Cloud Services Spending up in 1Q 2021 55% in China; 29% in U.S.

Cloud services spending keeps growing, as you would expect. But Microsoft’s installed base is inflated, when compared to other suppliers. 

China spending on cloud services grew 55 percent in the first quarter of 2021, says Canalys, increasing spending 2.1 billion (€1.77 billion) over first quarter of 2020 levels and up $200 million (€168.13 million) sequentially.

source: Canalys 

U.S. cloud services spending grew 29 percent in the first quarter 2021 to $18.6 billion, up $621 million sequentially. 

source: Canalys 

In the fourth quarter of 2020,  global cloud services spending grew $10 billion. 

source: Canalys 

Amazon Web Services holds the installed base lead, and likely is understated, compared to Microsoft Azure, which includes operating system and productivity suite plus server sales in the “cloud” category. Many would  not consider that “cloud computing as a service.”

Azure revenue 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. 

 

source: Canalys  

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. 

Fixed Wireless Will be a Big Deal for Some Firms

Small amounts of market share can be a big deal for certain connectivity providers. Satellite providers globally tend to hold less than one percent market share of home broadband connections, for example. But that is 100 percent of their consumer access business, a growth driver and generated perhaps $4 billion in revenue in 2020. 

In other words, satellite broadband might be a niche, but a useful niche and the foundation for many company business plans. Fixed wireless has to be seen in that light as well, though it will likely emerge as a more-important platform in some markets. 

For a company such as T-Mobile, operating in the U.S. market, a gain of just two percent share of the existing U.S. home broadband market represents revenue upside of about $4 billion. To put matters another way, T-Mobile in the United States could use fixed wireless to grow a new line of business as big as the global satellite broadband industry. 

Fixed wireless is a subject that has importance “at the margin” for service providers. The service is provided by perhaps 70 percent of connectivity service providers, according to Ericsson, yet does not generate huge account numbers globally. 

The highest growth during2021 has been in regions with the lowest fixed broadband penetration: Middle East and Africa, Central and Eastern Europe, Asia-Pacific and Central and Latin America, says Ericsson.

source: Ericsson 

Those regions grew between four and 13 percentage points. Central and Eastern Europe had growth of almost 25 percentage points since the start of the pandemic in February 2020.

Service provider adoption of fixed wireless  offerings has increased by 12 percentage points in the first half of 2021 and more than doubled since the first measurements in December 2018.

source: Ericsson 

Still, total accounts in service are not so high by global standards. There were perhaps 1.7 billion fixed network broadband accounts in service in 2020. Only about 60 million to 65 million of those connections were supplied using fixed wireless, by Ericsson reckoning. 

So fixed wireless accounted for less than four percent of total fixed network broadband accounts. Ericsson does expect fixed wireless share of fixed network connections to reach about 10 percent by 2026. 

Still, that is a relatively small portion of total connections. The real importance might well come in some highly-competitive, large and saturated markets where home broadband is nearly a zero-sum game. In such markets, one supplier’s gain is balanced by another supplier’s loss. 

And in such markets, a small shift of market share represents significant incremental revenue. In the U.S. market, market share shifts as small as two percent represent $4 billion in annual revenue. 

New lines of business worth $1 billion annually are a reasonable test of feasibility for many larger tier-one service providers. Any new proposed line of business generating less than $1 billion in annual revenue is too small to bother with. So fixed wireless easily passes the test of value. 

“At the margin” is where fixed wireless will be hugely important. That will often be the case in large, saturated markets where shifting just a few points of market share represents significant revenue upside.

New NTIA Broadband Gap Map Available

The new broadband map produced by the U.S. Department of Commerce’s National Telecommunications and Information Administration (NTIA) released a new publicly available digital map that is intended to show areas where the minimum 25 Mbps downstream service defined as “broadband” is not available. 

The mashup uses five different data sources, including data from both public and private sources. It contains data aggregated at the county, census tract, and census block level from the U.S. Census Bureau, the Federal Communications Commission (FCC), M-Lab, Ookla and Microsoft. 

As always, assumptions matter. Microsoft, for example, once claimed about half of U.S. residents--163 million people--cannot get 25 Mbps service. In 2020, says Microsoft, 120 million cannot use the internet at 25 Mbps, or about 37 percent of all U.S. internet users . That is hard to believe. 

source: Microsoft 

The Microsoft data contrasts radically with Openvault data suggesting that, in the first quarter of 2021, less than 10 percent of U.S. internet users were accessing the internet at speeds less than 25 Mbps. 

Microsoft says its methodology uses “anonymized data that we collect as part of our ongoing work to improve the performance and security of our software and services,”

source: Openvault 

I do not know the details of Microsoft’s methodology, but a reasonable person could think of lots of reasons why a particular application does not appear to operate at access connection speeds. Use of Wi-Fi provides a good example. But there are contention issues within some homes; use of mobile connections; device issues and in-building interference issues that might explain the vast difference between Microsoft’s claims and Openvault’s data.

How Much Does "Typical" U.S. Home Broadband Actually Cost?

One subtlety when assessing the state of U.S. broadband access is evaluating the real prices people actually pay, compared to posted retail prices. In the U.S. market, for example, perhaps 60  percent of fixed network customers buy internet access as part of a bundle.

That, in turn, means it is not possible to know precisely how much the broadband component costs, as two or more services are offered for a single monthly price.

It might be easier to track actual prices for internet access if more customers buy stand-alone internet access. In the first quarter of 2021, the percentage of U.S. broadband households with stand-alone broadband service increased to 41 percent.

These consumers pay $64 per month on average for stand-alone broadband service, up from $39 per broadband household in 2011, a 64 percent growth rate over a decade. In part, that is because customers are buying service operating at faster rates. 

In the fourth quarter of 2011, the average U.S. fixed network speed was less than 5 Mbps, as hard as that might be to believe. 

source: Statista 

About 9.6 percent of U.S. home broadband accounts now buy service at 1 Gbps, says Openvault. That is important because, historically, successful consumer products hit an adoption inflection point at about 10 percent adoption rates. In the colloquial, what happens is that “you buy because your neighbor has it.”

source: Openvault 

More significantly, about half of customers buy service operating at rates from 100 Mbps to 200 Mbps. Roughly a third of U.S. home broadband accounts offer speeds above 200 Mbps. We can safely predict that average speeds will continue to increase. Since average speed increased by two orders of magnitude from 2011 to 2021, we can assume roughly the same increase by 2031.

That suggests the typical home broadband service will operate somewhere between 1 Gbps and 10 Gbps in a decade.

CxOs Disappointed (So Far) by Cloud Computing Value

It should come as no surprise that CxO expectations of cloud computing payback lag expectations in the areas of resilience; agility; decision making; innovation; customer experience; profits; talent recruitment and retention; costs or reputation, for example. 

All of those business processes are shaped by many other inputs than mere applied technology. And the general rule with any important new technology is that the value is not recognized until core business processes are reshaped to take advantage of the new technology. That is as likely to happen with cloud computing as with any other important new tools. 

Any major shift in technology and related business processes takes time. So much time that there often is a “productivity paradox” where investments do not seem to make much difference in outcomes for a decade or more. 

Nokia has noted that manufacturing productivity since the 1980s has been slight, in the range of one percent per year growth, despite all the information technology applied to manufacturing. 

source: PwC 

Despite the promise of big data, industrial enterprises are struggling to maximize its value.  A survey conducted by IDG showed that “extracting business value from that data is the biggest challenge the Industrial IoT presents.”

Why? Abundant data by itself solves nothing, says Jeremiah Stone, GM of Asset Performance Management at GE Digital. At least one study suggests similar findings for broadband internet access as well. 

The consensus view on broadband access for business is that it leads to higher productivity. But a study by Ireland’s Economic and Social Research Institute finds “small positive associations between broadband and firms’ productivity levels, none of these effects are statistically significant.”

“We also find no significant effect looking across all service sector firms taken together,” ESRI notes. “These results are consistent with those of other recent research that suggests the benefits of broadband for productivity depend heavily upon sectoral and firm characteristics rather than representing a generalised effect.”

“Overall, it seems that the benefits of broadband to particular local areas may vary substantially depending upon the sectoral mix of local firms and the availability of related inputs such as highly educated labour and appropriate management,” says ESRI.

 Big waves of information technology investment have in the past taken quite some time to show up in the form of measurable productivity increases.

In fact, there was a clear productivity paradox when enterprises began to spend heavily on information technology in the 1980s.

“From 1978 through 1982 U.S. manufacturing productivity was essentially flat,” said Wickham Skinner, writing in the Harvard Business Review.

In fact, researchers have created a hypothesis about the application of IT for productivity: the Solow computer paradox. 

Here’s the problem: the rule suggests that as more investment is made in information technology, worker productivity may go down instead of up.

Empirical evidence from the 1970s to the early 1990s fits the hypothesis.  

Before investment in IT became widespread, the expected return on investment in terms of productivity was three percent to four percent, in line with what was seen in mechanization and automation of the farm and factory sectors.

When IT was applied over two decades from 1970 to 1990, the normal return on investment was only one percent. 

This productivity paradox is not new. Information technology investments did not measurably help improve white collar job productivity for decades.

To be sure, some argue that the issue is our inability to measure productivity gains. It is happening, but we are unable to measure it, many would argue. That argument will not win many supporters in the CxO suites. 

Still, the disappointment is to be expected. It will take time to reap the measurable benefits of cloud, 5G, edge computing, internet of things or any other major new technology.

SASE Interest Driven by Work From Home

If work-from-home continues at a significant level after Covid-19 pandemic restrictions have abated, it is easy to suggest that investments in security at remote locations will be an important necessity. According to a study by Sapio Research, commissioned by Versa Networks, an average of 44 percent of office workers  in the United States, United Kingdom, France and Germany will continue to work at least part of the time from home. 

source: Versa Networks 

That, in turn, suggests new investments in remote-location security. The study found 34 percent of businesses invested in Secure Access Service Edge (SASE) in the past year, and an additional 30 percent plan to do so in the next six to 12 months. 

The research, conducted by Sapio Research across 500 security and IT decision makers also found that 84 percent of businesses have accelerated their digital transformation and move to the cloud during the pandemic. 

“Digital transformation” can mean almost anything these days, from investments in processes to conduct transactions or operations “in the cloud” to use of such technology to recreate business models.

PTC Academy Accredited Training for Telecom Professionals

The next edition of the PTC Academy  online training courses--providing accredited continuing education recognition--will be held 7-29 September 2021, 09:00-10:30 SGT (UTC+08:00). 

You can register here. 

The course is delivered in 10 distinct modules over a three-week period by a team of leading industry executives. 

These modules will prepare you and your team for advancement with key insights into business challenges and opportunities in the ICT industry.

Students earn continuing education credit issued by the International Accreditors for Continuing Education and Training organization that are internationally accepted and can be used to satisfy a variety of professional requirements across a range of industries.

Course content is presented in 90-minute segments, featuring:

Introduction to Telecom: Key Trends and Changes in Business Models

Provides an overview of the global telecom industry business drivers with special emphasis on key business challenges faced by C-level executives.

5G and Beyond

A closer look at mobile and wireless segments of the industry as they relate to fixed networks and overall business models.

Pipes to Platforms: Cloud and Data Centers

Examines the role and importance of cloud computing and data centers in relationship to the connectivity business.

Your Career, Your Ladder

Explains how your skills, tasks, and knowledge will change as you move up the ladder to the C-Suite.

Doing Well While Doing Good

Examines C-level challenges of balancing the interests of many stakeholders: owners, managers, employees, customers, partners, and society.

How Would You Do It?

A workshop allowing participants to grapple with C-level issues of revenue, competition, customer demand changes, cost, innovation challenges, and social responsibilities.

OTTs: Opportunities and Threats to Telcos – Taking Advantage of Both

Over-the-top apps and services sometimes compete with, but can complement, connectivity provider strategies. What are the key challenges and opportunities?

What Really Impacts Your Mobile Gameplay or Streaming Video Experience?

A closer look at the critical elements affecting network latency and a discussion of how to reduce latency to deliver a better user experience.

Convergence

Provides a broader view of how digital natives are operating, the convergence of sectors and data models, and how this may impact telecom operators over the coming years.

Digital Transformation: How Data Centers, Networks, and Clouds Are Changing IT

A closer look at how data centers, networks, and clouds are changing the IT landscape, and how these companies come together to form the backbone of today’s digital economy.

PTC Academy is designed especially for:

• Professionals with five to 10 years’ experience in one or more functional areas at communications service provider firms, data center or collocation firms, infrastructure supplier firms, application providers, device suppliers, construction or maintenance firms, regulatory bodies, industry-related consulting firms, or other firms allied to the field

• Anyone who has not yet had general responsibilities for profit and loss at their firms

• Experts in their own fields interested in learning about key business factors in related industry segments

• Anyone who wants to learn more about the industry’s history and how business strategies have changed

Course prerequisites include:

• Basic computer skills

• English language fluency suggested

• High-speed Internet-connected computer

• Desire to learn about key C-level management challenges and perspectives