Apple Wants to Sell Razors (iPads), Amazon Blades (Media)

Some observers will point out that about half of Amazon's total revenues come from selling media (books, for example) and that the Apple iPad is an obvious danger to the extent that digital content distribution moves out of its control.

To be sure, Kindle inventory can be bought on an iPad. But Apple is going to push its iBooks offering, shifting sales away from Amazon.

To be sure, notes Citi analyst Mark Mahaney, Amazon enjoys a lead for the moment in product breadth and depth. Comparing Kindle and iBooks, using the New York Times best sellers list as the data source, Mahaney notes that 88 percent of New York times  fiction and non-fiction best sellers are available on Kindle, compared to 63 percent from iBooks.

The average price for eBooks on Kindle is $11.23 compared to  $12.31 for iBooks, a 10 percent advantage for Amazon.

About half of NYT fiction and non-fiction best sellers are available for both platforms, and 80 percent of those items are priced identically on each platform. About 20 percent of the items that are cheaper on Kindle are about 11 percent cheaper, on average.

That's probably not a sustainable advantage, as a 10-percent price advantage on a $12 item is just $1.20, not likely a sustainable "moat."

The iPad is not exactly a "give away the razor, buy the blades" strategy. Apple very much wants to sell razors. Amazon, on the other hand,  really wants to sell blades. That illustrates an interesting difference in business models. Apple would merchandise content to sell media consumption devices. Amazon really would rather merchandise the platform and make a living selling the content.

Apple sells devices in the $500 to $800 range, while Kindle sells in the $189 to $489 range (basic version or the Kindle DX). Others may disagree, but it would seem Amazon has incentives to figure out how to "destroy" its hardware pricing to grab more media sales. That certainly makes more sense in the near term than trying to move upmarket directly into the iPad space.

Amazon Cuts Kindle Prices to $189

The reaction didn't take long: Barnes & Noble Inc. cut the price of its Nook e-reader to $199 on June 21, 2010. So did Amazon, just a few hours later. Amazon's standard Kindle e-reader now costs to $189, down from $259, though the "Kindle DX," featuring a larger screen and global mobile coverage, still sells for $489.

The strategic issue is whether e-book readers essentially wind up even cheaper than current levels as e-book and e-content purchase volume grows. It wasn't so long ago that would-be e-book reader suppliers thought a $400 or higher purchase price would still be viable.

Obviously the rapid emergence of a potentially-rival tablet market, exemplified by the Apple iPad, at about the $500 price point, plus Amazon and Barnes & Noble marketing at the $260 price point, has dashed a few business plans.

Of course, ask yourself which device you'd rather use, despite the higher price of the iPad. There's nothing wrong with the Kindle, but it is a monochrome e-book reader.

The iPad is a multi-purpose device that also doubles as an e-book reader.

Did Skype Rip $143 Billion a Year Out of Global Voice Revenue?

Skype CEO Josh Silverman offered a few statistics at Communicasia about how disruption works. Today, 12 percent of the world’s international calling minutes are on Skype, and Skype users spend seven to eight minutes of "free" calling for each minute that is a "paid" minute of use.

Skype’s on-net international traffic (between two Skype users) grew 51 percent in 2008, and is projected to have grow 63 percent in 2009, to 54 billion minutes (TeleGeography has not yet published 2009 figures).

Already the world average retail price of an international call is under one-fifth of the $1.20 per minute price of 15 years ago, says Telegeography. Which leads to an interesting exercise.

Assume for the sake of argument that an "average" international long distance call today costs 22 cents a minute.

Assume that, over the last 15 years, competition alone would have driven average prices down by 50 percent, so that the average price of an international call dropped to 60 cents a minute, even without further price pressure from Skype and other IP voice providers.

Then assume the "Skype effect" (overall pricing impact caused by Skype and other VoIP providers) is 38 cents a minute, the difference between the "natural" decrease to 60 cents a minute and current 22-cent rates arguably lower because of Skype and other VoIP providers.

Using those assumptions, the global telecom industry now "loses" $142.9 billion a year in revenue because of overall lower rates caused by VoIP competition, even assuming that Skype market share is simply a shift of some traffic and revenue ($11.9 billion imputed value) from the incumbent providers to a "new" competitor.

It's just an exercise, as it is impossible to determine precisely how much lower prices would have affected demand, in the absence of the impact of VoIP on average calling prices, or how much prices would have fallen for other reasons.

The point is that disruption can create an "okay" business out of a "really good" business, looked at from the standpoint of an attacking provider. If a firm has zero market share, then creating a business worth nearly $1 billion in annual revenues is not a bad thing.

Obviously we are dealing here with "imputed" revenue, not actual revenue, since Skype doesn't today make anywhere near 22 cents a minute, on average, across all of its traffic. Indeed, seven to eight times more zero-revenue calls are made, compared to "paid" minutes of use.

The overall impact is quite a bit more dramatic on legacy providers, though obviously good for buyers and users of trans-border voice service. Losing some amount of market share is not the most-important impact. The bigger issue is the overall decline in average prices per minute.

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What Becomes of Microsoft?

Investors largely believe Microsoft will gradually become the equivalent of a technology utility, a boring but necessary provider of the software that runs the world's business community, says Henry Blodget. A smaller, more optimistic crowd is still arguing that, one day, Microsoft will be able to turn its fortunes around, and fight its way back into an industry leadership position.

Blodget suggests a much darker potential scenario, where difficulties in the company's core operating system and Office franchises simply become less important in the world which seems to be developing, Blodget argues.

The Internet has continued to free app-makers from dependency on Windows or any other desktop platform while Apple's iPhone has revolutionized the mobile business, unleashing a whole new wave of personal computing devices.

Apple's iPad seems on its way to supplanting the low-end PC business.

Importantly, none of these trends depend in any way on Microsoft's original monopoly and cash cow, Windows, Blodget says. "Microsoft is nowhere" in mobile or tablets, he says.

Google, meanwhile, is trying to do the same thing to Apple that Microsoft did to Apple 15 years ago: Separate software and hardware and create a ubiquitous software platform for the world's developers to build

To be sure, lots of smart people thought that was exactly what would have to Netflix, and the doomsday scenario has so far refused to play out. But analysts get paid to analyze and create scenarios. This scenario might seem far fetched as anything other than a scenario many analysts get paid to imagine.

But it does illustrate the dangers for any dominant franchise when computing models shift, as nearly everybody now believes is about to happen. Nor does history offer much optimism. Never in computing history has the leader in one computing era emerged as a leader in the new era.

That will not stop firms such as Microsoft, Cisco and Apple or Google from trying. But they will have to make history to emerge as leaders in the next era.

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Are Mobile Apps More Like Songs or Software?

Nobody knows yet how the mobile applications will develop, and how big a business it might become for various ecosystem participants. So far, the Apple App Store has sold about $1.4 billion in apps, of which developers keep about 70 percent.

Some developers can point to mobile apps as a significant revenue generator in its own right. Most cannot make that claim.  But some might suggest the developing business is quite a lot more like the "song" business than the software business, according to Getjar.

On average, it takes about the same time to write a mobile app as it does to compose a song, says Ilja Laurs, GetJar CEO. Both cost about the same to download, $1.90 on average.

Advertising and e-commerce will add some revenue on top of actual sales revenue. But at least so far, most "for-fee" mobile apps appear to sell like single songs, rather than productivity or other apps people use on their PCs.

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How iPad Changes Gmail Experience

One of the more interesting questions about the tablet device market, assuming it does develop as a new and discrete mobile device category, is how user experience and application design might change simply because of the new form factor and navigation method.

For Google, one of the changes it already has made is a redesign of the Gmail interface on the Apple iPad.

"When you write an email you’ll now get a big full screen compose window instead of splitting the screen between your inbox and the compose view," Google says. More text is visible at once and there are no more distractions with messages on the side.

As with adaptations made to format content and navigation for smartphone screens, it appears Google already has made adaptations of the email-compose layout specifically for the iPad form factor.

For application providers, all this suggests a possible need for a "third" way to format web sites and applications, including different rendering for large PC screens, small mobile phone screens and mid-size tablet form factors.

The Iterative Web App: New Compose Interface for Gmail on iPad - Official Google Mobile Blog

Online Video Consumption Catches Broadcast by 2020

By 2020 Internet video consumption will eclipse the consumption of broadcast TV programming, according to researchers at The Diffusion Group. Keep in mind that this is different from arguing the revenue earned by content or service providers will reach a cross-over point in 2020.

While the amount of time spent viewing TV has remained relatively stable, the amount of time consumers spent watching online video increased 84 percent between 2008 and 2009. When extrapolated across the entire TV-viewing population, the average time spent viewing online video in 2009 was 52 percent more than in 2008.

TDG expects that this rate of growth will actually increase during the next five to seven years due primarily to the increased use of the television as the platform of choice for in-home web video viewing.

According to Colin Dixon, senior partner and co-author of TDG’s new report, “The total amount of time spent watching video from all sources, including PayTV and Internet video, will hold constant during the next 10 years at around 32 hours a week. With online video usage accelerating we expect the amount of Internet video watched to eclipse the amount of live broadcast TV around 2020.”

The forecast may appear shocking to some, and will hinge on developments in broadband access pricing, bandwidth quality and deployment, both fixed and wireless. Wireless providers are unlikely to permit high video consumption on their networks without creation of new revenue models or a change in end user willingness to pay.

Fixed providers and content providers are unlikely to encourage online video consumption when it simply cannibalizes existing multi-channel video revenue and imposes higher network access costs.

“Keep in mind that during this period, Internet and broadcast delivery of video content will become blended in such a way that consumers will be unaware of which conduit serves which content," says Colin Dixon, TDG senior partner.

It is conceivable that today's multi-channel video providers, for example, will be able to shift in a relatively revenue-neutral way if "TV Everywhere" packages are accepted by end users on a wide scale. That doesn't speak to the issues of access providers who have to support the dramatically-increased infrastructure, though.

One suspects the revenue equivalent of this forecast would not show cross over in 2020 for a variety of compelling reasons, including a more-uncertain regulatory environment leading to less investor interest in access infrastructure, need to develop new business models and possible disincentives to consume online video, such as plan overages.

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