Will Isis, Google Wallet Become "More Disruptive?"

Should Isis and Google Wallet be focusing more on “disrupting” the point of sale experience rather than “enhancing” it with near field communications. “Yes,” says Cherian Abraham, advisor at Experian Global Consulting Practice, North America. The opportunity is to vastly simplify the “complicated” mobile payments system, taking a stronger tack in the area of reducing the payment transaction fees merchants really dislike.

Some might see a recent pivot by Google Wallet to more of a “cloud based” approach as a modestly helpful strategy strategy pivot. Initially, Google Wallet had been highly dependent on the support of its carrier partners.

Now, cloud-based Google Wallet app that supports all credit and debit cards from Visa, MasterCard, American Express, and Discover. The “storage of credentials” strategy might be important.

Up to this point, Google Wallet had to store account details on the device itself, which meant it was essentially captive to the mobile service providers. The new cloud approach frees Google from those constraints, to a large extent.

One important remaining issue, some might say, is the reliance on near field communications as the communications channel. Sure, Google Wallet can get around that by using external “stickers.” But some might argue that is not an “elegant” approach.

Might Google Wallet pivot again and embrace other methods? To be sure, Google Wallet has been contemplating other ways of changing its business model.

Google has changed iits digital wallet strategy in a significant way, one might argue. In the past, Google Wallet has stayed out of the “interchange fees” part of the revenue stream, in favor of an exclusive reliance on loyalty, advertising, offers and other marketing and advertising functions.

But with the decision to support virtually all the major branded cards inside Google Wallet, a shift of revenue strategy could occur. A new cloud storage strategy does a couple of things. First, all major card brands can be accomodated, even if the resident application on a Google Wallet device is the prepaid MasterCard account.

The new approach is closer to that of PayPal than was the case for Google Wallet’s initial positioning, says Zilvinas Bareisis, Celent consultant. And the change makes Google Wallet a venture that makes money from transactions, something the older Google Wallet did not attempt to do.

The cloud-based credentials still require use of the MasterCard PayPass terminals and software loaded on each Google Wallet device. But since the MasterCard prepaid account is linked (in the cloud) to MasterCard, Visa, Amex and Discover accounts, Google Wallet users can use the wallet in much the same way as PayPal.

That would be a fundamental shift of strategy. Before, Google Wallet was not a transaction processor in the same way as PayPal functions. Now, Google Wallet will, in effect, become a transaction processor, in an indirect way.

More accurately, it has become a merchant of record. Google sits in the middle of its Wallet transactions, rather than just passing through plastic credentials to an NFC enabled smartphone.

The new approach also bypasses the need to cooperate with mobile service providers, and allows Google Wallet to be provided “over the top,” without using the mobile service provider secure elements. Card issuers might like that angle, since it means they are relieved of the obligation of paying fees to any mobile service providers who want to get a slice of transaction processing revenues.

Google Wallet becomes as a “merchant of record” for transactions. True, they won’t have to incur the extra costs of provisioning their card credentials on to secure element, but that would also rule them out from participating in other NFC ventures, such as Isis.

Now, from the merchant point of view, they are accepting a prepaid MasterCard, while it might an Amex card that actually funds the transaction. PayPal deals with it by having direct acquiring relationships with its merchants and offering them a discount rate which represents an expected blend of funding transactions, says Bareisis.

Does it also mean that Google Wallet will have to establish relationships with the acquirers to re-coup from merchants any potential differences in transaction costs? Or will it have to charge the end user for “loading” their wallet, something that other prepaid card providers do for card-based re-load transactions?

In any emerging business, it is not unusual for start-ups, even those as big as Google Wallet, to change business models in dramatic ways. Isis, the mobile service provider service, initially envisioned being a “merchant of record.” Then Isis decided to take the former Google approach, and eschew any role in transaction fees.

Google now has taken the reverse path, essentially adopting the former Isis approach. In other words, both Isis and Google Wallet now have reversed their initial positions on revenue models in the wallet space.

Google Frommer Buy Shows Importance of Growing E-Commerce Trend

Google  is acquiring the Frommer's  travel brand from John Wiley & Sons, adding to Google's prior acquisition of Zagat. 

The deal seems to focus on Frommer's trove of local reviews of travel locations around the world, and should bolster Google's effort to grow its e-commerce and advertising opportunities, both for PC and smart phone forms of access.  

Local mobile advertising likely will be a big beneficiary. Google also owns the ITA travel software business, so Google is building a critical mass of "real time" or "on the go" access to travel information and transactions. 

Those acquisitions illustrate the changes happening in the entire Web and mobile content business. Our ways of describing "eras" of computing, or software, or communications, sometimes are too much affected by hype. But sometimes there is a huge kernel of truth to a taxonomy.

So one might say Web 1.0 was about web connectivity. Web 2.0 might be characterized as  "social," says Jay Jamison, BlueRun Ventures partner. 

Web 3.0 will be "mobile," says Jamison. Aside from the obvious notion of an era characterized by use of smart phones and other "smaller screens," the notion is that apps and services will be real-time, ubiquitous (always connected, always with you), location aware, able to integrate sensors and using high quality cameras and audios. 

For some of us, that means the mobile web will b e highly organized around commerce, including advertising and promotion that drive commerce.

Do You Prefer Keyboard Input for Your Smart Phone? Many Do, it Seems

A non-scientific Web poll of users by Nokia suggests that though touch screens are the preferred input method in the United States, uses in other markets prefer a keyboard, Nokia reports.

Some 49 percent of survey respondents indicated they preferred a keyboard for input, while 35 percent preferred touch screens.

Users in European countries such as Germany, the United Kingdom, Sweden and Finland were voted by a clear majority for the Qwerty keyboard.

U.S. users preferred touch screens, though. Some 47 percent of U.S. respondents preferred a touch screen. Some 33 percent preferred a keyboard.

Users in  the Philippines, which has the fastest growing smart phone market in Asia, also tend to prefer keyboards. Some: 40 percent of respondents from the Philippines said they preferred a keyboard, while 30 percent preferred a touch screen.

A separate poll also suggests the wide range of activities the Internet access function supports. As the data suggests, smart phones are multiple function devices, used to support a wide range of applications. 

What have you used on your Nokia Lumia in the last month? 

Browsing websites 6.29%  

 

Download apps from the Marketplace 6.19%  

 

WiFi to connect to the Internet 6.15%  

 

Access email 6.08%  

 

Use camera for still pictures 5.85%  

 

Use social networks 5.44%  

 

GPS 5.43%  

 

Music/MP3 player 5.3%  

 

Organiser/calendar 4.98%  

 

3G to connect to the Internet 4.89%  

 

Download games from Marketplace 4.86%  

 

Watch online videos (YouTube) 4.85%  

 

Customise the home screen 4.66%  

 

Use camera to record video 3.79%  

 

Upload photos/videos to sites 3.62%  

 

Set up an email account 3.5%  

 

Transfer files to device 3.18%  

 

Edit office documents 2.72%  

 

Set up a music library 2.47%  

 

Edit still pictures or video 2.24%  

 

Set up a photo library 2.22%  

 

Other 2.19%  

 

Play pre-loaded games 1.59%  

 

4G LTE to connect to the Internet 1.52%  

 

Can Barnes & Noble Make "Freemium" Work?

Barnes & Noble and Amazon do not use a pure "freemium" model in selling their tablets and e-readers. A classic freemium strategy would entail giving away the product for free, then building revenue on ancillary products. 

On the other hand, lots of observers believe that Barnes & Noble now is selling some of  its tablets for less than production cost. The logic, which mirrors Amazon's strategy of selling tablets at cost, or perhaps slightly below cost, is that seeding the market with lots of devices creates a bigger platform for selling content. 

Many criticize Amazon for that strategy, but it seems to work for Amazon. Amazon "probably makes enough money from that business to subsidize e-reader losses," argues Douglas McIntyre. 

The issue is whether Barnes &Noble can do the same. It's not exactly a classic freemium strategyk, but is quite similar in principle. 

In Broadband Access Business, "Average" can be Quite Misleading

Hong Kong to has the highest average peak broadband connection speeds in the world, at 49.2 Mbps, with South Korea at second with 47.8 Mbps and Japan at 39.5Mbps, according to Akamai data. 

The number of households buying services advertised at more than 10Mbps is substantial in all three markets. In Hong Kong, 28 percent of customers buy services operating at faster than 10 Mbps. In Japan, 37 percent of consumers buy services running faster than 10 Mbps. In South Korea 53 percent do so.

The average connection speed was 9.3 Mbps in Hong Kong, 15.7 percent in South Korea and 10.9 percent in Japan."

The implication is that, as with most phenomena related to broadband access, "average" does not tell you very much. Whether the issue is supply or demand, a very small number of instances accounts for a huge amount of consumption, while a large number of instances represents quite modest demand. 

About 97 percent of smart phone users, for example, consume 1 Gbyte or less of data each month. The top one percent consumes nearly double that amount. 

In 2010, Comcast notes that the typical user consumes 2 Gbytes to 4 Gbytes a month. 

What's the Difference Between Over the Top and Carrier Apps?

Deutsche Telekom took a step into mobile gaming:with a €2 million investment in Flaregames and now has gotten a  worldwide license to create a browser-based game based on the popular Asterix Belgian comic books, as part of a larger expansion of its gaming activities.

By definition, the games are "over the top" apps. That raises the question of the difference between over the top apps and carrier apps, from a carrier's business perspective.

To be sure, carrier views have been shaped largely by the fact that the first wave of OTT apps have competed directly with carrier voice and messaging offers. In the past, the adjectives "low gross revenue, low margin" have been an unstated part of the understanding carrier executives have of over the top apps or even broadband access services, as exemplified by the disdain for the term "dumb pipe."

And yet, what is a broadband access service, especially in a fixed network context, other than simple access? The features, values and apps come from all the apps and services a Web browser or app can supply. If the adjectives "high gross revenue, high margin" were appended to the phrase "dumb pipe," how many carrier executives would not want to be in the dumb pipe business?

Also, even so, simple access is just one of multiple services offered by most carriers, and Internet access is but one of them. The Deutsche Telekom gaming initiative is one way a particular carrier is moving to create "high margin" OTT apps it owns. 

Increasingly, what matters is not the manner of delivery, or even the substantial disruption of carrier service pricing, or the type of app, but the ownership. 

In point of fact, OTT represents the foundation of software architecture, where apps are intentionally designed to run over virtually any physical network. So the manner of delivery no longer is a useful way of understanding the difference between carrier-owned and third party owned apps. 

The disruption of pricing is a key issue, especially for all legacy apps, but that is a problem carriers simply must grapple with; it cannot be wished away. One might argue that, going forward, it is the matter of ownership that is key. 

Over the top voice and messaging apps are feared not because they are available to any potential user with a broadband connection, but because those apps are owned by a third party.

To be sure, disruptive pricing impact is certain to occur, as OTT providers reset consumer expectations about what apps or services such as voice or messaging should cost, and what the key feature set should be.

Increasingly, though, it is helpful to keep in mind that though carriers are right to be concerned about low gross revenue, low margin OTT apps that cannibalize existing carrier services, they should not similarly view with disdain other OTT apps that offer high gross revenue, high margin and do not cannibalize legacy services. 

In other words, the clear disruption of carrier voice and text message services should not cloud vision about other OTT apps. 

To be sure, over the top voice and messaging is a concern of mobile service provider executives around the world, for good reasons. Over the top mobile voice and texting apps now affect traffic for almost 75 percent of mobile service providers operating in 68 countries surveyed by mobileSquared as part of a project sponsored by Tyntec.

About 52.1 percent of respondents estimate over the top mobile apps have displaced about one percent to 20 percent of traffic in 2012. That’s a clear issue since traffic lost means lost revenue as well.

Almost 33 percent of respondents expect one percent to 10 percent of their customers will

be using OTT services by the end of 2012, with 57 percent of respondents believe 11 percent to 40 percent of their customers will be using OTT services in 2012.

But 10.5 percent of service providers anticipate more than 40 percent of the user base will be using OTT services by the end of 2012, the survey found.

In 2016, 100 percent of respondents believe at least 11 percent of their customers will  be using OTT services. In fact, 42 percent of operators believe that over 40 percent of their customer base will be using OTT services in 2016.

All that is a genuine worry. But OTT is not everywhere, and always, something a carrier should avoid or oppose.

Will Scale or Scope Characterize Mobile Strategies Next 5 Years?

Leading U.S. service providers have for more than a decade focused their growth strategies on "scope economies" rather than "scale economies." Simply, "scope" means you sell more products a relatively fixed set of customers. "Scale" means you get more customers. 

For leading cable companies, the problem is partly that the U.S. Federal Communications Commission has clearly signaled that no single U.S. cable company will be allowed to control more than 30 percent of all U.S. cable subscribers. For Comcast, that essentially has meant that no more cable companies can be acquired.

AT&T recently encountered resolute opposition to its proposed acquisition of T-Mobile USA, a move that would have lead to even more industry concentration than the U.S. Department of Justice believes is permissible. 

But there are other issues. As cable has encountered market share erosion, first to satellite providers and now to telco TV providers, and as telcos have lost share to cable voice services, each type of firm has had to lean on "scope" mechanisms, namely selling additional services to a smaller number of customers. 

Amidst growing signs that the U.S. mobile service provider market is becoming unstable, in terms of market structure, the issue is what will happen, in terms of growth strategies based on either scale or scope. 

What appears to be clear is that AT&T and Verizon will have trouble justifying growth by acquisition, namely, adding more subscribers by buying additional mobile companies, with their customers. Even Sprint might have trouble convincing regulators it can combine with a firm as large as T-Mobile USA. 

That suggests that mergers to create larger entities will have to happen either as Sprint or T-Mobile USA buy smaller regional carriers; as regional players combine; or as new contestants enter the market in part by buying up existing mobile carrier assets. 

There could be a new wave of mobile virtual network operators as well, but those efforts will not likely disrupt market structure in terms of shares held by the top four providers. The point is that, at least for the top four mobile service providers, scale no longer will be the normal and primary means for revenue growth (with the exception of Sprint or T-Mobile USA buying smaller regional mobile service providers). 

Instead, scope economics will prevail. In other words, adding more subscribers won't go too far before regulatory resistance is encountered. Instead, the top four providers will have to add more services. 

What does seem likely is a scale approach by newer entrants and the regional providers, below the big four players. 

 "What is clear for now, in our view, is that the current strategy, indeed the entire current business, isn't working," said Craig Moffett, an analyst at Sanford C. Bernstein. 

Moffett seems to be referring to the whole business operated by regional U.S. wireless carriers. To be sure, Moffett has been saying that the U.S. mobile business is saturated since at least 2009. 

The immediate stress is heavy for the regional mobile providers, often using prepaid models. Regional or prepaid service providers clearly have had a tougher 2012 than had been the case in the mid-2000s, for example. 

Leap hasn't been profitable since 2005, for example. MetroPCS profits dropped 63 percent during the first quarter of 2012. That suggests to some observers that consolidation among the regionals is inevitable.