Conventional Retail Wisdom Might be Wrong for Online Retailing

Conventional wisdom in the retail business is that the longer a retailer can keep a customer in the store, the more the typical customer will buy. Paradoxically, small retailers operating online e-commerce sites might find the converse is true: the longer a user stays on a site, the less the chance that user will buy something.

Dane Atkinson, CEO of Sumall, an analytics company CEO, said that many online businesses tend to think of traffic in monolithic terms, namely that more traffic equals more money. That's wrong. 

“There’s a sweet spot where you’re getting someone to do a transaction,” Atkinson said. Using the company’s data, which includes more than 10,000 e-commerce stores and $1 billion transactions, Sumall noted that, for most businesses, that sweet spot is around 3 minutes and 20 seconds, adding that if a customer is on the site for 14 minutes, they’re more likely to browse that visit than buy.

Some might suggest there is a logical explanation for such behavior. Many users go online when they already have decided to buy a particular item, and simply are looking for which particular supplier will handle the transaction.

In such cases, a short session indicates a user has concluded that one specific online provider has the best combination of value and price, or at least, "good enough" to trigger an immediate purchase. 

A longer session might indicate a prospect has not yet decided to buy a specific item, but is doing product research. 

Transaction Fee Part of Mobile Payments Looks Like Replay of VoIP Business

Groupon has launched a new mobile payments service, after trialing the service with 150 businesses in San Francisco. The service allows merchants to accept credit and debit cards by swiping them through a card reader attached to an iPhone or iPod touch.

For some observers, the activity in the mobile payments business will bring to mind the changes in the voice business wrought by over the top VoIP.

In a general sense, an attacker in an established market will always find the logic of the “same product, lower price” value proposition quite compelling. It answers the question of why a customer should buy the product (the transaction processing service). It answers the question of “what is the customer value proposition?”

Groupon Payments clearly is seeking to grow by offering cost savings. That’s the same approach taken by most VoIP providers, including both facilities-based cable operators and over the top suppliers as well.

Of course, you know where that story leads. Over time, we should expect to see pricing pressures in the payments processing business become more pronounced.

In other words, the amount of revenue transaction processors can make should fall, over time, as has been seen in the voice calling business, for example.

Groupon’s move is the latest bit of evidence that mobile payments are going to transform the retail payment process overall, in the same way that over the top VoIP has transformed voice communications globally.

To be specific, the profit margin is going to be wrung out of the business.

Mobile Drives Revenue Growth; Broadband Drives Mobile

It has been obvious for some time that mobility and broadband are driving virtually all growth in the global telecom business. By International Telecommunications Union estimates, about $4.5 is earned, globally, for every $1 of fixed network revenue. And even if those ratios are higher in "developing" regions than in "developed" regions, the trend is clear even in those parts of the world with the most well developed communications infrastructure.

Both Verizon and AT&T, for example, earn a majority of their total revenue from wireless sources.

Insight Research Corp. has noted that wireless revenue will grow by 64 percent from current levels, while wireline revenues show only modest growth.

Nearly all of the growth in both sectors is expected to occur in broadband services, with wireless 3G and 4G broadband services projected to grow at a compounded rate of 24 percent over the forecast period and wireline broadband services projected to grow at a 13 percent compounded rate over the same forecast horizon.

Those trends are as evident in the Asia-Pacific region as elsewhere globally. Telecom service provider retail revenue in the Asia–Pacific region is predicted to grow at a compound annual growth rate of seven percent between 2011 and 2016, according to Analysys Mason. For the most part, that growth will be driven almost exclusively by mobile services.

Total telecom service revenue will grow by 29 percent from $229.7 billion in 2011 to $323.7 billion by 2016. But note the composition of revenue contributors. About 90 percent of the voice connections in the entire region will be mobile by 2016, up from 84 percent in 2011 and from 73 percent in 2008.

Overall, the number of voice connections in the region will increase by 45 percent, to 3.9 billion connections, with most of this growth coming from China and India.

Perhaps the most significant implication of the Analysys Mason forecast is that, over the next five years, the key drivers will be 3G and 4G services, which will account for 46 percent of mobile connections in the region by 2016 and the growing demand for Internet access, driving mobile broadband.

Mobile and fixed wireless will account for more than a third of broadband connections in the emerging APAC region in 2016, and for the vast majority of connections in rural areas where fixed-line infrastructure is unavailable.

Analysys Mason also predicts that active mobile penetration rates in the region will rise to 95 percent by 2016, a 32 percent increase over 2011 levels. 

The number of active SIMs will increase from 2.33 billion in 2011 to 3.7 billion by 2016 as well. 

In the last twelve months, 118 million mobile phones were sold across the seven key markets in the Southeast Asia region (Singapore, Malaysia, Thailand, Indonesia, Vietnam, Cambodia and the Philippines), representing $13.7 billion in device revenue, according to GfK Asia.

Some 10 million feature phones were purchased, about 12 percent more than a year ago. 

The rate of smart phone purchases increased by 78 percent across the seven countries. 

Though feature phones still are prevalent, smart phone sales are growing at rates between 42 percent and 326 percent, ” said Gerard Tan, GfK Asia account director. Indonesia is the region’s largest smart phone market, with smart phone sales growing 56 percent. 

In the Philippines, smart phone sales grew 326 percent. "Unlike the more developed countries like Singapore and Malaysia, smart phone sales in Thailand and Vietnam are still relatively low at 19 and 11 percent respectively.

Smart Phones, Tablets Changing Way People Get Sports Content

In June 2012, 12.3 million people engaged with sports info on their mobile phones in the United Kingdom, jumping 36 percent in the past year. That should not be surprising. Sports news is a prime example of a "real time" application with high value to some consumers. 

Of these 12.3 million people, 3.6 million of them accessed sports content on their phones nearly every day, up 41 percent from just a year ago, according to comScore.

And news content is even more important to some U.S.  tablet users. In June 2012, nearly half of U.S. tablet owners accessed sports information on their device, compared to 38.6 percent of smartphone owners. 

Tablet owners were also slightly more likely to access sports content on a daily basis, with 17.3 percent of tablet users doing so compared to 14.1 percent of smartphone owners.

Machine-to-machine (M2M) Market Remains Small

Machine-to-machine service revenues represent 0.5 percent of total mobile operator service revenues at the moment,  according to Informa Telecoms & Media.

Mobile network M2M connections totaled 132 million as of June 2012, up 22 percent year over year and generated US$5.68 billion over the preceding 12 months, according to the latest data from Informa Telecoms & Media.

The M2M market represents an important new growth area for mobile operators. To put the M2M numbers into perspective, total global cellular connections were 6.28 billion at the end of June and annualized operator service revenues totaled US$1.14 trillion.

This means just one M2M connection exists for every 50 “human” connections and $1 of M2M revenue is generated for every $200 of service revenues, Informa says.

“M2M connections and M2M revenues are neither as high nor growing as rapidly as some are anticipating”, says Jamie Moss, senior analyst for M2M at Informa Telecoms & Media.

That should not come as a surprise. Name one area of new services growth (other than mobile data access) that actually has “moved the revenue needle” for mobile service providers over the last few years. Cloud computing? Mobile advertising? Mobile payments or banking? Mobile apps? App stores?

Any new revenue opportunity large enough to be interesting for a tier-one service provider also is likely to be complex enough that the value chain is incomplete at first. That is perhaps one reason why much current success is being seen in “fleet tracking” apps, which are by no means “new.”

It simply is easier to sell a new M2M service by positioning it as a solution that works better or costs less than the older ways of doing things.

Even many “newer” emerging service markets, such as digital signage, also are examples of applying “new” M2M techniques to an older and existing business.

The volume of sales in the M2M market remains in the lower-value areas such as smart metering, Informa says. And smart metering isn’t “new,” either.

Virgin Media Wi-Fi Strategy Shows "Untethered" Implications

Virgin Media has decided not to bid for new fourth generation network spectrum in the United Kingdom, something it had been considering, in light of its wholesale provider EE getting a go-ahead to build such a network using existing spectrum.

In essence, Virgin Media also says it has decided to remain a mobile virtual network operator, and not become a facilities-based provider. Like any other business decision, there are any number of reasons why capital is deployed in support of one strategy, and not another. 

A rational executive in the fixed network business might well wish to avoid becoming a fourth provider in a highly-competitive market, especially when there are other uses for investment capital in the arguably core fixed network. 

One other angle is that the value of an "untethered" (Wi-Fi) network as a "spot" overlay to any other wireless or untethered services provider (essentially, any fixed network operator using Wi-Fi as the local distribution) is growing. 

As Virgin Media sees matters, the financial return from creating new metro and other "hotspot" service as a wholesale service, sold to other service providers, could well provide a better return on investment than building a new facilities-based mobile network. 

That isn't to say public Wi-Fi is a substitute for mobile service, only that public Wi-Fi can be a very useful complement to mobile service. Virgin Media also believes some mobile service providers will want to buy such service wholesale, instead of building their own small cell networks, at least in some locations. 

HBO A la Carte Decision Could be the Tipping Point

Any future decision by HBO to sell HBO by itself, over the top and online, could well be the tipping point for a massive wave of online video disruption in the U.S. market, as it would signal the first major break from current industry business models and distribution practices.  But that decision is not yet imminent. 

The reason any such decision could be a tipping point is that it would signal a clear belief at Time Warner that the gains from doing so, namely selling more over the top subscriptions and making more money, are greater than the inevitable friction with HBO's major distributors, namely cable, satellite and telco video subscription services.

"If, in the long run, there's a clear development of enough people that need an a la carte offering of HBO, we'll look at it," Bewkes says. 

HBO executives note that there are roughly 105 million multichannel TV households in America, of which 77 million do not subscribe to HBO. So for logical reasons, current subscribers to video entertainment services would seem to be a logical prospect base. 

By way of contrast, there are only about three million U.S. households with broadband connections and reasonable amounts of money but no multichannel TV service. In other words, from one perspective, the potential upside for online versions of HBO would not seem to be as lucrative as marketing to existing video service customers. 

The best evidence for such thinking is HBO's current willingness to sell HBO online in Sweden, Norway, Finland and Denmark. In those markets, HBO believes it can reach more potential customers using both video distributors and over the top mechanisms. 

But there are other issues, as well. What might work better, an over the top subscription to the full channel, or sales of individual programs? Ignore for the moment the fact that HBO does not want to sell programs one by one. Where's the demand?

In the U.S. market, about 30 million subscribers to basic cable also buy HBO. Could HBO do better with an over the top strategy? 

Netflix has about 27 million subscribers that some would argue represent a similar market, and evidence that demand for streamed products is substantial. And Netflix uses a consumption model more akin to video on demand than a "channel."

And demand for streaming services is clear, especially when compared to traditional VOD. 

Bill Niemeyer, The Diffusion Group senior analyst, estimates in in the fourth quarter of  2011, Netflix U.S. subscribers watched 80 percent more streaming video hours than were viewed in the same period on all U.S. video on demand services. "Viewing hours" are not a direct proxy for subscriptions or revenue, but are indicative of the relative popularity of VOD and streaming. 

In fact, TDG estimates that all VOD consumption is just one percent of U.S. viewing hours. 

Disruption seems inevitable at some point. A move by HBO could be the trigger for a wider set of moves by other programmers as well. Why HBO? Simply because HBO already has gone with a dual distribution strategy in the Nordic region, and because HBO prides itself on being an innovator in the business.