Why Enterprises Buy Cloud Computing Services

Why are enterprises interested in any sort of cloud computing service? For the same reasons they are interested in just about any other computing or communications tool: they think it will reduce costs and create more value in the information technology investment.

Of course, enterprises don't buy "cloud computing." They buy tools that help them run their businesses.

Email might be an area ripe for a cloud shift, in that regard. It is a necessary function, but a function without compelling strategic advantage.

Typically, necessary but non-strategic functions are the sorts of processes one can think about outsourcing. And it is getting more burdensome to manage email processes, with growing  enterprise regulatory requirements relating to storage of email. The other issue is that email, like most other applications these days, "suffers" from bandwidth creep.

Over time, people are appending larger attachments, for example. Cisco's WebEx Mail service, for example, has full Outlook support. That means users will see no changes, nor will IT departments need to deal with massive training issues and client software updates.

But it isn't the "cloud" that makes the the change interesting. It is the savings in time, labor, money and functionality that will be key. "Cloud computing" as such will be interesting for some enterprises that want to shift capex into opex, that are growing very fast or that are primarily Web based.

For others it might be a way to offload server or computing center chores. But I suspect most users will find they prefer to use a cloud-based application or service because of the value the specific applications represent, because of the consumption or pricing model.

No Bandwidth Hogs?

Some would argue there is no "exaflood" and no such thing as a "bandwidth hog." 

I have no more detailed data from any Internet service provider than anybody else does, so I doubt anybody can prove or disprove the thesis definitively. But I also have no reason to think the usage curve will be anything other than a Pareto distribution, since so many common distributions in the physical and business world conform to such a distribution.

Vilfredo Pareto, an Italian economist, was studying the distribution of wealth in1906. What he found was a distribution most people would commonly understand as the "80/20 rule," where a disproportionate share of results come from 20 percent of actions. The Pareto distribution has been found widely in the physical and human worlds. It applies, for example, to the sizes of human settlements (few cities, many hamlets/villages). It fits the file size of Internet traffic (many smaller files, few larger ones).

It describes the distribution of oil reserves (a few large fields, many small fields) and jobs assigned supercomputers (a few large ones, many small ones). It describes the price returns on individual stocks. It likely holds for total returns from stock investments over a span of several years, as most observers point out that most of the gain, and most of the loss in a typical portfolio comes from changes on just a few days a year.

The Pareto distribution is what one finds when examining the sizes of sand particles, meteorites or numbers of species per genus, areas burnt in forest fires, casualty losses: general liability, commercial auto, and workers compensation.

The Pareto distribution also fits sales of music from online music stores and mass market retailer market share. The viewership of a single video over time fits the Pareto curve. Pareto describes the distribution of social networking sites. It describes the readership of books and the lifecycle value of telecom customers.

So knowing nothing else than that the Pareto distribution is so widely represented in the physical world and in business, I would expect to see the same sort of distribution in bandwidth consumption. As applied to users of bandwidth, Pareto would predict that a small number of users in fact do consumer a disproportionate share of bandwidth.

I certainly can't say for sure, but would be highly surprised if in fact a Pareto distribution does not precisely describe bandwidth consumption.

Social Media Now Regularly Used by 65% of People at Work

Social media are well used in virtually every industry vertical, reports Business.com. Nearly 65 percent of respondents reported using social media as part of their normal work routine, including reading blogs, visiting business profiles on sites like Facebook or LinkedIn or using Twitter to find information and/or communicate about business-related matters.

Among respondents using social media for business purposes in their day-to-day jobs, 62 percent visit company or brand profiles on social networking sites and 55 percent search for business information on these sites.

Among those using any form of social media to find business-relevant information, the most popular activity is attending webinars or listening to podcasts (69 percent) followed by reading ratings or reviews for business products or services (62 percent).

The least popular activities are saving business-related links on social bookmarking sites (28 percent) and participating in discussions on third-party web sites (29 percent).

Experienced social media pros are likely to be astounded that over half of respondents indicated that they participate in online business communities or forums. This is far higher than the typical two-percent participation rate among monthly visitors to online communities. This difference may be due to how study respondents understood the word “participate”, possibly interpreting it as “visit," rather than "post."

Facebook is the dominant social network on which consumer-focused companies maintain one or more profiles, cited by 83 percent of respondents versus 45 percent for Twitter. B2B companies, however, maintain a presence on both platforms with 77 percent maintaining a profile on Facebook and 73 percent on Twitter.

Consultants and marketing communications professionals are the most active users of social media as a resource for business information, particularly in smaller firms. IT professionals have the lowest participation rate.

The average company in this study was planning, developing or running seven different social media initiatives; 65 percent of respondents staffing those initiatives, and 71 percent of companies themselves, have less than two years of experience with social media for business.

Building brand awareness and brand reputation are two of the top social media success metrics.

B2C firms, though, were ahead in a few areas: social media advertising, user ratings and reviews, and online communities for customers and prospects.

Both business-to-consumer and business-to-business companies are rapidly adopting social media, unable to ignore a major destination of Internet users, Business.com says. But the two types of firms have different social site usage patterns.

Not only were B2B firms more likely overall to maintain a social network profile, they were managing profiles across more social sites and were significantly more likely to be present on Twitter, LinkedIn and YouTube.

B2C companies were better represented on Facebook and MySpace.

Even if Consumers Will Pay $3 a Month for Online Content, It is Small Consolation

Sometimes good news is bad news. U.S. consumers, for example, say they are willing to spend about $3 a month to receive news on their personal computers and mobile devices, a new survey by Boston Consulting Group suggests.

“The good news is that, contrary to conventional wisdom, consumers are willing to pay for meaningful content," says John Rose, BCG senior partner  "The bad news is that they are not willing to pay much."

The bigger problem is that, even were such new payment models to take hold, it would not help much. In the United States, advertising accounts for around 80 percent of newspaper revenues, and that revenue source is in steep decline. Even if consumers start to pay small amounts for their news online, it would only slow, but not stop, newspapers’ decline, BCG notes.

One does not have to agree with all the assumptions analysts make about where newspaper revenue is headed, but some of the forecasts seem to assume that newspapers can arrest the slide in advertising in 2010, with slight growth over the next five years or so.

Lots of people believe the ad recession caused by the "Great Recession" now is over. But some observers, perhaps many, believe advertising as a share of overall promotion and marketing budgets is headed lower as the result of a shift in thinking about the effectiveness of advertising overall, and of advertising in physical media in particular. Time will tell.

The other issue is whether the $3 a month benchmark is what respondents think they would pay for news from every source, or whether they had in mind the sort of news they might otherwise get from a local newspaper. The answer matters quite a lot. A single local newspaper might be happy to have a new $3 a month subscriber revenue stream. But if that amount was spread over all the interests any single subscriber might have, it is an awfully small amount.

BCG’s survey found that consumers were more likely to pay for certain types of content, specifically news that is unique. About 72 percent of U.S. respondents said they would be interested in local news, while 73 percent indicated they would pay for specialized coverage.

Some 61 percent of U.S. respondents suggested they would pay for timely news, such as a continual news alert service.

In addition, consumers are more likely to pay for online news provided by newspapers than by other media, such as television stations, Web sites, or online portals, the study suggests.

They are specifically not interested in paying for news that is routinely available on a wide range of Web sites for free, BCG says.

What's in Store for Telcos in 2010?

U.S. telecommunications service providers lost about 10.5 percent of their current installed base of voice access lines in 2009, Fitch Ratings estimates. The bad news is that losses will increase to 12 percent in 2010.

The good news is that business line losses, which accelerated during 2009, will stabilize. Also, market share gains by cable competitors lessened in 2009.

But pressure from wireless substitution and weak housing starts will continue in 2010. And there is a statistical headwind as well: as the installed base of lines shrinks, the loss of any given number of lines automatically represents a bigger percentage.

Business and residential access line losses should stabilize in 2010 and continue in the range of 3 million to 3.2 million per quarter. That's a bit better than has been the case over the last year or so. The bad news is that because the denominator (installed base) now is a smaller number, even a smaller numerator (lost lines) will result in a higher rate of loss.

Like cable companies, the growth rates for new broadband access subscribers has been slowing, and will slow further in 2010.

Fitch estimates that broadband access subscriber growth slowed in 2009 to 1.7 million net subscribers. Fitch forecasts that total broadband net subscriber additions will slow in 2010 to approximately 1.4 million. The slowing growth is reflective of higher penetration of these services and to a lesser extent a growing substitution by wireless data.

With regard to network-based video, Fitch estimates that offerings by AT&T, Inc. and Verizon Communications Inc. will grow by 2 million subscribers in 2009, but this rate will likely slow in 2010 to approximately 1.5 million. The slowing growth rate reflects increasing penetration and a slowing of coverage growth as these operators enter their final phase of deployment.

Finally, business and commercial service revenue erosion peaked in first-quarter 2009 and Fitch expects the total 2009 decline to be over six percent for wireline companies with this trend the result of growing unemployment.

It is likely that the unemployment rate is near its high so Fitch believes that reductions in business and commercial revenues should be modest, in the range of one percent, in 2010.

In total, Fitch estimates that aggregate wireline revenues will decline in 2010 near the mid-single-digit range, a modest improvement over 2009. Operators with a larger growth services revenue mix should experience revenue erosion in the low single-digit range. EBITDA will similarly fall in aggregate by a low- to mid-single-digit range for the industry as benefits from headcount reductions offset losses of high-margin legacy services.

Big Churn Potential in Wireless Business?

Despite the fact that AT&T and Verizon have low churn rates, while Sprint and T-Mobile have churn higher than they would like, the potential for huge share shifts remains latent, if consumer satisfaction bears any meaningful relationship to actual churn behavior.

Nearly half of readers surveyed by Consumer Reports are unhappy with their cell phone service. Nearly two thirds had at least one major complaint about their cell phone carrier, with about 20 percent naming price as the chief irritant.

But here's the caveat. Most surveys taken over the last couple of decades suggested there was high dissatisfaction with cable TV service, for example. And, to be sure, consumers began to churn away as first satellite and now telco video alternatives are available. Until satellite became a viable option, though, high dissatisfaction was not accompanied by high churn.

The U.S. mobile industry, though, is among the most competitive in the world, so consumers do have lots of choices. So one wonders why more do not act as theory suggests they will, which is that unhappiness will lead them to try another provider. Maybe they are churning, and maybe their continued unhappiness means the new carriers aren't demonstrably and clear better than the carriers they left.

Apparently, neither better coverage nor new smartphones have been enough to change consumer satisfaction all that much, the report suggests, with the salient exception of the Apple iPhone. So will the latent unhappiness translate into higher churn? It's harder to decipher than one might initially think.

If consumers believe all the carriers have some gaps in coverage, have roughly similar or somewhat distinct retail offers, have adequate bandwidth and availability, and all of them will experience congestion during rush hour, consumers might not be extremely motivated to change providers, even if they are unhappy to some degree. The bad news for service providers might be that network quality and reputation have some effect, but not overwhelming effect on churn behavior.

But handsets are a huge motivator of change, it appears. About 38 percent of consumers who switched phones in the past two years did so to get the phone they wanted.

More than 27 percent went shopping with a specific phone in mind, in fact. About 98 percent of iPhone users said they would purchase the phone again. To point out the obvious, some people might be really happy about their handsets, and simply put up with their service providers.

But there is another way to look at matters. If half of consumers are unahppy to some degree, and that leads them to churn, what would one expect to see? At churn rates about 1.5 percent a month,. one would expect roughly 18 percent annual churn. That would roughly equate to 100 percent churn about every five years or so.

If one assumes only half of consumers are motivated to churn, existing churn rates easily could amount to churn of half the entire customer base about every two and a half years.

So maybe those unhappy consumers are in fact deserting their current providers. The reason they remain unhappy? One explanation could be that none of the providers they are trying are demonstrably better than the carriers they left. One often encounters consumers who say "we've tried them all, and all of them have some problems."

What Users Do on the Mobile Web

About 29 percent of mobile phone users logged on to the mobile Web at least once per month in 2009, up from 22 percent in 2008, say researchers at Marketer.

So what do those people use the mobile Web? About 19 percent search for local products and services. About 16 percent say they get information about movies and entertainment.

About 13 percent get information about restaurants and bars. Some 11 percent search fro products or services outside the immediate local area.

About four percent made a purchase of a physical items that had to be shipped, while three percent used a mobile coupon.

According to BIA/Kelsey and ConStat, many of those qualify as “heavy” users—those who go online via mobile more than 10 times each week. BIA/Kelsey and ConStat say heavy mobile Internet users represent about 21 percent of the total U.S. mobile population in October 2009, up from less than 15 percent a year earlier. And the overall average number of monthly mobile Web sessions has doubled in that time period.

Heavy users of text messaging and mobile e-mail have also increased over the past year. Nearly one half of mobile users text more than 10 times weekly, while 20 percent send and receive more than 10 mobile emails each week.

Non-local product searches seem not be as prevalent as local searches, which about 20 percent of users report they did in the last month.

Basically, consumers have doubled their use of the mobile platform for non-voice communications,” says Rick Ducey, BIA/Kelsey chief strategy officer.