Computer for the Next 3 Billion? Coming

Some of us can remember great "handwringing" an concern in international policy circles about how to bring telephone service to two billion people who never had made a phone call. You don't hear such concern anymore, since we rapidly are solving that problem with mobile communications, a solution not envisioned in the 1970s and 1980s. 

Two decades ago the question largely had shifted to the problem of how to get computing into the hands of the next three billion people. There was some work around the notion of special devices optimized for rural villagers that would be low cost, perhaps $150 or so.

For many at the time, likely most knowledgeable observers, the prevailing thinking was that it couldn't really be done. And that remained true even as recently as the middle of the 2000 decade. 

But as we stumbled upon a solution to the problem of getting communications to people at prices they could afford, we are about to solve the problem of getting computers to people, also at prices they can afford.

The notion, for some time, has been that in many parts of the world, the smart phone would be "the computer" most people used. That might turn out to be largely correct, for at least a time.

But it also now is possible that we know how to create and sell computers to people that cost no more than $150. Consider that the prototype "One Laptop Per Child" device had a screen of 7.5 inches diagonal and flash memory, with no keyboard.and used Wi-Fi for Internet connectivity.

Oh, that's right, we now call that a tablet, and it is made and sold commercially by the likes of Amazon, Barnes & Noble, and soon Google and likely Apple. 

There is an important principle here. The communications and computer industries have solved a very hard problem that stumped global policy makers for decades. Smart people, working creatively, without any guidance or direct support from government entities, simply solved the problem of communications for people who never before had made a phone call. 

Those people and firms are about to solve another really big problem, and they don't even know it, yet. 

Though it is unpopular in some circles, the notion that really-big problems often can be solved by creative human beings themselves, entirely by market mechanisms,  without the dead hand of government dicta or bloated programs that waste lots of money. 

There are other lessons to be learned, for people honest enough to ponder them. For most of my life, it seems, government officials, policy makers and foundations have wrestled with the idea of how to jumpstart economic development in places such as Africa, spending, by probably conservative estimates, a trillion dollars, at the the rate of $50 billion to $150 billion a year. 

The "aid establishment" won't like to hear it, but many believe the aid actually has harmed development in Africa. It isn't just that the aid largely has been ineffective, it has made things worse. 


This is the argument made by Dambisa Moyo, a Zambian economist with a masters from Harvard, a doctorate from Oxford, and eight years experience as an economist for Goldman Sachs.

“You essentially have a problem whereby African governments are getting aid because they, the donors, are worried about the levels of poverty in those countries," Moyo says. "But that aid then tends to spew out a lot of corruption, it creates a lot of bureaucracy, it kills off entrepreneurship, and it disenfranchises voters in those countries,”  she says.

Her solutions include the notion that we should first stop doing harm. In other words, the objective should be to "be good," not "feel good." We have to stop doing what is harmful, even if those actions make us feel virtuous, so we can actually be virtuous, which is to say provide real help. 

The earlier success of the communications industry in solving the communications problem is about to be joined by the computing and applications industries solving the problem of computing for billions of users around the world. Nobody deliberately set out to solve those problems. 

But the solutions have arisen because creativity was allowed to flourish, Moore's Law operates and market drivers and the rule of law have operated. We tend to take those things for granted in North America. We should not. Marvelous things are possible. 

Without realizing it, Amazon and others have solved the problem of computers for the third world. 

BBC Sees Huge Video Streaming Jump from London Olympics

You would expect the recent London Olympics to have driven higher use of Internet and Internet video content. It did. 

An average 9.5 million global daily uniques to the BBC Sport website is almost a quarter higher than the previous record level for BBC. 

Video requests doubled from those seen during any previous event (106 million) and were higher than the 2008 games (32 million) and 2010 World Cup (38 million).


      Usage by hour across the day by device - for 28 July to Aug. 9

A third of Web visits came from mobile devices. But only a tenth of video requests were mobile.

Most interestingly, the majority of video requests (62 million) were for live streams. Only eight million were for on-demand live streams, 35 million were for short-form clips.

The BBC, which adapts streaming quality to viewers’ bandwidth, says the average bitrate was “the highest the BBC has ever delivered online” at 1Mbps.

There were some notable changes in device usage as well. The BBC data shows that PC usage was at its peak during the week at lunch time and during the mid-afternoon.

Mobile usage becomes dominant around 6 pm as people leave the office.
Tablet usage reaches a peak at around 9 pm when people seem to be using them as a second screen experience as they watch the Games on their TVs and also as they continue to watch in bed, BBC says.

But consumption of video content on mobile has been  the key takeaway from the two weeks, according to the BBC, which saw 12 million requests for video on mobile across the whole of the Games.

Biggest-Ever Drop in Subscription Video Accounts

Keep it in perspective, but in the second quarter of 2012 the U.S. subscription video entertainment business, accustomed to growing every year, suffered its biggest-ever decline in subscribers.

Net U.S. subscriber additions for subscription TV fell by 350,000 in the second quarter. These results were slightly worse than the 340,000 decline during the same period in 2011. You can make up your own mind about why the decline is happening. The second quarter is seasonally the toughest quarter of the year, but most of us would argue there is some combination of less interest in the product, affordability issues and use of substitute products at work. 

U.S. satellite providers also lost subscribers during the first quarter, down 62,000.  DirecTV's loss of 52,000 subscribers was its first-ever decline. 

Cable TV operators lost 600,000 subscribers in  the second quarter. And it is no fluke. Cable subs have decreased during each of the last 21 consecutive quarters.

Some Scary Mobile Product Life Cycles

It might not have been obvious that voice is a product with a life cycle. It might not have been obvious that text messaging likewise is a product with a life cycle. 

But they are. And if they are, it means they eventually will decline, as revenue sources for communications providers. 

More surprising is the observation that even in many developing markets, such as India, China and Indonesia, voice and messaging is not that far from an adoption peak. 

The issue is the magnitude of revenue that mobile service providers will have to generate to replace dwindling voice and messaging revenues, though the magnitude of the revenue issues is more significant for the voice product than the messaging product. 

Voice represents something on the order of 72 percent percent of total mobile service provider revenue, according to ABI Research estimates. 

Messaging represents about 21 percent of total revenue, so declining messaging revenue is less a problem than lost voice revenue. Mobile Internet revenue still is growing, in every market, so there is more time to react to the eventual maturation of that market, which at the moment only represents about six percent of total mobile service provider revenue globally, by ABI Research estimates. 

ABI Research also forecasts annual mobile voice revenues to reach $580 billion in 2010. 

From 2011 on, rising subscriber saturation will increasingly erode mobile voice revenues, not just in developed markets but also in a number of emerging markets. By 2014, mobile voice revenues will have contracted by 9.6 percent.

While mobile operators have received a substantial boost from value-added services such as messaging and mobile Internet, competition is squeezing margins for a variety of services and carriers. Total mobile data services should generate $169 million in 2009 and will grow at a compound annual growth rate of nine percent until 2014. 

By the end of 2009 the declines in annual average revenue per user (ARPU) will have been felt most severely in Asia-Pacific (-8.7% to $105) and Africa (-7.8% to $134). ARPU in 2009 in North America will have contracted, but only by -0.6% to $526).

Mobile Internet revenue ($52) will help to prop up overall service revenue for the region. 

The issue is that mobile service providers in developed regions now have to rely on mobile broadband and data plans to replace lost voice and messaging revenue. But even service providers in developing nations will have to do the same, at some point. 

The immediate issue is whether mobile broadband and data plans can cover most of the voice and messaging shortfall, or whether other revenue sources will have to be found. 

Any way you look at it, mobile service provider voice and data services now are mature products set to decline. Altogether, voice and data represent 82 percent of all revenues. 

Those are very big numbers in a global market that represents $800 billion worth of revenue. Replacing half that revenue, a reasonable assumption over a 10-year period, means finding $400 billion in new revenues. 

Those are big numbers. Ironically, matters are worse for service providers who have done a better job growing mobile data revenues. The U.S. mobile data market repersents $19.3 billion worth of revenue in the second quarter of 2012 and now represents almost 42 percent of U.S. mobile industry service revenues, Sharma says. 

How to be Successful as a Broadband Service Provider

Guest article by Mike Roddy,  Managing Director of NuLine Partners, LLC

The deployment of billions of dollars of new broadband networks may result in areas of economic development and business growth, however, it is also likely to result in the unnecessary loss of countless investment dollars.  Venturing into the broadband business in competition with substantially-funded competitors and agile entrepreneurs is a business that requires significant planning, preparation, and proper execution.

Considerable news has been made of the Broadband Stimulus funds over the last 24 months.  Billions of dollars of low cost loans and grants have been distributed with the intention of bringing broadband access facilities to rural and “underserved” markets.  These Stimulus funds, coupled with the already high rate of municipal interest in entering the last mile broadband market has resulted in a new splurge in local broadband investment.

Obviously, results will vary.  Some very successful and some failures resulting in the loss of significant capital investment.  However, the capital-intensive nature of the business makes the stakes much higher and risks further disenfranchising communities when local (taxpayer) funds are involved

Critical to the success of the venture is the need for a sound business plan, knowledge of the market, competitors, product offerings, incumbent price points, anticipated response of competitors and consumers to a new market entrant, etc.  Are other competitors pursuing similar plans such that there may be three or more providers (inclusive of wireless) each anticipating an unattainable 35% or greater market share?  Detailed research and industry benchmarking can shed light on these questions and help adjust business model assumptions and expectations.

KNOW THE MARKET

Communities that are anxious about being underserved are certainly interested in pursuing competitive alternatives to the incumbents that they charge with under-serving them.  However, anyone interested in developing a competitive alternative needs to ask “How are we to recover our investment and achieve success?”  In order to recover the invested capital, the operation must stimulate new demand and / or capture significant market share from incumbent providers.

While constructing the network is fairly straightforward, costs vary significantly based on aerial vs. underground mileage, technology used, and what is deemed “distribution” vs “success-based” capital – that which you deploy for each new customer acquisition.  

The more difficult metrics are those that are not as tangible.  How do you plan to differentiate yourself?  Once in that position, how do you plan to sustain that differentiating factor?  For instance, can you achieve and maintain the position of ‘low cost’ or ‘high technology’ provider against a competitor with far deeper pockets?  Is being the ‘local’ or ‘customer-service oriented’ provider enough to capture and maintain a significant market share once your competition begins to react to your entry?  Does the market want or need the differentiating factors you plan to deliver?  How do you drive the appropriate culture of a competitive service organization?

Who are the competitors?  What resources are at their disposal to respond?  Are they able to deploy new technology and how does that impact the capital requirements and service offerings of your network?  How far can prices drop in this competitive market before the business plan is not viable?  What is the consumer perception of the competitors and how was that measured?  What are the competitive products that you bring to the market and how do you maintain their differentiation?  Price, speed, quality (or reliability) of service?

The answer to each of these questions will drive other business decisions.  Deploying a state-of-the-art network in your community will require significant capital.  Does the competitor have the resources to duplicate your investment?  In other words, can you continue to outpace your competitors in a technology race and what are the capital requirements of that decision?

A ‘high-touch’ customer-focused business plan is expensive.  Very short hold times for customer service, short installation and service windows, and ‘guaranteed’ service offerings require additional manpower, reduce operating margins, and therefore lengthens the time to positive cashflow.  

Identifying your point of differentiation and pursuing it with vigor, however, is critical.  Knowing key metrics of success and measuring them consistently will guide you to your end goal.

KEY METRICS

Knowing what key industry metrics are, and routinely benchmarking your operation against them will improve your chances for success.  In other words, what are the operating metrics of the most successful companies that operate in similar markets?  A few general metrics that will certainly indicate your likelihood of success are as follows:

Investment per home passed identifies the overall investment over the number of potential subscribers.  It is driven by the technology chosen (wireless, wireline, FTTx, etc), the density of residential and business prospects in the community, and the type of construction (aerial vs underground, urban vs rural, etc).  Furthermore, extending your network to the outer reaches of the market will likely reduce subscribers per mile density and increase costs significantly for this metric.  While aerial plant can be installed quickly and generally less-expensively, beware of large make-ready construction costs and ongoing pole attachment rates when building your business plan.

Market Share reflects the percentage of the market you serve over your network.  We only measure revenue-producing customers in this metric.  Last mile facilities typically need at least 25% of the end user market and they need that share within a short period.  The longer it takes to capture market share the less likely you are to achieve a return on your invested capital.  Clearly, the fixed network investment, spread over more customers, reduces the investment per customer and drives the likelihood of a positive return.  Market share is the single most important metric in determining the success of your network investment.  However, customers for customer sake is the wrong path – driving customers and ARPU through your marketing plan and not “we have cheap cable” will yield the best results.

Average Revenue per User (ARPU) reflects how much each customer is willing to pay for the services delivered.  In a typical triple-play model, the $100 metric is often the target.  Many will pay more, many will pay less.  However, as competition heats up, the ability to hold pricing at historical levels becomes difficult.  A capital intensive business in a declining price market with shrinking markets is a difficult place to compete.

Churn reflects at what rate customers leave your service altogether.  “Controllable” churn reflects those customers leaving you for reasons within your control – price is typically at the top of the list, but it also includes situations where the competition offers services that you do not, or perhaps the result of a poor customer experience.  Churn is often ‘masked’ or understated in the early period of network construction.  New customers are being added each month at a rate that suppresses the churn rate.  However, a stable customer base will reveal the real cost and impact of churn as time goes on.  It is a fact, that high-value, bundled customers churn at far lower rates than single-service subscribers that are much more likely to price shop their offering.  Developing strategies for addressing churn without initiating a price war is a challenging but necessary step in the business planning.

Capturing market share early is critical.  Having a marketing plan that can be executed before, during, and after construction is a key to success.  Communication to the community during this period will yield results.  New subscribers can become ‘advocates’ very quickly and good experiences will be shared and result in new customers.    

Controlling churn through the consistent delivery of a high-quality, affordable, product will pay dividends.  However, know that facilities-based competition has been around for a decade or more in some areas and as competition heats up, loyalty goes down.  Customers become very price sensitive and soon realize that the ‘barrier to change’ is not high.  Waiting a week or more and possibly losing a phone number in the portability process is a relatively low risk proposition these days.  Carriers often make cash offers, or offer to buy-out contracts, not unlike the days of long distance competition to capture new customers.  Those can be red flags for a significant new investment in broadband facilities.  Furthermore, creating networks for multiple carriers in Open Access environments may make the situation worse.   (Look for a subsequent article on the implications of Open Access decisions.)

CONCLUSION

In the end, having a sound business plan with measurable goals is a critical first step.  Managing the business to that plan as it is executed is necessary to identify when / if changes are necessary to either the plan or the execution.  Managing the costs to fit the revenue stream rather than hoping the revenues will catch up to the cost structure is much more likely to yield positive results.

Finally, a successful network deployment will be a ‘consumer’ (business or residential) driven model.  It is critical that the business model and plan execution consider the needs of the market, not simply the deployment of new technology.  History shows that the “if you build it they will come” model simply does not work.

CODA
Design & Construction

From concept to design and construction, the network development stage is largely driven by engineers and technical decisions.  What technology to deploy (FTTx, vendors, etc).  It is engineers that enable the deployment of the network whether in the air or underground.
Marketing & Sales:  Prior to the first mile of plant construction, there is a marketing plan to educate business and residential consumers on the products, advantages, and prices for services.  Effective marketing and sales efforts in advance of (and during) the network construction will assist in achieving  successful market share and return on investment.
Early marketing efforts should help focus early construction.  Building those areas where demand is most likely to be highest can stimulate customer interest in trying to “be first” and drive additional penetration.

Ongoing Operation

Following the completion of network construction, ongoing operations require consistent marketing and branding, network maintenance, and the tenacity of a competitor facing a plethora of competitors each trying to put them out of business.
This evolution requires an experienced team of professionals with a breadth of experience in critical disciplines.

Differentiation

Establishing your Company’s unique (and sustainable) position in the market is absolutely critical to minimize the risk of a ‘me too’ battle of carriers each offering a virtually indistinguishable set of services resulting in an unwinnable price war.
There is not an exhaustive list of differentiating characteristics.  
Technology:  May include the inherent network technology (FTTx), the related product offerings (higher speed data) or products your competitor(s) don’t offer (wireless, VOD, or access to programming online or anywhere).  This position is generally considered more capital intensive.  
Service:  Offering a ‘higher’ quality of service can be difficult message to deliver due to the intangibility.  It includes live operators, short appointment windows, and a higher ‘touch’ factor.  It may include the “local” company factor with a greater ability to respond to local needs.  Operationally, these decisions can drive significant operating costs, lowering long-term margins, and lengthening the time to a return on your investment.
Price:  Competing on price is not a preferable position in a capital intensive business.  Given that many incumbent providers are starting from much better competitive positions, competing on price is a negative for all providers, but in the long term probably favors the incumbent.

Commercial  Service Offering

A network aimed at the entire market obviously needs to target the commercial districts of a market.  In fact, during network design, these should be some of the earliest areas constructed.  They will employ the highest fiber counts and generate the most revenue per subscriber.
Long term, the commercial subscribers become complementary and very high-margin subscribers.  These customers share a network with the residential subscribers, but their network demand is generally during the day while the residential demand is in the evening and night time.  
In other words, the revenue stream from the two networks contribute to the common network costs at a much higher rate.

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.