Netflix Will Offer Choice by Throttling Video

A Netflix decision to offer a voluntary, user-initiated “throttling” of Netflix video streams illustrates the value--perhaps even the wisdom--of allowing consumers to make their own choices.

Conversely, the Netflix decision also highlights what some would say is a defect of network neutrality rules, namely the outlawing of quality of service measures that actually benefit consumers.

Netflix now says it will “soon introduce a data saver feature designed for mobile apps,” according to Anne Marie Squeo, a member of the Netflix communications team.

The data saver feature will allow them to either stream more video under a smaller data plan, or increase their video quality if they have a higher data plan, Squeo says.

Choice, in other words, is what Netflix now plans to offer. But choice also includes a default “throttled” bitrate.

“Our default bitrate for viewing over mobile networks has been capped globally at 600 kilobits per second,” says Squeo. “It’s about striking a balance that ensures a good streaming experience while avoiding unplanned fines from mobile providers.”

Some would say “choice” is the heart of the matter. Consumers have the ability to lower resolution, to save on potential usage charges, or increase resolution, even if that means higher data consumption.

“This hasn’t been an issue for our members,” she notes.

To be sure, when a single company such as Netflix decides to set a lower default rate for streaming, while allowing users to set higher resolution, that raises no antitrust issues, as might be the case if access providers were able to favor their owned video streams over those of all providers.

Choice is a good thing. But some say the freedom Netflix has is more than ironic, given the prohibitions on ISP access policies. If choice is a prerogative that should belong to the end user and consumer, some might argue it should not matter “who” offers the choice (so long as the policies are not antitrust violations).

In Internet of Things Business, Dumb Pipe Will be a Small Revenue Driver

There is a very good reason why access providers are so intrigued by Internet of Things applications and services. Of the access connections expected to be in use by 2020, perhaps 60 percent will support Internet of Things devices and apps, according to Cisco.

That noted, relatively little total ecosystem revenue will be directly earned by supplying Internet access. Devices, installation of devices, applications and systems integration likely will represent most of the revenue.

Perhaps that is one more example of why “dumb pipe” revenue issues are so important to access providers. Even if “access” is the unique role of an access provider, access revenue is but a small part of total ecosystem revenue.

That provides incentives for access providers to find and create additional roles elsewhere in the ecosystem, as access providers once bundled “access” with the “voice” application.

source: Cisco

source: Machina Research

It has been clear for some time that as app development has moved to open and third party sources, economic value and firm revenues in the “Internet” ecosystem have shifted to those third parties, and away from traditional access providers.

In the European Community, for example, access providers in 2013 earned between 30 percent and 46 percent of ecosystem revenues. App provider revenues ranged from about 20 percent of ecosystem revenues up to about 51 percent of revenues, according to BCG.

In 2015, the equity value of the leading app providers grew much faster than the equity value of leading telcos, for example. In 2015, Amazon’s equity value was higher by 118 percent. Google’s equity value grew “just” 44 percent. Facebook’s equity value was higher by 32 percent over the last year.

By way of contrast, Verizon was lower by one percent, AT&T up just two percent, Sprint down 13 percent, and just T-Mobile US up by 45 percent. CenturyLink dropped by 36 percent; Frontier Communications dipped 30 percent.

source: BCG

In a 2012 survey, many U.S. mobile industry executives believed that app providers will “dominate” the industry “within five years,” a survey by Deloitte found at the time. And for all the talk about avoiding “dumb pipe” status, 89 percent of surveyed mobile industry executives believe carriers will be limited to that role.

source: Deloitte

source: Deloitte

Nearly half (49 percent) of respondents say app providers, rather than access providers or handset makers, will dominate mobile in five years.

source: Deloitte

Moreover, 89 percent believes the role of carriers will be limited to delivering data access anywhere, anytime.

Fully 70 percent agreed that firms such as Google and Apple would dominate the business.

Some 31 percent of the service provider executives thought “commoditization of carriers” would increase, while 90 percent agree that “walled gardens” would not work in the future.

What Drives App Revenue?

Over the last half decade, mobile app revenue sources have changed. In 2011, most revenue was earned by the sale of apps in mobile app stores. By 2015, in-app purchases had  become more important. By 2017, according to Gartner, in-app purchases will be the largest revenue contributor.

Games have become the single-biggest revenue source, as well, representing perhaps 72 percent of app revenue in 2013, according to Digi-Capital.

0.19 percent of all freemium game players contribute 48 percent of revenue, according to Swrve.

Of paying customers, 64 percent make one purchase, while only 6.5 percent of players make five or more purchases.

The average monthly spend per payer was $24.33 (up from $22 in 2014).

The typical paying player makes 1.8 purchases, averaging $13.82 per purchase.

source: Localytics

source: Digi-Capital

About 2.5 percent of all purchases are now over $50 in value, and these purchases contribute over 17 percent of all mobile game revenue.

\Swrve also found that a full 64 percent of players who spend money in games only do so once in the month (up from 49 percent in the original study last year). But it’s not all bad news for publishers. Total volume of spending per month increased by nearly $3 per player to $24.66.

http://landingpage.swrve.com/rs/swrve/images/swrve-mobile-app-report-0914.pdf?mkt_tok=3RkMMJWWfF9wsRoku6nIZKXonjHpfsX56%2BQrX6K%2BlMI%2F0ER3fOvrPUfGjI4DTMtrI%2BSLDwEYGJlv6SgFTrPHMat50LgJUxE%3D

In September 2014, Swrve found that freemium game users spent an “average” (mean) of  $24.93. The mean number of in-game purchases per month was three, with an average value of $8.34.

source: Deloitte

source: inMobi

"Dumb Pipe" Will Anchor Access Provider Value, and Execs Know That

It has been clear for some time that as app development has moved to open and third party sources, economic value and firm revenues in the “Internet” ecosystem have shifted to those third parties, and away from traditional access providers.

In the European Community, for example, access providers in 2013 earned between 30 percent and 46 percent of ecosystem revenues. App provider revenues ranged from about 20 percent of ecosystem revenues up to about 51 percent of revenues, according to BCG.

In 2015, the equity value of the leading app providers grew much faster than the equity value of leading telcos, for example. In 2015, Amazon’s equity value was higher by 118 percent. Google’s equity value grew “just” 44 percent. Facebook’s equity value was higher by 32 percent over the last year.

By way of contrast, Verizon was lower by one percent, AT&T up just two percent, Sprint down 13 percent, and just T-Mobile US up by 45 percent. CenturyLink dropped by 36 percent; Frontier Communications dipped 30 percent.

source: BCG

In a 2012 survey, many U.S. mobile industry executives believed that app providers will “dominate” the industry “within five years,” a survey by Deloitte found at the time. And for all the talk about avoiding “dumb pipe” status, 89 percent of surveyed mobile industry executives believe carriers will be limited to that role.

source: Deloitte

source: Deloitte

Nearly half (49 percent) of respondents say app providers, rather than access providers or handset makers, will dominate mobile in five years.

source: Deloitte

Moreover, 89 percent believes the role of carriers will be limited to delivering data access anywhere, anytime.

Fully 70 percent agreed that firms such as Google and Apple would dominate the business.

Some 31 percent of the service provider executives thought “commoditization of carriers” would increase, while 90 percent agree that “walled gardens” would not work in the future.

Amazon a New Sales Channel for Comcast

Virtualization is one of the key byproducts of a shift to Internet apps and processes. Virtualization is a key objective of coming next-generation networks and app ecosystems.

Virtualization has affected sales and fulfillment channels, especially for digital or content products, as well as transaction processes.

And virtualization might be embracing more aspects of retailing. Comcast now will allow customers to order services from Comcast directly from Amazon. And though fulfillment still will require physical operations on the part of Comcast, customer service apparently also will be possible directly from Amazon.

The issue now is how far that interface can be pushed. To the extent that small businesses actually order and use Comcaste products in ways similar to those of Comcast consumer accounts, does some amount of small business sales shift to Amazon?

Over time, can additional business class services likewise be shifted to Amazon for transaction support? And, if so, can products sold to mid-sized businesses be packaged in ways that allow them to be sold directly by Amazon?

China Mobile, True, StarHub Mobile Partner for IoT

Some existing revenue opportunities for mobile service providers and access providers require scale. Content apps and entertainment video services provide examples.

That also will be the case for developing new businesses with high potential revenue impact, such as Internet of Things applications and services, which require heavy investment and promotion. Such investment requires substantial markets to recover the investment costs.

In many cases, IoT opportunities will be based in specific verticals (industries), requiring cross-border or international sales and operations, as well as specific development of systems that cannot be easily replicated in other industries. That will be costly.

For that reason, partnerships between large tier-one carriers and smaller carriers will emerge as a key means by which smaller carriers can get into the application and platform parts of the IoT business.

So it is that Thailand’s TrueMove and Singapore’s StarHub Mobile have joined China Mobile to support research, roaming and other resources in the IoT space.

Content Frequently is Blocked for Contract Reasons, EC Study Finds

Geographic blocking of content is rather common on the Internet, the result of licensing agreements between content owners and distributors.

That also is the case across the European Union countries as well. The point is simply that there are any number of reasons why Internet apps or content are restricted, among them that access is not lawful in particular countries.

That can be the result of government policy or contract clauses.

The same sorts of issues exist on the other end of the policy continuum, where access terms and conditions sometimes cannot be made more generous to consumers. That is the case in countries where zero rating is unlawful, for example.

Some opponents of zero rating oppose the practice, in part, because it is said to create “walled gardens.” Proponents might argue that is not the point, and that zero rating does not foreclose competition.

A free-to-use “walled garden” does not force any consumer to use the service, any more than any consumer “must” use any service or app provided at no incremental cost, any product offered for no incremental cost on a promotional basis, or at a discount.

Legitimate antitrust issues can arise in any market, eventually. But potential antitrust issues are not the same thing as unequal supplier “market power,” in any particular instance or industry.

All contestants, in all markets, have “unequal” access to resources, that might, or might not, create market power that is used in an anticompetitive manner violating law. The existence of “unequalness” does not automatically imply illegal behavior.

The textbook definition of discrimination is a difference in price for similar or identical products that is not justified by differences in product quality or cost.

But zero rating is not price discrimination — it is price differentiation, a practice that is the essence of competition, some argue.

A proper consumer-harm test consists of two questions: Are prices higher, and is there less innovation? The question of a reduction in innovation is interesting. Critics of zero rating argue that the practice hurts  innovation, but they have to date failed to produce any real evidence of said harm, some argue.

source: European Commission