OTT App Providers, Telcos and Cable "Think Different" About "Out of Region" Sales

It is no secret that app providers and telecom, mobile, satellite and cable service providers "think different" about their respective "customer" bases and prospects. All access providers necessarily must work within frameworks set by regulators on a country by country, state by state or locality by locality basis. 

There are franchises, certificates, spectrum or other regulatory requirements for being in business. That necessarily leads access provider executives to instinctively and logically think about services they can sell to people and businesses within their authorized areas of lawful service. 

App providers, in contrast, do not have to "ask for permission" to be in business. In fact, an app provider wants the widest possible audience or customer base for their apps, irrespective of geography. Whether an app provider sells "packaged" software or cloud-based software, the typical goal is to sell "everywhere," as much as practical. 

Telefónica is among tier one service providers exploring an out of region strategy based on apps, though it primarily remains a geography-based business. 

But the main reason service providers do not like over the top services and applications is that they generally represent direct competition for key products service providers sell.

But that is one key to how things will change in the future. If a major reason over the top apps and services are disliked is that they pose a threat to revenue, then a major reason for adopting an over the top approach is if doing so can create new revenue opportunities. 

That is not to say the task is easy. But many service providers have been "going out of territory" for quite some time, expanding into new geographies in a variety of ways, generally using both a licensed approach. What will happen in the future is more out of territory expansion using non-licensed, over the top approaches.

In fact, partnership between operators and OTT players are the way Long Term Evolution suppliers can prosper, according to Gulzar Azad, Head of Access for Google India  Google India.

In some ways, you would expect a major app supplier to say that. Access providers need to start thinking in terms of delivering services, not data plans, Azad suggests. 

Where service providers traditionally think in terms of offering services to their own subscribers inside their own geographical market,  “what they could be doing is offering services that anyone can sign up for, because that’s where all this is going,” Azad says. 

The challenge, of course, is that this approach benefits a third party app provider more directly than an access provider. 

Still, the conceptual and practical leap will be explored, and sometimes embraced, by a wider range of service providers, eventually. Think of it as a shift of focus from “selling services to current customers, where we have network” to “selling services to non-customers who are out of territory.” The addressable market for the former is far smaller than the addressable market for the latter.

80% of U.S. Smart Phone Owners Used Device to Get Retail Content in July 2012

According to comScore, 80 percent of U.S. smart phone owners--some 85.9 million people–used their smart phones to view retail content on their devices in July 2012. 

Amazon Sites led as the top retailer with an audience of 49.6 million visitors, while multi-channel retailers including Apple (17.7 million visitors), Wal-Mart (16.3 million visitors), Target (10 million visitors) and Best Buy (7.2 million visitors) also attracted significant mobile audiences as well.

Across both smart phones and desktop computers, males and females represented nearly equal proportions of retail category visitors. However, females accounted for a higher share of time spent on retail destinations at 53.4 percent of minutes on desktop computers and an even greater share of retail minutes on smart phones at 56.1 percent, comScore says.

Smart phone shoppers were also more likely to be younger than their desktop counterparts with 70.7 percent of smart phone retail visitors under the age of 45 compared to 61.1 percent of desktop users. 

Engagement among these audiences showed even greater disparity with visitors under the age of 45 accounting for nearly 3 in every 4 minutes spent on retail content via smart phones, compared to 61.6 percent of retail minutes on desktop computers.

Smart phone retail audiences were more likely to reside in higher income households compared to desktop computer users, likely as a result of smartphone ownership skewing towards higher income segments compared to an average consumer. 

Among smart phone audiences accessing retail destinations, nearly 1 in every 3 had a household income of $100k or greater, with this income segment driving a comparable 31.2 percent of minutes spent on retail sites and apps.

Selected Retail Properties by Unique Smartphone Visitors(000) (Mobile Browser and App Audience Combined) July 2012 Total U.S. Smartphone Subscribers Age 18+ on iOS, Android and RIM Platforms Source: comScore Mobile Metrix 2.0
	All Smartphones
	Total Unique Visitors (000)	% Reach
Retail Category	85,905	80.6%
Amazon Sites	49,636	46.6%
eBay	32,583	30.6%
Apple	17,684	16.6%
Wal-Mart	16,295	15.3%
Target	10,041	9.4%
Best Buy	7,177	6.7%
Ticketmaster	5,699	5.3%
CVS	4,468	4.2%
The Home Depot	4,353	4.1%
Blockbuster	4,017	3.8%
Barnes & Noble	3,804	3.6%
Walgreen	3,707	3.5%
Limited Brands	3,261	3.1%
Lowes	3,246	3.0%
Etsy	3,160	3.0%

Why Groupon is in the Mobile Payments Business

At first blush, it is puzzling that Groupon, a mobile and online advertising company, now is in the mobile payments business. 

But there are logical reasons, both tactical and strategic, for doing so, one might argue. For starters, the particular part of the mobile advertising business Groupon is in is facing dramatic reductions in average revenue per ad, and some concern about consumer disengagement. 

That isn't to say the business has no legs. Local advertising and media research firm BIA/Kelsey projects that U.S. consumer spending on online deals will reach $3.6 billion in 2012, doubling last year's figure of $1.8 billion. By 2016, spending is forecast to hit $5.5 billion, though year-on-year growth rates will slow to single digits.

BIA/Kelsey forecasts that, going forward, online deals will become an anchor for a platform of non-advertising small-business services. These services include instant mobile deals, loyalty products, promotions, reputation management, transaction processing and e-commerce.

But neither is the business growing so fast it can support all the new competitors in the field.

So Groupon is betting that a significant share of retail transactions will be made using mobile payments. So as its original business grows, Groupon can diversify and grow its own revenue streams by becoming a transaction processor.

That helps Groupon grow its revenue much faster, right now, while its mobile and online advertising business segment grows. 

OS Strategy Changes In The Post-PC World

In the older PC business, it made good sense for operating system providers such as Microsoft to avoid competing with its customers. 

So Microsoft did not build its own branded devices. That began to change with the first non-PC computing devices, such as MP3 players and game consoles. 

Some were therefore surprised when Google built its own Nexus smart phone, and then acquired Motorola, thereby becoming a device supplier in its own right. Some were surprised when both Microsoft and Google decided to build and sell their own tablets. 

So what ever happened to the "avoid channel conflict" model? Some would argue that Microsoft and Google want to encourage innovation, and avoid the hardware commoditization process seen in the PC business, where suppliers mostly tried to compete by driving prices lower, rather than by adding value. 

So one way of looking at the changed strategy is that both Microsoft and Google want their respective ecosystem partners to focus more on innovation than price cutting. 

"The message to their device manufacturers is abundantly clear: If you’re not building devices that surpass what we can do ourselves, you’re not adding value," says Tony Costa, Gartner analyst. 

That appears to be another difference between the ways OS suppliers conducted business during the PC era, compared to what they are doing in the post-PC era. 

"Pay Music" Analogy to "Pay TV" Wrong?

The natural analogy for streaming music services, or Sirius XM, for that matter, is that streaming music or Sirius XM is to radio as cable TV is to TV. By that analogy, consumers will prefer the new programming choices the new services offer, in comparison to broadcast radio. But some question whether the analogy is apt. 

“There is a natural ceiling of adoption of the people who are willing to pay $9.99 a month for music they don’t own," says industry analyst Mark Mulligan. 

And that might be a key difference. People never experienced TV as something they owned. TV always was "streamed" or "broadcast." Radio, on the other hand, was a one way people consumed music, the other key mode being packaged prerecorded media (records, then tapes, then CDs, then MP3s). 

Though there was a period in the 1980s and 1990s when it seemed people had significant desire to "own" copies of favorite movies as they were used to owning copies of their favorite songs, that habit has not proven to be a sustained major trend, as sales of DVDs are declining, while sales of Blu-ray discs are not growing fast enough to replace lost DVD sales. 

To be sure, the DVD rental business, and the newer streaming delivery of movie or TV content, is succeeding in a way that the earlier "pay per view" business did not achieve. 

In other words, for historical reasons, people might view the logical consumption modes for TV and music in different ways. To be sure, many skeptics once believed that people would not pay for TV, either. Those skeptics were proved wrong. 

Perhaps the same consumer reluctance will be overcome, and streaming music services will indeed become the "equivalent to cable TV for the radio business." 

"It’s a niche proposition," says Mulligan. "The majority of mass-market consumers are still not interested in that pricepoint.”

Enterprise Videoconferencing Falls for 2nd Consecutive Quarter

For the second consecutive quarter, the global enterprise video conferencing and telepresence market was down, according to Infonetics Research.  Revenue fell six percent to $644 million in the second quarter of 2012, Infonetics reports.

“Economic woes in Europe, declines in public sector spending, and a shift toward lower-priced video conferencing products drove sales of video conferencing and telepresence equipment lower from the year-ago quarter” says Matthias Machowinski, directing analyst for enterprise networks and video at Infonetics Research.

DirecTV Weighs Brazil Telco Buy

DirecTV is one of several companies seeking information to evaluate a bid for Vivendi SA ’s Brazilian phone unit GVT, Bloomberg reports.

DirecTV, the largest U.S. satellite-television provider, is counting on surging demand for video entertainment and Internet service in Latin America as growth subsides in its original U.S. market.

The move would be one more step by DirecTV towards more active involvement in the "triple play" business, which traditionally has favored cable and telco firms able to provide such services. Up to this point, DirecTV has been a provider of TV and broadband access, but the firm has not had an elegant way to provide voice services.