An Important Lesson about "Over the Top" Danger

Contestants in competitive communications markets tend to recognize the value of having the leading incumbents set a high price umbrella, the simple reason being that a common attacker strategy is to offer "same service, less price." 


The higher the price umbrella, the better the value proposition an attacker can offer, and still generate more revenue than under a low price umbrella. 


That seems to be the case for over the top applications in the messaging space, in European markets that feature high tariffs. 


European operators rely on high tariffs for international calls and texts. Whatever else one might say about that situation, the high tariffs allow lots of room for attackers to offer the same features at much lower cost.


Over the top application providers provide salient examples.


By way of contrast, U.S. service providers, operating with a continental-sized domestic market,  offer unlimited or huge buckets of calls and texts for a flat rate that offer much less room for attackers to exploit.


The exception is international calling, where apps such as Skype get serious amounts of use. But for domestic calling, tariffs are so reasonable that there is little incentive to modify domestic calling or texting behavior because the marginal cost of a domestic text or call is zero. The "Panic" About OTT Apps


The point is that the pricing umbrella has significant implications for competitive dynamics. Over the top will be a bigger danger where the pricing umbrella is high, and much less a compelling alternative for users where the pricing umbrella is low. 

What Role for End User Choice in Mobile Data Plans?

Many consumers probably would jump at the chance to buy virtually any TV show, series or channel, including current episodes, a la carte, much as they buy single songs, rather than the bundled collections we call "albums" or "compact discs."

One reason is the somewhat logical expectation that such buyers will get precisely what they want, while saving money.

The issue is whether many consumers will have something of the same reaction to mobile Internet plans that, for example, offer lower data plans in exchange for a curated experience big on Facebook, YouTube or Twitter.

Orange apparently wants to find out. For less than $14 a month, customers get unlimited use of Facebook and Twitter. Web browsing on other sites costs about 70 cents for every 20 minutes of use, the Wall Street Journal reports. All Mobile Traffic Isn't Equal

The issue isn't whether this is the best way to match end user preferences on mobile devices with retail packaging. The issue is that it is an interesting way to customize and personalize use of the web apps people really value, while offering savings at the same time.

To the extent that users already have indicated preference for buying songs, not albums, or might prefer buying shows rather than channels, they might also prefer a focused approach to web apps on their mobiles.

Some won't like the idea, but they can buy the standard plans, and pay more money. Some policy advocates will worry about the implications for app competition or any number of other issues.

But if choice provides end user value in music, video, or stories, it isn't so clear why such choice does not provide equivalent value when mobile users buy and use their favorite mobile apps.

Users Help AT&T Figure Out "Throttling"

AT&T’s new plan to throttle access speeds of customers on grandfathered “unlimited” service plans seems to have been withdrawn. AT&T had planned to throttle users in the top-five percentile of usage at any specific location.

But AT&T now says it will now throttle 3G network  users after 3 GBytes of usage and LTE users after 5 GBytes of usage. The former plan meant users could not tell whether they would face throttling. Under the new plan, they in principle will know when the throttling kicks in.

The rules do not affect customers on AT&T’s current tiered service plans.

The change came after significant pushback from customers who properly objected that the rules did not allow people to protect themselves. Even lighter users might find themselves in a coverage area where their usage put them, temporarily, into the “top five percent of users.”

Essentially, users complained that there was no way to modify and regulate their own behavior and consumption to comply with the guidelines. AT&T now seems to agree.


Just an observation: sometimes users can help their service providers figure out fair ways to manage networks. Most users are not unreasonable about usage limits. But they do understand rule clarity and fairness. In this case, users helped AT&T craft a "better" policy, in the sense that users agree it is fair.

Will Telcos Be Pipes or Service Providers?

Almost no question is strategically more important for any cable TV company or telco than the issue of what future is possible, or desirable. Telcos and cable TV companies always have been "service" providers, where applications and access were tightly bundled. 


Broadband access was the first consumer service to break from that mold, and private line services were the first big change in the business customer segment.


So the big issue now is what "should" be the strategy in a business environment where virtually every application can, in principle, be delivered to users "over the top."

Deutsche Telekom CEO Rene Obermann said the cloud was an opportunity for telcos to “make the most of our assets” and transform themselves into "smart pipes."


Still "pipes," mind you, but pipes that have features. 

“Most people expect us to become dumb pipes, but that’s wrong," says Obermann. "The question of whether we will be dumb pipes or smart pipes will be a thing of the past.” 


In areas such as traffic management and quality of service, network access and transport providers will essentially make substantial money providing various traffic management functions sold to third parties that have a business interest in the end user quality of experience. 


That assumes regulators will let access providers provide quality of service measures that end users can buy, or that application and service providers can buy. It also assumes customers are willing to pay. 

Though both over the top and owned apps, services and features are likely to be staples of any long-term future to some degree, the pipe function is going to be more important over time. Nor is it clear that the revenue contributed by the smart features ever will be quite so substantial as the "dumb" access feature. 


One is hard pressed to think of any "value-added" feature in the mobile or fixed network businesses that provides as much gross revenue as the "basic" service. In other words, do the security features offered to consumers as part of their broadband access subscription drive as much revenue as the access? 


Wll QoS mechanisms drive as much revenue as access and transport, for business customers? 


To be sure, one might argue that a content delivery network so blends a transport function with a value add that it is difficult to compare the incremental revenue provided by the "content acceleration," compared to "simple transport." 


The point is that the value adds probably never will be driving as much revenue as the "base" access products. The issue is to find the exceptions to the rule. 


If a mobile service provider sells a stand-alone personal Wi-Fi Hotspot feature for a smart phone subscription, is the incremental cost likely to approach the retail price of the smart phone's data plan? Probably not. 


But could the personal Wi-Fi Hotspot plan drive incremental revenue that is up to 50 percent of the cost of the basic smart phone access? That is possible, and highly significant. 

Keep in mind that a personal Wi-Fi Hotspot service is still a "dumb pipe" product. But one might conceive of it as a value-added feature of the basic smart phone broadband access service. 

The point is that dumb pipe, though derided, should continue to be the foundation for all the smart pipe features, and that these "smart" features will represent incremental revenue that is some percentage of the value of the "dumb pipe" access. 


Nor is the underlying wholesale cost of bandwidth necessarily related in linear fashion to retail value and pricing. The value of personal Wi-Fi Hotspot bits arguably is higher than that of smart phone bits, or no rational consumer would pay extra for the feature. 


The issue is how many of these enhancements to "dumb pipe" are conceivable and possible, even when the pipe remains the foundation for the rest of the business. . 

Cornelius Vanderbilt cut the price of rail freight 90 percent, Andrew Carnegie slashed steel prices 75 percent and John D. Rockefeller cut oil prices 80 percent between 1870 and 1900.

Malcom McLean, Sam Walton and Michael Dell did roughly the same for container shipping, discount retailing and home computing a century later. Such radical changes often are unwelcome by the producing community, though the consuming public benefits.


In some ways, what service providers are trying to do is sell automobiles and ships rather than steel, even as steel remains the underpinning of the business. 


Service providers always built services on top of pipes. They always have sold "voice" as a retail product to end users; the pipe was only a means to create the service.


What is is different now is that the pipe is becoming the foundation product for the future. Users will buy access to the Internet and apps, whether they buy apps and services from the "pipe services" provider, or not. 


That's the new strategic challenge: to build the whole new business around pipe services. 

Why Pay Attention to Mobile Payments?

It isn't always completely clear why people who care about the mobile business should necessarily pay attention to  "mobile payments," not a subject that represents the most-popular subject on this site.


The reason is that "mobile payments" is an answer to several key questions.  "What business are you in?" is one such important question. "Where will you find future sources of revenue?" is another key question. "How will you do that?" is a third important question mobile and fixed network executives have to ask themselves, and answer. 


One of the by-now clear implications of the Internet is that it enables competition on a different scale than in the past. In other words, "people who aren't in our business" can get into your business. 


The other salient observation is that new industries tend to get created when attackers use the Internet to disrupt an existing business. It isn't simply that the legacy industry is changed; sometimes an entirely new industry emerges. 


Mobile payments is akin to a massive collision of galaxies. Banking, telecom, retailing and marketing are huge industries in their own right, but find themselves colliding in new ways around the use of mobile to shop and pay. 


So the humble thesis is that when industries that big collide, something equally big is going to emerge. Hence, the coverage of mobile payments.


nevertheless keeps getting talked about. It's a strategic

What Comes Next Will Reshape Mobile Marketing, the Issue is "How?"

While delivering a speech at the San Diego Social Media Symposium, hosted by Nuffer, Smith, Tucker, the question of “what comes next,” or “who comes next,” in terms of computing industry leadership, came up.  

The reason for the question is that technology enables new forms of marketing at the same time technology changes the potential effectiveness of existing channels. Among the best examples is use of social networks for marketing.

Facebook finally has figured out how to use display marketing in a PC context. It is just now exploring how to do advertising and marketing in a mobile device context. Twitter has developed the promoted tweet, a new form of marketing messaging.

At least 40 percent of all Facebook activity, for example, now occurs on mobile devices. And though all channels used in a PC context can, in principle, also be used on tablets and smart phones, there are key contextual challenges.

The substitution of a touch and swipe user interface rather than keyboard and mouse are examples. The amount of screen real estate are other key issues.

Beyond that, the use case for each device tends to be distinct. Smart phones are the “best” device for “on the go” apps and messaging. Smart phones are best suited to location apps and communications.

Tablets are less “mobile,” and suited to content consumption activities, though the setting is more “couch” than “on the go.” It is nevertheless true that smart phones get used at home or at the office more than “in transit.”

PCs increasingly are being “relegated” to work or desktop settings.

The truthful answer is that nobody knows yet how computing, and marketing possibillity will change in the next era. Part of the indeterminacy is that it is hard to figure out what era, epoch or age is coming. We all sense that mobile and Internet will be foundational, as will the pervasiveness of computing.

But that doesn’t help refine one’s search for the “next big thing” or the characteristics of firms or enabling technologies that might lead the next era, epoch or age. It seems clear, in retrospect, that virtually nobody, or almost nobody, could have foreseen the power of “search” or “social networking.”

Few seem to have recognized the importance of the “browser” or visual computing. Many would be surprised that Apple could be called the most important technology firm on the planet, or that a technology firm as large as Google could be funded by advertising.

Asked to speak about mobile marketing, one has to acknowledge the immediate difficulty. Mobile is many things, including discrete devices ranging from notebook PCs to tablets to smart phones to game players to music players. In principle, any current form of digital or online marketing can be applied to any Internet-connected device with a screen.

So email, text messaging, display advertising, promoted tweets, promoted stories, content marketing, social networks, blogs and websites all are channels that can be used across all screens, whether mobile or stationary. So too are tactics including earned media, paid media and owned media.

What isn’t yet so clear is which approaches will ultimately emerge as ideally suited to each category of screen, type of user interface or application setting. Mobile is a bunch of things, marketing is a bunch of things and so is “digital” or “online.”

A 2008 Microsoft paper described eras largely in terms of the relationship between computers and people. In the mainframe era, one computer served many people. In the PC era (for analytical purposes, Microsoft apparently did not see the mini-computer era as qualitatively significant) there was one PC per person. In the 2000s, which Microsoft describes as the mobility era, there are several devices per user. In the coming ubiquity era there will be thousands of computing devices for every user.
You might therefore represent the change quantitatively. But it is the notion of pervasiveness that probably gets to the heart of the matter. In any era where computing is literally embedded widely into the fabric of life, “computing” itself fails to stand out. It becomes something like electricity, an underpinning more than a discrete pursuit.
Nobody would call the present era the “era of electricity,” as one might have spoken of the “age of the automobile.
In fact, geologic time is the polar opposite of computing or Internet time, where the taxonomy of eonothem (eons) , erathem (eras), system (period), series (epoch), and stage (age) are used to refer to the layers of rock that correspond to these periods of geologic time. On a scale where the most-granular measure of time is “millions” of years, the entire history of computing occurs on a time scale too short to measure. 

To the extent that one can apply the geologic taxonomy, the Internet eon and pre-Internet eon might make sense, as use of the Internet spans multiple computing eras.

Perhaps we are have mistaken eras for ages or epochs, though. Mainframe, PC and mobile “eras” might be better seen, from a longer time frame as ages, epochs or periods within the broader framework of tool use.

The point is that people might instinctively sense that Internet, broadband, web and apps have some significance in the history of computing that we’ve not had time to digest and put into perspective. Clearly something important has happened with the Internet, and clearly something important is coming in terms of mobility and mobile devices. Precisely how that fits with the taxonomy of computing is not so clear.

What Era of Computing are We In? What Comes Next?

Most technology historians would agree there was a mainframe era of computing, followed by the mini-computer and then PC or client-server era. Most would agree that each era of computing has been lead by different companies.


IBM in the mainframe era; Digital Equipment Corp. in the mini-computer era and Microsoft and Intel in the PC (or Cisco in the client-server era, as one might also refer to the PC era) are examples. 


But here's the thing: we don't yet know whether the new era is here, or only coming. There has been a trend towards computing pervasiveness, as each era has succeeded the earlier era. Computing used to be in a "glass room." Then it could be done in a closet. With PCs computing moved to the desktop. 


Certainly computing in a mobile period (we can't say yet whether it is a "mobile era") is moving beyond the desktop and into pockets and purses. We already can predict that computing has begun to become pervasive in all sorts of machinery as well. 


Nor is is easy to describe even the present era. The role of software obviously has become more important over time. But, to this point, computing eras have never been defined by the key applications enabled. Perhaps we will one day see matters differently, but it would be a change to shift from "how" computing is done to "what computing does" to define the eras. 


The Internet is more important, but not necessarily always because that is where the "computing" is done. Cloud computing is becoming more important, and does shift the locus of computing activities. 


We all sense that a new era is coming, and that the Internet, mobile devices and applications will be more important. But there is not any agreement on whether we have "arrived" or are still only approaching the new era. 


Most would agree that a new era--one we cannot yet even name--is coming. Most think the Internet and mobile devices will have something to do with that new era, but we can't be completely sure yet whether that is the right way to look at what is coming. 


But there are signs. Apple's market capitalization topped $500 billion for the first time in February 2012. Apple's valuation is notable in other ways as well.


Apple is in a class by itself, both financially and in terms of its leadership of the technology industry. In some ways, that is a return to the older pattern, where IBM made computers, as did DEC. In the PC era, neither Microsoft nor Intel did so. 


That isn't to say Apple is now the dominant firm in tomorrow's era, but simply to note that, if there are epochs within eras, then right now Apple best exemplifies leadership of computing. Paradoxically, Apple has dropped the word "Computer" from its name, which further indicates change. 


We certainly are leaving the PC era. That's why former Apple CEO Steve Jobs always insisted the iPad was not a PC. In fact, many would insist that it is the tablet's optimization for content consumption that makes it distinctive. 


We can't yet say that the next era of computing is defined by mobile devices, tablets, the Internet or cloud computing or even the fact that leadership is shifting more in the direction of applications and activities than computing appliances. But all of that hints at the shape of what might be coming. 


But there are other signs. Google is the first really-big technology company with an advertising revenue model. In the past, it has been software or hardware sales that were the revenue driver. 


Nor is it so easy to clearly separate dominant firms that are built on the existence of the Internet (which might be an epoch within the PC era, or a name for the next era, or a way of creating and using applications that could span eras) from the actual era itself. 


Some might say that among the changes is that the mode of computing matters less than the applications enabled by computing. Though "a machine" has been the exemplar of past computing eras, maybe that will not be the case next time, or in eras to follow. Perhaps something else will be the defining element. 


It would be reasonable to say that, although the PC is the dominant device, mobile phones and tablets are being added to the device mix. Nor would it be incorrect to say that the Internet has become the key network used by all the devices. 


But neither is it easy to sort out the relationship between Internet as network, devices and applications. People do all sorts of things on the Internet, but it wouldn't make sense to say we are in the era of Internet-enabled shopping, searching, viewing, listening, game playing or communicating. We do all those things, and more, but the activities themselves do not seem to make sense as a way of describing the era. 

Perhaps we now are entering a phase of such pervasive computing, embedded widely in so many areas of everyday life, that we will not be able to describe an era by the dominant way computing is done, but only by some other indicator. 


Consider that Amazon and Barnes & Noble now appear on rankings of tablet market share, for example. That itself hints at a shift. And Apple is something of an anomaly. Though it began life in the PC era, it never "lead" that era. Only now, as it has dropped the word "computer" from its name, and only as devices other than computers have driven its business (iPods), and now drive its business (mobile phones, tablets), has Apple become perhaps the dominant force in "computing." It's a paradox. 

Consider that Apple represents a 3.8 percent weighting in the Standard & Poors 500 Index. 

In the fourth quarter of 2011, S&P 500 firms grew earnings 6.6 percent. But remove only Apple from the index and S&P 500 and the index grew at only a 2.8 percent rate. In other words, Apple performs so much better than most other firms that it distorts perceptions of the market. 


Also, some would note, Apple, in terms of market valuation is bigger than that of Google and Microsoft combined. Microsoft is valued at about $257 billion and Google at about $197 billion.


In the product area, though many firms "compete" against Apple, few can approach it. In very real terms, there is not yet so much a "tablet" market as there is an "iPad" market, as Apple holds a 62-percent share of unit sales.

In smart phones, the story is not so much unit shipments as profit. In the third quarter of 2011 Apple earned about 61 percent of total smart phone profits, globally, all by itself. 

Although soaring sales of Amazon’s Kindle Fire and other low-priced tablets trimmed Apple Inc.’s media tablet market share in the fourth-quarter, it was Apple’s own newly introduced iPhone 4S that proved to be the strongest competitor for the iPad during the final three months of 2011. 

In other words, Apple's biggest competition, in some ways, is itself. 

Perhaps the reason for our current perplexity is that, in the future, we won't be able to define eras by devices at all. That itself would be a huge change.