Good News for VoIP, Bad News for Wired Telecom Providers

"VoIP" was the "industry of the decade," according to IBISWorld, which says the industry earned that accolade because of its 1,655 percent growth rate between 2000 and 2009. IBISWorld notes that VoIP, as a new industry, only began to earn any revenue in 2002, so it is starting from a "zero" base.

Wireless telecommunications ranked eighth for industries of the 2000 to 2009 period, posting revenue growth of 183 percent.

IBISWorld also predicts VoIP will show the most revenue growth in the coming decade as well, growing 150 percent between 2010 and 2019.

The bad news for the 2010 to 2019 period is that wired telecommunicatons carriers will show negative 52 percent revenue growth. Telecommunications resellers likewise will show negative 26 percent revenue growth over that same period.

Public Wi-Fi: Smartphones Driving Usage

Originally envisioned as a for-fee service used by users who wanted Internet access for their notebooks, public Wi-Fi hotspots increasingly are used by smartphone users.

As a percentage of total sessions, handheld access increased from 20 percent in 2008 to 35 percent in 2009, according to In-Stat.. By 2011 handhelds are anticipated to account for half of hotspot connections.

There are lots of reasons for the trend. The number of devices equipped with Wi-Fi capability is growing fast. In-Stat estimates that, from 2007 to 2008, Wi-Fi-equipped device sales inreased more than 50 percent. Service providers also are encouring users by offering Wi-Fi hotspot access as an amenity to their fixed broadband, smartphone or PC card customers.

More devices able to use Wi-Fi, plus a "no incremental cost" charging model are boosting activity. The other development is use of devices other than PCs and phones that can use Wi-Fi. The Apple iPod "touch" is perhaps the best example, but In-Stat points out that shipments of Wi-Fi-enabled entertainment devices, such as cameras, gaming devices, and personal media players, will increase from 108.8 million in 2009 to 177.3 million in 2013.

Will Mobile App Revenue Decline in 2013?

Mobile application downloads, mostly driven by mobile app stores, will reach about five billion in 2014, ABI Research predicts, up from 2.9 billion in 2009.

Despite the proliferation of apps, the firm expects sales to start declining in 2013 as free or ad-supported versions of "must-have" apps undercut the paid ones.

That is perhaps the single most intriguing prediction, as it tests, to a certain extent, both developer ability to create compelling for-fee apps as well as the much-discussed "freemium" business model, where some applications or functionality are given away for free and additional functionality is added "for fee."

In part, ABI Research expects revenue from mobile app sales to decline by 2013 due to competition, which will lead to downward pressure on application prices.

But ABI Research also believes “must-have” applications now sold in app stores will face competition from free or advertising-supported substitutes. This has already started to happen, with the launch of Google’s free turn-by-turn navigation service, says Bhavya Khanna, ABI Research research associate.

As with all such predictions, it might turn out to be partly right, partly wrong. Music, games and other entertainment apps likely will be able to charge fees. The same likely will be true of business, utility, content and productivity apps.

The analogy probably is today's software business. Widgets are free. But lots of other utility, productivity and content apps are sold.

To be sure,  GPS-maker TomTom recently cut the $100 price of its iPhone app in half as a result of Google launching its own free Android counterpart. The ways people acquire GPS capability likely will change over time, it is true. Some people will want stand-alone devices, others will buy such capability as a built-in part of their smartphone purchase. Some will pay for fully-featured apps while others might be willing to use free or low-cost apps.

Some for-fee apps will face pressure when they are confronted by companies such as Google that have some other revenue model that allows them to subsidize functionality other providers rely on as their core revenue stream.

Users who regularly download paid apps spend approximately $9 on an average of five paid downloads per month, AdMob noted in July 2009. People do not seem to mind applets that cost less than $2 each. That suggests, at least so far, an emphasis on micro apps as the revenue driver for mobile app stores. That is a different market than most "shrink wrapped" apps sold today using other channels.

Still, there is a chance of disruption. Ask any telco what happened when Skype, Google Voice and other IP-based firms were able to provide voice calling functionality because it was not their legacy business.

Some for-fee providers likewise will face pressure from competitors that have lower cost structures. But that's a generic business problem. Ask any executive from an established grocery chain what they had to do when Wal-Mart showed up in their local market.

But not every conceivable application will face those problems. Consumers will pay for valuable products, and app stores likely will prove an important way for innovators to sell valuable functionality, at relatively low prices, much of the time.

We likely will see lots of new revenue and business models develop, and app stores will allow creators to sell their products at lower prices than possible before. So some of us might not agree that app store sales revenue will decline, ever.

Among other findings, ABI Research predicts that Android's share of the market will grow from 11 percent to 23 percent over that same period. "This rapid growth is driven by the mass adoption of the Android OS by both vendors and consumers from 2009 onwards," says Bhavya Khanna, ABI Research research associate.

There are now more than 14 phones that run the Android OS, and many more will launch in 2010. This, coupled with the rollout of application stores from both smartphone vendors and network operators, will see the iPhone’s share of the total market shrink between 2010 and 2014,” says Khanna.

64% of U.S. Broadband Connections Now are Mobile

There are more mobile broadband subscriptions in service in the U.S. market than fixed line.

The CTIA notes that there are now 103 million mobile broadband customers in the United States, according to Informa Telecom and Media. There are more than 58 million fixed line subscribers, according to Insight Research Corp.

By that measure, there are 161 million U.S. broadband subscriptions. So mobile connections represent 64 percent of broadband connections now in use. And mobile broadband has exploded over the last 18 months.

In June 2008, mobile broadband accounted for more than 59 million high speed subscribers, about 45 percent of all broadband connection in the United States, according to the Federal Communications Commission.

Clearly, any effort to create a national U.S. broadband policy would have to recognize the leading role wireless now plays.

Google, QR Codes and Mobile Tagging

You might wonder why Google is interested in "QR codes," two-dimensional bar codes that can contain any alphanumeric text and often feature URLs that direct users to sites where they can learn about an object or place.

Camera-equipped mobile devices provide the "reading device." Mobile always are with a user, so the QR reader software allows people to get information about anything with a QR code, wherever they are. Combine that feature with Google's advertising revenue model, location-based services and one ends up with the mobile equivalent of "tagging."

Beyond the ability to create richer information about places and things, widespread QR creates a richer platform for mobile advertising. That is all the incentive Google needs to push the technology.

The codes are increasingly found on product labels, billboards, and buildings, inviting passers-by to pull out their mobile phones and uncover the encoded information. QR codes can be used in newspapers, magazines or clothing.

Tracking information for products in industry, routing data on a mailing label, or contact information on a business card are other potential applications.

QR codes also are part of the move to "augmented reality," providing richer information and context about the physical world around any mobile user, where they are. Again, the marketing possibilities are obvious.

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.