What Business is Google In?

Looking back from where we are, and recalling the vigorous debates analysts and observers once had about "whether Google wants to be a phone company," it now appears the original question has no simple, unambiguous answer.

Does Google want to be a regulated common carrier providing communication services to consumers and businesses? No. Does Google want to be a provider of Web-enabled IP telephony services? Yes. That's what Google Voice does.

Does Google want to be a "Skype-like" provider of international calling services? Perhaps it was not originally thinking it wanted to do so, but Google Voice now supports for-fee global calling from whatever handsets Google Voice users wish to employ.

Does Google want to be a facilities-based wireless services provider? No, but it has an investment stake in Clearwire. Does Google want to be a mobile phone manufacturer? No, but it is increasingly partnering with others, including hardware and service provider partners, to create new applications and business practices within the mobile industry, planning to introduce the "Nexus One," a Google-branded open and unlocked GSM phone, in 2010.

The point is that there is no unambiguous answer to any of these questions. Google slowly has been adding new roles in the communication ecosystem, but primarily to increase its core business model of indexing information and creating advertising revenue streams around the ways people use information.

To "answer" the decades-old question about whether an "ad-supported" telephony model can be created, again we are left with an ambiguous answer. The consumer voice apps Google provides are partially supported by end user fees, while the business-focused "Google Apps" productivity suite primarily is supported by user fees.

It remains unclear whether any sustainable "telephony services" business model can be 100-percent ad supported. But it seems likely such an effort can be partially ad supported, just as cable TV service provider evenues are partially ad supported.

So here's the next question: Will Google Voice, still in private beta, be configured as a small business service, much as Google Apps comes in both a consumer version and an enhanced business version? Michael Arrington at TechCrunch thinks that will happen.

"From what we've heard, Google is very seriously planning to add a version of the Google Voice product to its Apps suite of applications for businesses," says Arrington.

So far it sounds as though the service will be most applicable to the very-small business setting, as the likely deployment will feature a single inbound line and then mapped extensions that will redirect calls to a home business line, mobile or VoIP device.

The key here is management of the single trunk line. To keep the single trunk line available, Google Voice would have to connect an inbound call to the virtual extension, creating a direct connection between the caller number and the virtual extension, and then release the trunk line.

The same thing would have to be done for outbound calls, allowing the Gooble Voice virtual number to do the outbound dialing, setting up the connection between two physical phone devices, and then releasing the Google Voice trunk.

If that isn't done, there will be danger of high "line is busy" blocking.

Still, one would guess that the inevitable question--does Google want to be a provider of communications services to small business--likewise will wind up being only ambiguously answerable. The only unambiguous observation is that Google now is well entrenched in the mobile, communications, application, advertising, IP communications spaces.

It is part of the ecosystem, but uncomfortably (for other ecosystem partners) unconfined to one role in the full ecosystem. Perhaps a better way of phrasing the question is: "Does Google want to make itself the center of a new ecosystem?". There's likely a single answer to that question.


Google started out as a search engine, and have since expanded, through product development and acquisitions, to include services in every link of the information chain, says Jay Neeley, a Web strategy consultant. So one way of looking at how Google might see itself is that it operates in core parts of the information ecosystem.

As part of its activities in the "Internal Information Creation" segment, Google hosts or enables the creation of content.
But Google also is heavily involved in the "External Information Creation" segment, indexing information it has not created.

In the "Information Usage" segment, Google facilitates ways to share, edit, talk about, use, remix, and do all kinds of other things with information. In the "Information Reception" segment, Google offers a variety of ways for users to access and keep track of information.

"Information Aggregation" is another part of what Google does, culling information by popularity or usefulness and
making that information available in other ways, such as in Google Maps. "Information Analysis" is part of the analytics portion of the information business.

It just so happens that to extend its information business, Google might want to do lots of other things that impinge on other existing businesses in the communications, entertainment, applications, software, media and hardware spaces.

AT&T to Add an Android?

Earlier in 2009, Motorola indicated that it plans to release as many as 20 handsets in 2010 running Google's Android platform.

It appears AT&T will be launching at least one Android device in 2010, said by some observers to be called the "Backflip" or "Enzo,"

The device is rumored to run "MOTO BLUR," software that syncs Facebook, MySpace and Twitter updates with no log-ins and no apps to open.

Perhaps you would expect this, but at least some rumors suggest the AT&T Android device will not come preloaded with any Google apps except for Maps. Some people won't like that, but the point is that users can buy Androids that do feature Google apps, either on other Android devices sold by AT&T, or Android devices sold by other carriers. And there will be the Nexus One as well.

The whole idea of "open" neworks and devices is that diversity will happen. Some people might not like AT&T "dictating" what software load is on the device when purchased. Others might simply say that it is an option. If any user doesn't like it, don't buy it. That's the whole idea of the benefits openness brings. Users get choice.

The "Opus One" is said to be Motorola's first iDEN-based Android phone. That means it will work on Sprint Nextel's iDEN network and offer features such as walkie-talkie calling. According to the Boy Genius, it will run Android 1.5 with iDEN service enhancement.

Twitter Appears to be Profitable

Twitter appears to be profitable, on the strength of new deals with Google and Microsoft to allow indexing of Tweets, as well as lower telecom expenses, Bloomberg BusinessWeek says. As important as that is for Twitter and its investors, it also is good news for Twitter users, who now can have less concern that Twitter will vaporize for lack of a sustainable business model.

To be sure, the long-term model still must be created. But Twitter now has more breathing room to do so.

In exchange for making tweets, searchable on Google, Twitter will receive about $15 million, while the Microsoft partnership is worth about $10 million.

Twitter also achieved profitability by reducing expenses, particularly the money it used to pay mobile providers to disribute tweets as text messages.

Apparently Twitter has managed to renegotiate so many deals with carriers that the company pays far less for the services.

By some estimates, Twitter now requires about $20 to $25 million in operational costs. That means the two search deals basically cover Twitter's operational expenses, at least for the moment. That will allow Twitter to spend time creating an ad revenue stream and commercial services that would allow enteprises to analyze traffic, for example.

Is Broadband "Satisfaction" Directly Related to "Bundle" Savings?

The conventional wisdom is that high-speed broadband access is becoming a commodity bought by consumers primarily on the basis of speed and price.

A recent survey by Parks Associates also showed that there is not all that much difference between consumer satisfaction with any of the broadband network types.

With cable modem service and digital subscriber line as the baseline, consumers said they were a bit more happy with fiber to the home, and a bit less happy with either satellite broadband or fixed wireless broadband.

So the differences are a matter of performance, or speed or price, right? Well, maybe, and maybe not.

The Parks Associates survey also found that consumers were more satisfied with any broadband service purchased as part of a bundle, less happy when broadband was purchased a la carte. Since the primary end user benefit from buying any bundle is the cost savings, one might conclude that consumer satisfaction has less to do with the technical parameters (speed and reliability) and mostly to do with "saving money."

Since satellite broadband and fixed wireless services rarely are purchased as part of a multi-service bundle, that fact alone would explain lower satisfaction with either satellite or fixed wireless services.

A Look at Consumer Satisfaction with Broadband

One can get a good argument about whether consumer satisfaction with any communications or entertainment video service is strongly related to customer loyalty.

The conventional wisdom is that "happy" customers are "loyal" customers, but that always has been tough to demonstrate in the consumer communications market.

Churn rates for "satisfied" customers often do not seem all that different from the behavior of demonstrably "unhappy" customers, though few would argue there is no relationship between "satisfaction" and "loyalty."

Some new analysis by Parks Associates illustrates the issue. As it turns out, "satisfaction" with various broadband access services is relatively comparable across platforms and networks. Fiber to the home fares better, satellite broadband and fixed broadband a bit worse than either cable modem service or digital subscriber line.

But the differences are not quite as pronounced as one might think. With cable modem and DSL service as the benchmark, FTTH does a bit better and wireless a bit worse. But FTTH, while "above average," and wireless "a bit below average," are fairly close to the baseline.

At the margin, FTTH customers are a bit more happy, wireless customers a bit less happy. But the link between satisfaction and churn is not precise, nor linear. Other surveys tend to show that overall consumer satisfaction with most entertainment video, mobile and fixed line services is reasonable, but not typically among the products consumers routinely say they are most happy with.

Grumbling and grousing just comes with the territory, it seems.

Permanent Changes in Consumer Behavior and Mobility Business?

The economic crisis "permanently" changed how consumers, enterprises and network builders approach everything, says Christopher Collins, Yankee Group analyst. The changes might not be helpful to communications service providers, if consumers do as they have told Yankee Group they will.

About 66 percent of consumers claim they will spend less in 2010 than in 2009, while 25 percent expect to cancel or spend less for core connectivity services.

About 20 percent of business executives also said they had undertaken “severe reductions” in their technology investments.

But one has to be especially careful at times of transition, which by definition lead to changes of sentiment and behavior. And sentiment seems to be improving.

But some of Yankee Group's 2010 predictions are grounded in a continuation of underlying trends.

The number of mobile-only households in the United States doubled in 2009, to 30 percent of homes, says Collins.

And cord-cutting is rapidly expanding to mobile broadband at a rate faster than anticipated, he notes. In fact, Collins estimates that 33 percent of U.K. homes will be "mobile only" for their broadband connections by Deember 2010. That could happen elsewhere, he suggests.

Prepaid payment plans, lower prices and higher speeds might encourage mobile broadband substitution, he says. "These factors will combine to make mobile broadband a more realistic alternative to land-line broadband for the most price-conscious and quality-insensitive consumers," he says.

Another trend just might have the effect of slowing smartphone adoption, though. Yankee believes mobile service providers cannot afford the increased customer acquisition costs subsidized phones represent.

But should that happen, and users start to pay the full costs of their devices, upgrades will slow and churn will lessen. To forestall the slowing of smartphone uptake, which is key to increasing data revenues, service providers could resort to payment plans for phone purchases.

Also, the Yankee Group believes the netbook will face disappointing sales in 2010, something of a reversal of 2009 trends. NPD DisplaySearch reports that year over year netbook sales grew by almost 270 percent through the second quarter of 2009.

Collins notes that netbook return rates are high, running 30 percent. Collins suggests that is a result of user unhappiness with performance, form factor or other issues. The other issue is that prices of notebooks have dropped. The Yankee Group assumes notebooks will take on similar netbook form factors but with more utility than netbooks offer.

Consumers also drive more than 50 percent of enterprise smartphone purchases, Yankee Group predicts. The largest beneficiary of this trend will be Apple, as the iPhone continues to cross over into the business world. The biggest loser will be Microsoft, as Windows Mobile loses mindshare among both business decision-makers and employees.

Analysts also believe the Chrome OS also will start to power a new class of devices and that cloud computing will drive demand for new enterprise management tools.

Huawei will continue to nab LTE deals from Ericsson, Alcatel-Lucent and Nokia Siemens Networks on their home turf, and Yankee Group predicts that Huawei will expand on its success by winning a major LTE deal in North America in 2010.

Telcos also will start to leverage reliability concerns about cloud computing to win business. As owners of network assets, they can provide enterprises with secure VPN links between private and public cloud environments, plus sophisticated management portals to monitor service performance, Yankee Group believes.

That’s why telcos including BT, Deutsche Telekom, NTT, Orange Business Services and SingTel are leading candidates to become trusted cloud intermediaries.

The coming year also will raise awareness that innovation increasingly requires partnerships, as venture capital investment in hardware and networking start-ups is declining. Venture capital funding for networking and equipment start-ups has declined every year since 2000, according to the National Venture Capital Association (NVCA).

In 2000, the venture capital community invested $11.2 billion in networking and equipment sector companies, but in the first three quarters of 2009, that sector saw just $545 million in investment. If they are to remain competitive, suppliers  must revitalize internal research and development.

In 2010, infrastructure sharing (of both active and passive network assets) will become the de facto business model for efficient telcos in both developed and emerging markets. This is not just a matter of economics; regulators are also forcing the practice. And it’s a critical shift for telcos: Competitive differentiation will focus on services, not network reach. Europe is currently a center of activity, but it’s a global trend (e.g., we see this in India, where regulators are eager to improve the economics of connecting rural areas).

Trailblazers in 2009 included Vodafone and Telefónica, which agreed to share network sites in the U.K., Spain, Germany and Ireland, with more countries under discussion for 2010. Meanwhile, Orange and T-Mobile U.K. agreed to merge in 2010 without changing T-Mobile’s existing 3G network-sharing deal with 3 or Orange’s deal with 3 to provide 2G coverage services.

If telcos don’t embrace infrastructure sharing on their own, regulators may force their hand. The European Parliament (EP) recently approved reforms aimed at helping all telecom operators in the EU 27 share incumbents’ access networks on equal terms. If incumbents fail to comply, regulators can force the functional separation of network operations from service divisions (as the EP did in the U.K., and now plans to do in Italy and Poland). Such approaches are in play across the world: New Zealand with Chorus and Singapore with Nucleus Connect are notable examples; Australia is likely to be next.

Also, U.S. network neutrality rules will have a domino effect worldwide. As a result, service providers everywhere will be forced to become more transparent, both in terms of their internal traffic management practices and the ultimate effects those practices have on end-users.

How Will "No Contract" Smartphone Sales Affect Adoption?

What happens to smartphone sales, data plan sales, consumer behavior and mobile service provider marketing if phones cannot be provided at subsidized prices? If sales of smartphones fall, then use of mobile broadband services likely will grow more slowly. So smartphone prices do matter.

Up to this point, mobile phone subsidies have been seen as a “necessary evil” for the development of mobile phone services and have helped kick start the mass market for mobile phone services in many markets around the world. And it would be hard to underestimate the role subsidized handet pricing has had.

Handset subsidies are viewed as a loss leader strategy, a means for bringing new subscribers onboard, or encouraging existing subscribers to churn away from their existing network and onto a competitor’s.

But investors do not like the practice, as it puts pressure on service provider cash flow. Regulators do not seem to like the practice because subsidies mean contracts, and contracts lessen consumer ability to change carriers.

Global smartphone volumes will represent 14 per cent of total mobile devices sales in 2009, growing by 23.6 per cent from 2008 and to 38 per cent by 2013, say analysts at Gartner.

Smartphone prices are falling as shipment volumes increase, and a new study from ABI Research finds that while in 2007 only 18 percent of smartphones on offer cost under $200 retail, that percentage has already grown to 27 percent in 2009. By 2014, say the firm’s forecasts, 45 percent of the smartphones shipped that year will be priced below $200.

“Manufacturers see consumers increasingly demanding smartphones, because of their better understanding of the value that a smartphone delivers,” says mobile devices practice director Kevin Burden.

The result: more and more smartphones and conventional phones are priced in similar ranges. According to ABI Research, by far the greatest increase in smartphone shipment volumes over the next five years will be found in the $100-200 price range.

But what happens if new government regulations bar the practice of phone subsidies, and consumers must pay full retail price for new high-end models? Less buying.

On the other hand, there will be more buying of cheaper models. That doesn't necessarily mean smartphone sales overall will plunge, but it will be far more difficult to sell massive quantities of new high-end devices, as few consumers have shown any willingness to spend $600 for unlocked devices.

Of course, there are other possibilities. Perhaps some providers will be able to create new payment models, such as offering installment plans for purchase of new high-end devices. A few might consider other subsidy programs that serve up ads and default applications in exchange for lower-cost devices.

Advantage also will be gained by manufacturers that can wring out costs, offering high-performance devices that just cost less to begin with.

What seems clear, though, is that mandated sales of full price devices, sold without contracts, will have massive impact on the take rate for high-end devices.