Google’s Mobile Ad Revenues $7 Per Smart Phone

Cowen Group equity analyst Jim Friedland estimates that Google is generating $7 per year from each smart phone and tablet now used by mobile consumers globally. 


That figure includes both search and display advertising in mobile apps on both Android and iOS (iPhones and iPads). 


Active smart mobile devices worldwide reached 509 million in 2011, and are projected by Friedland to reach 914 million in 2012.


Based on that figure, Google’s mobile ad revenues could more than double from an estimated $2.5 billion in 2011 to $5.8 billion in 2012. 


As a percentage of Google’s total revenues, Friedland estimates that mobile grew from three percent in 2010 to seven percent in 2011 and will almost double again to 13 percent in 2012. 


By 2016, he expects mobile to be a $20 billion business for Google, and represent 26 percent of its total revenues. Google’s mobile ad revenue $5.8 Billion in 2012?


That suggests the magnitude of the challenge facing mobile service providers who generally consider mobile advertising one of a small handful of growth opportunities lucrative enough to contribute significant incremental revenue once mobile broadband the current growth driver, starts to saturate. 


If any mobile operator were to do as well as Google now does, that would work out to about $1.17 a month of incremental revenue per smart phone user, per month, at a $14 annual run rate. Consider that current revenues for voice, texting and data can run $75 per user, per month. 


Of course, the problem is that some current revenue contributors, especially voice and messaging, slowly are declining. And some observers think capital investments and operating costs actually could go negative, in many markets across Europe, North America and the Asia-Pacific region as early as 2015. 


Mobile advertising, mobile payments or machine-to-machine services, as well as cloud computing and other initiatives simply will not contribute significant revenues over the next five to 10 years, during which mobile service providers will have to rely on mobile broadband to fuel revenue growth.


Though not every mobile service provider will face such issues, many mobile executives will be facing huge profitability challenges between now and 2016, according to Juniper Research, which forecasts that mobile service providers face potential capital investment and operating costs that actually exceed revenues by about 2014, Juniper Research says. 

Separately, analysts at Analysys Mason concluded that carriers in many regions around the world face the risk of an "end to profit" in 2015 if not before.

A study carried out by mobileSquared surveyed 31 global mobile operators and found that one third of operators already see traffic and revenue decline, while 75 percent of are worried about losing revenues to mobile application providers.

The research confirmed that over-the-top apps already are affecting traffic and revenues. Some 32 percent of respondents thought operator traffic from messaging, voice and video calling would decline between 11 percent and 20 percent over the next five to 10 years. About 20 percent of respondents estimated revenue would fall 31 percent to 40 percent over the next five to 10-year period.

The problem, according to Juniper Research, is that profit margins are running between 15 percent and 20 percent, which means many service providers are at about break even.

By 2015, costs will exceed revenues slightly, and fall below capital and operating expense by about 2016.

Separately, analysts at Tellabs also predict that revenue could fall below costs "within four years."

The Analysys study assumes a continuation of current cost and revenue trends, especially the current pricing of bandwidth. The findings also suggest the immediate need mobile service providers have for changes in retail packaging and pricing to keep revenues above cost. 

In the near term, increasing data revenue per subscriber is about the only way mobile service providers will avoid a dangerous turn towards sustained financial losses. 

Algorithms Now Drive Advertising

Measured by dollars or by impressions, greater than 50 percent of online advertising is bought using "algorithms" that purport to demonstrate return on investment. 


In the future, some believe, 90 percent of all digital ad impressions, and more than 75 percent of digital ad dollars, will be bought and sold using such algorithmic methods. Content still matters, but algorithms drive buys

For better or worse, media and advertising are driven by the numbers. One has to hope that many intangibles can be quantified accurately and with relevance. There is no way to stop the drive for algorithmic buying. Online, print shifts

Strong Ties, Weak Ties in Facebook

A new study commissioned by Facebook suggests that the social network sometimes is an "echo chamber," but not always. 


The study of sharing habits of approximately 283 million Facebook users shows that much, perhaps most, sharing activity and influence is with "friends. That should come as no surprise, since that is the way Facebook is structured. 


The issue is the extent to which shared items affect people with whom any single user has only "weak ties," including people you do not know, as well as with people you know well, such as good friends, co-workers and family. 


Researchers looked at the extent to which strong and weak ties affect the likelihood that "novel" or unexpected new information is received from other people with whom any user has "strong ties," compared to "weak ties."

How Big Will M2M Market Be, Near Term?

Verizon Wireless and Encore Networks today announced the availability of Machine-to-Machine (M2M) solutions, with particular emphasis on enabling wireless capabilities for utility apps that traditionally have run over voice lines.


To be sure, M2M revenues are in an earlier stage of development than mobile broadband, which will account for most mobile service provider revenue growth over the near term.



The two companies will offer Encore's entire “Bandit”  line of enterprise routers, including devices that enable data transmission using the Verizon Wireless mobile network.



Many legacy applications could benefit, including automated teller machines, point-of-sale terminals, elevators, vending machines, kiosks and healthcare devices.



Power distribution sub-stations, refineries and transportation fleets are other expected application scenarios.



M2M is among a handful of potentially-important new mobile applications believed to be big enough, in terms of revenue, to sustain mobile service provider growth as voice and messaging revenues decline, and after mobile broadband uptake has saturated. Global M2M market in Euros

Groupon Move Hints at Mobile Commerce Ambitions

Mertado, a venue for shopping (social e-commerce), is being acquired by Groupon, the daily deals company. The move represents an expansion of Groupon's activities in the e-commerce space. 


Groupon Goods , for example, already has been selling physical products directly to end users, rather than simply offering other merchants a way to stimulate walk-in traffic at retail locations.

Mertado TV, which uses video content to sell products, is one capability Groupon seems to value. Mertado becomes Groupon

Will Mobile Revenues Fall Below Costs Between 2014 and 2016?

Though not every mobile service provider will face such issues, many mobile executives will be facing huge profitability challenges between now and 2016, according to Juniper Research, which forecasts that mobile service providers face potential capital investment and operating costs that actually exceed revenues by about 2014, Juniper Research says. 



Separately, analysts at Analysys Mason concluded that carriers in many regions around the world face the risk of an "end to profit" in 2015 if not before.

A study carried out by mobileSquared surveyed 31 global mobile operators and found that one third of operators already see traffic and revenue decline, while 75 percent of are worried about losing revenues to mobile application providers.

The research confirmed that over-the-top apps already are affecting traffic and revenues. Some 32 percent of respondents thought operator traffic from messaging, voice and video calling would decline between 11 percent and 20 percent over the next five to 10 years. About 20 percent of respondents estimated revenue would fall 31 percent to 40 percent over the next five to 10-year period. 

My own framework calls for a decline of as much as 50 percent in the legacy lines of service over 10 years, based on price trends in long distance. 

The problem, according to Juniper Research, is that profit margins are running between 15 percent and 20 percent, which means many service providers are at about break even.

By 2015, costs will exceed revenues slightly, and fall below capital and operating expense by about 2016.


Separately, analysts at Tellabs also predict that revenue could fall below costs "within four years."

The Analysys study assumes a continuation of current cost and revenue trends, especially the current pricing of bandwidth. The findings also suggest the immediate need mobile service providers have for changes in retail packaging and pricing to keep revenues above cost. 

Coming Top 10 Uses for Mobiles

You don't have to be a believer or supporter of "mobile payments" to guess that, at some point, mobile devices will be used for many "commerce" applications that turn a "communications" device into a "transaction" device.

In 2011, Gartner analysts predicted worldwide mobile payment users would surpass 141.1 million, a 38.2 percent increase from 2010, when mobile payment users reached 102.1 million.
Worldwide mobile payment volume was forecasted to total $86.1 billion, up 75.9 percent from 2010 volume of $48.9 billion. Gartner forecast

Money transfers and prepaid top-ups clearly drove transaction volumes in developing markets. These are seen as the "killer apps" in developing markets, where people value the convenience of sending money to relatives and topping up mobile accounts. This is most obvious in Eastern Europe, the Middle East and Africa, where these two services were expected to account for 54 percent and 32 percent of all transactions in 2011, Gartner said.

It might take until 2014 before retail mobile payments really becomes a mass market behavior in developed markets, though.

The top mobile apps, though, will show the growing importance of commerce and payment-related mobile apps, whether in 2012, as Gartner originally projected in 2009, or by 2014, which seems a more reasonable scenario at this point.


The top 10 consumer mobile applications in 2012 were projected to include money transfer, mobile payment and mobile advertising. 

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PayPal to Expand Home Depot Retail Payments Test

PayPal is expanding its test of PayPal retail payments with Home Depot from the limited "friends and family" test it has been conducting, to about 50 Home Depot locations in the San Francisco Bay Area. PayPal expands Home Depot test 


Up to this point, the pilot customers (said to be PayPal employees, only)  have been able to pay for items using their PayPal account at Home Depot’s point of sale systems. 


They can either use a pin code on their mobile phone or a  PayPal credit card that can be swiped.


PayPal has been agnostic about actual transaction technologies, so the test is probably more oriented towards assessing end user demand and preferences, more than the particular payment technology.

The logical approach, no matter which technology is chosen, is to link an existing PayPal account with the mobile device. 

In-App or On-Site Commerce is the Ultimate Goal for Many Business Sites

Many observers would argue that the ultimate goal for providers of business and consumer voice services is to make voice and communications a feature of virtually every business application, and most consumer applications.


In the same way, many of us would argue that the ultimate goal for many business apps and sites is the ability to "sell things" directly from the site, which implies a payment mechanism.


Payment processing arguably is a lot easier when it is integrated with any application, rather than an external function. That is why the notion of "in-app" order and payment processing is so important. 


Card.io has created a new version of its software development kit that adds the payment feature to any mobile app.

Any app developer can download the SDK, integrate with their app (iOS or Android), and start accepting payments. There's no merchant account, and payments are deposited directly into a bank account or PayPal account. There are no monthly fees or setup fees, and app providers pay card.io only when a customer conducts a transaction.

The fee is 3.5 percent of the transaction amount, plus 30 cents.


The new feature means any app can accept credit card payments. The card.io feature could be used by any app to allow users to split the tab at lunch, pay a friend back for gas on that road trip, or make a craigslist purchase. Card.io introduces full payment system

Mobile a Work in Progress for "Prestige" Brands

Prestige fashion brands have been inconsistent in their adoption of mobile commerce and other mobile features, a study sponsored by L2 Research has found. That mobile remains a work in progress should not be surprising.

Mobile commerce and marketing encompasses a wide range of processes, channels and business objectives and functions. At this early stage, it might be unusual indeed if retailer programs and end user behavior were to produce an upheaval in terms of customer behavior or business results.

About 66 percent of prestige brands maintain a mobile-optimized site, and about 33 percent of these mobile development efforts do not yet support commerce.

Fewer than 20 percent of brands have created unique app content for the iPad and other tablets, a fact some will say is a missed opportunity as these devices register high usage among affluent consumers.

About 16 percent of brands have yet to develop a mobile-optimized site or mobile site, the study finds.

The study also suggests that mobile searches disproportionately are conducted by users with a higher than average propensity to buy luxury products, the study suggests.

This observation underscores the urgency to adapt search engine optimization, email marketing, and other digital efforts for mobile platforms, the study suggests.


As a product class, tablet devices have proven a boon to m-commerce. Tablet shoppers demonstrate a conversion rate of four to five percent compared with three percent on a PC.

Even when compared directly to smart phones, 25 percent of “dual owners” surveyed by Ipsos demonstrate a preference to purchase on sites while using a tablet.

Although 37 percent of all prestige brands have a presence on both the iPhone and iPad, only 16 percent have created a unique experience for iPad users rather than simply replicating the same app across both devices. Given the dramatic difference in screen sizes, that will not continue to be the case, one might argue.

“Location” also is the defining and unique smart phone capability. But we are early in the process of adapting marketing and commerce to user location in real time.

Only five percent of Americans use geo-local apps (check in services, for example) at least once a month, but these active users represent a high-value demographic. They skew younger, register higher income, and are twice as likely to share product information.

Also, 14 percent of global monthly Google searches for prestige brands originate from mobile devices, which is significant given that non-computer devices account for less than seven percent of traffic in the U .S. and less than five percent of traffic in France, Germany, Italy, Spain, and U.K. markets.

Mobile efforts often also are marketing or commerce “silos,” isolated from other marketing channels. Only 28 percent of the brands in the Index are developing mobile apps promote them on their main sites. But 82 percent of the brands link to their Facebook pages and 66 percent to their Twitter accounts.

Nor are older communication channels unimportant, compared to the newer tools. During the second half of 2011, mobile email open rates increased 34 percent, with consumers opening 23 percent of all emails on their mobile devices.

About 78 percent of the surveyed prestige brands engage in email marketing, only 24 percent have links to mobile-optimized versions of their email content, and 55 percent opt to provide
links to plain HTML versions.

New Mobile Payment Firms Will Not Displace Banks Easily

Some genuinely believe that banks are in danger of serious displacement by mobile payment and mobile banking competitors. It will be harder than many believe. Banking executives will respond; many already are doing so. 


Beyond that, it is difficult to dislodge "trusted providers" in just about any business you can think of. Observers have been predicting the imminent demise of traditional TV distributors or creators for a decade or more. It has failed to materialize, if the measurement is revenue, rather than viewing hours.


Many veterans of the U.S. competitive local exchange carrier business will agree that upending the leading suppliers in the telecom business has proven to be devilishly hard. Some would argue it has proven difficult for all contenders except the cable companies, at least in the consumer market. 


There arguably has been more success in the business customer segments. 


In the emerging mobile payments and mobile wallet businesses, even players as large as Google and Isis (AT&T, Verizon Wireless and T-Mobile USA) are working with banks, rather than trying to displace them. 


PayPal and Square are more directly threats to banks in the ecosystem, but only to a certain extent. 

Banks will be harder to dislodge than many believe.

Don't be Surprised if Google 1 -Gbps Network Gets Low Buy Rates

There is some uncertainty about the construction time table for Google's 1-Gbps fiber access network being built in Kansas City, Kan. and Kansas City, Mo.


That is a relatively trivial issue, though. The bigger issue is whether any significant number of users actually will buy the service.


With a small handful of exceptions, fiber to home uptake globally seems relatively restrained, suggesting that, for most consumers, what they can buy on the older networks provides a value-price relationship that is good enough. 


Under Google's deal with the Kansas City Board of Public Utilities, the municipal power and water provider that owns the utility poles, the company has the option of attaching fiber either in the space reserved for telecommunications for the standard pole-attachment fee or in the electrical supply space for free (although the latter is costlier because it requires more highly skilled technicians). Kansas City Fiber on Track 



Google and officials in Kansas City, Kan., said Google remains on schedule to go live for the first customers for Google's 1-Gbps network in the first half of 2012.


The Kansas City Star has reported that negotiations over pole attachment rates have slowed the build. Those of you familiar with fixed network construction projects will not be surprised by that report.

Disagreement about rates and conditions for pole attachments are an old, and possibly recurring, issue when new providers want to build new communication networks.

The bigger issue will come when Google actually unveils its prices and products. Some will note that other fiber to home services, in the United States and elsewhere, have not universally been met with high consumer demand.

In Germany, for example, FTTH take rates are just 0.4 percent, though one million homes are able to buy the service. Low take rates

Will Enterprise "Consumerization" Be More than a Device Issue?

Enterprise workers have been bringing their "consumer" tools and apps into the workplace for some time. Enterprises have started to respond by approving use of such devices, such as Apple products in the phone, PC and now tablet areas. 


Longer term, the issue is how much other movement will be seen in the applications area. Skype is among the best current examples of a consumer tool that is widely used within enterprises. So is LinkedIn. Also, Facebook and other social networks now are being adapted for enterprise purposes. 


For the moment, devices seem to be at the forefront, though.

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Google Fourth Quarter Results Disappoint

Google reported revenues of $10.58 billion for the quarter ended December 31, 2011, an increase of 25 percent compared to the fourth quarter of 2010, and a record for Google.

Though a revenue record, investors were expecting more, primarily on the earnings front, putting pressure on Google's equity price. Google Results

Some think investors are worried about the growing regulatory scrutiny Google is facing, or the implications of its ownership of Motorola Mobility.

But most executives would probably love to have such problems. Consider Google's share of display advertising, which probably will pass Yahoo early in 2012.


Long criticized as being a revenue one trick pony, Google's display ad business now amounts to about 10 percent of total revenues, which continue to be lead by search advertising. 

Remarkably Consistent Smart Phone Video Consumption in France, UK, US Markets

It will come as no surprise to just about anyone that people who own smart phones watch video on those devices. What is interesting, in this bit of survey research, is the consistency of the behavior in different markets. As it turns out, the percentage of respondents to a Yankee Group survey who say they watch video at least once a week on their smart phones is precisely 42 percent each, in France, the United Kingdom and the United States. 


As you also would guess, feature phone users watch far less video. 

AT&T Price Hike Illustrates Trend

Beginning March 1,2012, AT&T's base rate for "measured phone service" in California will rise $3 a month to $15.37 from $12.37, — a 25 percent increase. The charge for additional local calls will be three cents per minute. Separately, AT&T's flat-rate charge for unlimited local calls will increase $1.05, to $21 a month. Some think the rates are not justified. Granted, it's always hard to determine whether retail rates are "fair" or not. But the rates do illustrate one often-forgotten and fundamental change in AT&T's cost structure.

As more and more customers abandon landline service for mobile service or rival providers, a fundamental issue is that a smaller customer base means fixed overhead costs of the network must necessarily be shared by a smaller number of customers. line loss

That means higher costs for the remaining customers, and the process will not stop as customers continue to shift their communications spending to other providers or other types of service.


Capital intensive networks are susceptible to changes in demand. In Denver, where we live in an arid climate and are highly susceptible to drought, residents continually are exhorted to use less water. We have done so. The result is higher rates. Why? Because the water utility's fixed expenses have to be covered, even in the face of lower usage (what we were asked to do), which lowers Denver Water's revenue. 

Predictions about Mobile Web Experiences Will Be Wrong

Union Square Ventures Partner Andy Weissman argues that, up to this point, most observers have assumed that mobile versions of PC experiences would be be similar to the bigger screen experiences, with relatively similar take rates, use cases and business opportunities.

He now suggests that we might have been wrong, and have been applying old rules in a new context, where the predictive value of the older assumptions isn’t as accurate. One might therefore guess that lots of unexpected change will occur as the smart phone experience begins to mature into a very distinct medium.

Reading, social networking, payments, learning, location services, medicine and media are some of the areas where expectations of end user behavior, value and revenue creation could be different than expected.

Think back to Netscape (if you are old enough) when it first was introduced in 1994, or even 1995 and 1996.  What were the then-current experiences Netscape enabled? Keep in mind this was before Amazon, eBay and Google, before e-commerce, before web mail, before Netflix, iTunes.

Who would have predicted then, the way the web has developed? Much the same is likely to happen with mobile web and smart phone-enabled experiences.

Unpredictable mobile impact

The Device is the Disruption

“Disruption” is the whole reason most companies receive venture capital backing. Disruption largely defines what has been happening in the telecom business for several decades. And yet there is extreme sensitivity about the notion. For good reason, one might argue.

Just one example: Microsoft owns Skype, which soon will be available on every major smart phone operating system used globally. Oddly, Microsoft is the last remaining major OS where Skype has not been supported.

So the irony is that voice revenues, which continue to represent 70 percent to 75 percent of all mobile service revenues, now will start to be challenged by mobile VoIP that is simply built in to the smart phones that represent the industry’s future.

Disruption, in other words, now has become a feature of the very devices the mobile networks themselves depend on for future growth. Mobile VoIP forecast

M2M Revenue $35 Billion in 2016?

The machine-to-machine (M2M) market, basically the ability of sensors to communicate using wrieless means to servers, generally is viewed as one of the key three to four areas where the mobile services industry can look for growth in coming years, especially once sales of mobile broadband services become saturated.

By the end of 2011, most major mobile operators in North America, Europe, and the Asia-Pacific region had established M2M business units, in part because of a belief that connections will rise from about 110 million in 2011 to approximately 365 million connections by 2016.

The caveat is that some observers consider tablet, e-book and mobile PC connections to be M2M, while others do not.

Still, the 27 percent compounded annual growth rate between now and 2016 and translates to about $35 billion in connectivity services revenue.

The two largest cellular M2M market segments over the forecast period, by revenue, will be automotive telematics and smart energy.  

Automotive telematics, including factory-installed systems such as GM’s OnStar service, aftermarket services such as usage-based insurance, and fleet management systems, will together represent more than $15.5 billion in 2016, according to ABI Research.

Meanwhile, smart energy, specifically cellular connectivity to smart meters and data concentrators, will represent more than $7.5 billion in 2016.  M2M

Android, Apple iOS Continue to Dominate

If you want to know why Research in Motion is in trouble, just look at RIM's market share. 





Android, iOS dominate smart phone OS market

Wireless Spectrum Shifts

Verizon Wireless now has gained a step on AT&T in the spectrum resources area, adding additional capacity from SpectrumCo, Comcast, Cox Communications, adding about 54 megahertz, for a total of about 172 MHz, while AT&T has about 114 MHz.


To put that in perspective, 20 MHz is a big deal, allowing use of about 10 MHz for both upstream and downstream communications.


But total spectrum doesn't really tell the story. The key is how much new spectrum is available to support a fourth generation Long Term Evolution network. And that's where the disparity between Verizon and AT&T is most stark.


The cable deals leave Verizon Wireless with 56 percent more 4G spectrum than AT&T in the top 10 markets and 46 percent more in the top 100, according to John Hodulik, a UBS AG analyst.

Mobile Ad Impressions Growing Exponentially

In 2011, the InMobi mobile ad network saw 251 percent growth in mobile impressions globally. That is perhaps not unusual in rapidly-growing new businesses that have a small base to build on.

Given the rapid uptake of smart phones, and heavier use of smart phones for mobile web and mobile apps, InMobi also says growth of mobile impressions on smart phones was about 488 percent in 2011.


In North America, mobile impressions grew 366 percent while smart phone impressions grew 625 percent, inMobi says. 


Tablets also were a new factor, with tablet impressions increasing 771 percent year-over-year, to 11.2 billion. Review of 2011 mobile ad growth

AT&T Will Have to Do Something About Spectrum

AT&T will have to acquire more spectrum to support its fourth-generation network plans, most believe. The only question is what it can do to acquire that spectrum without triggering another regulatory battle.

Dish Network seems to many the safest and most-logical bet. Dish has no mobile or telecom subscribers and therefore would not represent another horizontal size issue for AT&T.

Dish owns satellite spectrum acquired from DBSD North America and TerreStar Networks that Dish has proposed to reuse for a Long Term Evolution network. AT&T Bid for Dish?

What Future for Fixed Line Providers in a Wireless World?

It is reasonable to note that a majority of global telecom service provider revenue already is being generated by mobile services. By some estimates, mobile already represents 56 percent of global retail service revenues. For AT&T, wireless represents about half of total revenue.

At Verizon, wireless represents 63 percent of total revenue. So what does that imply for the future of the business?

“If you are in the desktop business or the fixed line business, lie down and die,” quips Kara Swisher, All Things D co-producer. Swisher made those comments in reference to her view that “mobile now is everything.”

Swisher’s quip would be shared by many others, who in a purely studied way would point out that, on a global basis, mobile already contributes more than half of all global service provider revenues, and that most of the growth will be coming from mobile services over the next decade.

But there might be more to it than that. Ross Patterson, a commissioner of the New Zealand Commerce Commission, argues that “without government funding, fiber to the home networks would not have been built in Australia, New Zealand and Singapore.”

Those networks feature structural separation of wholesale network operations and retail service delivery, as well as open access to the wholesale infrastructure by third parties.

The direct implication is that the business model for ubiquitous fiber to the home is unattractive enough that public capital had to be pledged to create the infrastructure.

Granted, investment models and regulatory schemes vary around the world, but those choices in Southeast Asia and Australia point out the difficulty of the business model for large fiber to premises networks.

In the U.S. market, Verizon Communications, long the largest telecom firm to champion fiber to the home networks, has halted new builds, has sold rural exchanges and has inked deals with cable operators that suggest it no longer has complete confidence that the financial payback is there.

Other service providers, with more limited geographic areas to cover, or with some form of local government sponsorship or ownership, might not have different business models that could be workable.  

But Swisher’s half-in-jest quip, and the decisions of regulators and industry participants in three nations, suggest that the business model for widespread and large fiber to home networks could be more uncertain now that mobility has clearly become the growth engine for global telecom, and as wireless broadband alternatives become more workable.

Regulators in much of Europe also now seem to be grappling with the riskiness of such investments. What to do is the issue.

In Germany, there are mandatory open access rules, but only in areas where there is no cable competition, and with no mandatory pricing rules, says Matthias Kurtz, president of the Federal Agency for Electricity, Gas, Telecommunications, Post and Railways.

That is not to say anything is inevitable. But neither is it true that the financial prospects for fixed network service providers are as predictable or certain as they used to be.

There seem also to be growing voices saying “I’m not saying broadband is a human right, but...” 


Many also argue that broadband is infrastructure “like roads or electricity,” says Swisher. That implies a view of what should be done that could have potential unsettling results.


Whatever else you might say, the regulated monopoly period featured low consumer prices for basic local access, high rates for long distance calling, low rates of innovation, and very high business prices. Utilities often work that way. Some may yearn for some version of the "good old days," which, it might be argued, were not so good.

Verizon Could Offer "Drip-Casting" Video

And engineer can tell you that there always are trade offs in communications. And since peak-hour congestion is a growing problem, it comes as no surprise that mobile service provider executives are looking at ways to create incentives for off-hours consumption, much as they offer off-peak calling.

Now called "drip casting," the technique is what engineers call "store and forward." The idea is that when a consumer wants to watch a movie, the carrier could offer incentives to order ahead of time, instead of "now," allowing the carrier to stage delivery of the bits over time, at times when the network isn't congested and can more easily handle the load.

The value exchange could be as simple as "use drip casting and the data won't count against your data cap." Drip-casting

Video content distributors also use the concept, though not for reasons of bandwidth efficiency. Tivo, or any other digital video recorder, essentially "catches" data when it actually is transmitted and then stores it for later viewing. It's a variation of the basic technique, which is that transmission of data and consumption of that data occur in non-real time.

The other angle here is that the plan is a bit of a shift in the direction of value-based charging, where the "price" or "rate" for some use of the network varies based on the value of the sessions, or the timing of the sessions.

In this case, consumers receive the value of a big download that isn't charged against their data plan, while the service provider receives the value of alleviating strain on the network.

U.S. Consumers Reducing Entertainment Spending?

From 2000 to 2008, adjusted for inflation, U.S. consumers have been reducing the amount of money they spend on out of home entertainment. That obviously has implications for providers of video entertainment products, negative for out of home venues but positive for in-home options. 


The issue is that Blu-ray, so far, has not grown fast enough to offset declining DVD product purchases. In the technology transition from tape to DVD, the new format seemed to have higher value, boosting sales of physical media and gjrowing the category. 


That has not yet happened with the transition to Blu-ray, and an obvious conclusion would be that the successor product to DVDs is not Blu-ray but online delivery. 

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Ultraviolet Initiative Illustrates Business Issues

UltraViolet, the digital rights management initiative and "content locker service" backed by Warner Bros., Universal, Sony and Paramount illustrates some long-standing issues in the video content business, as well as an application of traditional thinking to a new channel, namely "cloud-based" applications and channels.


In many ways, Ultraviolet also illustrates why, though we keep getting more options for online delivery of content, in the movie and TV business, the range of options will be shaped and controlled, at least in terms of pricing and availability, by the willingness of content owners to make their content available online. 


The key implication might be that, in the case of popular movie and TV content, consumer access and pricing might not be subject to all of the retail pricing trends we have seen in the music and print content business, with one key exception.


One might argue that the pricing declines we have seen in print and music products now consumed online is due to a change in packaging, in large part. Music used to be as "albums," while print content has been sold as a bundle known as a newspaper or magazine. 


Online delivery unbundles those products into discrete songs and stories. If you assume there is a significant difference in value and pricing for a bundle of 10 to 12 songs, compared to buying one song, you also can see the analogy to pricing changes for buying one story as opposed to a whole newspaper or magazine. 


Also, you might say that in the case of print content, one version of a story that has to be bought also faces pressure from other versions of a story that might be available for free. The other bit of context is that movies traditionally have been a "fee-based" product, where print content typically has been an advertising-supported product.


Broadcast television has been more like print, in terms of end user pricing, while cable, telco or satellite TV pricing has been more like that of  movie products. 


UltraViolet is an effort to solve a couple of problems. 

UltraViolet will allow buyers of Blu-ray physical media to view those assets online, at no extra cost. For starters, the initiative is an attempt to preserve the value of existing channels even as the industry adapts to a new distribution channel. That is the thinking about nearly all content licensing schemes, as well as the system of staged release windows for access to movie content.

On the other hand, UltraViolet also is an effort to try and supply consumer demands for online viewing on any device, with declining sales of DVDs, which have been a key channel and revenue generator for decades.


To be sure, the original hope had been that the Blu-ray physical format would be the successor to DVDs in the era of high-definition television. That almost certainly will occur at some point, but the issue is whether collective Blu-ray revenue ever will match the heights of DVD sales in an era where online delivery will be common. 

UltraViolet further is an effort to create a revenue model for streaming, essentially by generating all the revenue when the physical product is purchased. That is similar to what cable operators are trying with TV Everywhere, essentially making purchase of the traditional video entertainment subscription as a prerequisite for using the no-incremental-cost TV Everywhere features.

It is something of a reverse "freemium" model, which gives away one product and then generates revenue on sales of add-on products. The Ultraviolet model does the reverse, making revenue on the classic product and then adding a "no additional fee" feature. The studios hope UltraViolet will help with the DVD sales drop

On the other hand, DVD sales have dropped precipitously over the last decade. The music industry faced roughly analogous issues, as have newspapers. 


As content migrates onto the Internet, there is a tendency for retail prices to fall. This price compression has affected major music label revenue from recorded music in part because of the ability consumers now have to buy songs one at at time, instead of bundled in the form of albums, which contain 10 or 12 songs and can be sold at a correspondingly higher price. 



UltraViolet aims to support DVD sales while providing something of the value provided by rental services as well, including Apple and Netflix. Ultraviolet

In principle, mobile-focused entertainment video has the same context as TV-focused entertainment in many ways. Movie products, which have been sold as discrete products, are less threatened than the bundled products we know as cable, satellite or telco TV.


Those products are susceptible to the same dangers as unbundling in the music business when sales shifted from collections to songs, or newspapers and magazines to stories. 










DVD sales dip

Computing Product Life Cycles

If you study consumer adoption of technology professionally, or just enjoy learning about product life cycles, this is useful, tracking adoption of various computing devices. It sure looks as though the PC is entering the peak of its product life cycle, doesn't it? PC product life cycles





Another way of visualizing PC lifecycles

International Long Distance Prices Decline 5% in 2011

"Prices in international long distance only go down," says Telegeography VP Stephan  Beckert. The only issue seems to be the rate of decline.

But that wasn't anything unusual in 2011. International long distance rates have been dropping since about 2000, though there are regional variations.

The declines are a serious issue for retail service providers, who are seeing increasing amounts of traffic "growth" siphoned off by Skype.

As a percentage of overall global bandwidth, though, video and Internet traffic now is what drives capacity requirements, not enterprise data or voice.