Another New Social Network Revenue Model" Affiliate Fees

Pinterest, the social networking site, has the typical problem any software or application provider often has: no immediate revenue model.

Traffic to the Pinterest website has grown by a factor of 10 over the past six months.  In January 2012, the number of visitors on Pinterest.com was almost a third of that on Twitter.com. That’s a lot of users.

"Pinterest's monetization strategy isn't in the oven and it's not even off the baking table," says Jeremy Levine, a board member of Pinterest and a venture capitalist at Bessemer Venture Partners. "We have one hundred ideas but no execution as of yet."

But Josh Davis  says that isn’t quite true. Highly unusually for a start-up social network, Pinterest does seem to have an existing revenue stream that is different from all the other monetization schemes other major social networks have developed.

Twitter has “promoted tweets.” Facebook has display ads. LinkedIn had the same “no revenue” problem years ago, but now makes money from subscriptions, advertising sales, and hiring solutions.

LinkedIn gets  25 percent of its revenue from premium subscriptions; 33 percent from text and display advertising and 42 percent from LinkedIn Jobs, a job-matching or automated headhunting service.

Pinterest apparently already has develooped an affiliate revenue stream. If you post a pin to Pinterest, and it links to an e-commerce site that happens to have an affiliate program, Pinterest modifies the link to add their own affiliate tracking code.

If a user clicks through the picture from Pinterest and makes a purchase, Pinterest gets paid. So add “affiliate links” to the list of possible revenue models for a “free to use” social network.

Pinterest apparently is using a service called SkimLinks. SkimLinks' software looks at links users post to websites, determines if there is an affiliate program to which they can be linked, and appends a code that ensures Pinterest gets credit for (and data from) the referral.

That is highly unusual for a young social network. But it tends to validate the notion that users are the “product” that underlies all social network revenue models, at the end of the day.

Some would argue that Pinterest already is driving truly massive traffic to retail sites, by some accounts more than YouTube, LinkedIn, and Google+ combined, and the affiliate links model should be meaningful.

Commissions on sales for affiliate links vary widely, but they average around five percent. After SkimLinks gets paid, Pinterest might be looking at 3.75 percent net revenue. That will not be enough, by itself, to keep Pinterest in business over the long term. But it is more revenue than virtually all the other big social networks had when they started.

Consumer Group asks Federal Trade Commission to Take Action Against Google

Consumer Watchdog has asked the Federal Trade Commission to take immediate action against Google for tracking user web browsing on Apple Mac PCs,  even though Apple allows Safari operating system users to disable tracking. Precisely what action the FTC could take is not clear, since Google has stopped the tracking already.

Consumer Watchdog did not mention iPhone or iPad devices in its complaint, but the insertion of cookies to track behavior apparently could affect users of iPhones or iPads as well.

The complaint illustrates a growing business issue Google faces, namely regulator scrutiny of the sort that lead to the breakup of the AT&T system in the early 1980s and the consent decree Microsoft battled and lived with for two decades.

And dare one mention that Apple now is bigger than both Google and Microsoft put together? The point is that Google now faces the sort of mounting scrutiny of just about any significant move it makes, and there is historical precedent for arguing that, eventually, “something” will be done to limit Google’s further expansion into new lines of business.

The issue of Google bypassing built-in security settings on the Safari web browser on iPhones and iPads, which Google now has discontinued, or the FTC complaint, is not the biggest problem.

The danger is that Google has provided regulators one more bit of evidence that it might now be time to start regulating Google, as antitrust regulators earlier had placed limits on Microsoft’s own freedom to bundle applications and essentially enter new businesses.

Some might note that Microsoft has spent 21 years fighting antitrust battles with the U.S. government and similar battles with regulators for the European Community.

Most do not remember that there was serious talk of splitting Microsoft up into separate companies in 2000. Microsoft agreed to a court settlement in 2002 that ended that threat, but at a price. Microsoft essentially was placed in hand cuffs.

In April 2000 U.S. District Judge Thomas Penfield Jackson ruleed that  Microsoft unlawfully maintained a monopoly in Windows and unlawfully tied its browser to Windows. The proposed remedy was a breakup of Microsoft into two different companies, one for apps and the other for operating systems.

The Department of Justice and Microsoft agreed on a proposed settlement for the antitrust case in 2001.
In November 2002, U.S. District Judge Colleen Kollar-Kotelly approved the settlement, which included a five-year consent decree on the part of Microsoft. That deal was extended in 2006 to 2009 and then again in 2009 unitl May 2011.

The consent decree barred Microsoft from entering into Windows agreements that excluded competitors from new computers, and forced the company to make Windows interoperable with non-Microsoft software. In addition, an independent technical committee would field complaints that might arise from competitors.

But some would argue that the tedious litigation made Microsoft more cautious as a company.

Some now say growing scrutiny of Google is not helped when Google takes actions that raise the perception that it now might require similar throttling.

The problem for Google is going to be growing antitrust scrutiny that, sooner or later, is likely to be applied.

So far, little discussion of that sort seems to have occurred about Apple. History suggests such scrutiny ultimately will happen. Apple already is a bigger company that Google and Microsoft put together.

Sooner or later, should Apple continue to grow, antitrust scrutiny will start to happen.

The point is that Google cannot, henceforth, take the risk of appearing “too big, too cavalier or too influential.” Dumb mistakes will have consequences.

Mobile Continues to Reshape Computing

We continue to see, on a continuing basis, more evidence that mobility is reshaping the telecom, computing, content and marketing and advertising businesses. 

Apple’s mobile operating system, iOS now has surpassed the desktop operating system (Mac OS) in web browsing market for the first time in history. 

IDC reports that in 2011, Apple shipped 93.2 iPhone units and 40 million iPad units. 

Nor is Apple the only example of that trend. According to new research from Canalys, smart phone shipments overtook personal computers in 2011, moving 487.7 million units over the course of the year, compared to 414.6 million PCs. 


Without much doubt, these changes illustrate the importance of mobile trends in consumer behavior that indicate a clear shift towards a more mobile, on-the-go lifestyles and devices. 

It is possible that the shift to mobile devices now is having clear impact even on the use of specific browsers and operating systems. Over the last seven months, for example, Chitika Research has noted a steady decline in Windows browser share, at the same time that iOS surpassed Mac OS in terms of browsing share. 

Since August 2011, Windows has declined in share by almost 10 percent, Chitika notes. 

How Much Money Can Facebook Make from Mobile Advertising in a Year?

Facebook could generate over $1.2 billion from mobile advertising in its first year from just the United States, United Kingdom, France, Germany, Italy and Spain, analysts at mobileSquared predict. 

Facebook could earn an average revenue oer user of about $6.50 a year.

Based on a further assumption that Facebook will serve an ad every 20 seconds via its mobile sites or apps, and using  using a cost per thousand impressions model of $0.25, Facebook would generate $653.7 million in revenues from mobile advertising in the United States alone over a 12 month period.

Facebook also could generate mobile advertising revenues of $166.6 million in its first year in the UK, around $100 million in France, Germany, and Italy, and around $70 million in Spain.

Walgreens Mobile App Drives 40% of Online Transactions

Walgreens says 40 percent of its online transactions came from its one-year-old mobile app, where the most active customers are tapping through to shop, order prescription refills or find nearby stores to get flu shots. 

The Walgreens mobile commerce experience shows what can be done using mobile devices, mobile apps when harnessed to marketing and mobile commerce. 

All Devices Now are Content Consumption Devices

Mobile devices increasingly are content consumption devices. “As these device categories evolve and new ones come into being, consumers will continue to expect digital content to be available on all screens, at all times, in all locations,” says Paul Verna, eMarketer senior analyst.

In the United States,  over the next two years, eMarketer expects more than 26 million mobile phone users to turn to smartphones, helping put the devices in the hands of more than half of all US mobile users by 2014. That will dramatically expand the "small screen" audience for content consumption to about 133 million people. 


By any measure, that is a potent potential audience. 

But smart phones are not the only fast-growing new screen. Tablet penetration will increase even more quickly in the United States, from a user base of nearly 55 million by the end of 2012 to almost 90 million in the next two years. By 2014, more than one in three U.S. internet users will have a tablet device, eMarketer predicts. 


Those new screens will join the 75 percent of U.S. households that own either a desktop or notebook computer, a potential audience of about 100 million homes. 


Those statistics indicate why mobile devices increasingly are important. Smart phones already outnumber PC screens, and tablets will, at some point, rival the installed base of PC devices. 

“Without movies, TV shows, games, photos, books, magazines, newspapers, video clips and music, few would care to own a tablet, a touchscreen smartphone, a connected console or an internet-enabled TV,” says Verna. “As consumers continue to gravitate toward digital media consumption, and as content owners and device manufacturers continue to find ways to meet the demand for it, more content will become available in the digital domain.”


The shift of user activities toward content consumption explains, in part, why tablets have become such a "hot" product category. Over time, PCs have become platforms for content consumption, rather than "work" tools. 


In a similar way, smart phones have become content consumption platforms as much as communication devices. Tablets, on the other hand, might primarily be called content consumption devices, even though some amount of communications activity (email, messaging) and "work" activity (mostly related to web surfing and mobile apps). 

Apple Is Making Over the Top Streaming to TVs Much Easier

AirPlay, a feature of Apple's new "Mountain Lion" operating system, allows users to wirelessly beam what's on the screen of your iPhone, iPad, or Mac to your TV, if you have an AppleTV.

That means suitably-equipped users can send "webpages, YouTube videos, iTunes rentals or anything else you can think of onto an AppleTV unit without wires," says Jason Snell at MacWorld. Apple AirPlay will boost OTT video

To be sure, the ability to do so does not automatically mean all the content people prefer is available. That is a matter of content licensing. But the capability will mean it is much easier to view any web content directly on a TV, which means the user experience for any over the top TV viewing is vastly better.

Some might say the issue, going forward, is how long it takes for "piracy" to become a big enough issue that content owners will have different incentives to permit lawful viewing of movies and licensed TV content without having to do so illegally.

Hulu, for example, apparently blocks display of its content on a TV, even though it obviously allows such viewing on a web device. ABC, CBS and NBC also do so.

AirPlay on the Mac doesn't materially change the economics of entertainment video, at least for the moment. But it is one more building block for the eventual infrastructure that will pressure the existing economics of the video entertainment business.

NEC Sets Out Vision for Small Cell Wireless Backhaul for Small Cells

NEC Corporation says it will build its small cell backhaul system using unlicensed 60 Ghz spectrum. NEC has identified 60GHz radio as the key technology behind its Backhaul for Small Cells proposition. Bandwidth availability at 60GHz and the uniquely high channel re-use characteristics of this spectrum are ideally suited to deliver high capacity and low latency connections to hundreds of cell sites, which will be rapidly deployed in concentrated coverage areas of busy city squares and avenues. NEC Wireless Backhaul for Small Cells

NEC's small cell system aims to provide significant reductions in the cost of ownership compared to existing macro-cellular backhaul networks.

The choice of the zero-cost 60GHz spectrum allows the design of compact products, which can be easily installed and aesthetically concealed within a wide variety of urban environments. Furthermore, NEC has developed features for intelligent provisioning of backhaul resources and protection against performance degradations, resulting in improved capacity efficiency and elimination of costly manual maintenance and troubleshooting.

Lower Backhaul for Developing Regions?

The "WiBACK" wireless backhaul system developed by the Fraunhofer Institute for Open Communication Systems FOKUS in Berlin aims to bring lower-cost broadband to remote areas in developing regions.

In Zambia, the Institute is setting up an "eKiosk" with a number of PCs. The system aims to significantly reduce both the capital expenditure and the operating costs involved in providing such service. In part, that cost advantage flows from the cost of the WiBACK routers. Cheaper backhaul

Netflix Adds DVD-Only Unlimited $7.99 Plan. Huh?

Netflix says it has added a DVD-only rental plan, costing as little as $7.99 a month. Frankly, I'm  confused. 

We thought that was what Netflix had done back in the summer of 2011, when it said that it was creating DVD-only and online-only options. 


As one might recall, Netflix said it was creating a $7.99 a month "one DVD at a time"  plan and $11.99 a month for a "two DVDs out at-a-time" plan. Other plans allow users to have larger numbers of discs out at any time. 


But the new change seems to allow unlimited rentals at that price. In principle, the older $7.99 plan, allowing users to have one disc out at any time, also was unlimited. 


Over the years, I have argued that Netflix was underestimated, in terms of its business strategy and execution. Since the summer of 2011, Netflix has suffered unusual gaffs. 


I admit I'm confused. I thought Netflix had created this plan back in the summer of 2011. What is new here? 


Netflix has been drop dead simple. But this is confusing. 

How Big is the Mobile Apps Business?

It's getting harder to figure out how big the mobile apps business is, despite its growth. Actually, it is because of its growth that the tracking is becoming more difficult. A few years ago, one only had to track sales of mobile apps, or use of mobile apps, or downloads of mobile apps.


In 2012, mobile application revenues from in-app purchases will pass pay-per-download revenues, according to ABI Research.  One might argue that "revenue is revenue," but there is a big difference between gross revenue and net revenue. 


To be sure, apps sold in most app stores represent about 70 percent "net" proceeds for the app supplier. But proceeds from in-app purchases can be a different story, depending on what it is that is being sold. Up to this point, arguably most in-app purchases were digital goods designed to be used inside an app. 


But someday that will change, and more of the in-app sales volume will be of all sorts of products, and one has to anticipate that more of the sales volume over time will be of products that do not provide 70-percent "net" proceeds to an app provider, because the products are created by third parties, while the app serves mainly as a sales channel. 


In such cases, revenue for the sales partner will be quite minimal, compared to sales of in-app digital goods that essentially are parts of the app experience. 


“As a revenue model, in-app purchase is very limited today,” says Mark Beccue, ABI Research senior analyst, mobile services. “The vast majority of current in-app revenue is being generated by a tiny percentage of people who are highly-committed mobile game players.  We don’t believe the percentage of mobile game players making in-app purchases will grow significantly, so for in-app purchase revenues to grow, mobile developers other than game developers must adopt it.”


Despite these challenges, in-app purchases will successfully spread outside of games. Total mobile app revenues from pay-per-download, in-app purchase, subscriptions, and in-app advertising will soar over the next five years, growing from $8.5 billion in 2011 to $46 billion in 2016, according to 


A 2010 study by Chetan Sharma Consulting, commissioned by the GetJar app store, projected that the global mobile apps economy is set to be worth $17.5 billion by 2012. 


Mobile app downloads were expected to increase from over seven billion downloads in 2009 to almost 50 billion in 2012. 


The study also found that in 2008 there were just four apps stores, while there are 38 in 2010. 


ExperTech, a recruiting firm for information technology professionals, notes that  “82 percent of our clients have said they plan on developing a mobile app in 2012,” says Joe Budzienski, XperTech EVP.

And it would be hard to miss the dramatic growth of the mobile apps trend. Trade group TechNet says mobile app development is creating jobs at a dramatic pace.

According to a new TechNet study, there are now roughly 466,000 jobs in the so-called “app economy” in the United States, largely defined as jobs involved in the creation of apps or jobs at firms that create and sell apps. 


That’s a dramatic improvement over 2007, when the number of people involved in the mobile apps business arguably was close to zero. Mobile app employment study

Apple is in a Class By Itself

Apple is in a class by itself, both financially and in terms of its leadership of the technology industry. Consider that Apple represents a 3.8 percent weighting in the Standard & Poors 500 Index. 


In the fourth quarter of 2011, S&P 500 firms grew earnings 6.6 percent. But remove only Apple from the index and S&P 500 and the index grew at only a 2.8 percent rate. In other words, Apple performs so much better than most other firms that it distorts perceptions of the market. 


In the product area, though many firms "compete" against Apple, few can approach it. In very real terms, there is not yet so much a "tablet" market as there is an "iPad" market, as Apple holds a 62-percent share of unit sales.


In smart phones, the story is not so much unit shipments as profit. In the third quarter of 2011 Apple earned about 61 percent of total smart phone profits, globally, all by itself. 


Although soaring sales of Amazon’s Kindle Fire and other low-priced tablets trimmed Apple Inc.’s media tablet market share in the fourth-quarter, it was Apple’s own newly introduced iPhone 4S that proved to be the strongest competitor for the iPad during the final three months of 2011.

 

Small Signs of Change in TV Habits

The vast majority (90.4 percent) of U.S. TV households pay for a TV subscription of some type (cable, telephone company or satellite), while 75.3 percent buy broadband Internet.

Changes are brewing, however, as consumers seek out the subscription service that makes the most sense for them, NIelsen says.

Some of the changes involve simple shifts of market share. The number of homes subscribing to wired cable has decreased 4.1 percent in the past year at the same time that telephone company-provided and satellite TV have seen increases of 21.1 percent and 2.1 percent, respectively.

But nearly a million more homes are subscribing to broadband while skipping a traditional paid TV subscription, a fact that might lead some to argue that users are using their broadband connections to watch streaming video as an alternative to buying a TV subscription.

There are also are 5.1 million broadcast-TV-only homes that buy broadband, another potential sign that people are substituting streaming video for a subscription.

But most of the market buys both video and broadband. Some 80.8 million homes are in that category, while 22.3 million homes subscribe to cable TV but do not buy broadband.

Though broadcast only, but broadband-buying homes comprise the smallest subscriber group, the number of these homes has increased by 22.8 percent since the third quarter of  2010.

The increase in broadcast-only/broadband homes is not necessarily an indication of downgrading services, though.  


Though less than five percent of the television households, U.S. consumers in homes with broadband Internet access and free, broadcast TV stream video twice as much as the general cross-platform population . They also watch half as much TV. You might conclude that evidence of change in TV consumption is most clear in this segment of the market.

Deutsche Telekom Evaluating Everything Everywhere Sale?

Deutsche Telekom AG is said to be evaluating its options for selling or otherwise monetizing its stake in the Everything Everywhere joint venture in the United Kingdom, an apparent direct result of the failure of the AT&T deal to buy T-Mobile USA. 


Deutsche Telekom had been counting on proceeds from that sale to support investment in fourth generation networks in Germany and elsewhere. Deutsche Telekom and AT&T Inc. in December 2011 called off a $39 billion deal that would have allowed Deutsche Telekom to cut its debt by 13 billion euros and repurchase five billion euros of its own shares. 


The problem now is that Deutsche Telekom still needs cash to accomplish those goals. 

Will Tablet Sales Eclipse PCs?

No product in Apple’s history has sold faster than the Apple iPad, about 55 million units so far. “It took us years to sell iPhones, Macs and iPods,” says Apple CEO Tim Cook. “This thing is on a trajectory that's off the charts.”

That inevitably raises questions, such as whether tablets as a product category will displace PCs. Apple has definite opinions. The tablet market will be bigger than the PC market, ultimately, Cook argues. Right now, it is hard to argue with that forecast.

Cook says he does 80 percent to 90 percent of his work on an iPad. It wouldn’t be hard to see that being the case for many knowledge workers or executives who mostly consume content rather than create it, sales forces that mostly use screens to make presentations, or customer service personnel who mostly interact with information, rather than creating it.

In consumer settings, as there are many people who find the way they use Internet apps can be handled by a smart phone, others might find that, most of the time, the things they “use PCs” for actually can be done on a tablet.

The extent to which that means they will buy more tablets, and fewer PCs, is probably not debatable. People are shifting discretionary spending into purchasing of tablets. In multi-PC homes, that probably means “most” of the devices will, over time, come to be tablets, not PCs.

Most multi-PC homes will continue to have a PC. But the incremental spending likely will be on tablets, one might argue.

Perhaps in large part, the iPad resonated with consumers because they had been “prepped” for the device. “The iTunes Store was already in play, the App Store was already in play,” Cook says. “People were trained on iPhone.”

“They already knew about multi-touch,” for example. “Lots of things that became intuitive when you used a tablet, came from before.” 

What seems to have happened is that the tablet enables about 80 percent of the activities people use PCs for, even if tablets do not enable the final 20 percent of activities that have to do with content creation.

It isn't that PCs do not have unique value. It's just that what most people do, most of the time, seems not to require all that value. So, yes, it would be reasonable to predict that, in the future, tablets will outnumber PCs.

How do you Monetize a Browser?

You might, from time to time, wonder how any number of application providers that "give away" their products actually make money.

Browser providers traditionally have made money from advertising, so it is no surprise that Opera Software has purchased two ad-serving networks.

Opera has bought Mobile Theory and 4th Screen Advertising, and in 2010, Opera purchasedAdMarvel, another advertising company.

By swallowing Mobile Theory and 4th Screen Advertising, Opera said it hopes to "better monetize" the traffic flowing through the Opera Mini and Opera Mobile browsers. Opera buys mobile ads networks

Smart Phone Sales Up 67% in Europe

In 2011, demand for mobile phones increased by 67 percent, according to analysts at GfK.

In 2011, 258 million handsets were bought by European consumers, a 3.2 percent increase on 2010.

In 2010, smartphones only constituted 22 percent of the sales market, but in 2011 this figure increased to 36 percent. In December 2011, the share climbed to 45 percent.

Retailers in all 25 surveyed countries in Europe registered high double-digit sales, ranging between 35 percent in the United Kingdom and 105 percent in the Eurasian countries of Kazakhstan, Russia, Turkey and the Ukraine.

With a volume share of over 17 percent, the United Kingdom is the biggest market for smartphones in Europe at present, followed by Germany, Austria and Switzerland with 16 percent overall.

The average price of a mobile phone in Europe increased by eight percent between 2010 and 2011, to EUR 200. Demand for smartphones higher than ever before in Europe

What Types of Backhaul for Small Cells?

Small cell supplier ip.access will build an integrated LTE and 3G small cell. The new unit, codenamed the E-100, will be the first from ip.access to be based on the QorIQ Qonverge platform from U.S. chip maker Freescale.

The E-100 is a small cell Access Point targeted for use in enterprises and public indoor environments. The device will provide simultaneous 4G and 3G mobile phone signals with data speeds of up to 150 Mbps and 42 Mbps respectively. The product will be ready for field trials expected in the first quarter of 2013.

The E-100 is expected to be used by mobile network operators to improve mobile phone service quality and data speeds inside office buildings, shopping malls, hotels and other public indoor areas. ip.access announces plans for first LTE small cell

The small cell architecture also reshapes thinking about cell backhaul. For starters, ip.access says small cell backhaul can use un-managed DSL or cable modem "best effort" networks.

The type of backhaul also will hinge on the expected traffic to be supported. On one end, a very-small femtocell, used in a residential or small business setting might need to support four to eight simultaneous voice channels plus data services. DSL or cable modems might well be the "backhaul" in such cases.

Picocells designed to support eight to 16 users might, or might not, use un-managed DSL or cable modem connections.

Picocells designed to support a public building site, serving 16 or more users will more typically require a more managed approach to backhaul.

Telefonica Launching Mobile Wallet Service

Telefónica Digital says Sybase 365, a subsidiary of Sybase, will be provide mobile wallet services for Telefónica's  m-wallet service.


The service will feature a stored value account, payments and peer-to-peer transfers. 


The m-wallet will be capable of storing prepaid, debit, credit and loyalty cards, turning a mobile phone into a payment instrument. 


Telefonica to launch mobile wallet

European Mobile Broadband Penetration Growing: No Inflection Point, Yet

Mobile broadband penetration should reach 14 percent of the subscriber base in Western Europe, according to analysts at the Yankee Group.

So what should we expect for growth over the next decade? One might be tempted to extrapolate on a linear basis from where we are now. That is probably the one scenario that will not happen, as users change behavior and adopt both smart phones and use of mobile networks to support additional devices such as tablets.

Most technology and consumer electronics products actually are adopted in a non-linear fashion. There typically is a longish period of slow adoption, and then an inflection point where the rate of growth changes dramatically, and adoption is much faster.

Consider mobile phone adoption in the U.S. market. For a substantial period, including the years not shown on this CTIA chart, adoption was modest. But you clearly can see that the rate of adoption hit an inflection point around 1994, when the rate of adoption changed. 



That is likely to happen with mobile broadband as well. What we don't know is when the inflection point will arrive. But a good rule of thumb for most popular applications and devices is that change occurs more slowly at first, then more rapidly after the inflection point. So far, mobile broadband has not hit its inflection point.