Volume Discounts Wrong for Social Software?

Volume-discount pricing structures are the norm in the computer and most other businesses. 

But Julien le Nestour, an adviser, investor, and manager at Schlumberger, argues that for some "products" such as social networking, value grows as users grow ("network effects"), making the value of an application with 70-percent use much more valuable than an application with 10-percent usage.

But under typical volume-pricing practices, buyers pay more for the less-efficient than for the highly-efficient "product." So pricing should invert. Discounts should be offered for low-penetration use, and rising prices for high-penetration use. 

If customers extract more value (higher returns) per user as the number of users increases, yet pay an ever-decreasing price per user (which is VD pricing), value and price have diverged. 

41% of U.S. Internet Users are "Social"

Researchers at eMarketer estimate that in 2008 nearly 80 million people, 41 percent of the U.S. Internet user population, visited social network sites at least once a month, an 11 percent increase from 2007.

By 2013, an estimated 52 percent of Internet users will be regular social network visitors, according to eMarketer.

80% of Broadband Users Prefer Traditional Video Viewing

Parks Associates research finds 80 percent of broadband users in key European markets prefer traditional video viewing to online viewing. Depending on how you want to spin it, that is a glass half empty or half full. 

“Broadband has transformed video viewing habits in Western Europe, where over 20 percent of broadband households have watched a film or TV program online in the past six months,” say researchers at Parks Associates. 

European consumers are adopting online viewing habits with some reluctance, however, Parks Associates says. For all the countries surveyed, the U.K., Germany, Spain, Italy, and France, over 80 percent of broadband households prefer a more traditional option for viewing video, including going to the cinema or watching a DVD. 

Many consumers are watching video online only because of the availability of free content, both legitimate and illegitimate, the researchers note. 

Broadband to the Farm?

About 57 percent of U.S. farms had Internet access in 2007, up about seven percentage points since 2002, and 58 percent of U.S. farms using the Internet in 2007 bought high-speed Internet access, according to the U.S. Department of Agriculture. 

In 2002, the Census found that half the farms in the country were connected to the Internet in some way, using either broadband or dial-up services. 

So 33 percent of farms in 2007 purchased broadband connections.  Penetration likely is higher now, though most observers think rural broadband, to say nothing of use by rural farmers, remains lower than usage by urban or suburban customers. 

Researchers at the Pew Internet & American Life Project say 55 percent of homes now buy broadband access, up eight percentage points since 2007. If rural use grew at a comparable pace, farm use of broadband could now stand at 41 percent. 

The other angle is that farmers in the West have the better access than the rest of the nation to high-speed Internet, the Department of Agriculture indicates. Nationally, 31.3 percent of farms in rural counties had broadband connections. In urban counties, by way of contrast, the survey showed almost 40 percent of farm operators had high speed Internet connections.

The rural West led the nation with 38 percent of farms reporting access to high-speed Internet. Of the states in the Rockies, Colorado had the highest percentage of farms with broadband access with 47.9 percent, about 45.4 percent higher than the national average. 

New Mexico was the only state in the West (including Hawaii, California and Alaska) that had rural farm broadband penetrationlower than the national average.  

Statewide, 43.2 percent of farmers had access to broadband, 10.4 percent below the national average. 

Nationally, 31.3 percent of farms in rural counties purchased broadband connections. In urban counties, nearly 40 percent of farm operators had high speed Internet connections.

Smart Pipes, Smart Move

BBC, mBlox and Vodafone Group, working with the Mobile Entertainment Forum, have launched "Smart Pipe Enabler Services," a way mobile operators can offer third-party content and app providers a variety of services including age verification, location, identity authentication, reliable phone applications, specific tariffs to consumers and delivery with specific quality of service.

Enabled by these services, content providers can offer the consumer a better user experience, a key objective for much of MEF’s work.

The move is a major step towards creating an entirely new revenue source: business partner revenue streams, while improving end user experience and moving beyond any notion of access networks as "dumb pipe."

At the moment, of the $32 billion worth of revenues in the mobile entertainment industry, about half is based off-portal. The new "smart pipe" approach is aimed at offering those providers the option of features now available primarily to operator-provided services.

Among those features are bulk SMS capabilities, premium billing, short code rental and location look-ups.

Enabling services operators can offer include handset features, user presence information, age verification, "sender-pays" data, user demographic profile, handset application control, electronic wallet, credit status and location.

ITU Issues Views on Recession Impact on Telecom

At a high level, nobody is completely sure consumer behavior in this recession will match behavior in past recessions, for any number of painfully obvious reasons. There also is some thinking that as broadband had not attained mass adoption status during the last recession, this will be the first test of demand elasticity for fixed broadband.

And nobody seems to believe that wireline voice will in any way be helped. There is probably less consensus on what will happen in the wireless business, but wireless service providers likely are among the best-placed industry segments during the recession, in part because of greater "flexibility in their cost structure and capex and fixed-mobile substitution," a new report by the International Telecommunications Union says.

And though broadband access demand is believed to be relatively inelastic, that almost certainly will not be the case for fixed voice.

"Telecom services are likely to come under further price pressure, as operators will fight for a more cost-focused customer, resulting in further erosion of margins," the ITU suggests. And that is going to favor mobile operators as well.

"The more flexible cost structure of mobile networks means that mobile operators are winning more of the lower usage end of the fixed services customer base," the ITU says. "This has happened in voice, and 2008 has demonstrated that mobile broadband can substitute for light-usage DSL."

For countries where data services are popular, data revenues could be adversely impacted by a reduction in consumers’ real incomes, ITU says. Also, more consumers are likely to opt for prepaid and flat-rate packages for telecom services to try and control their expenditure.

Unemployment may accelerate fixed-mobile substitution, with consumers preferring to switch
fully to mobile services. Young people may delay decisions to adopt a fixed broadband or voice line in addition to mobile service.

Unemployment will accelerate households’ decisions to give up fixed services, either because they are unaffordable, or because a mobile alternative is cheaper.

"In terms of practical pricing strategy, the economic slowdown will increase pressure on operators to reduce prices," the ITU says. Operators will find it harder to promote value-added services and the adoption of new services such as mobile TV will be affected, ITU believes.

$200 Million More in Videoconferencing Service Revenue This Year?

An Association of Corporate Travel Executives survey shows that 71 percent of its member companies plan to spend less on travel this year than in 2008.

According to the trade group, that’s a huge and unprecedented shift in corporate travel mangers’ plans from just five months ago.

ACTE’s new survey shows most companies are seeking to spend 10 percent to 20 percent less on travel than they reported in September of 2008.

Using the most conservative figures for estimating the dollar impact of such cuts, ACTE suggests that the 176 member companies responding to the survey will spend about $880 million less on travel this year than they had planned. If the same estimate is applied to the ACTE’s full membership of 2,400 companies, the impact would be more than $2 billion.

That should lead to opportunities for Web and other conferencing services and applications to get more traction, undoubtedly including many users and companies that have not historically relied on conferencing services, especially those with a video component.

Assume just 10 percent of the avoided $2 billion is spent on video-enabled conferencing services. That's a gain of $200 million in service provider revenues.