Value and Price Misaligned?

To a certain extent, one always has to discount consumer responses to surveys, since people often do not do what they indicate they will do, and just as often do what they say they will not. 

Still, it is shocking how little many consumers say they will pay for "premium" video network fare. 

Of course, one might also not that "value" and "price" might, in this case, be misaligned. Many of us would be willing to bet that many consumers would actually value HBO, Showtime or Starz at some number above "zero." The issue is what that number will turn out to be. 

Developers Working on IoT Apps Up 34%, Year over Year

The number of developers currently working on Internet of Things (IoT) applications has increased 34 percent since last year to just over 6.2 million today, according to a study sponsored by Evans Data Corp.

In addition, the increase of development for mobile devices, up 14 percent since last year, has led to smartphones being the most commonly connected IoT platform.

Asia will lead, in terms of most developers, to 2021, the study suggests. Growth in India and China will be key, in that regard.

Alphabet (Google) Might Win Smart Cities Transportation Business Model

And the winner of coming smart cities initiatives might well be…..Google. Sustainable business models are the key problem for smart cities initiatives. By some estimates, up to 30 percent of U.S. urban car traffic is created by people looking for parking spaces.

In the U.S. “Smart Cities Challenge,” Columbus, Ohio has won a $40 million grant from the U.S. Department of Transportation to develop a smart transportation capability.

Sidewalk Labs (part of Alphabet, formerly part of Google) is one of many U.S. firms working to support parts of the Columbus project. Sidewalk is initially offering its Flow software to Columbus.

Flow applies Google’s expertise in mapping, machine learning and big data to urban problems such as public parking. Sidewalk says Flow would use camera-equipped vehicles, like Google’s Street View cars, to count all the public parking spaces in a city and read roadside parking signs.

Then Flow would then combine data from drivers using Google Maps with live information from city parking meters to estimate which spaces were still free. Arriving drivers would be directed to empty spots.

“Only Google or Apple are in a position to track parking occupancy this way, without expensive sensors on poles or embedded in the tarmac,” says Alexei Pozdnoukhov, director of the Smart Cities Research Center at the University of California at Berkeley.

Sidewalk also hopes to persuade private parking garages to add their spaces to Flow’s database, and even proposes something called “virtualized parking”. A bit like Airbnb for cars, this would allow retailers and offices to temporarily rent private parking spaces usually reserved for shoppers and workers.

So there is the sustainable business model, in part. Revenues from sales of virtualized parking spaces might be worth $2,000 a year to the city, for each rented spot, also using surge pricing that varies prices by the level of demand.

Flow also would allow parking meter staffs to plot the most-efficient routes, generating perhaps $4 million in additional parking infraction revenue.

By incorporating data from ridesharing and public transportation modes, Flow could estimate the cost of a journey, as well as travel time, using everything from buses and taxis to Uber, Lyft, car-share services like Zipcar and even bike-shares.

Sidewalk Labs was spun out from Google with a mission to “improve city life for everyone,” and is providing use of the Flow software and 100 public Wi-Fi kiosks in Columbus.

Rent Rather than Own: First Music and Video, Then Airbnb and Uber. What Next?

It is not yet clear how far the "rent rather than own" trend can spread. Cloud computing represents one aspect of the trend, allowing enterprises and content or app providers to rent computing services rather than owning computing hardware and software.

Public Wi-Fi hotspots might be cast as a form of renting, rather than owning, Internet access.

In consumer markets, audio and video content always has had a "rent" rather than "own" character for most of its existence. Prerecorded video had a big upsurge in the 1980s, but not has fallen hard, and now prerecorded music is suffering.

Airbnb has shown people have a willingness to commercialize latent "lodging" assets, while Uber shows a similar willingness to commercialized latent transportation assets. How many more industries might be similarly affected is the big issue.

Some might argue almost any industry where zero marginal cost economics can be obtained, will be subject to "Uberization." One way of looking at it is that such markets can be created where there is demand for some product that must be fulfilled in real time, by people using smartphones to signal that demand, and where smartphones (and the backend processing) allow assets to be moved to fulfill, in real time. 

Almost any digital content product fits the bill.  On-demand transport works. So the issue is what other on-demand fulfillment is possible, in how many other segments of industries.

In 2015, the U.S. radio industry generated about $17.4 billion in revenue from advertising, while prerecorded music, streaming services and downloads produced about $9.4 billion. In other words, streaming, downloading and packaged media generated about 35 percent of network-delivered music revenue (not including live performance).

What the data also suggests is that music “ownership” in a classic sense (albums, discs, downloads) is disappearing. Some would say that is an example of people choosing to rent rather than own, much as it might be argued people now spend increasing amounts of money on video streaming services, compared to buying DVDs or downloading content to own.

source: PwC

source: Morgan Stanley

Fitch Ratings Sees Longer Term Constraints on ISP Investment Because of Common Carrier Rules

The U.S. Court of Appeals for the District of Columbia has upheld Federal Communications Commission rules on common carrier regulation of Internet access services, but an appeal is certain.

Fitch Ratings says “we believe there will be very little near-term effect on revenues or operating profits from existing services” as a result of the ruling, because of the certain appeal.

But Fitch also believes that unless the rules are overturned, the major telecom and cable operators are likely to constrain investments in potential new growth areas affected by the net neutrality rules.

“Ultimately, Title II rules could change the way Internet traffic is managed, as well as affect future revenue opportunities and business models,” Fitch Ratings argues.

Some analysts, and Internet service providers themselves, have argued that common carrier rules imposed on U.S. Internet access services would depress investment. Critics have argued that would not happen.

At risk are not simply common carrier rules that could include rate regulation and prohibition of some business models.

Title II regulation--despite the FCC’s current “forbearance” on imposition of wider common carrier rules--opens the door for much greater regulation of the Internet in the future.

As presently applied, the common carrier rules do not impose  rate regulation, tariffs and last-mile unbundling, but a future commission could decide to enforce the provision.

Additionally, the FCC believes it can, under those rules, ban "zero-rating.”

At a high level, Fitch Ratings says, a long term negative impact of common carrier regulation is “reduced opportunity for wireline or wireless operators to benefit from potential new business models that deliver targeted advertising.”

The winners? Google and Facebook.

Will Google Launch Own Line of Smartphones?

Channel conflict is an almost-inevitable occurrence in any industry where sales, manufacturing and intellectual property are distinct segments of the value chain.

In the Internet value chain, it frequently happens that app, device and service segments of the ecosystem are in some state of tension. That happens most often when leaders in one portion of the value chain conclude they can profit by entering other parts of the value chain. So far, Google is the foremost example, operating in the operating system, application, device and access services portions of the value chain.

But Google might be aiming to take a bigger role in mobile devices, a step some have suggested would be required if Google was to integrate end user experience on the Apple model, amidst what every observer would say it a tendency to fragmentation of the Android market.

If Google does enter the market for branded smartphones, the move will be risky, not just because of execution issues, but because it causes channel conflict with partners using the Android operating system to power their own brands of smartphones.

Never has the phrase "coopetition" been more apt. Up to this point, Google has run the Nexus program largely on the basis that it showcases what Android can do, on a handset built to showcase operating system features.

Now Google might be thinking of producing and marketing its own branded smartphones, on the Apple model, essentially. So Google might gamble that the damage to its operating system efforts will be offset by the upside from a device and apps ecosystem that actually showcases and optimizes Android operation on compatible hardware.

Smart Cities Business Models Still Elusive

Business models always are among the earliest tasks whenever new technology is coming to market, and that will not be different for smart city initiatives. Though some trials can take place without a clear business model--generating revenue or avoiding cost--sustainable mass scale operations will require some clear idea of how new revenues can be generated or existing costs avoided.

And while proponents will avoid making arguments that are essentially “build it and they will come,” that manifestly is where matters presently stand, as a large amount of new revenue or cost savings are hard to describe.

And while reducing air pollution, improving parking or reducing traffic congestion are worthy social and governmental goals, none of those goals are going to be met without some definite and sustainable ability to pay for the infrastructure and operations, unless tax revenues are so abundant such goals can be met by taxpayer subsidies alone.

Early on, most observers would guess that a smart city infrastructure could generate revenue or save cost, often from multiple sources, in the areas of traffic management, parking, possibly Internet access, advertising or power savings are feasible.

What remains is to demonstrate that the aggregate new revenues and savings are sufficient to justify long term operation, as it likely remains the case that there is, in fact, still no killer app.

That does not mean one will not be found, or that some combination of values will be sufficient to drive and sustain investment. But we are far from having such knowledge.

Juniper Research, for example, suggests incremental revenue--globally--will be generated by

two million million smart parking spaces in operation by 2021. Skeptics quickly will suggest that global infrastructure cannot be contemplated or sustained--even in dense urban areas--by revenue from two million parking spaces.

So most proponents will argue that multiple revenue sources will develop. All that is possible, but also highly complex, suggesting a classic “chicken and egg” problem. Extensive and expensive infrastructure is required for many different business models to develop, but the existence of those revenue sources is needed to justify the investment.