Both Cloud Computing and U.S. Mobile Markets Remain Contestable

Neither the global cloud computing or U.S. mobile markets are stable, in the sense that a clear market share pattern has settled in, with challengers largely unable to change their share positions. That means the markets remain contestable.

After the merger of T-Mobile and Sprint, Verizon has about 42 percent market share (subscribers). But T-Mobile has 29 percent and AT&T about 27 percent. 

source: Evercore 

We should anticipate eventual changes in share. 

"A stable competitive market never has more than three significant competitors, the largest of which has no more than four times the market share of the smallest,” Bruce Henderson, founder of the Boston Consulting Group has argued.

Sometimes known as “the rule of three,”  he argued that stable and competitive industries will have no more than three significant competitors, with market share ratios around 4:2:1.

If you look at market share in the “cloud computing as a service” industry, one also does not yet see that pattern, suggesting major market share shifts are likely. But most of the activity, all other things being equal, will happen at positions two to four. 

AWS now has 32 percent share. By some estimates Microsoft has 19 percent share. Google Cloud about seven percent share. The rule of three would predict either that AWS eventually would have more share, or that number two would have less share, or both. 

I believe the reported numbers overstate Microsoft’s share and understate Google’s share, however. 

source: Canalys 

If a “like to like” analysis of “computing as a service” revenues are made, Microsoft’s actual cloud revenues are far smaller than reported. 

The problem is that the way Microsoft reports revenue dramatically skews the results. 

Azure, which includes cloud computing revenue, also includes sales of the Windows operating system, productivity suites, Xbox, Surface and advertising. 

Also, keep in  mind that Azure cloud computing also includes server sales, not just “cloud computing as a service” revenues. 

The “intelligent cloud” segment of Azure represents only about 35 percent of total Azure revenue. Another third of Azure revenue comes from productivity suite revenues. Also, 32 percent of Azure revenue comes from operating systems, productivity suites, Xbox, Surface and advertising. 

I personally do not consider those revenue sources a “like to like” comparison with AWS cloud computing as a service revenues. Actual Azure cloud computing revenue. might be as low as $4 billion a quarter. The point is that any analysis of cloud computing market share based on Azure revenue is incorrect. 

Azure cloud computing might be only a bit larger than Google Cloud, which generated about $3.4 billion quarterly revenues recently. 

If so, AWS market share is understated and Microsoft’s share is vastly overstated. At $4 billion quarterly revenue, Microsoft likely has about 11 percent share. Google might have about nine percent share. 

If AWS generated about $11.6 billion in revenue in the third quarter of 2020, then AWS did have about 32 percent of global cloud computing market share. 

A corollary is that, all things being equal, it will be very hard to supplant Amazon Web Services as the market leader. It is unclear at this point which firm emerges as a stronger number-two provider. Many seem to be betting on Microsoft, based on its apparent or reported growth rate. 

In the absence of better data, it is hard to say.

When Commuting Time Lessened, Did Productivity Increase?

The productivity impact of work-from-home rules--especially the reduction in commuting time--will be hard to assess, but one new study suggests little change for independent contractors, but an increased work day for managers.

Reviewing time-use diaries of 1,300 U.S.-based knowledge workers, collected in the summers of 2019 and 2020, professors Andrew Kun, Raffaella Sadun, Orit Shaer, and Thomaz Teodorovicz found a reduction in commuting time to work of about 41 minutes, on average, because of extensive work-from-home rules. 

Intuitively, you might guess that has led to an increase of productivity. The study is far more nuanced. 

“Independent employees (i.e., those without managerial responsibilities) reallocated much of it to personal activities, whereas managers just worked longer hours and spent more time in meetings,” the researchers note. 

Independent contractors simply used the extra free time for non-work activities. Managers had to spend more time in meetings. 

“For managers, the increase in work hours more than offset the loss in commuting time: Their work day increased on average by 56 minutes, and the time they spent replying to emails increased by 13 minutes,” the researchers say.

That might imply that productivity did not increase, since there was “no increase in total time spent working,” but the work day lengthened a bit, the researchers note.  “The work-day span increased by 56 minutes for managers but did not change for independent employees.” 

It is not possible to directly assess “productivity” results based strictly on the input measure of “time spent,” but if measurable “output” did not change, then productivity measured as “results divided by work time” might well have dropped, for managers, as they had to spend more hours working to produce the same output. 

“These changes were even larger for managers employed by large firms, who spent 22 minutes more per day in meetings, and 16 more minutes responding to emails,” (compared to the average manager) they report. 

Without quantitative output measures, all we can do is look at inputs, when trying to assess the impact of lessened commuting time. If output remained constant, which is what proponents of WFH productivity believe, then longer work hours for managers translates into lower productivity (more hours to create the same output).

As always, it is nearly impossible to quantify the output of an office or knowledge worker, which is what we would need to have to assess productivity changes. That is not going to stop suppliers of remote work products from claiming productivity is higher, the same or at least not impaired by remote work.

When Will IoT Growth Return to Pre-Pandemic Levels?

The impact of COVID-19 on the demand for IoT applications has been mixed, the World Economic Forum says in a report.  Still, by 2025 or so, the growth pattern should return to its 2019 growth pattern, if not accelerate, WEF says. 

“Many enterprise and smart city projects have been put on hold as businesses cope with the pandemic-driven economic slowdown and governments reprioritize budgets in response to the health crisis,” WEF says.

There has been an increase in use of connected cameras and contact-tracing uses, however.

But IoT deployments arguably have dipped because of the pandemic, at least momentarily. Overall, global consumer spending on smart home devices may drop to $44 billion in 2020, from $52 billion in 2019, Strategy Analytics estimates.

source: World Economic Forum 

Growth in demand among consumers for connected cars has slowed to less than two percent in 2020, GSMA estimates. 

But global shipments of voice-controlled smart home devices are expected to grow by close to 30 percent in 2020, driven by the dramatic increase in people working from home, according to ABI Research.

IDC forecasts that global IoT spending will return to double digit growth rates in 2021 and achieve a CAGR of 11.3% through to 2024. The GSMA's 2025 forecast remains unchanged as well.  

Messaging Business Models Based on Ads? Probably Not

No task is more fundamental for any business or organization than finding a sustainable revenue model. And the task is doubly important whenever any successful revenue model is under attack. And that is the case for most firms, in most industries these days. 

In the computing, retailing, lodging, travel, transportation, software, communications and media industries, business models--all the functions any company or organization must undertake to sustain its business or mission--have changed over the last 20 years. 

And chief among the changes is the task of discovering” a revenue model, either to replace a dying source or create one for a “free to use” application. Text messaging (short message service) and provide an obvious examples.  

source: Ovum 

The same problem exists with mobile voice. As subscribers grow, and usage grows, revenue has remained flat, or shrunk. By 2021, Ovum researchers have predicted, fixed network voice will represent only about 7.7 percent of total global telecom revenues, compared to mobile at 59 percent of total. 

Fixed network broadband will represent 18 percent of total revenues, while subscription TV represents about 15 percent of total revenues.

The global telecoms & media market will generate $1.58 trillion in revenues in 2021 from 11.96 billion connections, according to Ovum, which counts fixed network, mobile network and video services in its tally.

source: techneconomyblog.com 

For mobile operators, the devastation of text messaging revenue drives the effort to create new roles for text messaging as a business-to-consumer marketing platform. In many instances, unlimited use of domestic text messaging has become a feature of a mobile subscription, and not a direct revenue source. 

“Unfortunately for most telcos, P2P SMS has become essentially valueless, since they have had to bundle unlimited SMS into mobile tariffs to remain relevant to their customers, an increasing number of whom use chat apps such as WhatsApp, WeChat and Facebook Messenger,” said Pamela Clark-Dickson, practice leader of Ovum’s Communications and Social team. 

For Facebook, the effort is to monetize WhatsApp without relying on advertising, Facebook’s traditional revenue model. And Facebook believes it can create e-commerce, payment and marketing service revenue using WhatsApp, without relying on advertising. 

Though it once was unthinkable that a market-leading software company could base its revenues on advertising rather than sales of shrink-wrapped software licenses, it has happened. But reliance on a single revenue model will strike most executives as risky, especially if there are customer objections and there are other viable additional models. 

So it is that Facebook is working to monetize personal messaging as part of a broader effort to create a marketing and commerce platform that makes money as a “platform” connecting merchants and customers, instead of messaging remaining a person-to-person communications function.

That is the same application-to-person business mobile operators and app providers are trying to create with text messaging, as global text messaging revenues fall. 

The issue, as always, is whether text messaging can be built into a platform, as Facebook hopes WhatsApp--combined with other Facebook resources--hopefully can become. At this point, few likely believe mobile operators are positioned as well as Facebook to create such a platform. 

But the effort must be made, if mobile operators hope to stem the erosion of text messaging revenues overall. And that is a core business model issue.

Writing for Machines, Not People

It is a truism that, over the last 20 years, news writing, reporting and even user-generated content have had to adapt to machine readers and crawlers that index online content and algorithms that rank display results. That now seems to be spreading to the writing of financial reports as well. 

“Corporate disclosure has been reshaped by machine processors, employed by algorithmic traders, robot investment advisors, and quantitative analysts,” say Sean Cao, Wei Jiang, Baozhong Yang & Alan L. Zhang in a paper written for the National Bureau of Economic Research. 

“Our findings indicate that increasing machine and AI readership, proxied by machine downloads, motivates firms to prepare filings that are more friendly to machine parsing and processing,” they say. Of course. 

To be sure, beyond writing for the algorithms, many more informal styles also have emerged.  But structural changes are important in view of the use of search engine translators, for example. Use of idioms arguably is discouraged in headlines, for example, as those might not translate easily and accurately into other languages. 

Headline writers often prefer to use puns, or word play. That might not work as well for crawlers indexing the content. So factual “indexable” headlines--if less clever, perhaps--are more important. 

So is the importance of “clickable” writing and storytelling: creating content that gets attention. Sensationalism still works, perhaps sadly. 

But the larger point is that writers increasingly write to be noticed by algorithms. Yes, people still write to be read by people, but to get an audience also means writing for the machines that index content. 

Reporters, meanwhile, either have chosen--or are forced to--step outside the bounds of traditional objective journalism, which creates many new problems for readers, viewers and listeners. 

How Deep a Revenue Dip; How Swift a Rebound for Telecom Revenues?

In April 2020, early in the Covid-19 pandemic, Analysys Mason forecast telecom revenue in developed markets would fall by about 3.4 percent in 2020, with less than one percent growth in 2021. 

Global revenue might not reach 2019 levels until 2023, Analysys said in December 2020. 

International Data Corp., on the other hand, predicted that global telecommunications and subscription TV services revenue would dip less than one percent in 2020.

Note that these forecasts were made in May 2020, and might well change. Here is Analysys Mason’s May 2020 forecast, with a range of cases from mild to severe impact. Also note that the "moderate" scenario tracks the "mild" scenario closely. Some might argue that means the "moderate" recovery case is almost the same as the "best case" forecast.

In the moderate case, we return to 2019 revenue levels by perhaps 2023. The "worst case" is almost impossible to anticipate, in terms of time of recovery.

source: Analysys Mason 

In the first quarter of 2020, revenue declined about 2.2 percent globally, according to ResearchandMarkets. Some service providers saw revenue “growth rate” declines as high as 12 percent in the first quarter alone, including telcos in the U.S. market. 

Even if it seems too optimistic, the IDC prediction is well within historical expectations. The Great Recession of 2008 caused a momentary flattening of revenue growth, with the prior pattern asserting itself quickly afterwards. A modest dip would not be without precedent, even if we fear greater damage. 

And though it is reasonable to expect a dip in business customer spending (with economies shut down and significant bankruptcies expected), consumer spending on telecom services might well increase, as it did in the United States in the aftermath of the 2008 Great Recession. 

source: Statista

IDC estimated global service provider revenue at nearly $1.6 trillion in 2020, a decrease of 0.8 percent compared to 2019. IDC expects the decline to continue in 2021, but at a somewhat lower degree. 

The mobile segment, the largest segment of the market, will post a slight decline in 2020 due to lower revenues from roaming charges, less mobile data overages due to the stay-at-home situation, and slower net additions, especially in the consumer segment, IDC argues.

Fixed data services spending was forecast to increase by 2.9 percent in 2020, however. In the U.S. market, that appeared to have happened. In the United States, in the third quarter of 2020, for example, net broadband additions in the first quarter were the highest since 2015, while in the second quarter, net additions were about triple the rate for the same quarter of 2019, according to Leichtman Research Group figures. 

Subscription video services were expected by IDC to be boosted by the lockdown, but also affected by the economic downturn, so the spending in this category is expected to decline slightly in 2020, IDC said.

The Americas market was forecast to see a tiny decline of 0.04 percent. Europe, the Middle East, and Africa (EMEA) and Asia/Pacific (including Japan) will dip more. Growth is not expected in EMEA or Asia/Pacific before 2022 as the users in emerging markets are expected to remain cautious about spending for some time, IDC estimates. 

source: IDC

It remains to be seen who is correct about the extent of the revenue dip in 2020. It also remains to be seen whether a historically-seen pattern of relatively-swift rebound happens once the pandemic is over.

How Long Before Telecom Revenue Returns to 2019 Levels?

How long will it take for global telecom revenue to return to 2019 pre-pandemic levels?

Perhaps the good news is that, right now, based on development of vaccines, it seems as though the second quarter of 2021 might see an end to most economy-affecting prohibitions and impediments to normal levels of commerce. 

The bad news?

If so, we might not see a return to early 2019 levels of revenue until perhaps 2023, according to Analysys Mason. A worst-case scenario delays recovery to 2019 levels until some time after 2024.

Note that these forecasts were made in May 2020, and might well change. Here is Analysys Mason’s May 2020 forecast, with a range of cases from mild to severe impact. Also note that the "moderate" scenario tracks the "mild" scenario closely. Some might argue that means the "moderate" recovery case is almost the same as the "best case" forecast.

In the moderate case, we return to 2019 revenue levels by perhaps 2023. The "worst case" is almost impossible to anticipate, in terms of time of recovery.

source: Analysys Mason 

The bright spots are residential broadband (assuming strength in internet access but weakness in linear video and voice), business unified communications and internet of things.

source: Analysys Mason 

Many seemingly believe that all the past year’s emphasis on remote work and remote learning “must” be good for connectivity providers, and to be sure, some evidence can be cited, such as an increase in broadband  subscription rates in the United States, in the third quarter of 2020, for example. Net additions in the first quarter were the highest since 2015, while in the second quarter, net additions were about triple the rate for the same quarter of 2019. 

The story overall is not that bright, as most service providers, in most markets (perhaps nearly every market) have seen a dip in revenues in 2020. Mobile operators, for example, have seen declining revenues for roaming, since people were not traveling as much as usual. With businesses operating in restricted mode, if at all, usage was down there as well. Many small businesses have gone bankrupt, so customer additions were negative in that sense. 

At the same time, costs increased as firms scrambled to support a sudden surge of at-home work patterns. In the first quarter of 2020,revenue declined about 2.2 percent globally, according to ResearchandMarkets. Some service providers saw revenue “growth rate” declines as high as 12 percent in the first quarter alone, including telcos in the U.S. market. 

source: TBR 

Profits might diverge from the revenue declines in some cases, as some firms take steps to restructure. But top-line growth will tend to suffer at most firms. In India, for example, fixed network subscribers dipped nearly seven percent, year over year, in September, while mobile accounts shrunk by about two percent.  

source: TRAI 

We might well be prepared for surprises, though. In past recessions, telecom revenue has rebounded relatively quickly, and revenue dips were shallow. But the pandemic has not been a "typical" recession, leaving open the possibility that recovery could be on a different pattern.