At Some Point, "Social" and "Messaging" Blur

Though Facebook posts generally are regarded as a form of "social" activity, while sending a text message is viewed as "communications," the difference between a one-to-many message and a one-to-many "post" is less clear. 

As a practical matter, it would be reasonable to suggest that use of over the top messaging cannibalizes some amount of text messaging, even if the two formats are not precisely perfect substitutes for each other. Sometimes, over the top messaging is a simple person-to-person form of communication.

Often, though, it is a one-to-many format. And that makes it more analogous to a Facebook post than a voice call or text message. That fuzziness occurs elsewhere. To some extent, social media become publishing outlets, not simply "votes" on what people think is important. 

Google Translate: One More Way It Now is Easier to Create a Global Business

One frequently hears it said that the costs of  starting a new company , especially an Internet-related company, have dropped by an order of magnitude or two since about 2000. A fledgling software company that might once have required a $4 million investment can now have a commercial version built for $1 million.

Google Translate is one of those sorts of advances. By using Google Translate, a small business can sell to markets supporting scores of additional languages. So a site might be authored in English, but still be usable by speakers of other languages. 

Google Translate now supports 71 languages.  Khmer is one of the latest languages to be supported.

Mobile Point of Sale Winners, Losers

The “problem” for proponents of mobile wallet and mobile payments systems is providing such immediate value that adoption is an easy decision to make.

As it turns out, mobile point of sale already passed that threshold over the past couple of years.

Although mobile POS proximity payments made up just 0.01 percent of total retail POS volume in 2012, mobile devices (smart phones and tablets) have forever altered the in-store shopping experience, acting as both a payment option and a channel for purchasing, say researchers at Javelin Strategy & Research.

If you have been to an Apple store recently, you know how it works. For Apple, use of mobile POS allows it to change the shopping experience in store. For many smaller retailers, the advantage is the simple ability to accept credit card and debit card payments in non-traditional settings.

Over the next six years, mobile POS proximity payments will reach $5.4 billion by 2018, according to Javelin.

Mobile POS is good for card payment networks, not so good for traditional POS suppliers.

Mobile POS could expand current payment card acceptance by as much as 20 million firms if eligible firms started accepting payments. This could drive up to $1.1 trillion in annual new‐card payments.

Mobile POS Proximity Payments Will Increase 11-Fold

(percent of payment volume)

What if Google Fiber Gets 50-Percent Penetration?

The reason some long-time observers of the cable industry might be skeptical about Google Fiber is the history of “overbuilders.” As competitive local exchange carriers compete with incumbent telcos, overbuilders competed with cable operators, around the the turn of the century.

Modest success was obtained, but it turns out that it is tough to support three or more triple-play providers in a market.

Some are more hopeful for Google Fiber, though, in part because its value proposition is so disruptive. Overbuilders typically offered a triple play menu (voice, video, data) with some savings. But few overbuilders were able to replicate success consistently, over wider geographic areas.

What Google Fiber does is completely destroy the existing value-price relationship for Internet access. Simply, Google Fiber offers two orders of magnitude more bandwidth for the same price as a 15-Mbps or 20-Mbps service. And it seems people might understand that.

A Sanford Bernstein Research door-to-door survey of 204 residents of Kansas City residents found both "extremely high" awareness of Google's new fiber offering (98 percent).

Some 52 percent said they would "definitely or probably" buy Google Fiber, while another 25 percent said they may purchase the service.

About 19 percent said they definitely or probably wouldn't buy it. Most of those said they planned to sign up for bundled broadband and pay TV.

Of the 160 residents (77 percent) who said they were considering the service, 60 percent said they were extremely or very likely to buy it.

"These very high purchase intent numbers do not allow us to rule out the possibility that Google will indeed achieve very high penetration of homes passed, well in excess of the typical 20 percent to 30 percent that overbuilders have achieved historically in their most successful markets,"  

The big difference from past “overbuilder” efforts, should that happen, is the degree of penetration. In the past, some overbuilders (typically competing against both a telco and a cable company) have managed to get 20 percent penetration.

Though rare, a few overbuilders such as the former RCN  in the early 2000s was able to get penetration rates in Waltham, Mass. of about 35 percent for voice, 28 percent for cable TV, and 11.5 percent for Internet service. But bankruptcies have arguably been as common as successes.

With the caveat that Google’s objective still is to prod other major ISPs into their own disruptive upgrades, many will wonder whether Google Fiber could be a sustainable business for Google on a wider scale.

Google Fiber's core network will cost about $84 million, Sanford Bernstein analysts Carlos Kirjner and Ram Parameswaran have estimated, representing coverage of 149,000 homes.

Some $38 million will go into Kansas City, Kan., and $46 million into Kansas City, Mo., with the cost per home respectively at $674 and $500. That’s roughly in line with other estimates for urban and suburban construction where much of the plant is aerial. As a point of comparison, it was estimated that it cost Verizon, before it halted FiOS buildout, about $4,000 per home to connect it to its fiber network.

It will cost Google $464 to actually connect an Internet access customer, and $794 to connect a customer buying both video and Internet access. Those figures are roughly in line with what other telcos might expect to invest in a similar market.

Kirjner and Parameswaran estimate that if Google built out a fiber network to serve 20 million homes over a period of five years, “the annual capex investment is required to be in the order of $11 billion to pass the homes, before acquiring or connecting a single customer.”

Still, the analysts say they now are "substantially more positive on the prospects of Google Fiber to be an economically attractive business for Google on a stand-alone basis," based on the apparent willingness to buy.

Observers have questioned whether Google wants to invest scores of billions just to prod other ISPs into action. But there are other alternatives. If Google Fiber really manages to achieve adoption rates much higher than other overbuilders, Google Fiber could suggest it is a sustainable opportunity with reasonable earnings and profit margins.

If so, it then is possible Google could attract investors that otherwise might have invested in cable, telco or satellite networks.

And watch out below if that happens. Telco and cable equities would be hammered.

It seems doubtful Google would want the distraction of such a business, you might argue.

But maybe Google spins it out as a separate entity.

Cable Future is as an ISP, Fitch Says

In the long run, cable TV operators will, for the most part, become simple ISPs. “The future value of the cable MSO home connection will be almost wholly tied to data bandwidth,” according to analysts at Fitch Ratings.

That might terrify most service providers, as it suggests cable companies, most telcos and others primarily will be suppliers of “dumb pipe” Internet access. But the prediction is a simple extrapolation from current trends.

Cable operator revenue and earnings growth has been “increasingly reliant” on high-speed data products, Fitch Ratings says. At the same time, cable operators continue to lose video customers, and video service margins are compressing as programming costs increase, which cannot be fully passed through to customers, Fitch Ratings maintains.

“Cable operators are now unable to pass through the full extent of programming price increases to subscribers due to competition from other operators along with substitution technology,” Fitch analysts say.

That likely will lead to an increased reliance on usage-based data services to support video delivery, whether or not those services are owned by the cable operator.

Ask yourself whether that increased reliance on broadband access will not also be a key feature of telco revenue as well.

Like it or not, telcos and cable will primarily be ISPs, in the future, selling access to the Internet (dumb pipe access) as their foundation product, no matter what else they do.

YouTube Set to Launch Paid Channels

YouTube is about to launch as many as 50 paid TV channels, the Financial Times reports. Viewers will be able to subscribe to each channel for as little as $1.99 a month.

The immediate financial impact probably will be relatively slight. The longer term implications could be rather large. And no matter what YouTube says, it might indeed be the "next generation of cable TV," though YouTube executives say it is not. 

YouTube is “not a replacement for something that we know. It’s a new thing that we have to think about, to program, to curate and build new platforms," said Eric Schmidt, Google chairman. Granted, YouTube tends to be shared and social, to a greater extent than traditional linear TV. 

But since linear TV is trying hard to become shared and social, it isn't so clear that the actual difference between a smaller TV network appearing on a cable, satellite or telco TV service, and a YouTube paid channel, is truly significant. 

Indeed, as the large video entertainment distributors try to rein in costs and supply lower-cost, more basic programming menus, many of the smaller networks could find they must consider YouTube, Netflix or some other distribution method to get their content to end users. 

In that sense, YouTube conceivably could emerge as a way for smaller networks to build an audience when carriage on the tier-one video services is not possible. The difference between a niche "cable channel" and a niche YouTube channel mostly is the willingness of the network to make YouTube a major distribution channel. 

Also, the "for fee" element creates a revenue model for any niche channel that resembles the affiliate fee payments networks normally are paid by cable, satellite and telco TV providers. 

What YouTube might become is not so clear. What is clear is that, as often is the case, is that a business model will emerge, as much as be built. 

Back in 2011, when YouTube agreed to invest about $100 million in original programming for new "channels," the thinking was that advertising ultimately would provide the revenue. One might argue that the new emphasis on paid channels suggests the ad revenue, though important, is not sufficient to support the sort of original programming that drives viewership. 

Are We are Past "Peak" Text Messaging?

Though some might argue otherwise, most observers might agree that over the top messaging gradually is supplanting use of text messaging. 

According to data from CTIA: The Wireless Association, one might hypothesize that text messaging  volumes hit a peak in 2011, and now are gradually dropping.

In 2012, mobile users in the United States sent and received 2.19 trillion text messages. 

That was down about five percent from 2011 levels, according to the CTIA, and was the first negative showing ever. 

The drop in SMS probably means U.S. mobile users are sending roughly the same number of text messages, but using over the top apps such as WhatsApp and Skype even more. 

Since the number of subscribers has grown since 2008 by about 56 million, the flat level of voice usage suggests people are calling less on their mobiles, using the carrier voice service. 

One cannot tell from the CTIA data whether the total volume of "voice" is up, flat or down, after including over the top app usage or video sessions that replace voice calls. But other studies suggest that behavior has been drifting in the direction of more texting and less talking  since at least 2008.