Smart Phones Really Are Content Consumption Devices

During the three-month average ending March 2012, 50 percent of U.S. mobile subscribers used downloaded applications on their mobile device, up about five percent from 47.6 percent during the three-month average ending December 2011, according to comScore. 


For the period, downloaded applications extended their lead in penetration over browsers, which were used by 49.3 percent of subscribers (up from 47.5 percent, quarter over quarter). 


Texting remained the most common activity, used by 74.3 percent of U.S. mobile subscribers, unchanged from the previous three-month period. 


In addition to apps, users also made significant use of music, gaming, social networking and browser interactions. 

Over the Tip is Like "Showrooming;" Best Buy and Target Responses are Like "Retail" and "Wholesale" in Telecom

Target is not happy about "showrooming," the practice whereby many consumers take a look at products, but then wind up buying that same merchandise online. Target now appears to be concerned enough about lost sales to Amazon that it will stop selling Kindles in May 2012.

Every firm has to decide what to do about competition, and Target seems to have no similar qualms about selling Apple tablets. In fact, Target is preparing to launch Apple Stores inside Target locations.

Since Target stores began selling Amazon's Kindle line back in 2010, and the Kindle Fire was even the retailer's best-selling tablet during Black Friday 2011.

The new deal with Apple is said to represent a "conflict of interest."  Target's move, in one sense, isn't unusual. Lots of distributors have special deals with certain suppliers, and Target might be betting it will make more money selling Apple tablets than Kindles. There might be clauses in the deal that require Target to remove Kindles. It just isn't clear.

But Target and Best Buy might be heading in opposite directions in dealing with "showrooming." Target has asked its suppliers for special "Target only" merchandise, for example, to limit "showrooming" impact. That might be likened to mobile phone "exclusives" offered by mobile service providers.

Best Buy, on the other hand, is mulling a shift in the opposite direction. Best Buy has, like Target expects to do, supported Apple mini-stores inside Best Buy locations for quite some time. But Best Buy might consider shifting even more fundamentally in that location, essentially allowing many other suppliers to rent space inside Best Buy as a primary revenue model.

In telecom terms, Target wants to remain a retail supplier, where Best Buy could move in the direction of a major reliance on a wholesale role in the value chain. Target's strategy is the more common approach in the communications business, where nearly all the money is made selling products directly to retail end users.

Best Buy might be considering a shift to a "Clearwire" style, wholesale-only strategy that is relatively uncommon in the communications business. Where the retail Target strategy rests on revenues created by end users, the wholesale strategy rests on sales of products to business partners.

Where Target is a business-to-consumer model, Best Buy might be contemplating a shift to a business-to-business model.

Is Cloud Computing Good or Bad for Telcos? "Yes" on Both Counts

It is far from easy to determine the complete impact of innovations such as PCs and tablets, broadband access and cloud computing on revenue streams of service providers. PCs obviously created demand for dial-up Internet access services, to the extent that email was a killer app for communicating PCs.

Tablets create demand for broadband connections, both fixed and mobile. But broadband-connected devices also allow enterprises and apps to create their own communications services and features.

Cloud computing likewise will create new requirements for connectivity, bandwidth and data center hosting. But cloud computing also enables the creation by people, apps and firms of cloud-based voice and messaging, in much the same way that businesses traditionally have used private branch exchanges to create their own voice services.

The point is that it is difficult to quantify all the gains and losses from cloud-based voice and messaging, from the standpoint of a communications service provider. Consider tt.One, a new platform being launched in North America by German-based mobile interaction specialist Tyntec.

The tt.One platform bridges the IP world of over-the-top apps with the telco world. The cloud-based solution gives businesses the power to integrate carrier voice, text messaging and mobile numbers into online services, applications and social networks.  

The service provides virtual mobile numbers that enable the two-way transmission of voice and SMS in multiple countries.

The tt.One service simplifies the complexities involved in integrating telecom services into a Web environment by virtualizing all of the core mobile communications capabilities into the cloud.

For example, Internet companies can provide mobile numbers to their users, enabling them to exchange SMS and voice calls, as well as making any device, such as an iPad, a mobile phone in WiFi areas.

U.S.-based Pinger uses tt.One in Germany for its free, device and carrier-independent voice and text service, and tyntec expects other OTT players with a desire to expand into Europe will follow.

So cloud-based voice and texting both grows usage while competing with established service provider offerings. Voice and text communications gain huge network effects, making both more valuable, but also compete with mobile service provider offerings.

The point is that cloud computing holds both upside and downside for service providers.

"Hybrid" Strategies Will be Common for Mobile Commerce Contestants

Transitional or hybrid strategies are emerging as an important staple of the mobile payments business. Stickers that add near field communications features for non-NFC phones are one example.

In other cases, new features are created that make use of existing payment infrastructure. Starbucks used its existing point of sale terminals and added bar code scanning to launch its branded mobile payments venture. PayPal is piggybacking its card mechanisms at Home Depot stores.

We are likely to see many more examples of such “bridging” strategies, even though some “greenfield” efforts such as Isis, Google Wallet or Visa mobile wallet services also will attempt to gain traction.

Barclaycard, for example,  has unveiled a stick-on credit card called "PayTag," which will sit on the back of a mobile phone (or any other item you carry everywhere) and then be used to make small, contactless payments using near field communications. The move illustrates some enduring issues with technology and services adoption.

First, what Barclay's is doing is not necessarily even "mobile payments," in one real sense. It is the sticker itself which communicates and represents the store of value. The phone is just a place to put the sticker.

The idea is to open mobile payments to Barclaycard's 12 million customers, even if their mobile phone is not equipped with an NFC chip, or not set up for contactless payments, or do not even use a mobile phone.

Right now, the sticker can be used to make payments of £15 and under, and it will rise to £20 in June 2012.

Second, the PayTag is probably a transitional strategy. That is a tactic often used when one era of technology is replaced by another. What is "hybrid fiber coax" but a bridge between an all copper network and an all-optical fiber network? What is a hybrid automobile? Why were existing sailing ships outfitted with steam boilers?

The point is that a proven strategy at times of fundamental change is to graft key elements of the coming technology to the existing way of doing things. It's a process Richard Foster, of Yale University, has written and talked about for decades.  

New technologies often cannot stand on their own in the marketplace, either because they are not initially cost competitive with the existing technologies, because the full ecosystem has not developed or because there is customer or other resistance of some sort.

There is nothing at all wrong with adopting a transitional strategy; it is a common way a next generation of technology displaces the former way of doing things. In this case, it means that even if you believe NFC ultimately will replace the credit card swipe, it will take some time. Taking an interim approach is better than doing nothing.

Third, the move by Barclay's to initially limit the transaction volume serve several purposes but also illustrates the existence of natural segments within the mobile payments business. At one level, the limitation protects Barclay's from unexpected financial losses.

At a higher level, the sticker approach, with a transaction volume limit, shows where several payment methods have a role. Where traditionally carrier billing has been used for small purchases of digital goods, other payment systems, including PayPal, credit, debit and prepaid cards also have been used to buy songs, game credits, stories, videos or other digital goods.

What many now are trying to figure out is how to use newer payment systems based on mobile devices, or associated with mobile devices, can be used to extend the range of payments for virtual and physical goods in the offline payments setting.

And at least initially, many of the early payment systems have been aimed at supporting small purchases. In the near term, that might be a reasonable approach for a number of reasons, including consumer unfamiliarity with the concept. The point is that it is one thing to get consumes to change behavior about small, casual payments. It is something else to get them to change behavior about larger transactions.

Nor is it yet clear whether distinct market segments for physical shopping and online or mobile purchases will continue to exist, though they are likely to be key market segments at first. Credit and debit cards, for example, seem to be used equally for online and physical store payments. But PayPal historically has been an online payment mechanism, and only now is PayPal attempting to become something that is used more universally.

Fourth, there are functional segments of the mobile payments market. Many systems essentially try to link the phone with a specific set of payment accounts, such as credit card, debit card, bank accounts, phone accounts, prepaid instruments or other stores of value. That makes the phone the payment instrument.

Others, such as Square, Intuit and PayPal, want to turn the phone into a cash register, allowing a standard credit, debit or prepaid card to be swiped. In that case, the mobile phone supports a point of sale terminal function for the merchant, rather than a payment mechanism for the buyer.

On the other hand, mobile wallet systems will try to piggyback on mobile payments to create new businesses based on advertising, marketing and loyalty. As Square uses the mobile phone to create a POS terminal business, so mobile wallet suppliers will use mobile payments to create new marketing, advertising and loyalty businesses.

Fifth, there are new possible roles within the ecosystem. The "trusted service manager," for example, to essentially create the networks of information required to sign up customers, ensure network interoperability and security, activate and deactivate services, manage databases and provide branding, for example. Think of the TSM as a new sort of "branded" network such as Visa or MasterCard, for example.

How Long Does Microsoft Have to Prevent Apple Dominance in Consumer Computing?

Microsoft Corp is investing $605 million over five years in Barnes & Noble new Nook e-reader and college book  business, in an effort to better compete with Amazon.com and Apple in the tablet computer market.

The move shows how important content stores have become in driving tablet sales, which clearly match the increasing role of computing devices as platforms for content. Beyond that important consideration, one might wonder whether Apple's growing strength in consumer electronics threatens to displace Microsoft's position in computing, at least in the consumer space.

The new touch-enabled Windows 8 operating system, and the inclusion of a Nook app on Windows tablets should allow them to compete with Apple's iPad and Amazon's Kindle Fire, some believe.

But the larger question is how much time Microsoft has before Apple's growing market share in a variety of consumer electronics categories threatens to relegate Microsoft to the sidelines in mobile phones, tablets, e-reading, music and other areas Apple hasn't attacked yet.

Though some will disagree, you can argue that Apple now leads the consumer electronics business, not only the computing business, while Microsoft has become more of an enterprise technology supplier.

Five years ago, in 2007, Microsoft reported quarterly revenue of $14.398 billion and  profit of $6.589 billion. In 2012, Microsoft’s revenue was $17.4 billion, while profit was $6.374 billion. The company is still growing, but not fast, and is less profitable.

The bigger story, though, is likely Apple.

Five years ago, in its first quarter of 2007, Apple revenue was $7.1 billion and profit was $1 billion,  the first quarter with a billion dollar profit in company history. In 2012, for the same quarter, Apple had $47 billion in revenue and $13 billion in profit.

The shift into different customer segments is not, in some ways, a surprise. Apple never has chased the enterprise market, preferring to sell directly to end users, and then watch enterprise sales grow as those users demanded the right to use their devices at work. You can say Apple has been the biggest beneficiary of "bring your own device" or "consumerization of IT" trends.

Workers now report using an average of four consumer devices and multiple third-party applications, such as social networking sites, in the course of their day, according to a study sponsored by Unisys.

Also, workers in the survey reported that they are using their own smartphones, laptops and mobile phones in the workplace at nearly twice the rate reported by employers.

In fact, 95 percent of respondents reported that they use at least one self-purchased device for work. Another big change is that where enterprise IT staffs used to assume they were responsible for training and supporting users on enterprise technology, these days many users simply will go ahead and train themselves to use tools they prefer. That also is a big change.

That "consumerization" of technology is quite a big shift. Decades ago, the pattern of technology diffusion was fairly straightforward. The latest new technology was purchased by large enterprises and large government entities.

Over time medium-sized businesses and organizations started to buy the same technology. Later, small businesses and organizations adopted the tools. Finally, some consumers 'brought the technology home' and used it as well.

All of that has changed over the last two decades. These days, many enterprise tools actually were brought into the enterprise by consumers who already had adopted the technology for home use.

The problem for Microsoft, and others, is that Apple increasingly is becoming a whole ecosystem in consumer electronics related to computing. And there is reason for all the others to worry. Apple's share in MP3 players, tablets and to some extent smart phones shows how hard it is to compete effectively with Apple, once a market is defined.

Some of us would argue that there is an iPod market, and then a smaller MP3 player market, an iPad market and then a separate tablet market, for example.

Samsung Takes Global Lead in Mobile Phone Share

Samsung displaced longtime mobile device market share leader Nokia as the world's top mobile phone vendor. According to International Data Corporation, vendors shipped 398.4 million units in the first quarter of 2012 compared to 404.3 million units in the first quarter of 2011.

Nokia has been the global market leader in total mobile phone shipments since the inception of IDC's Mobile Phone Tracker in 2004.

Samsung's ascension to the market's top spot is largely a reflection of its gains in the smart phone market over the past two years, said Kevin Restivo,  IDC senior research analyst.

Meanwhile, the worldwide smartphone market grew 42.5 percent year over year in the first quarter of 2012.

Top Five Worldwide Smartphone Vendors, Shipments, and Market Share, Q1 2012 (Units in Millions) 

Vendor	1Q12 Unit Shipments	1Q12 Market Share	1Q11 Unit Shipments	1Q11 Market Share	Year-over-year Change
Samsung	42.2	29.1%	11.5	11.3%	267.0%
Apple	35.1	24.2%	18.6	18.3%	88.7%
Nokia	11.9	8.2%	24.2	23.8%	-50.8%
Research In Motion	9.7	6.7%	13.8	13.6%	-29.7%
HTC	6.9	4.8%	9.0	8.9%	-23.3%
Others	39.1	27.0%	24.5	24.1%	59.6%
Total	144.9	100.0%	101.7	100.0%	42.5%

Apple Churn Impact: 6 to 8 Times the Normal Rate Around 4S Launch

A study by Consumer Intelligence Research Partners over the three-month period between December 2011 and February 2012 suggests that the Apple iPhone does play a role in churn.

About 18 percent of iPhone buyers over that period report they had an iPhone already, and switched carriers. The obvious flip side of that story is that 82 percent of iPhone buyers stuck with the same carrier and only switched devices.

Some 24 percent of new buyers said they switched from another type of device to an iPhone, and also switched carriers. That means 76 percent switched devices, but stayed with their original service providers.

Those statistics cover a three-month period during the launch of the 4S, so likely will not be so pronounced for latter periods.

That suggests the iPhone was a significant driver of churn away from carriers that do not sell the iPhone, if you assume that the 24 percent of new iPhone buyers switched carriers just to get the iPhone.

But 18 percent of new iPhone buyers already had an iPhone, but still switched carriers. Some would suggest that represents AT&T customers switching to Verizon Wireless.

Either set of statistics--18 percent or 24 percent churn--are significant. If you assume monthly churn of about one percent a month, then either rate represents monthly churn of perhaps six percent to eight percent. That is six to eight times higher than either firm typically experiences.

Also, Wal-Mart has emerged as an important sales channel for Apple iPads, a survey by Consumer Intelligence Research Partners has found. In the month of February 2012, Wal-Mart represented about 11 percent of sales. Best Buy sold 24 percent, Apple sold 26 percent.

As you might guess, retail stores operated by mobile service providers were a bigger channel for iPhones. Over a three-month period, from December 2011 to the end of February 2012,retail stores accounted for 76 percent of iPhone sales; online stores, 24 percent. When the iPhone 4S first launched, retail stores and online outlets accounted for 67 percent and 33 percent of sales, respectively, largely due to online orders.