So Far, 5G is Mostly about Entertainment

It is a little hard to determine at this point how the mass market will ultimately find value in 5G networks. Right now most 5G customers, in most markets, remain either innovators or early adopters. The former just want to have the latest thing; the latter typically are looking for some productivity advantage. 

So far, according to Ericsson research, early 5G users have increased engagement with some applications or use cases. Gaming, streaming music and video, virtual or augmented reality app use has increased. 

source: Ericsson 

None of that yet suggests a mass market trend, however, beyond the consumption of more entertainment content. 

Whether mobile service providers do a good or poor job marketing; despite initial coverage or battery life issues; before clear new use cases emerge for most users, 5G adoption eventually will reach more than 85 percent. Every next-generation mobile network has done so. 

Eventually, value propositions will be clear. But there perhaps remains a “crossing the chasm” challenge that has not yet been overcome: we have yet to make the leap from the “innovator” stage of uptake to most “early adopters.” Though 5G adoption has moved into the “early majority” phase in a few countries, globally 5G remains in the “innovator” stage. 

source: Geoffrey Moore 

At least 300 million smartphone users could take up 5G in 2021, Ericsson believes. But compared to global mobile subscriber count of five billion, 5G adoption remains far below one/tenth of one percent. 

Across the 20 lead markets where 5G commercial networks are available, an average four percent of consumers own a 5G smartphone and have a 5G subscription, Ericsson notes. That suggests markets in those 20 countries remain in the early adopter stage, and have yet to cross the chasm into the mass market. 

source: Ericsson

Sales of 5G-capable phones is misleading as well, as perhaps a fifth of 5G phones are used on 4G subscription plans, Ericsson notes. 

With a vested interest in rapid 5G uptake, Ericsson notes some early behavioral changes, but also suggests consumers are still waiting for viable new use cases and value. 

“5G users spend two hours more per week using cloud gaming and one hour more on augmented reality (AR) apps compared to 4G users,” Ericsson says. Some  20 percent say they have decreased their usage of Wi-Fi usage after upgrading to 5G. 

But indoor coverage limitations and a lack of compelling new use cases inhibits consumer uptake, Ericsson says.

Some 70  percent of consumers polled on behalf of Ericsson say they are dissatisfied with the availability of innovative 5G services and expect new applications making use of 5G.

One possibly important caveat: satisfaction metrics for 4G and 5G occur across very-different market segments. At this point, 4G is used by nearly everyone in mature markets. 5G serves an innovator or early adopter customer in most markets. Those customer segments have very different expectations. 

Innovators seek out novel technology; it’s like a hobby for them. Value, price and ease of use are not very important. Novelty is the driver: “it’s new.”

Early adopters, though quick to understand the benefits of new technology, do not value technology for its own sake. They value what new technology allows them to accomplish. In most markets, we are still in the early adopter stage. Already, though, value has become a more-important driver of adoption. That is likely why “what can it do for me?” has become something of a barrier to faster adoption. 

The early majority customer, in contrast, is practical. If a product seems useful, they will try it. But value has to be clear. Also, this type of customer will not tolerate “difficulty of use.” The technology has to be easy to use. And by this point, value--and therefore price and terms of use--matter. 

Late majority consumers are not confident in their ability to deal with technology and often buy from big companies, only after people they know use new products. 

Laggards are those consumers who, for personal and/or economic reasons, are not looking to buy new technology.

That likely accounts for the amount of interest in “innovative” features and use cases those surveyed on behalf of Ericsson express. 

The survey identified five jobs or outcomes that consumers hope 5G will accomplish:

• To be productive and efficient

• To be creative

• New ways of connecting and socializing

• The need for novelty (thrill, surprise, discovery)

• Rewarding me-time.

All that suggests there is yet work to be done in creating clear new use cases of value for most people. 

source: Ericsson

 

The Allen Curve and Hybrid Work

The Allen curve and the Ikea effect (sunk costs increase commitment) suggest why permanent hybrid work models will be tricky and possibly even difficult to sustain. The Allen curve suggests that physical proximity really matters for team building and communications. 

source: WeKnowScreens 

People seated within 10 meters of one another have the highest probability of communication. Employees who sit more than 25 meters apart have a low probability of communication. Team members sitting within the 10-meter to the 25-meter zone are likely to communicate at least once per week.

The issue is how to apply Allen principles to remote workers. 

In his 1977 book, Managing the Flow of Technology, Thomas J. Allen was the first to measure the strong negative correlation between physical distance and frequency of communication. 

The “Allen curve” estimates that we are four times as likely to communicate regularly with someone sitting six feet away from us as with someone 60 feet away, and that we almost never communicate with colleagues on separate floors or in separate buildings.

The Allen curve holds, some argue. In fact, as distance-shrinking technology accelerates, proximity is apparently becoming more important. Studies by Ben Waber show that both face-to-face and digital communications follow the Allen curve.

In one study, engineers who shared a physical office were 20 percent more likely to stay in touch digitally than those who worked elsewhere. And co-located coworkers emailed four times as frequently as colleagues in different locations. 

 

source: Harvard Business Review 

“We do not keep separate sets of people, some of whom we communicate with by one medium and some by another,” Allen said. “The more often we see someone face-to-face, the more likely it is that we will also telephone that person or communicate by another medium.” 

In the hybrid office, where some people are in person and others are remote, working from home has serious implications for being recognized and appreciated and getting bonuses and promotions, the concern might be.

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Concentration of Power is Ubiquitous in the Internet Ecosystem

One need not attribute especially “greedy” motives to the behavior of firms, organizations or people to recognize that competition creates restraints on any such impulses, whether the actors are people, firms or industries. 

In that regard, we might argue that the assumptions about concentration of power and inability to use markets to discipline firm behavior have changed over the past two decades. 

source: Oberlo 

It might once have been somewhat reasonable to assume that access provider unchecked power was most dangerous in the internet ecosystem. It might now be considered more important to address application provider and platform power, as competition seems less developed there than in the access business.

source: Digital Information World 

These days, market power might be seen in browser share, app store share, platform share, social media, e-commerce, cloud computing, search and just about anywhere else one wishes to look within the internet ecosystem. 

The point is that potential or actual monopolists or oligopolists can be found everywhere within the internet ecosystem. Furthermore, the power arguably is concentrated most significantly at the higher levels of the value or protocol stack: applications and platforms more than devices; devices more than operating systems; operating systems more than access providers.

Are App Store Revenue Splits Really Unfair? Maybe Not

Developers always complain about the revenue share they must make with distribution partners such as Apple and Google. But another way to look at the cost is to consider what it might cost developers, especially the small developers that dominate app supply, to create their own marketing and sales channels.

Keep in mind that is the real issue here: what does it cost a small developer to create its own sustainable marketing and sales programs--which also cost money--if developers chose not to use either Apple or Google for marketing and sales fulfillment. 

Perhaps you believe 30 percent of sales or 15 percent of sales is oppressive. But that must be evaluated against the cost of creating other channels. 

Market intelligence firm Sensor Tower estimates that global end-user spending from the Apple App Store and Google Play totalled US$111 billion in 2020, with the App Store accounting for 65 percent of the total and Google Play 35 percent, says Greg Sigel, Docomo Digital VP. 

In other words, Apple and Google accounted for virtually all sales of mobile apps globally. Apple and Google are the growth engines for the entire mobile app industry, and its primary sales channel.

So whether 30 percent or 15 percent is considered a fair compensation for a firm’s total marketing, distribution and sales strategies is not the issue. The issue is whether, and at what cost, one’s own direct distribution, marketing and sales infrastructure could be created and operated. 

By established rules of thumb, new firms should spend between 12 percent and 20 percent of gross revenue on marketing alone. Established firms might budget for marketing spend at six percent to 12 percent of gross revenue.

source: Cyclone Interactive  

But that is just marketing. Sales costs must include some combination of additional cost, especially sales wages and benefits and sales commissions. minimum of 15 percent to 30 percent and perhaps a maximum of up to 50 percent in some industries. 

So marketing plus sales could represent between 30 percent to 50 percent of gross revenue for younger firms. 

That is the context within which app store revenue shares need to be evaluated. “Build your own” is one way to evaluate sales and marketing cost, no matter which channel is preferred.

But to the extent that Apple and Google operate as efficient and effective marketing and sales channels, a revenue share between 30 percent and 15 percent is not out of line with other ways of building and maintaining marketing effort and sales results. 

The argument can be made that the app store revenue shares at 30 percent are less expensive for developers, especially small developers, than attempting to create their own marketing and sales channels. 

Too Much or Too Little Competition Can Depress Investment in Next-Generation Networks

Communications policy makers often face tough choices: policies that promote competition often decrease appetite for investment in new facilities. On the other hand, policies to incentivize investment often require or produce less competition. 

Maximum feasible competition, but also maximum feasible investment in next generation facilities often are preferred. But the two objectives lie in a state of tension. Too much competition dampens investment. But too little competition also dampens investment.

The trick is finding the balance between one monopoly supplier and some number greater than one, that produces a stable competitive outcome and sustained investment in next-generation facilities. Excessive competition drives companies out of the market because profits are not attainable. Too little competition reduces incentives for robust investment. 

As Federal Communications Commission staffers have argued, “private capital will only be available to fund investments in broadband networks where it is possible to earn returns in excess of the cost of capital. In short, only profitable networks will attract the investment required. 

A good example of this is the impact of competition on profit margins, average revenue per account and customer market share in facilities-based competitive markets.  

The first new facilities-based competitor in a market with a single provider reduces average revenue per user by four percent, but market share by 50 percent, FCC analysts calculated. 

source: FCC 

In markets with four competitors, potential market share is reduced 75 percent and ARPU falls 28 percent, according to FCC analysts.

Even in many wholesale-based markets, where retail competitors all use a single physical network, market share and ARPU reductions might mirror those of facilities competition markets. 

The point is that communications policy now also now is created under very different market circumstances than in the pre-1990s monopoly environment. Regulators want competition, but they also want investment. 

The problem is that too much competition tends to depress investment, as does too little competition.