonica, immediately creating Germany’s largest wireless carrier, measured by number of customers.

E-Plus and Telefonica’s O2 would have a customer base of 43.8 million, surpassing Vodafone’s 32.2 million and Deutsche Telekom’s 37.5 million customers in Germany.

Regulatory approval still is required and will be an early test of regulator willingness to allow further concentration of mobile and fixed network firms within each European Union country, if not cross-border consolidation on a bigger level, immediately.

Among the signs observers will be watching for is regulator willingness to allow the number of mobile service providers in each country to drop from four to three, as many regulatory authorities have been insisting that a minimum of four providers is required to sustain vigorous competition and innovation.

It probably goes without saying that many investors would prefer three, not four providers, in each national market.

Amazon Denies Phone Reports, Keeps Working on Them

Amazon keeps denying it has any interest in producing a smart phone, and yet rumors persist that it is indeed working on potential devices. 

Most assume Amazon would have interest primarily in creating a device that is commerce oriented, as Google has interests in information-related devices, Facebook in social networking or Apple benefits from content-capable devices. 

So TechCrunch suggests Amazon is working on a multi-camera device that would enable three-dimensional features that would obviously provide a better visualization of products. 

Other technologies said to be under development are image recognition features that would allow a user to take a picture of an object and then find that object, or similar objects for sale on Amazon. 

FreedomPop "Free" Mobile Phone Service Relies on Freemium Revenue Model

FreedomPop now has added a "no incremental cost" mobile phone service to the Internet access plans it originally launched. The base service includes 500MB of data, 500 text messages, and 200 voice minutes, for no cost, after purchase of a compliant HTC Evo smart phone. 

FreedomPop plans to add other devices, eventually. 

There are, of course, some novel elements here, beyond the Freemium revenue model. FreedomPop says 45 percent of subscribers regularly pay for an additional feature or service plan, and the company is hoping to see that figure inch closer to 55 percent for its phone service.

The service also relies exclusively on use of the Sprint WiMAX data network. FreedomPop does not buy any wholesale "voice network" service, and therefore is a "data only" approach to mobile communications. 

That raises the issue of whether other service providers (especially those with an over the top approach) might try to do so as well. 

Of course, at some point all the leading U.S. mobile service providers will provide voice, messaging and data services using only the Long Term Evolution network, rather than using a hybrid approach, where voice is provided by a 3G network and all IP services use the data connection. 

But the "data channel only" approach is one reason FreedomPop is able to give away a base service, while building its revenue model on selling incremental services to users of its free basic service. 

For Sprint, the use of WiMAX to support mobile virtual network operator partners allows Sprint to make better use of a legacy network that does not represent the future of the business. 

The new FreedomPop offer represents the first direct challenge to mobile service provider retail packaging. But the FreedomPop initiative also represents a test of whether a small upstart can successfully achieve a major market disruption. 

Some might argue that disruption of the mobile business, so far, has required the intervention of a large, well-heeled ecosystem player, such as Apple. In the fixed network business, some would argue it has taken the entry of Google Fiber to challenge the fixed network high speed access value and price packaging.

So some will be watching to see whether FreedomPop can make significant inroads without an eventual entry by some other contestant with huge scale and deep pockets. 

U.S. Mobile Market Share in Flux, or Only the Reporting?

Perhaps it is one more sign of growing disruption in the U.S. mobile service provider market, but there is some dispute about whether Verizon Wireless or AT&T now has the larger market share, based on subscriber accounts.

By virtually all accounts, Verizon Wireless has been the market leader. But there are at least some analysts who believe AT&T has moved ahead.

That was not the case in 2012. AT&T said it had 105.2 million wireless subscribers for the second quarter of 2012, at a time when Verizon Wireless reported some 111.3 million wireless customers.

But AT&T does not any longer report its wireless subscriber figures, emphasizing total accounts in service.

When a company doesn’t report a specific number, such as number of accounts in service, or number of subscribers, you have to assume there is a reason.

To be sure, a change in reporting probably is required, as more customers shift to shared or family plans, so an “account” is not equivalent to devices or users in service. Further changes will be required if and when service for sensors (machine to machine or Internet of Things) are added to “account” totals.

Then there is the matter of how to count wholesale accounts, not just retail accounts. A wholesale mobile virtual network operator (MVNO) generates revenue for the supplying carrier, though typically with lower average revenue per user or end user account.

All of that complicates efforts to calculate U.S.mobile service provider market share.

The recent spate of mobile service provider acquisitions, in particular on the part of AT&T (Leap Wireless) and T-Mobile US (MetroPCS), have rearranged U.S. service provider market share, to some extent, based on subscribers.

MetroPCS added about 9.5 million subscribers for T-Mobile US. The Leap Wireless acquisition by AT&T adds about five million subscribers.

What remains a bit cloudy is the actual market share held by Verizon Wireless and AT&T.

By some reckoning, until the acquisition by T-Mobile US of MetroPCS, and AT&T’s purchase of Leap Wireless, Verizon held the lead in share of customer accounts. In the second quarter of 2013, Verizon Wireless had about 100.1 million subscribers.

Some now think AT&T has surpassed Verizon Wireless in subscriber count. Others might not see the evidence for that claim. AT&T did not report an actual wireless subscriber figure In the second quarter of 2013.

Virtually all observers would have in 2012 agreed that Verizon Wireless had the largest number of U.S. mobile subscribers, with AT&T following. Sprint, by most estimates based on company reporting also had significantly more share than T-Mobile US.

But after the acquisitions, some think market share has shifted, with AT&T leading Verizon, and Sprint still ahead of T-Mobile US, but by a smaller margin.

What is odd is that analysts no longer seem to agree about U.S. mobile service provider market share.

Many compilations of market share from 2012 had Verizon leading with about 34 percent share, followed by AT&T with about 32 percent, then Sprint with about 17 percent and T-Mobile US with 10 percent share. After a spate of acquisitions, the shares are rearranged.

AT&T now, by some accounts, seems to have passed Verizon, and T-Mobile US has gained market share, according to some accounts.

2013 mobile service provider market share

source: Blue Field Strategies