What SMEs Will Buy in 2007

Pretty much what they bought this year. This chart from the Bathwick Group shows tools U.K. small and mid-sized businesses, for example, say they already have in the installed base.

So if you ask what they will buy next year, what do enterprises report? Intentions to buy that mirror the size of the installed base, for the most part, as shown in the second graph.

We always want to find the growth "silver bullet," but we have yet to see a case where buying priorities changed all that much from one year to the next. Over a five-year period, one can see significant shifts, of course.

But it is unusual, highly unusual to see buying behavior at an enterprise change more than five percent or so from year to year, in part because such a large percentage of spending is upgrades to the existing base.

So whenever you hear analysts, reporters or bloggers proclaiming this the "year of the X," take it with a grain of salt. The direction is probably right. The magnitude of spending shift won't match the hype. Never does. Every year is pretty much the "year we largely do what we did last year."

Now This Makes Perfect Sense

Telecom New Zealand has formed a joint venture with Yahoo!7 (the Australian JV that Yahoo has with media company Seven) to be called Yahoo! Xtra.

The point is that most of the wealth-creating innovation that will happen around the IP communications and IP media spaces will be created by people outside the telco orbit.

So instead of trying to do things that simply aren't in the company DNA, or buying and then destroying the DNA of innovator companies, just partner up, take minority stakes, co-develop and co-sponsor.

The cable companies figured this out a while ago. The other thing is that one doesn't have to own all of everything, or even all of some things. One simply wants to participate in the upside one's partners can provide. That's tough for control freak companies, to be sure. But it works.

Absolute Craziness

According to VoIP Weblog the Indian government is thinking about banning VoIP, because it is choking off tax collections. Apparently there has been some action around blogs as well, though we cannot confirm this. It's crazy!

Mobile Broadband Is Next, And Not Because Customers Now Want It

It takes no great insight to predict that the next great wave of growth in broadband access will come on the mobility front. The reason is simple enough: the consumer and business fixed line markets are close to saturation. This bit of data shows SME adoption of broadband. Recent reports from November consumer usage of broadband show that more than 80 percent of consumers who used the Internet that month used broadband access. And the point to remember is that "saturation" means nearly every customer that wants the product buys it. Some 20 to 30 percent of U.S. households don't buy broadband because they don't want it, in many cases because they don't own PCs, or own PCs but find their usage is so limited that dial-up actually works.

We expect the penetration figures to climb once broadband becomes a mass market platform for entertainment video, but the fact remains that buying of broadband for Internet access is close to its peak. And since suppliers always look for growth, they've got to turn attention to the places growth can be found, and that is the mobile market. The situation is very similar to what mobile carriers started to face five years ago, when they realized all the high-margin, then most of the mid-margin customers (adults), plus most of the formerly-unwanted low income segments were saturated. The one remaining customer segment not tapped was teenagers. So guess what? The industry went after teenagers to the point where most teenagers now have mobile phones.

The point is that supplier "push" can create its own demand, up to a point. And since the growth in broadband access lies squarely in the mobility space, that's where we are going to see serious efforts at demand creation. We do this all the time, by the way. Advertising aims to stimulate demand, in some cases convincing people they need something they presently do not. And marketing, recall, is the systematic attempt to create markets and customers, not simply to "respond" to existing demand. Mobile is next.

Value Chain Choices Have to Be Made

For most service providers, the biggest fear is a future where they are relegated to being providers of low-value, commodity-priced "dumb pipe." Which is why just about every telecom executive is looking at ways to "move up the value chain." Which isn't a misguided thought. The risk is that network companies will forget that the one unassailable value they do bring to the party is precisely their "dumb pipes." Which is not to say they have no experience with applications. POTS is after all, an application. But there's a gnawing, nagging sense that most innovation is going to come in the form of applications that ride on top of pipes, and that today's service providers might not be well placed to capture much of the value from those innovations. Again, not a random thought.

The problem is to find some path forward that maximizes the permanent value of access, transport, directory and other services in a world where some applications will be of the "walled garden" variety "telcos" can create and control, while many more apps will be "over the top" applications they won't be able to control or profit from.

At the end of the day, today's tier one carriers will probably have to recognize that "pipe" is the foundation of everything else they do, and a sustainable business in its own right. Some of that pipe might occasionally be "dumb." Most services, though, are going to require some degree of intelligence to be useful. Real time services, for example, require more intelligence than the best effort Internet to be useful. But there are going to be more private networks where something closer to dumb pipe is what the enterprise customer wants to buy.

Telcos will wind up being distributors of video in the consumer markets in a way analogous to cable operators, which puts them into the "apps" business. But they ultimately will have to concede that most of the apps business simply isn't going to be within their orbit, and that a sustainable business has to be built on being good plumbers, first and foremost.

There's nothing wrong with exploring and creating partnerships that provide a slice of the revenue. But there's great risk in believing carriers can change enough to be really successful app providers. It simply isn't in the organizational DNA. Tier one providers need to focus on the quality of their pipes (networks), first and foremost, and then on only a few applications they historically understand (POTS, mobility, special access, networking) very well. Straying too far from that core competency will prove quite dangerous. In that regard, video entertainment is going to prove to be an adjacency they can master. Other web-based services won't likely prove to be as logical.

Content Prices Sticky to the Upside

Pricing dynamics for content goods delivered over networks are fundamentally different from communication goods delivered over networks. And while "cost" is not necessarily "price," prices for video content seem to suggest recovery of costs in a way that is a bit more difficult in the core communications business.

Not Great for ARPU, Real Helpful for Churn...

Family plans have been really helpful to mobile service providers as a way of attracting more teen users, the last major customer demographic. And though family plans aren't great for average revenue per user metrics, they are quite effective at preventing churn.

Once teens sign up as part of a family plan, they are virtually committed and out of commission as a prospective new customer—often until they go to college or beyond. Only 12 percent of teens on family plans have switched service providers since they first got their mobile phones. As it turns out, hooking teens on a mobile provider is much more effective than getting a customer for their first new car, in hopes they will stick with the brand as they age.

The ARPU of a mobile user that is not on a family plan is $63.27, in comparison to the ARPU of $45.27 per person on a family plan, Yankee Group researchers note. Of course, these are "on average" figures. Many of us have teens using plans that are far in excess of these averages. At least 100 percent to 150 percent higher, in fact.

According to the Yankee Group, 81 percent of teens on post-paid service plans are on a family plan, up from 75 percent in 2005 and 54 percent in 2004. Some 70 percent of teens are on postpaid plans, so 57 percent of all teen subscribers are on a family plan.