Appstore 2.0: Amazon Vs Apple & Google

Summary: Amazon is probably the Internet’s best retailer. As it launches its own AppStore, we provide a detailed analysis of its digital media business and pick out the key opportunities it offers to content owners, network service providers and manufacturers.

Below is a major extract from this 18 page Telco 2.0 Analyst Note that can be downloaded in full in PDF format by members of the Telco 2.0 Executive Briefing service and the Telco 2.0 Dealing with Disruption Stream using the links below.

                            Read in Full (Members only)        To Subscribe

‘Growing the Mobile Internet’ and ‘Fostering Vibrant Ecosystems: Lessons from Apple’ are also key session themes at our upcoming ‘New Digital Economics’ Brainstorms (Palo Alto, 4-7 April and London, 11-13 May). Please use the links or email contact@telco2.net or call +44 (0) 207 247 5003 to find out more.

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Introduction

For Amazon, the world of downloading and streaming brings both threats and opportunities: threats in that a large proportion of its current business is at risk of being cannibalised; and opportunities in that a significant element of its cost base associated with the storing, shipping, picking and packing of physical goods could be automated and reduced further.

Amazon’s key strengths are the size of its customer base; its ongoing relationships with all the major content owners in all the key categories (Books, Music, Movies/TV and Games); and most importantly, Amazon is the most highly skilled retailer on the Internet. Amazon’s Achilles heel is that it has very little control over next generation devices, apart from the Kindle, whether Tablet or Mobile phone.

In this note, we examine:

  • Amazon’s current performance;
  • The rising costs of physical distribution;
  • The attraction of online distribution (streaming and downloading) to Amazon;
  • The success of the Kindle;
  • Why Amazon has failed to gain significant market share in music;
  • The rationale behind the move into movie streaming;
  • How Amazon will shake up the AppStore market;
  • Whether the success of the Kindle means a move into more own-brand devices;
  • Amazon’s potential impact on the digital value ecosystem and how content owners, networks and device manufacturers should interact with Amazon.

Amazon’s Current Performance

Amazon’s Operating Income in 2010 was $1.4bn with a typically low retail sector margin of 4.1%. This is a far lower margin than usually sought by the content industry, networks or the device industry and one of Amazon’s key strategic advantages – its investors do not expect huge margins. However, they do expect revenue growth and this it has delivered so far (see below) through the development of the most advanced retail platform on the Internet, fierce price competition, tight control over costs and increasing product diversification.

Figure 1: Amazon Operates with the Low Margins Typical of Retail

Source: Amazon, STL Partners

Amazon is now the world’s largest e-commerce site selling over US$34bn worth of goods and services in 2010. The Amazon main website attracts more unique visitors in a month than either eBay or Apple (see below).

Figure 2: Amazon is the busiest online store in the world

At the end of 2010, Amazon had over 130m ‘active’ customer accounts, a healthy increase of over 25 million in the year. In comparison Apple has over 200m accounts with credit cards stored – but does not break-out the percentage of these that are actually buying goods and services from it. It is therefore difficult to determine whether Amazon or Apple have the most paying customers passing through their stores. Whichever is the larger, Amazon’s retail prowess cannot be ignored, especially in entertainment media where its revenues continue to grow year-on-year.

Amazon’s Media Sales

Amazon’s roots are in selling books but over the years its portfolio has been extended successfully to other type of physical media so that its media category now comprises Books, Music, Movies, Video Games and Consoles, Software and Digital Downloads in most territories (USA, Canada, UK, Germany, France, Italy, Japan and China). The sales associated with its media business are still growing by over 10% per annum and, although declining as a percentage of total sales, still represented over 43% of total net sales in 2010. The reduction in percentage of total sales is therefore more a reflection of Amazon’s success in its diversified product range than any drop off in media.

Figure 3: Amazon’s media sales are still growing at over 10% per annum

Source: Amazon, STL Partners

It is noteworthy that Amazon doesn’t provide any further detail on the media category and therefore little is known outside of Amazon about how their customers’ habits are changing from physical media consumption to digital. However, Amazon has been very clear that it sees a future where media is consumed both physically and digitally. In short, it wants to grow the entire pie and Amazon is not abandoning the physical world in much the same way that Netflix is not abandoning the mailing of DVDs.

Amazon promotes itself to investors as growing the absolute level of Operating Income and therefore is less worried about margins than overall growth. This is important for content owners as it aligns with their priorities and means that Amazon is as concerned with cannibalisation of physical product revenues as they are. However, that does not mean Amazon is in anyway anti-online distribution.

Amazon is also highly focussed on growing Free Cash Flow per share which implies strict management of working capital and balance sheet expenditure and to understand the appeal of online business in this context, we first have to understand the costs and cost trends associated with physical products.

Counting the Cost of Physical Distribution

Amazon currently spends about US$1.4bn or 4% of revenues on the physical shipping of goods to its customers. Despite Amazon’s famed distribution efficiency, this percentage has increased over the last couple of years, eating ever further beyond the associated shipping revenues, as illustrated below.

Figure 4: Amazon’s Net Shipping Costs Continue to Rise Over and Above P&P Charges to Consumers

Source: Amazon, STL Partners

This is probably down to two factors:

  1. Amazon offers an annual “Prime” shipping service where for a fixed annual shipping commitment, customers receive “free” shipping for each purchase. It is estimated that 15% of Amazon customers are “Prime” subscribers. It is assumed that “Prime” customers are more loyal to Amazon and are their heavier spenders; and
  2. Amazon has moved into selling more bulky goods over the years, such as PCs, which are far more expensive to ship than books.

Furthermore, there are additional costs associated with physical distribution.

Figure 5: Physical fulfilment costs Remain Stable as a Percentage of Net Sales

Source: Amazon, STL Partners

Amazon spent around US$2.9bn or 8.5% of revenues in 2010 on fulfilment costs (or the picking and packing) of goods. Amazon doesn’t break-out how much it spends on payment processing (included within cost of goods sold) or maintaining the technology (elements include Technology and Content, Depreciation and Amortisation) for its various e-commerce sites. 

The Attraction of Online Distribution

With Amazon’s ability to manage the combined physical costs of shipping and fulfilment to 12.5% of revenues in 2010, we believe that Amazon should be able to deliver online distribution for less than the 30% benchmark ‘agency fee’ revenue share typical in the online distribution model. And, that is before the additional efficiencies that Digital distribution offers over Physical. Therefore the margins offered up by the digital environment are highly attractive to Amazon.

Furthermore digital goods, in the main, fit perfectly into Amazon’s Operating Income growth model as the carrying cost of inventory is minimal and cash for goods is received immediately from customers, while the payment to content owners is typically dispersed 30-days after purchase. The major exception to this rule is when content owners demand large upfront fees for either access to content libraries or for exclusive deals. This is a major feature of both the Movies/TV and Music industry and may account at least in part for the differing levels of take up Amazon has experienced between these and e-books.

So, where does Amazon sit in online distribution – streaming and downloading? Is it a major player that needs to be actively worked with or against or can it be left out of the strategic thinking of the others in the digital online ecosystem – content owners, network service providers and device manufacturers? A closer examination of the position of Amazon in each of the major digital content categories – publishing, music, video and apps, provides valuable insight.

The success of the Kindle: more eBooks than Paperbacks

Amazon launched the Kindle in 2007 as an e-ink book reader for an introductory price of US$399, which in its first iteration had connectivity exclusively provided through the Sprint CDMA network. However, Amazon developed more than a hardware device with the Kindle, it built the whole surrounding ecosystem for sale, delivery and management of mainly electronic books but also other publishing media such as newspapers.

Figure 6: The Amazon Kindle

Today, the hardware price of the Kindle has come down to US$139 (WiFi only) to US$189 (WiFi+3G) and Amazon has launched Kindle readers across all the major platforms from Apple (Mac, iPhone and iPad), Google Android, RIM Blackberry and Microsoft (Windows and Windows Phone7). If a customer buys a book from the Kindle store, it can be read on most of the major platforms for a single fee.

Amazon doesn’t break out sales data for either Kindle or eBooks, but the following extract from Amazon’s 4Q 2010 earnings release provides just an indication of progress being made.

Amazon.com is now selling more Kindle books than paperback books. Since the beginning of the year, for every 100 paperback books Amazon has sold, the Company has sold 115 Kindle books. Additionally, during this same time period the Company has sold three times as many Kindle books as hardcover books. This is across Amazon.com’s entire U.S. book business and includes sales of books where there is no Kindle edition. Free Kindle books are excluded and if included would make the numbers even higher.

The Company sold millions of third-generation Kindle devices with the new advanced paper-like Pearl e-ink display in the fourth quarter and the third-generation Kindle eclipsed ―Harry Potter and the Deathly Hallows – as the best selling product in Amazon’s history.

The U.S. Kindle Store now has more than 810,000 books including New Releases and 107 of 112 New York Times Bestsellers. Over 670,000 of these books are $9.99 or less, including 74 New York Times Bestsellers. Millions of free, out-of-copyright, pre-1923 books are also available to read on Kindle.

January 2011’s sales figures from the American Association of Publishers also point to the growing success of eBooks – US$70m – a 116% increase year-on-year – despite a small, 1.8% (US$805m), fall in the overall market. eBook market share figures are hard to verify. Apple recently claimed 20% of the market, Barnes and Noble (US-only) also claimed 20% of the market and Amazon claims between 70% and 80% of the market – obviously not all can be true.

Wild market claims are to be expected in this high growth stage of the market development and there is uncertainty whether a 20% market share is by downloads or value and whether downloads include free, out of copyright eBooks which generate no revenue. All estimates that the STL team have seen indicate that Amazon is the market leader with a market share in the 50%-75% range. This CNET interview with Ian Freed, an Amazon vice president in charge of the Kindle, provides more detail on where Amazon sees itself in the market.

Although detailed data isn’t available about whether Amazon is yet making a contribution to operating profit from the Kindle and eBooks generally, all the indications are that Amazon is happy with the results and the continued investment speaks for itself.

The STL team believes Amazon’s success can be put down to five key factors:

  • Amazon probably has the highest concentration of book reader users as its customers;
  • Reading books on the Kindle is a very pleasurable experience and much better than some non-dedicated devices, especially the PC and the phone;
  • Amazon has developed a very easy-to-use platform which removes the friction of purchase and delivery of eBooks to a wide choice of platforms;
  • Amazon has tried to deliver great prices to its customers with new eBooks typically priced cheaper than their hardback alternatives. The Kindle Store has always included a wide selection of free out of copyright books; and
  • Amazon has built a store with access to material from the largest publishers to the smallest self-publishers. Self publishers are driving innovation with low-pricing for smaller episodic books.

The STL team believes that this last point is extremely important. Currently, Amazon has over two million sellers on its stores most of which are small businesses selling physical goods with the help of Amazon tools and services. This volume is far in excess of most developer schemes and almost certainly far larger than the combined total of content sellers across all developer platforms. Amazon will have little problem building and managing an even larger community as the developer community has largely adopted ‘Amazon Web Services’ as their cloud platform of choice, and sellers are already familiar and happy with Amazon tools and services. 

Amazon and Music: Downloads not moving the needle

In the UK for example, Amazon share of the overall music retail market was a healthy 13.4% in 2009. Overall, the internet players have the largest share of the music market with 39%, compared to specialist retailers, such as HMV, with 33% and Supermarkets, such as Tesco and Sainsbury’s, with 23.6%. In a decade, the internet as an e-commerce channel has overtaken all of the UK’s high street. The download only Apple iTunes service with share of 10.6% clearly dominates the online distribution market.

Figure 7: Amazon’s Music Share is Healthy but not Dominant

Source: BPI Yearbook 2009

In the USA, Billboard estimated that in 2009 iTunes had 26.7% retail market share, which translated into 65.5% online market share. For a la carte download sales, the iTunes U.S. presence is overwhelming, with an estimated 93% market share.

In contrast, Amazon’s MP3 store had an overall 1.3% market share, which translates into about 5% share for a la carte downloads. Amazon commenced digital downloads in 2007 and has been a constant innovator.
The service launched with DRM-free tracks which were therefore portable between devices and with higher bitrate encoding, providing higher quality to the discerning ear. In the USA, the catalogue has continually grown and from an initial 2m tracks have grown to today having 1.4m albums and 15.2m tracks. But, as befits its corporate strategy of “everyday low pricing”, Amazon has put most effort into price innovation.

Figure 8: Amazon’s Smart Targeting & Competitive Pricing

Normally, Amazon has the lowest price for its chosen Album of the week. For instance, The Strokes new album is currently available for £4 compared to iTunes pricing of £8 in the UK. This is typical behaviour of a master retailer driving customers to their stores through headline offers and promotions to their customers. Apple has a very different approach relying on an agency model where the content owner has limited choice in setting retail prices.

In the USA, Amazon’s Daily Deal launched in June 2008 and it became the subject of a Department of Justice (DOJ) inquiry in May 2010 after iTunes began grumbling about Amazon promotions to the major labels. No comment has been released by the DOJ, but it seems clear that with Apple’s huge iTunes share that any attempt to discourage labels from participating in the Amazon promotions might be construed as price fixing. Amazon has continued to play its strongest card – differentiation though price competition.

Amazon has built an MP3 application for Android phones which allows the immediate purchase and playing of songs. It is noticeable that they haven’t built the same tools for Apple. In fact, the Amazon WindowShop application for the iPad actually displays download prices (and the playing of short clips), but doesn’t allow the direct purchase or download. Given, Apple’s domination of the music download market and the fact that Apple have allowed the Kindle store to operate on the iPad/iPhone, the STL team predict it will not be long before the DOJ launch another inquiry into Apple’s music practices.

In contrast to eBooks, Amazon does not seem to have built significant music share and the STL team puts this down to three main reasons:

  • The Amazon experience of buying music is not as good as Apple iTunes. This is made especially difficult to match as Apple control the device – the mass market seems to prefer convenience over price on low unit price items;
  • Amazon is not associated with the music market in the same way as Apple is; and
  • There are plenty of alternatives to paid music downloads. Spotify in Europe and Rhapsody in the USA, although of questionable profitability, have achieved success on other platforms with different business models, providing both paid-for and advertiser funded unlimited music streaming.

The move into Movie streaming

Amazon has taken a different approach to Movies than to either Books or Music.

In the UK and Germany, Amazon has recently acquired full ownership of a DVD and streaming service, called LoveFilm. This operates primarily under a subscription model providing access to a library of films. It is the UK and German equivalent of Netflix.

A subscription business operates under a vastly model than a retailer. It requires a much larger investment in both customer acquisition and retention and in content libraries. There is also reasonable investment required in gaining access and building clients for the plethora of devices coming onto the market to connect TVs to the internet. It also starts to compete with powerful payTV companies that have very deep pockets, large customer bases and similar ambitions.

In the USA, Netflix has managed to build a strong base of customers, a large market capitalization and is currently a darling of both the press and the investor community. The STL team has written extensively in the past about Netflix, its business model and prospects (see: The Impact of Netflix: Can Telcos Help Hollywood; Entertainment 2.0: New Sources of Revenu for Telcos?)

Amazon has decided to enter the fray in the USA with its Instant Video service. This service offers a limited selection of free streaming movies to subscribers of the Amazon Prime service. The Amazon Prime service is priced at US$79/per annum, compared to the Netflix streaming cost of US$8/month ($96/annum). Although, the annual fee may put some off, Amazon seems to have solved the problem of expensive customer acquisition. However, it is questionable whether Amazon under a licensing structure can afford similar levels of investment in content as Netflix.

A key factor in deciding this will be the support of studios for its model and their willingness to provide premium content and in this Amazon is gaining traction.

Figure 9: New Releases are Going to Amazon First

It is noticeable in the USA that Amazon are heavily promoting download-to-rent and download-to-own options which brings new releases to the library and are favoured by the Movie Industry.

Amazon is also an UltraViolet member which again we have written extensively about (see Telcos Risk Missing the UltraViolet Online Opportunity) and it is likely in the near future that Amazon will sell physical DVDs with the right to stream to multiple devices.

In Movies, STL Partners believes Amazon is uncertain which of the options will win in the future and is willing to invest in a wide range of options; effectively, it’s hedging its bets. But as in Music, Amazon has a long way to catch up with early platforms, whether that’s Apple, which leads the download-to-rent and own market, or Netflix which leads the subscription business. Again, this makes it an interesting target for partnerships, particularly for content owners looking to establish models that work better for them than Apple or Netflix.

Amazon shaking up the AppStore market

Amazon also has a significant business selling both physical electronic games and consoles. It was therefore hardly surprising that it launched Android AppStore heavily populated with games and featuring Angry Birds Rio as its launch game.

Figure 10: Amazon’s Appstore

The Amazon AppStore offers some very interesting features, including:

  • The ability to sample the game on a PC before committing to a purchase;
  • Amazon setting the retail price of the game with the developer only suggesting a retail price;
  • Free Daily Promotions of leading applications; and
  • Amazon performing a limited curation role, checking the applications are free of viruses

There are also teething problems with the service. For example, the Amazon AppStore is impossible to install on some “locked-down” Android handsets.

But Amazon has entered the market and the STL team believes it will be a serious player for years to come. It is also our belief that Amazon will want to develop AppStores for all major platforms, which will bring them into considerable conflict with certain platform owners, not just Apple.

To read the report in full, including the conclusions and recommendations…

  • Lessons for other players in the Digital Entertainment Value Chain
  • Content Owners
  • Network Services Providers
  • Device Manufacturers

Members of the Telco 2.0TM Executive Briefing Subscription Service and the Dealing with Disruption Stream can access and download a PDF of the full report here. Non-Members, please see here for how to subscribe. Alternatively, please email contact@telco2.net or call +44 (0) 207 247 5003 for further details. ‘Growing the Mobile Internet’ and ‘Lessons from Apple: Fostering vibrant content ecosystems’ are also featured at our AMERICAS and EMEA Executive Brainstorms and Best Practice Live! virtual events.

Tablet Frenzy: Network Poison or Economic Palliative?

Summary: The success of the iPad2 has been seen by some as a sign of a paradigm shift in computing. With their theoretical appeal as a new portable medium for online video consumption could tablets have a significant impact on communications networks and economics? Here is Telco 2.0’s market outlook.

Below is an extract from this 18 page Telco 2.0 Analyst Note that can
be downloaded in full in PDF format by members of the Telco 2.0
Executive Briefing service using the links below.

                            Read in Full (Members only)        To Subscribe

‘Growing the Mobile Internet’ and ‘Fostering Vibrant Ecosystems: Lessons from Apple’ are also key session
themes at our upcoming ‘New Digital Economics’ Brainstorms (Palo Alto, 4-7 April and London, 11-13 May). Please use the links or email contact@telco2.net or call +44 (0) 207 247 5003 to find out more.

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Introduction: fearing the tablets’ effects?

The mobile device industry is currently awash with tablets. Catalysed by the iPad’s meteoric rise to prominence in 2010, the market has since been saturated with a broad range of similar devices such as Samsung’s Galaxy Tab. In early 2011, trade shows at CES in Las Vegas, and Mobile World Congress in Barcelona both saw the launch of countless Android-powered tablets, as well as others featuring RIM’s and HP’s own operating systems.

With the subsequent huge success and publicity of the iPad 2 launch (see iPad2: how Apple plans to dominate the ‘post PC era’), many in the technology industry are convinced that we are witnessing a new paradigm shift in computing. While the majority of debate has concerned itself with apps, content-publisher business models and the possible advent of the “post-PC era”, it is also worth stepping back and looking at the network-side implications of these new devices.

Some observers are expecting the advent of mobile-connected tablets to continue the assault on 3G and 4G network capacity, taking over where smartphones and laptops left off. Observing that tablets’ large screens are ideal for heavy-duty web and video consumption, there are certainly some doom-sayers predicting the imminent collapse of networks already suffering from congestion. For example, in July 2010, OpenWave’s CEO claimed that “There is no doubt that the iPad will be part of the data overload story when the wireless industry looks back in a few years time” . Even the FCC has used the potential tablet data threat in its efforts to gain additional spectrum rights for mobile broadband , saying “With the iPad pointing to even greater demand for mobile broadband on the horizon, we must ensure that network congestion doesn’t choke off a service that consumers clearly find so appealing or frustrate mobile broadband’s ability to keep us competitive in the global broadband economy.”

Other observers are more cautious. There are still some dissenters regarding the overall tablet story – will they really oust the netbook and laptop as the main mobile computing platforms? And even if they are game-changers, will they predominantly be used while connected to cellular networks, rather than WiFi?

While Telco 2.0 feels that tablets are indeed important in the medium term, we are concerned that 2011 may see the hype bubble pricked a bit, as the world’s gadget-enthusiast segment gets saturated before the mass-market really grasps what to do with a touchscreen device that isn’t pocketable. The rhetoric about the imminent death of the PC seems to fit poorly with data points such as Apple’s own rising laptop sales, paralleling the iPad’s growth.

The bitter pill of mobile data traffic

Telco 2.0 has talked about the mobile broadband “capacity crunch” and the challenging economics of 3G/4G networks on numerous occasions over the past few years. We have considered the role of offload, traffic management, two-sided approaches to “slicing and dicing” network capacity in both fixed and mobile domains, and the need for sensible pricing plans for mobile data. We have watched the explosion of smartphones and the typical data volumes grow to 100’s of megabytes per month per user – even 1GB+ for certain devices such as high-end Android phones.

In 2010, we identified a variety of new mobile broadband business models involving new device categories, evolution of the wholesaling/MVNO concept, and “priority connectivity” for certain applications, plus new non-subscription revenues from sponsored or third-party paid wireless data sessions in Mobile, Fixed and Wholesale Broadband Business Models. While all these are attractive, we also identified likely pricing pressure on mobile data plans – despite some offerings such as 3G dongle modem tariffs already being positioned often at too-low rates.

The net conclusion is that mobile capacity will need massive enhancement anyway – likely through a combination of both a move to more-efficient networks (HSPA+ and LTE, especially), and ways of moving to smaller cells and offload (WiFi and femtocells) – adding capacity by “densifying” the networks. All this is pretty much “baked in”, irrespective of the growth of additional new device categories.

Figure 1: Mobile networks need much more capacity, despite new revenue models

Global Mobile Broadband Access Revenues

Source: Telco 2.0 EMEA Brainstorm, April 2010

The last two years have seen increasing concern – and in some cases panic – among mobile operators about the effects of exploding data traffic on their networks. The emergence of tablets is adding to the sense of worry. Although some of the existing problems can be attributed to the extra signalling load, in other cases congestion is indeed being driven by sheer volumes of traffic, especially in “busy hours” or “busy cells”. For example, 4-10pm in regions with a lot of mobile laptop dongles tends to be a peak period. A growing shift to video traffic, driven by web TV streaming sites, social networks and adult content, has arisen as a particular point of concern. Various analyses have put video at 50-70% of total mobile data traffic already, consumed both on smartphones but also especially laptops with larger screens and batteries. Again, tablets are looked at as potential accelerators of this trend – with the vision of iPads being used to watch live TV via cellular networks while users are “out and about” a stereotypical fear.

Some operators have already tried to head off the problem with phones, with for example T-Mobile UK suggesting to its smartphone users that “If you want to download, stream and watch video clips, save that stuff for your home broadband.” as part of its fair-use policy. However, many recognise that much of the problem has been brought by operators on themselves – especially through the mis-selling and mis-pricing of laptop data plans as being direct substitutes for home DSL and cable broadband, which clearly cannot have the same restrictions on video.

Tablets are potentially something of a quandary for operators – as a new category, there is no pre-existing expectation about exactly how data plans should be priced and managed – and few clear points on how much traffic they might be expected to generate. But conversely, if tablets are to be truly mobilised products rather than just WiFi-centric nomadic ones, they need to be usable without arbitrary restrictions or off-putting contract pricing.

(A quick note on signalling traffic: at the moment, it seems unlikely that tablets are going to major generators of load in this regard. Unlike smartphones, they are not “always-on”, running background tasks over the cellular network, or creating massive problems at the radio level through “fast dormancy” for power control. Irrespective of the precise applications used, they are likely to be similar to laptops/dongles, being online for lengthier sessions rather than ultra-frequent “pings” of servers.)

To work out whether or not tablets are a genuine source of concern for operators, Telco 2.0 has developed a simple analytical framework, bringing together sales volumes, operators’ role, traffic demands, data plans and the means for mitigation of network congestion. The following sections discuss each of these in turn.

Figure 2: Assessing tablets’ impact on mobile data networks

Tablet Forecast Schematic

Source: Telco 2.0

Tablet demand

Telco 2.0 does not itself forecast shipments of specific computing product categories. However, we are in agreement that the overall tablet sector will grow strongly through 2011 and beyond, although we are slightly more bearish than some observers who proclaim “the death of the PC”, asserting that tablets will inevitably become the main portable computing format. Our view is that tablets will (largely) complement smartphones and notebooks, rather than massively substituting for either – although the smaller netbook PC format is more threatened. Research firm Disruptive Analysis has noted that typical tablet battery capacity – a proxy for processing or display, capability and therefore ability to “do stuff” – is mid-way between the two other device categories, reflecting a distinct role and market-space for tablets.

Figure 3: Device battery power diversity suggests different use cases for tablets, smartphones & laptops rather than outright substitution

Tablet, Smartphone, PC Battery Capaciity

Source: Telco 2.0, Disruptive Analysis

Depending on the exact definition of “tablet” (itself an imprecise term), around 17-20m devices shipped in 2010, of which about 15-16m were Apple iPads. Android-powered devices started making significant in-roads in Q4, gaining perhaps a 20% market share.

  • In January 2011, research firm IDC reported shipments of 17m tablets in 2010, forecasting 45m and 71m unit sales in 2011 and 2012 respectively.
  • Investment bank Goldman Sachs expects shipments of tablets such as the Apple iPad to more than double over the next year, going from 16m in 2010 to 35m in 2011. It expects 40% of that 35m to cannibalise PC shipments, with 20% cannibalising notebook sales and 80% cannibalising netbooks.
  • Research firm Ovum has forecast 150m tablet shipments in 2015
  • A more bullish prediction from iSuppli puts 2015 sales of tablets at 242m, although 39m of these will be full PCs in capability terms, masquerading in a tablet-style form-factor.
  • Apple is believed to have sold around one million iPad2’s on its opening weekend.

To read the rest of the article, including:

  • Telco 2.0’s Tablet Market Outlook for 2011 and 2015
  • Network Capacity Impact of Tablets
  • Forecast Global Traffic from tablets
  • Tablet Data Plan Pricing
  • Conclusion


…and the figures…

  • Figure 1: Mobile networks need much more capacity, despite new revenue models
  • Figure 2: Assessing tablets’ impact on mobile data networks
  • Figure 3: Device battery power diversity suggests different use cases for tablets, smartphones & laptops rather than outright substitution
  • Figure 4: High growth for tablets to 2015, but not all will be cellular-connected
  • Figure 5: Forecast global mobile data traffic from tablets, 2010-2015
  • Figure 6: Forecast mobile data traffic by device type, 2010-15 (Cisco VNI)
  • Figure 7: Selected mobile operator-supplied tablet 24-month contracts

Members of the Telco 2.0TM Executive Briefing Subscription Service can access and download a PDF of the full report here.
Non-Members, please see here for how to subscribe. Alternatively, please email
contact@telco2.net or call +44 (0) 207 247 5003 for further details.
‘Growing the Mobile Internet’ and ‘Lessons from Apple: Fostering vibrant content ecosystems’ are also featured at our AMERICAS and EMEA Executive Brainstorms and Best Practice Live! virtual events.

iPad2: how Apple plans to dominate the ‘post PC era’

Summary: Apple’s new ‘PC-killer’ tablet is intended to significantly expand the Apple ecosystem, with long-term impacts on many players including telcos, giving Apple an even stronger hold on the market. What strategies should telcos adopt?

This is an extract from this 14 page Telco 2.0 Analyst Note, that can be downloaded in full in PDF format by members of the Telco 2.0 Executive Briefing service and the Telco 2.0 Dealing with Disruption Stream using the links below.

                            Read in Full (Members only)        To Subscribe

‘Lessons from Apple: Fostering vibrant content ecosystems’ is also a key session theme at our upcoming ‘New Digital Economics’ Brainstorms (Palo Alto, 4-7 April, London, 11-13 May, and Singapore 22-23 June). Please use the links or email contact@telco2.net or call +44 (0) 207 247 5003 to find out more.

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Introduction

While Apple’s new tablet has some interesting developments to its content and software ecosystems, the key business model move is that by extremely aggressive market positioning on price, weight and design, it will establish a new dominant platform position for Apple in the ‘post PC era’.

How far should telcos go in supporting Apple’s latest innovation? In this article we outline:

  • the iPad’s significantly enhanced features and consumer positioning;
  • important upcoming developments in the ‘upstream’ content publishing ecosystems;
  • market forecasts and our view of the impact of the new iPad;
  • and explore strategic alternatives for industry players, especially telcos.

It’s Faster, Lighter, Smaller…

At the heart of the iPad2 is a new dual-core processor internally developed by the Apple chip team. Apple claims the new A5 is twice as fast the A4 processor in the original iPad for normal tasks. Graphic intensive tasks are now up to nine times faster. The nullifies an advantage of other tablets which are due to come onto the market during 2011, the majority of which are based on dual processors from either Qualcomm (Snapdragon) or Nvidia (Tegra 2)

The iPad2 is also 33% thinner and 15% lighter which is a significant improvement that Apple sees as having an important impact on the overall user experience. The Telco 2.0 team agrees: the original iPad was already of a higher build quality and ergonomically feels much better than the competition. We also suspect that the iPad2 battery life of 10 hours will also be a big differentiator.

…with more built-in hardware…

The addition of a front and rear camera not only catches up with competition but offers a brand new set of capabilities for third parties developers to build into their applications (see below).

Other notable hardware features are: the additional of a gyroscope, which is already in the iPhone and IPod touch, which gives extra location features especially to the games developer community; and a multi-mode modem, supporting both EVDO and GSM networks. The incremental cost for the dual core modem is retained at US$130, which seems high and the Telco 2.0 team feels shows Apple’s inclination to promote public WiFi over mobile operators 3G networks.

…better accessories…

Apple showcased two new accessories – a new cover and a new cable.

Apple iPad Smartcover

The Smartcover is an intriguing piece of design which relies on magnets to align itself to the iPad and snap into place. It is a radical improvement on the cover for original iPad. The Smartcover comes in multiple colours and in polyurethane (US$39) or leather (US$79). The potential profit from this accessory is worth considering: we would be surprised if the margin is less than 100% for what is after all a piece of plastic with some magnets in.

The other accessory is a HDMI cable which allows the iPad2 to hook up to HDTV’s and play the media contained, whether music, films or TV shows. Apple claimed in the launch presentation that this was a feature requested by the educational sector to aide classroom teaching. But, it obviously has a far more wide reaching application in the hands of the mass market in the living room. 

For non-wired connections to the TV, Apple has upgraded its Airplay protocol to include synching of photo’s and video via an AppleTV box. It is rumoured that Apple is currently offering licensing of the Airplay technology to TV and Audio manufacturers which obviously presents a threat to the alternative, which is DNLA technology.

…and cheaper!

Apple iPad Price

Despite the extra hardware, Apple has retained the existing pricing structure – US$499 for the basic model. Apple is pursuing a very aggressive pricing strategy and obviously is planning to capture a huge share of tablet market.
In comparison, the Motorola Xoom with a similar hardware specification is priced at US$799. Even subsidized, the Xoom is priced at US$599 with a two-year, minimum 1GB data contract for US$20/month from Verizon.

This aggressive price will be a major problem for tablet competitors. It is also noticeable that contained within the Apple Q4 2010 results, the ASP for the iPhone was US$626 compared to an ASP for the iPad of US$667. Given the larger form factor of the iPad, we suspectthat Apple aretaking a lower margin on the iPad than the iPhone.

FaceTime – another move into communications

Apple iPad FaceTime

We think the iPad2 is a much better form factor for videoconferencing that the iPhone. Apple has bundled their FaceTime application with the operating system. FaceTime on the iPad2 highlights how Apple continually increases the value of their overall platform with incremental features. iPad users can now video conference with iPhone, iPod Touch and Mac users – all for free over WiFi connections. This immediately threatens not only Skype, but other social networking tools that are keen to add voice and messaging features and usage, such as Facebook and Google. More importantly for the mobile operators, FaceTime represents a clear and present danger to their voice and messaging revenues.

No MobileMe – yet

Before the launch event, there was a lot of speculation that Apple would be offering an upgrade to its MobileMe cloud services. The speculation was that Apple would allow synchronizing of content, whether audio, video or pictures to an Apple cloud which could then be accessed on any device – whether computer, phone or tablet. These rumours have been around since Apple acquired the LaLa team which had built a similar product for music digital lockers.

We did not expect an announcement at this point, mainly because Apple and the rest of the industry are awaiting a key legal ruling which could enable digital lockers without the need for the licences from the rights holders. This case is MP3tunes v EMI and is currently under consideration by a judge in New York and a decision is due within six months.

Michael Robertson is behind mp3tunes and has been a perennial thorn in rights holders’ paws since the days of mp3.com. He is adopting the DCMA defence, so successfully used by Google/YouTube in their case against Viacom, which is essentially that the web service is not responsible for content uploaded by a 3rd party to their service as long as they take it down when notified by copyright holders of infringement. If Michael Robertson wins, we expect a raft of digital locker services to be launched by the major internet players in the second half of 2011 which will not only be cheap, but also ruin many start-ups, such as Spotify, which have built a premium paid-for model around streaming of content on multiple devices.

Important Changes in the Publishing Model

Apple iPad Publishers

The other big news related to the publishing industry and eBooks in general. Random House wasn’t originally sure about the whole Apple agency pricing agreement and that left them as the holdout at the original iPad launch among the so-called “big six” publishers (including HarperCollins, Penguin Group, Simon & Schuster, Hachette, and Macmillian), but it seems that Apple has managed to convince them to join.

The ‘agency model’, where the publisher sets the retail price of the eBook, and in Apple’s case reaps 70% of the final selling price, is still to be tested in the courts. This model is different to the typical publishing arrangement where the publisher sets a wholesale price and the retailer prices at whatever they feel with whatever margin it yields them. This has allowed retailers, such as Amazon and the Supermarkets, to aggressively price bestsellers earning money on other items in the shopping basket.

The validity of the agency model will be tested throughout 2011 with the EU and several USA states already looking into price fixing. The outcomes of which will have a fundamental effect on the way digital content is brought to market and retailed.

The Post PC Era

Apple iPad Evolution

At the launch event Steve Jobs proudly proclaimed the birth of a new ‘Post PC era’. An era where people are not obsessed with GB and MHz of a single machine, but instead the overall customer experience across a range of devices. We would argue that Apple products have always attracted people that valued overall user experience as superior to the cheaper Wintel computer experience – even in the dark days when the Apple share of the PC market was shrinking and seemingly restricted to content creators, whether desktop publishers or audiovisual creators.

In the recent past, the iPod introduced Apple products to a whole new generation of users – with upside for its computer business. Similar waves of knock-on benefits can be seen with the introduction of the iPhone and iPad – more and more people are joining the Apple platform and there are significant benefits across the whole range of products.

Whatever consumers want, there is a range of products to suit their tastes, from the entertainment focused iPods through to the complete range of work-horse Mac products. It is also noticeable that iOS features such as the Appstore are also being added to the more industrial MacOS.

So we think the strategic message carried in Jobs’ words is that Apple wants to dominate the Post PC era, and it’s means of doing so is to continue to build out and interlink its ecosystem.

‘Apple DNA’ and the ‘Apple Platform’

Apple iPad DNA

Steve Jobs most memorable quote at the launch event was “It’s in Apple’s DNA that technology alone is not enough, that it is technology married with liberal arts, married with the humanities that yield us the result that makes our hearts sing.”

The demo of the iMovie and GarageBand iPad2 applications highlighted Apple tools for video-editing and music creation at unbelievable price points of US$5 for each. It stretches the imagination to see Samsung, Nokia, RIM, Microsoft or even Google to launch similar products. These are perfect tools for someone to experiment with. The professional content creators might need to upgrade to Mac’s and professional grade software: the Coen Brothers used Final Cut Studio is edit their latest movie, True Grit.

Apple’s strategy in the ‘Post PC era’ is an attempt to corner the market in content creation and consumption across a range of devices – again something that individual OEMS even with the software magic of Google and Microsoft will find difficult to beat.

To read the rest of the article, including…

  • Market Forecasts
  • Conclusions – what should mobile operators do?

Members of the Telco 2.0TM Executive Briefing Subscription Service and the Telco 2.0 Dealing with Disruption Stream can download the full 14 page report in PDF format here. Non-Members, please see here for how to subscribe. Alternatively, please email contact@telco2.net or call +44 (0) 207 247 5003 for further details. There’s also more on ‘Lessons from Apple: Fostering vibrant content ecosystems’ at our AMERICAS, EMEA and APAC Executive Brainstorms and Best Practice Live! virtual events.

 

Digital Entertainment 2.0: Telcos risk missing the UltraViolet online video opportunity

Summary: 2011 sees the introduction of the UltraViolet digital locker platform by DECE, a consortium led by 6 of the 7 top Hollywood studios and backed by 50 more cross-industry heavyweights. This anticipates and supports the transition of film and TV to online distribution. Here we analyse the opportunities telcos will miss out on if they fail to engage with DECE.

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Alternatively, please email contact@telco2.net or call +44 (0) 207 247 5003 for further details. There’s also more on DECE UltraViolet strategies at our AMERICAS, EMEA and APAC Executive Brainstorms and Best Practice Live! virtual events.

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In our Executive Briefing entitled, Entertainment 2.0: New Sources of Revenue for Telcos we laid out a series of trends that are changing the video market and the opportunities and challenges this poses for telcos. In this Analyst Note, we examine the ways in which DECE’s UltraViolet will impact the market and explain why telcos can’t afford to adopt a ‘wait, see and proctect approach to its introduction.

DECE UltraViolet explained

DECE UltraViolet has been created in anticipation and support of the switch-over of video content from physical to online distribution. It aims to offer consumers an ultimate level of flexibility as they can not only own, store and manage their content through a digital locker but also share it with family members and view it anywhere through a wide range of devices from TVs and PCs to tablets and mobile phones.

Figure 1 – The UltraViolet proposition: buy once, play everywhere, forever, for the whole family 

Source: Telco 2.0

Furthermore, it provides the video industry with a real alternative to piracy based on an open platform with licensable specifications, not a proprietary system such as Apple’s. The platform is set up to support multiple business models and rentals are expected to follow relatively quickly, which explains the interest of Netflix and LoveFilm (now part of Amazon) in the initiative, but at launch it will offer only online purchase.

Finally, the digital locker meta-data will provide a single view of customer buying and viewing preferences on which future planning can be based.

It is not surprising therefore that the initiative has attracted a powerful and active membership comprising in excess of 50 companies including 6 of the 7 major studios, network equipment and consumer electronics vendors, service providers and retailers. Notable exceptions to the current membership are Disney, which has its own digital locker, and WalMart, which has a deal with Apple. Both, however, are free to join at a later date as it is an open platform.

UltraViolet is due to launch in the US in the middle of 2011, with Canada and the UK following towards the end of the year before a full international rollout begins in 2012.

Virtually all the players involved in the video distribution ecosystem from content owners to retailers have their own plays in online video distribution but they are still heavily involved in DECE because they understand that it has the potential to impact on their existing and future business plans. This is not the case with telcos, with a few notable exceptions such as BT which is a member of DECE.

Telco’s adopt a “wait, see and protect my network” strategy

Most telcos seem to be cautious and sceptical about UltraViolet and digital content lockers in general. Rightly or wrongly, they perceive that UltraViolet faces major challenges and represents a headache for them rather than an opportunity.

They appear to doubt that they need digital locker content to drive use of their services and see little margin in retailing movies. Furthermore, mobile network operators in particular are concerned about the impact of video streaming on network congestion and will not hesitate to institute network policy rules that will curtail this perceived “damage”.

Without a clear opportunity for “delivery” income for telcos (for x-plan MBs, QoS, guaranteed bandwidth), or clear business models for moving to this, there is limited incentive for them to step up their interest. We have therefore observed three general telco responses to DECE. For clarity, we have described these as three discreet positions but, in reality, telcos can and do pursue combinations of these.

Telco2.0 believes that there is a potential opportunity for telcos to adopt a more pro-active approach to DECE through an early-adopter strategy as:

  • The entertainment market is large and premium entertainment key
  • Entertainment plays a key role in securing consumer attention
  • DECE UltraViolet has the ingredients for success
  • UltraViolet represents an opportunity for telcos as suppliers to the ecosystem
  • Telcos share a common interest with DECE

Each of these reasons is discussed in detail in the sections that follow.

Entertainment: A market too large and valuable to ignore

The global entertainment market is huge and as such is obviously attractive to telcos looking to counter falling ARPUs. It accounts for a considerable share of disposable income and overall entertainment spending is much higher than that on telecoms.

In the UK, which as the leading western European market is to a degree indicative of most developed markets, the average household monthly spend on entertainment is more than double that for communications. Furthermore, the decline in communications spend has been faster than that for entertainment over the last five years and this is despite the rapid decline in music sales revenues.

Figure 2 – Comparative monthly spend on telecoms and entertainment in the UK

  

Source: STL Partners Estimates, OFCOM – UK Regulator

Of course UltraViolet is not yet targeting entertainment in its entirety or even all of the home entertainment video market. Instead it is initially setting its sights on the retail market through online sell-through and that is currently very small, accounting for a mere $590 million in 2009 and the lowest contributor of all entertainment sectors to online revenues.

Figure 3 – Digital film downloads are so far the lowest revenue generators in online entertainment

 

Source: Telco 2.0

It is perhaps not surprising therefore, that telcos have not seen this as a particularly inspiring target segment. However, online sell-through is a nascent market and one we believe has exponential growth potential.

This is certainly proving the case for online rentals. According to Bain’s figures presented at the 9th Telco 2.0 Executive Brainstorm in Santa Monica, 80% of US consumers already view video online and Netflix streaming services now account for 20% of total US internet traffic, twice YouTube’s share. Furthermore, by 2014, 60% of TVs will be connected to the Internet, addressing the major remaining barrier to take up by connecting the primary viewing device to online video content.

Sizing the market

Attempts to accurately size future markets are always fraught with inaccuracy, and none more so than punts on film and TV entertainment, as the outcome will always be dependent on the quality and appeal of the content as well as many other factors.

That aside, we are convinced that the market can grow much faster than currently predicted. In fact, we see DECE UltraViolet as capable of stimulating market growth for digital sell-through similar to that of Apple (depicted below). We expect it to grow its share of the home entertainment market from 1% to 13.5%, providing a sizable target market and one that will continue to grow for some time.

Figure 4 – An Apple-style growth is possible for online sell through with UltraViolet

 

Source: PriceWaterhouseCoopers, Apple, Netflix, Telco 2.0

UltraViolet’s growth potential should at least put it on telco’s ‘strategic interest radar’, especially as it has been designed to accommodate multiple business models, including the rental models in the future.

However, we would argue that waiting for the growth to happen is missing more than one opportunity. The first is to influence in the platform’s development and, perhaps even more importantly, the second is to fit it into and around other strategies that are currently developing in silos, namely video services, customer retention and digital shopping malls.

Low margins put off telcos – but they miss its attention value

There is a set of telcos that believe that TV and film content neither offers the kind of margins they require, nor differentiation, as content owners have proven that they are unwilling to negotiate exclusive deals with telcos that can usually only reach a minority proportion of any national market.

Again, we believe this is missing a point for any telco looking to develop a significant retail play. Certainly it is true that margins are low. Tesco, the world’s third largest retailer by revenue, has revealed that it is currently making next to no margin on its physical video business and there is no reason to assume it will be significantly better online. However, the business case for entertainment products developed by what we consider a ‘master retailer’ is not based on sales but instead on footfall and the overall size of the shopping basket. Indeed, it is going all out to develop the same relationship online between entertainment product sales and fuller baskets.

Tesco is developing a digital Locker platform that works across multiple devices to deliver a joined up experience and drive impulse buying. It is a staunch supporter of DECE/Ultraviolet and plans on using it, rebranded as InvisiDisc, as a central part of its entertainment platform.

Figure 5 – Tesco puts digital locker at heart of portal proposition

 

Source: Tesco Presentation, 11th Telco 2.0 Brainstorm, EMEA

As the Tesco example proves, while margins on the products themselves can be small or non-existant, there may be significant other benefits. Tesco see that the overall basket spend is significantly higher when it involves an entertainment product, and entertainment is a both an impulse buy and an attention draw.

Furthermore, the investments that have been made in infrastructure by the DECE group means the entry costs are lower. For the few telcos that don’t have an entertainment platform, UltraViolet offers an opportunity to join the party and use that infrastructure to access what is expected to be premium content which they can offer to customers through their own retail portals. For the majority that already have their own platforms consideration should be given to adding UntraViolet into the mix for what is lost in duplicating infrastructures could be gained with premium content.

Entertainment’s primary role in securing consumer attention

Many upstream services rely on the ability to secure consumer attention and sell this on to third parties in some form. This is the basis of the advertising-based business models, including the one that dominates the Internet. Entertainment is a major tool in attracting and maintaining consumer attention as it has such a high profile in the minds and lives of consumers (as exemplified by the UK figures in the chart below).

Figure 6 – Comparative daily usage of entertainment and telecoms in the UK (2009)

Source: STL Partners Estimates, OFCOM – UK Regulator

The difference in the time spent by consumers on communications services and entertainment is stark and reflects the fact that while communication is a vital part of everyday life, entertainment holds their attention more. This is particularly important and valuable when developing portal and other upstream strategies. as exemplified by the value retailers such as Tesco that are using it as a key part of their online strategy.

DECE UltraViolet has a recipe for success

The ability of online entertainment delivery platforms to move the needle should not be in question. Netflix and LoveFilm have already made an impact with online rentals, while Apple’s success is indisputable. To do this they have introduced services that have a utility value combined with innovative and disruptive business and pricing models. Using these experiences as a base reference, we have identified the following as important success factors for online distribution platforms:

  • Offering new and premium content in a timely way and from many owners;
  • Creating a substantial back catalogue quickly;
  • Delivering to all devices that consumers wish to use and that are in the market;
  • Supporting the legal transfer of content between devices and people;
  • Creating a differentiated value proposition;
  • Introducing services with a disruptive model and pricing;
  • Creating multiple channels to market;
  • Future-proofing so that consumers don’t lose their content as devices and technologies develop;
  • Providing links between physical and online products to ease the transition.

In theory at least, UltraViolet has strengths across all these.

UltraViolet is getting the proposition right

UltraViolet’s basic proposition of ‘buy once, play everywhere, forever, for the whole family’ is a new and valuable one that overcomes many of the frustrations consumers have with online video content as it offers:

  • A single point of access to content from multiple content owners;
  • The ability to buy once and view content on up to 12 devices;
  • The ability for up to 6 family members to view the same content.

This creates a new and differentiated value proposition and supports the legal transfer of content between people and devices, as well as the capability to view on a full range of devices now and in the future.

It is an open platform based on interoperable standards and licensable technology specifications. So far DECE has laid out some the technical framework for a Common File Format which means video files are encoded and encrypted just once, as well as the technical design specifications for each of the six major categories of company – content providers, retailers, streaming service providers, device and application providers and digital distribution infrastructure providers. These ensure that all players are working in the same way and services will be interoperable. (See Can Telcos Help Save the Video Distribution Industry for more details).

All the right backers…

This is a unique and highly valuable proposition and one that has attracted a great deal of support and attention from those currently active in the value chain with the exception of telcos. All the major Hollywood studios bar Disney, which has its own digital locker solution, are behind the initiative which should ensure high quality and desirable content from the start and gives potential access to a huge back catalogue. Indeed, it is widely accepted that the studios will promote new content through UltraViolet first, providing an online alternative to the DVD/Blu-ray sales window.

This is highly significant for telcos that have so far been satisfied to stick to delivering their own content services through VoD, IPTV and mobile believing they have an advantage in providing a multi-screen service as they have the potential to control the delivery quality and have understanding of the user’s device.

However, they are still reliant on content deals with studios to secure the types of films and TV programmes that consumers want. These are usually based around the fourth pay TV window, meaning that consumers would get to new content earlier through UltraViolet than telco VoD services. For this reason we believe that telcos ignoring DECE as part of their downstream consumer entertainment services are missing an important plank in their strategic portfolio.

Furthermore, online service providers are well represented, as are device manufacturers, while traditional retailers, with the notable exception of WalMart which has an existing relationship with Apple, are also putting their weight behind it, providing multiple channels to market.

…with a common and urgent motivation

Beyond the appeal of the consumer proposition, DECE UltraViolet is also appealing because it offers a credible alternative to both piracy and Apple that have dominated the transition of music content distribution online.

As we’ve previously discussed in Digital Hollywood: How to out-Apple Apple, Apple dominates online music and is constantly adding more TV and film content. With over 150 million account holders it is the biggest music retailer in the world and has created the first and so far the dominant business model for digital online retail with its 30/70 revenue share deals. It no longer includes optical drives in any of its current product portfolio as it hopes to drive more film and TV content to its digital store, expanding its content range and reinforcing its existing business model.

To read the Analyst Note in full, including in addition to the above analysis of:

  • Apple, piracy and the motivations of the DECE membership
  • The continuing importance of the physical product
  • UltraViolet’s upstream potential
  • Recommendations for telco entertainment strategy development to include DECE/UltraViolet

…and additional figures…

  • Figure 7 – Apple’s 5-screen Strategy
  • Figure 8 – BD Live proposition provides link between physical and online
  • Figure 9 – Generic 2-sided model for entertainment
  • Figure 10 – US: Traditional video distributors and cable companies are most under threat, as online viewing continues to increase
  • Figure 11 – Potential roles for telcos in digital lockers

Members of the Telco 2.0TM Executive Briefing Subscription Service can download the full 19 page report in PDF format here. Non-Members, please see here for how to subscribe. Please email contact@telco2.net or call +44 (0) 207 247 5003 for further details. There’s also more on DECE UltraViolet strategies at our AMERICAS, EMEA and APAC Executive Brainstorms and Best Practice Live! virtual events.

Augmented Reality: Is there a valuable role for telcos?

 

This Analyst Note covers:

  • Augmented Reality Today
  • What is AR?
  • Why AR Now?
  • AR Ecosystem Roles
  • AR Browsers
  • AR Application Examples
  • Telcos’ “toes in the water”
  • Three Alternate Visions of Telcos’ Role in AR
  • Conclusions and Next Steps

Augmented Reality Today

Introduction

Augmented Reality (AR) is a hot topic right now, attracting much of the hype that was reserved for apps a few years ago. But what’s beyond the hype? Is AR simply the next stage of development for existing value propositions, or will it bring with it entirely new propositions that offer new revenue streams for the Telecoms ecosystem?

In this Analyst Note, we explain what Augmented Reality is, why it is developing so quickly now and lay out three possible roles that telcos could develop in order to monetise the AR explosion in ways they haven’t with apps in general.

This analysis was written in collaboration with Christine Perey, Perey Research and Consulting, a world expert in the AR field, who is working in association with Telco 2.0 at our forthcoming AMERICAS, EMEA and APAC Executive Brainstorms and on further research publications.

What is AR?

In simple terms, ‘Augmented Reality’ applications and technologies bring users information that exists in the digital world and presents it automatically and intuitively in association with things in the real, or physical, world. Often, but not always, this information is from the web.

AR is about creating, making explicit and displaying the relationships between the real and virtual worlds.

At the highest level, AR can be seen as the latest evolution in information search, viewing and, ultimately, to its manipulation by the user. It’s part of an evolution: the Web made Internet-based information accessible to audiences through websites and, when there proved to be too many web sites, with search engines. Search brought information access into the reach of everyone, everyday on a separate screen. With AR, digital information can be automatically ‘connected’, in context, to real world objects.

This can take many different structures but is best described as a three-stage process.

  1. Sensors in the user’s device (such as camera, GPS and/or compass, microphone, even a thermometer) detect a ‘condition’ in the local environment – say the visual image of a recognisable geographic feature like a mountain or famous building.
  2. The application or ‘system’ finds the digital data (any text, image, 3D model, video, URL, sound, etc.) that has previously been associated with the specific condition in the local environment identified by the sensor.
  3. The digital information is presented visually (or aurally) to the user in such a way that it is ‘synchronized’ with the real world. It is only presented as long as the condition remains the same. When the user’s condition changes, e.g. they move away from the object, the digital information disappears or is replaced with new information if the sensors are triggered by another condition.

This is illustrated in the example below.

Figure 1 – Sensors triggered by the environment deliver relevant data

Augmented Reality Illustration

Source: PEREY Research and Consulting

For a service to be seen as Augmented Reality, all three of these steps have to take place. To illustrate some differentiating features of AR services, let’s compare two services: first without AR, then with AR.

  • Non-AR Location Based Applications Example. A basic GPS location service detects where you are. You then search your smartphone for information about restaurants nearby and these appear as points on a map around you. These are augmentations – virtual information with the real data that you input. The processes are neither automatic nor seamless..
  • AR Location Based Applications Example. The sensors of the Wikitude Drive AR service detect your location and direction of travel. To direct you, arrows are automatically generated and ‘registered’ on a live in-car video of the road ahead of you (not on a map view). Instead of a manual search, the ‘Yelp’ mobile AR application takes location information from the GPS and compass, identifies the local businesses in its database which are nearby, and returns local information that is overlaid on the live video where the business is visible.

‘Augmented Reality’ can be seen as sitting on a continuum with ‘Reality’ at one end and ‘Virtual Reality’ on the other. Augmentation can be used both ways – to augment the virtual world with real objects and to augment the real world with virtual data. An example of ‘Augmented Virtuality’ is a soldier training environment in which the “world”, be it urban or forest, is synthesised and virtual, and where there are other real, ‘flesh and blood’ people operating at the same time. The soldier sees both the virtual world and the real people in one view. To help bring this to life we have annotated Milgram’s Continuum with some examples below.

Figure 2 – Milgram’s Continuum from real to virtual

Augmented Reality Milgram's Continuum

Why AR Now?

AR is not a new development. In fact, it’s been studied in one dimension or another in labs for over 20 years. However, the opportunities that emerged around mid-2009 have given the subject appeal and many practical, real-world applications are now possible. The most important developments have been the release of new sensor-laden and processor rich smartphones with touch interfaces connected to cloud services by faster networks.

In addition to enhancements in computing power, devices are increasingly pre-packed with GPS, compass, accelerometers and gyroscopes, adding to the now ubiquitous cameras and microphones. Thermometers, RFID and other wireless sensors are also appearing. At the same time a critical amount of information is available in digital format, meaning the potential for bringing the real and virtual worlds together through a mobile device is huge.

  • Other important developments adding momentum to Augmented Reality include:
  • Improved computer vision algorithms increasing the reliability with which the feed from a camera can be matched with images in a database;
  • Real time information is increasingly becoming the default, especially “local” (LBS) when the user is in transit and social information being updated in real time;
  • Contextual services are better understood as having value to end users (e.g., get a coupon when you enter a store, not after you have left);
  • The emergence of 3D (on the web, in cinema and on TV) is improving 3D technology that lends itself well to AR for visualization of information over 3D objects.

Combined, these trends have led to an upsurge in AR activity including by mobile operators. However, to date, this has been piecemeal and predominantly focused on customer acquisition and promotional activities. For example, Orange UK launched a free iPhone app and AR service for the Glastonbury Festival and others have released similar apps around special events.

So, what kinds of companies are the most active in Augmented Reality?

AR Ecosystem Roles

The Mobile AR Ecosystem is composed of companies each occupying one or more of five segments:

  • Merchants/Brands;
  • Content Publishers;
  • Enabling Technology Providers;
  • Packaging Companies;
  • and Distribution/Discovery Providers.

Each of these segments contributes a valuable role in the process of connecting the physical world and the digital world. As shown in the figure 3, we also see that the user’s own content, as it is published to social networks, could be inserted into the system as well, provided that the platform of an application developer can receive the User Generated Content (UGC) through an open API.

Figure 3 – Mobile AR Ecosystem

Augmented Reality Ecosystem Roles

 

Figure 4 provides a summary of the AR market segments, their business models, and illustrative examples.

Figure 4 – Mobile AR Ecosystem – Examples of Players

 

Role in mobile AR value chain

 

Business Model(s) for the player

 

Example companies

 

Merchants/Brands

 

Paying for advertising to promote engagement with customer, prolong/raise brand awareness and increase sales. H&M, McDonalds, Stella Artois, Starbucks, Volkswagen, Kia, Coca Cola, Walt Disney Co and dozens of others.

 

Content – providers and publishers

Creators and publishers of original digital content used to augment a real image e.g. Travel guides, educational publications, listings

 

Service revenue share or licence fee for content; paying for advertising.

 

Lonely Planet, Esquire Magazine, Yell.com (Yell has also launched its own AR browser building on its role as a content aggregator), newspaper publishers, Twitter (TwittARound, etc)

 

Enablers – technologies that enable AR at either the server or device end

Hardware: cameras, accelerometers, GPS, gyroscopes, solid state compasses, RFID, wireless sensors, head mounted displays; handheld displays; Location technologies – GPS, A-GPS;

Software: image registration technologies, recognition technologies,

 

Product/service sale or end service revenue share.

Hardware-based – component sales, promotion of mobile device sales.

 

 

Software: free, licensing or revenue share.

 

Hardware: Device manufacturers – Nokia, Sony Ericsson, Apple, Motorola;  Sensors – Aero Electronics Operations

Specialized hardware (graphics processors, sensors): Qualcomm, Intel

 

 

 

Software: Recognition technologies – Google – Goggles; Polar Rose (facial); SREnginez (architecture), Software Development Kits for specialized silicon (Qualcomm AR SDK).

Alcatel-Lucent has invested in mobile AR technologies in visual recognition (see its AR vision video here), and spun-off its project a year ago. The company which they acquired called Mobile News Channel (MNC) now has a division called dekaps which contracts with operators for custom projects using AR.

UI – ‘TAT’ The Astonishing Tribe – acquired by RIM.

 

Packaging – providing the publishing environments to app developers and communities who are then putting the AR app together  with content

App Developers are also part of the packaging segment of the ecosystem

 

Service/advertising revenue share;

Charging developers for placements;

Charge to develop, for the end service or ad funded.

 

Platforms: Layar; Mobilizy; metaio, Total Immersion.

 

There are thousands of app developers who could be using AR platforms and enablers.

 

Discover and Delivery – promoting AR to end users, reducing barriers to the discovery (e.g., pre-loading apps), distributing AR applications through app stores

 

Revenue sharing, driving data revenues, sales of more powerful handsets in bundles with data.

 

Mobile Network operators: Orange, NTT DoCoMo, KDDI.

Handset manufacturers: Nokia, Samsung, HTC.

AppStores: Apple, Android Marketplace.

 

AR Browsers

AR browser and platform providers are the leaders in the ‘packaging’ segment of Figure 3, both aggregating AR content and displaying it in a way that makes it usable for the mass market. Their key role is to mediate the interface between the user’s context and the digital data available.

Since 2009, a number of AR browsers have appeared and there are now more than six to choose from, though only three have significant market share. These AR browsers are in and of themselves applications designed with unique user experiences and into which others, the content providers, can publish their data in targeted “layers” or “channels”. End users choose the layer or channel they wish to see.

In the case of Layar and Wikitude, the platform is also available to those who seek to develop custom, dedicated apps. The content appears in an AR browser or embedded in a standalone application.

The leading AR platform and AR browser is provided by Layar, a young Dutch company that launched in June 2009. Layar’s free AR browser is the most popular with over 3.5 million users as of January 2011, of which a million are active monthly. In addition, Layar’s AR browser has been pre-loaded on over 10 M devices to date, making it easy for potentially more subscribers to discover it quickly. The company raised $14 million in its latest round of funding in November 2010.

Another of the top 3 providers, and the oldest, in terms of conceiving of a browser for AR, Mobilizy, provides its Wikitude browser. Launched in the winter of 2008-2009, Wikitude has roughly a million users, but it does not publish monthly active figures. The company has also received outside investment in the 4th quarter 2010, and while it is behind in the AR browser race, the company has taken a different strategy. The Mobilizy team has invested heavily in better understanding and moving its platform to meet the needs of those who will use AR for navigation. The Wikitude Drive application and service for smartphones uses Navteq data to not only show the arrows overlaid on the real world, but also to speak/talk to the user who is driving. Wikitude has also begun, in early 2011, to solicit more developers for its platform, playing catch up with respect to both Layar and metaio in this respect.

The third popular AR browser, Junaio, has around 500,000 users. The Junaio Glue platform is provided by metaio, one of the original AR platform companies that pre-exists the mobile AR frenzy. Metaio, a Munich-based company with offices in the US and Korea, has the distinct advantage of combining both geo-location as a source of context for the user, but also visual recognition. Metaio’s image recognition algorithms make its browser suitable for more indoor applications and services than those browsers which rely solely on GPS. Further, metaio’s combination of technologies make it attractive for those companies which wish to use mobile AR for interaction with packaging and printed media campaigns without having a dedicated application. Junaio is open and its developer community is growing rapidly.

The key to success for all of these companies is their ability to attract and support developer communities. As of October 2010, Layar had over 5,000 developers, some of which are partners and promoted as such to content owners looking for developers to create layers for them if they can’t do it for themselves. Layers can be free or paid for, providing content owners and developers with the chance to monetise their developments.

These aggregators are growing fast and the mobile AR ecosystem is building up around them and appstores, not telcos, so even at this early stage, the potential for telcos to take a complete hold of the platform is limited, unless they outright acquire the companies.

AR Application Examples

Creating AR applications is a specialised activity and requires special tools and skills. Some of the tools are open source, others available to certified developers under a wide range of conditions.

Today, the majority of AR experiences on the desktop are provided to consumers via specialized companies who design special experiences for brands to attract consumer attention. There are also innovative developers who already own databases and choose to use AR as an alternative way to “view” their data. A handful of companies are dedicated to specific AR application segments such as games, tourism services and shopping. And, finally, some creative artists use AR to entertain, provoke and make a name for themselves.

The majority of current mobile AR applications follow the standard free, freemium and occasionally paid for models of the app marketplaces they are being distributed through.

The following are indicative of the types of services that are available for end users to experience AR today.

Figure 5 – Examples of AR Apps

Service Name Differentiation Requirements

 

VouchAR

 

 

Takes the concept of location and store offers to a new level and removes the intrusion of text alerts from shops as you walk by. Using the camera as the sensor trigger, it displays discounts available in surrounding stores, restaurants etc.

 

Android app available in the UK.

 

Nesquik Factory AR Game

 

Combines AR and gesture recognition in a promotional game for Nesquik. Part of a new generation of advertising.

 

Flash-based and requires a camera.

 

H&M Promotional Vouchers

‘GoldRun’- – see here for more

 

AR game in which users search for and, using their camera and the application, collect virtual objects in order to access discount vouchers.

 

Currently available in the US and targeted at New York with an Android app expected in 2011.

 

Coke Print Advertisement

 

Using a mobile phone camera as the trigger, a print ad becomes live and provides more information, offers etc. IT doesn’t just link to a website but provides relevant and real-time information. See here.

 

iPhone and Android ‘Channel’ available in Germany with Metaio’s Junaio AR browser.

 

mtrip City Guides

 

AR city guides that identifies points of interest using the camera of a mobile phone as the sensor trigger (see here).

 

iPhone and access to iTunes AppStore.

 

WordLens by Visual Quest

 

Overlays the translation of the English text in Spanish and vice versa.

 

iPhone and access to iTunes AppStore.

 

In terms of the telecom industry’s position in the market, device and chipset manufacturers are currently most active, seeing AR as a means to drive differentiation and demand for even more powerful processors and devices.

Qualcomm is the most recognisable of the active players, having acquired a small Austrian development company in early 2010 and launched its own AR SDK in Q3 2010. Its model is to use AR to bolster the sale of its chipsets and although it supports new ways to monetise AR, this is not its major driver. Intel Capital has made a $13.4M investment in Layar as it also perceives AR as driving the requirement for faster processors.

Deutsche Telekom has also spun out a separate business unit to develop heads up displays for AR to be introduced later this year, not something that telcos are likely to do.

Telcos’ “toes in the water”

Where some telcos are entering the market, they are doing so as application or software developers, or promoting the services developed by a third party. For example, Bouygues Telecom in France released the first in-house operator-developed mobile AR look up service <Ici Infos> in November 2009 with over 900,000 unique points of interest (POI), while Telefonica has a group in Barcelona R&D which is working on its own visual search technology. NTT DoCoMo offers its smartphone subscribers the intuitive navigation services “chokkan nabi” developed under contract for DoCoMo devices.

However, just as with the broader applications market, third parties are often better placed to create the apps themselves.

In general, AR is moving more quickly than most operators can track. At the AR research community’s annual event, the International Symposium for Mixed and Augmented Reality (ISMAR) in October 2010, the announcements and proposals included:

  • A system for multi-viewer 3D visualization that is extremely easy and inexpensive to implement using a simple monitor;
  • Developments on how to track the user’s gaze and resolve the true shape of non-rigid objects (e.g., a paper map surface);
  • Developments in the area of real time sensor fusion that increase the reliability of trigger detection;
  • The ability to “cover” or disguise the existence of a marker in a video image in real time (this is extremely useful for reducing the end user aversion to markers and increasing the reliability of tracking).

We would argue that telcos are unlikely to corner the market by seeking to develop a key technology. Instead, they should look to leverage their position as the discovery and delivery segment, an essential part of the ecosystem for subscribers to discover many AR experiences. However, while this differentiates telcos from other market segments and generates greater sales of higher margin devices, it doesn’t offer great monetization directly from AR.

M2M 2.0: New Approaches Needed

Summary: the M2M market structure is evolving rapidly and new roles and requirements are emerging that are unaligned with much current telco practice. What must telcos do to avoid missing out and potentially inhibiting the market overall?

Logged-in members can download this 15 Page Analyst Note here in PDF format. Non-members please see here for details of the service and how to join, or call +44 (0) 207 247 5003 / email contact@telco2.net.

Introduction

This note summarises some of our recent work on M2M, and we will cover the developments on this topic at our 2011 Executive Brainstorms, and online at Best Practice Live! on 2-3 Feb 2011.

Context

This note draws on the study Aligning M2M with Telco2.0 Strategies exploring which elements of the M2M ecosystem are appropriate to given operator strategies and drawing on the experience of Linux.  Enterprise 2.0: Machine-to-machine – opening for business is a Telco 2.0 summary and analysis of recent developments, including an advanced case study from Telenor Objects and new research from Intel, Ericsson and SAP. M2M / Embedded Market Overview, Healthcare Focus, and Strategic Options gives an overview of the market, focusing on the cost-crisis needs of the Healthcare Sector, and reviewing strategic options for Telcos and other communications industry players. We’ve also created a new M2M and Embedded category on this research portal.

Machine to Machine: Telcos’ next Goldmine?


Defining Machine-to-Machine

Machine to Machine (M2M) is the term used by the cellular network industry to describe the business of connecting devices other than phones, laptops and similar consumer devices, over cellular networks. Although definitions vary, mobile communication is deemed to be M2M largely by virtue of the type of device connected. In broad terms, communications is deemed to be M2M when it is between an application and a device for which the connectivity is required to deliver the application, but is not considered an application itself (e.g. Amazon Kindle, Point-of-Sale card reader).

M2M communications

Traditional Cellular communications

  • Connected sensors and actuators
  • Logistics modules (asset tracking)
  • Smartmeters
  • Medical devices
  • Dedicated application consumer devices (E-readers, navigation devices)
  • Remote camcorders / CCTV cameras
  • Mobile phones
  • Data cards and USB “dongles” for PCs
  • Multi-functional personal “compunicators” (Tablets, MIDs)

The history

Historically, M2M has applied to major projects that integrate software, hardware and connectivity for integrate SCADA (supervisory control and data acquisition) industrial, facilities or specialised logistic applications. M2M communications payload has also tended to involve limited volumes of control and status data flows, characterised by primarily upstream narrowband traffic rather than downstream broadband.

For most operators, M2M has been a relatively minor sideline, accommodated alongside the core subscriber business. There has subsequently been limited investment by operators in dedicated M2M capabilities, functionality, support or distribution. Some operators, with well-developed systems integrator (SI) capabilities have included M2M connectivity as part of wider solutions, but they have done so no differently from any SI would.

The opportunity – Beyond point solutions

For years, M2M has been plagued by the promise of vast potential that seems forever “just around the corner”. A recent spate of bullish forecasts has renewed interest. Furthermore, a number of significant projects (e.g. Smartgrids) heralds significant potential increases in demand. Operators have responded with recent activity geared to better addressing the needs of M2M application providers.

Given the relative size and wide variety of applications the “vertical” industry-application, a point-solution approach has been inevitable. It has served its purpose well. However, this approach requires considerable expertise to be built-up by application developers and application providers that find it expensive to develop and implement point applications across many device types, especially if these are connected by different communication links. The additional cost (or inflexibility, for those not wishing to incur this cost) of supporting variety of devices and connections continues through development and implementation into support and maintenance.

Yet, this is precisely the kind of situation that we would anticipate emerging with the “Internet of Things” that are implicit in the heady forecasts: applications connecting millions of instances of thousands of different device types, over more than one communication technology. All this, delivered by developers whose interest and expertise lies elsewhere than in mastering device or bearer-specific APIs. Just as for computing, the “Internet of things” will need support ongoing change in devices and communications in a generic (ideally open) fashion.

The challenge for Telcos – making it happen and securing a share of the value

Network operators’ challenge is to facilitate the growth of the M2M market and still secure a sizeable share of the value generated. The concern is that their role could be marginalised to that of suppliers in a commoditised and very competitive connectivity market.

M2M customers (primarily application providers and developers) have had to work with different operators in each territory and been presented with various levels of support infrastructure and interfaces. This has made it extremely complex and expensive to roll-out M2M applications across a region such as Europe. This regional requirement not only applies to logistics functions (connect devices that move across regions), but also applications for “static” devices which are being rolled-out and supported across a region: a typical situation for many businesses. For example, when Amazon sought to introduce its Kindle across Europe, it was frustrated by the absence of a single commercial or commercial platform. Amazon eventually contracted AT&T (an operator with no network presence of its own in Europe, only roaming agreements) to provide the service that European operators could not.

Making it easier to use M2M connectivity

Operators have been working hard to make their connectivity more “M2M-friendly”:

  • Developing “one-SIM” regional (or even global) coverage. This has primarily been achieved through roaming and/or MVNOs. Larger operators have been able to leverage their assets across multiple territories, smaller ones have worked with aggregators and roaming agreements.
  • Providing dedicated M2M managed connectivity resources (people, services and platforms) to customers. Some of these have been developed internally, others have been secured through partnerships with aggregators and service platforms such as Wyless or Jasper Wireless.

These developments represent a real step forwards for the industry and signs of the market “growing-up”. These initiatives have been focused on making (generally only one type of) connectivity easier to use. Customers looking to support multiple devices over multiple bearer networks are still faced with an array of fragmented technical and commercial challenges and limited flexibility in combining these.

Making it easier to develop, launch and maintain applications…. flexibly

The emergence of open, ubiquitous general purpose technologies will make it possible to develop, launch and maintain new applications with dramatically lower needs for capital and lead times. This would potentially be an open-source technical stack, analogous to the LAMP (Linux/Apache/MySQL and one of Perl, PHP, or Python) stack ubiquitous on the Web.

This should lead to an explosion of new M2M application providers. New players, ranging from start-ups to established “un-connected” product brands are better able to integrate connectivity into the offers applications and services to final customers and also to each other. Typically, they would collectively source connectivity, hardware, software & services and sell tailored applications to end users – the main variation between them being how far along the chain from raw material to finished product they work.

This new market, like the World Wide Web before it, would be critically dependent on interoperability and interconnection, achieved through open standards. To quote a key Telco 2.0 principle – “The development of new common technical and commercial platforms across Telcos, which create economies of scale required to deliver a ubiquitous solution to upstream customers.”

This note therefore describes the emerging M2M market structure, characterises the business models and value networks within it, speculates about its potential future evolution and draws conclusions as to what operators can do in order to benefit from it.

Structure: M2M as a Value Network

In this analysis we use a model that defines businesses in terms of their place in a value network, and that begins with raw materials (like mineral ores) and ends with the finished product and the customer. The illustrative example is gold – we begin with the goldmine and the miners, digging the ore out of the earth, we see it refined into semi-manufactured bullion, which is worked into wholesale components products, which the jeweller finally customises according to the customer’s needs.

Figure 1 – Where to play in the Value Network?

AN%20-%20Telecoms%202015%20charts%20Gold.png

 

Source: Telco 2.0

Each step in the process is linked with a very different type of business; notably, the left hand side of figure 1 tends to involve very large and capital-intensive firms, whose assets are usually very fixed – nothing, after all, is more fixed than a deposit of gold-bearing rocks. As the process proceeds, the minimum efficient scale tends to fall, and the optimal mix of assets changes; at the very far left, they are dominated by land, then by physical plant, then by intellectual property, and finally by human capital and intangible goods like knowledge of the customer.

To read the rest of this analysis, covering…

  • Applying the gold analogy to M2M
  • Managed Connectivity and Service Enablement Layers
  • Roles: Specialisation vs. Scale
  • Where should telcos seek to serve?
  • Future Evolution
  • How must the telco industry meet the challenges?

…and including…

  • Figure 1 – Where to play in the Value Network?
  • Figure 2: Distinguishing between the layers
  • Figure 3 – Mapping the emerging M2M Players
  • Figure 4: Balancing the equation: Telcos as service enablers

Members of the Telco 2.0TM Executive Briefing Subscription Service can download the full 15 page report in PDF format here (when logged-in). Non-Members, please see here for how to subscribe. Please email contact@telco2.net or call +44 (0) 207 247 5003 for further details.

Telcos vs. Internet Players: Act before it’s too late

Summary: There’s less than 3 years for telcos to take advantage of key strategic ‘control points’ in their battle for sustainable growth in the communications and e-commerce markets, concluded delegates at the Telco 2.0 EMEA Brainstorm in November. How should they think differently about their value and where do they need to (re)focus their attention? Full report from the Brainstorm..

40 page PDF format report, summary and except below.

    Read in Full (Members only)    Buy This Report    To Subscribe

Alternatively, please email contact@telco2.net or call +44 (0) 207 247 5003 for further details. There’s also more on adjacent player strategies at our AMERICAS, EMEA and APAC Executive Brainstorms and Best Practice Live! virtual events.

Executive Summary

There’s little time left to take new opportunities

A new framework for thinking about growth opportunities in the communications sector and the value that telcos can add to other industries in the wider ‘digital economy’ was presented by analysts from the Telco 2.0 Initiative and debated by senior strategy execs from the Telecoms, Media and Technology sectors at the 11th Telco 2.0 Executive Brainstorm, EMEA, on 9-10 November 2010, incorporating Digital Entertainment 2.0. The six key telecoms growth opportunity areas are:

The Six Telco 2.0 Opportunity Areas

Delegates concluded that two in particular, B2B Enabling Services and B2B Distribution Platforms, are being particularly underinvested in compared to their potential future value. The big concern was that time is running out for the slow-moving telco industry to take advantage of some key strategic ‘control points’ in the communications and e-commerce value chains, beyond pure data transportation. In a vote participants rated the time remaining for telcos to retain or build a strong position versus internet players and other competitors as follows (see Fig 1 below):

  • Less than three years for ‘Identity and Authentication’ (part of ‘B2B Enabling Services’);
  • Less than two years for ‘Transactions – Advertising & Payments’
  • Less than two years for ‘Address Book and Communications Initiation’
  • Less than two years for ‘Home Devices’
  • Less than one year for the ‘Mobile Device and OS’ (although nearly half thought the opportunity has already gone).

In contrast, other players are not waiting. Telco 2.0’s analysis of Facebook’s ambitions in communications added to the sense of urgency required by telcos.

Doing the core job better

Part of Telco 2.0’s argument discussed at the brainstorm is that, in parallel with ensuring telcos don’t lose strategic control points, there are certain core areas of business in which telcos need to make specific improvements in order to position them effectively to take advantage of new growth opportunities. Two important areas are:

Broadband access, for which it is important for telcos to establish more sophisticated business models, particularly those in which new ‘upstream’ (3rd party) customer revenues are generated;

Being a better digital retailer (part of ‘Enhanced Telco Retail’), in order to maximise loyalty, trust and relevance, not just for the clear business benefits that this provides, but also because many of the new ‘two-sided’ market opportunities require a scale and quality of customer base that this will enable. Participants clearly recognised the value of this, but also saw that much more needs to be done here.

Seeking viable roles beyond connectivity and ‘one-sided’ retail

The Brainstorm examined a number of emerging growth areas in depth, each a subset of one of the Six ‘Telco 2.0’ Opportunity Areas.

  1. Cloud Services 2.0 (part of ‘Infrastructure Services): With technology developing fast and customer case studies of cloud usage becoming compelling, IBM forecasts a public cloud market of $85bn by 2015, growing at around 25% CAGR, with telcos having the opportunity to take anywhere between 30-70% of it. After a presentation by Oracle on potential use cases for telcos, the participants voted that ‘network-as-service’ (public IT cloud but including key telco network capabilities) offered the greatest opportunity for telcos to add value and differentiate. It’s still early days but this is a market that must be grabbed fast. . Telco 2.0 has set up a new Cloud Services Research stream.
  2. Machine-to-Machine 2.0 (M2M – straddling ‘Own Brand OTT’ and ‘B2B enabling Services’): M2M may be coming of age at last, though whether telcos will play a profitable role in the opportunity depends on whether they can deliver a combination of low-cost economics connectivity, added-value enabling solutions, and horizontal platforms that enable developers and ultimately end-users to connect and manage devices easily and innovate on top of. Telco 2.0 has been asked by the industry for more analysis of the opportunities in this space ‘beyond connectivity’.
  3. Personal Data 2.0 (a key underpinning of ‘B2B Enabling Services’ and ‘Enhanced Telco Retail’): 2011 may turn out to be the year that the Personal Information Economy was born, with high-level focus on the enabling commercial and legal structures for building trust networks for personal data being developed and promoted by the World Economic Forum (WEF). While the precise business models and roles of different players are emerging, it is clear that most of the major Information Technology players, including telcos, recognise ‘Personal Data’ as an important market to play in even if, at the same time, it fills them with trepidation. Further Telco 2.0 research and analysis here.
  4. Digital Entertainment 2.0 (cutting across multiple categories, from ‘Enhanced Telco Retail’ to ‘Vertical Industry Solutions’ to ‘B2B Distribution and Enabling Services’): while the online share of the entertainment industry is today relatively small, the impact of online behaviours has not been. The anticipated disruption in the video market is significant. Telcos have a range of latent capabilities that are (theoretically at least) very valuable to the entertainment sector concept. A key starting point for a new level of strategic collaboration between the industries is in the area of “Digital Content Lockers” such as developed by the DECE/UltraViolet Hollywood consortium. Telco 2.0 will be working to catalyse Industry engagement with this in 2011, and looking at the economics of ‘on-demand’ TV and online gaming as part of its Digital Entertainment 2.0 Research programme.
  5. Augmented Reality (part of ‘B2B Enabling Services’): ‘AR’ is a fast growing phenomenon outside the telco sector but relatively neglected within. Telcos could take on a stronger intermediary role, adding value by tracking the end-to-end performance and delivery of services. But more detailed analysis is needed to identify precise roles and market opportunities.

The rest of this report provides detailed analysis of all the brainstorming from the event. STL Partners, the analyst firm behind the Telco 2.0 and Digital Entertainment 2.0 Initiatives, will continue to research these and other related new business model opportunities and provide a forum for high quality debate at our online and physical events in 2011:

 

The following is an excerpt from the body of the report

There are opportunities, but can telcos take them?

  • “The level of dividend payments being taken means the Capital Markets are in effect saying to telcos ‘give us the money before you blow it on something stupid’.” Richard Kramer, Arete Research.
  • “Telcos did have an opportunity in the 6 opportunity areas but have been too slow and will find it difficult to oust others who are now securing valuable positions in the ecosystem.” 49% of Telco 2.0 EMEA Brainstorm Delegates.

Viable opportunities and strategies to innovate and develop new sources of value exist, yet there are also doubts about the telecom’s industry to exploit them in time. At the Brainstorm, Chris Barraclough, MD & Chief Strategist, Telco 2.0, presented 10 of the 17 ‘Principles for Success in a Disrupted Markets’ and outlined the six new Telco 2.0 Opportunity Areas described in the forthcoming ‘Roadmap to New Telco 2.0 Business Models’ Strategy Report (see diagram above).

Overall, despite their concerns on the urgency of action, delegates considered that all of the outlined opportunities had merit, and that some key areas are currently relatively underinvested in compared to their perceived potential. While Enhanced Retail and Infrastructure Services (i.e. enhanced wholesale) were understandably rated most highly, B2B Enabling Services and Distribution Platform showed the biggest gap between potential and investment.

Figure 1 – B2B Enabling Services and Distribution Platform Need Investment

Vote on Key Control PointsSource: Delegate Vote, 11th Telco 2.0 EMEA Brainstorm

How much time do telcos have left?

Figure 2 – Other than “being a pipe”, Telcos have the most time and Opportunity to address Identity & Authentication Capabilities

[Q. What is your opinion of the amount of time that telecoms operators have to either retain OR build a strong position (versus internet or other players) in each of these ‘ecosystem control points’?]

How much Time Left?

Delegates broadly viewed telcos opportunities to hold the control points in the ecosystem in three groups: “the pipe”, which whether “dumb” or “happy” will be the domain of telcos for the foreseeable future; mobile devices and OS which they have already lost; and a middle-range comprising home devices, advertising and payments, address book, and identity and authentication. Of these, telcos are perceived to be in a significantly better position on identity and authentication.

Is there a danger of telcos repeating bad old habits?

  • “All you need to do to make the enablers opportunity go away is wait.” Andrew Budd, Chairman, MEF.

A similar chart to Figure 3 drawn up 5 to 10 years ago would have shown “Location Services” as an equal or better prospect than “Identity & Authentication”. Yet location today no longer registers as an opportunity because of the success of other players finding alternative ways to provide this information. In their eventual efforts to enable location, Telcos were late to the market, disjointed in that they did not offer common solutions across the industry, and overpriced.

It is intriguing to look at two other examples that may reflect this trait.

First, in the case of mobile Apps, operators have now created the Wholesale Applications Community (WAC), which is, at least, a common approach to the market, but which will struggle to establish operator control in this area if the delegate vote and evident strength of the Apple and Android ecosystems is anything to go by However, Telco 2.0 believes that WAC may succeed in enabling a second tier of appstores or segmented “app malls”.

Secondly, Vodafone presented its closed, vertically integrated M2M strategy at the event, which as smart and well-conceived as it is in many ways, still lacks the level of openness that customers will ultimately want from M2M applications.

In the area of Personal Information, Identity, and Authentication, operators do have a chance to do something, and there were suggestions from Vodafone in EMEA, and AT&T in the US, that telcos may act. But will it be enough, and sufficiently aligned and open to create a new role for the industry?

To read the report in full, covering in addition to the above…

  • Facebook is not waiting (full Briefing here)
  • Mobile Broadband: booming, but what is the best business model?
  • Cloud 2.0: Clearing Fog, Sunshine Forecast
  • M2M: A Late Developer?
  • Being a Better Retailer: Two Innovative Consumer Services
  • Personal Information: “The Meaning of PIE”?
  • Digital Entertainment 2.0: Changing Consumer Behaviours and “Digital Lockers”
  • Augmented Reality: telcos as intermediaries

…and including…

  • Figure 1 – The Six Telco 2.0 Opportunity Types
  • Figure 2 – B2B Enabling Services and Distribution Platform Need Investment
  • Figure 3 – Other than “being a pipe”, Telcos have the most time and Opportunity to address Identity & Authentication Capabilities
  • Figure 4 – Facebook’s Communications Ambitions?
  • Figure 5 – Deutsche Telekom’s View on Mobile Broadband Growth
  • Figure 6 – 3D TV ‘Use Case’
  • Figure 7 – IBM’s Cloud Services Forecast, 2010-2015
  • Figure 8 – Oracle’s Seven Steps to Cloud Heaven
  • Figure 9 – EMEA Delegates favoured the ‘Network-as-a-Service’ Opportunity
  • Figure 10 – T-Mobile’s Forecast of European M2M Markets
  • Figure 11 – Vodafone’s Global M2M Platform
  • Figure 12 – The Key Challenge for M2M Growth is to Create a Broad, Open Market
  • Figure 13 – Orange’s Innovative PromoTonos Service
  • Figure 14 – Movistar Argentina: Customer Centric Identity Management (IDM)
  • Figure 15 – How the ‘Two Sided’ Telco Business Model Can Help the Digital Entertainment Industry
  • Figure 16 – What Will Happen to the Global Entertainment Market?
  • Figure 17 – Delegates: Pay TV Will Lose Out (Share of Votes)
  • Figure 18 – “Digital Lockers”: The Way Forward?
  • Figure 19 – Tesco Connect: The UK’s Top Retailer’s Digital Locker
  • Figure 20 – Ericsson: the Impact of Tablets on the Consumption of Personal Entertainment
  • Figure 21 – Telcos can sit at the centre of a new ecosystem without controlling the development of apps
  • Figure 22 – AR connects the things around us with a mass of personal and public information from the Internet

…Members of the Telco 2.0TM Executive Briefing Subscription Service and the Dealing with Disruption Stream can read the Executive Summary and download the full 40 page report in PDF format here. Non-Members, please see here for how to subscribe. Please email contact@telco2.net or call +44 (0) 207 247 5003 for further details.

Report Background

This report includes a summary analysis of all the brainstorming and voting from the 11th Telco 2.0 Executive Brainstorm (EMEA), held in London on 9-10 November 2010 with over 150 execs from the Telecoms, Media and Technology sector, and incorporating the 3rd Digital Entertainment 2.0 Executive Brainstorm. It was organised and facilitated by analyst firm STL Partners – founders of the Telco 2.0 and Digital Entertainment 2.0 Initiatives – using their interactive ‘Mindshare’ format.

The aim of the event was to review and debate new business model concepts and current best practice related to the upcoming Telco 2.0 strategy report, ‘From Theory to Practice: the Roadmap to ‘two-sided’ Telecoms Business Models’. This analysis centres around a new framework for thinking about growth opportunities in the communications sector and the value that telcos can add to other industries in the ‘digital economy’. The Executive Brainstorm looked at:

  • Day One: Telco 2.0 Growth Strategies: Disruptive Strategies and Business Models; Net Neutrality and its Impact on new Business Models; Cloud Services: Show Me The Money (and Profits); Sweating the Asset Base to Deliver More Value; and Managing the Co-opetition: Facing up to Facebook.
  • Day Two (am): Digital Entertainment 2.0 – Multi-platform distribution: Online Video – new disruptive strategies and business models; Defining the Next TV Experience; Optimising online content distribution.
  • Day Two (am): Consumer 2.0: Becoming a better Telco retailer; Using Personal Data Outside the Firewall – the emergence of a new asset class; Securing a Piece of the PIE – what role for telcos in the Personal Information Economy.
  • Day Two (am): M2M and Embedded Mobility 2.0: Opportunities, challenges, business models; Adding value to connectivity – Horizontal strategies for service enablement; Overcoming customers’ practical issues to creating the ‘internet of things’.
  • Day Two (pm): Digital Entertainment Meets Consumer 2.0 & M2M 2.0: The Connected Home; Augmented Reality and Mobile Apps.

This report is ordered by event session, and includes an analysis overview, a short summary of the objectives of the relevant session and a list of the stimulus speakers. The brainstormed comments, ideas and questions and the votes have been included verbatim, and organised under a colour-coding to make them more digestible.

Many thanks to everyone who contributed to the brainstorm, the output of which will inform our ongoing research programme for the Telco 2.0 (on this site) and Digital Entertainment 2.0 (www.digitalentertainment2.com) initiatives, along with two new programmes for 2011: Mobile Apps 2.0 and Personal Data 2.0.

In particular we would like to thank the event sponsors without whom the event would not have been possible: Platinum – Ericsson; Gold – Aepona, Aito, Aricent, Blyk, IBM, Intel, Nokia Siemens Networks, Oracle and Ubiqisys; and Bronze – Huawei, Juniper, Martin Dawes Systems, Metaswitch and Wipro. And to our collaborators: Analysys Mason, Arete Research and the World Economic Forum.

The next Telco 2.0/Digital Entertainment 2.0 EMEA Brainstorm will be held on the 17-18 May in London. In the meantime, there is a FREE global ‘virtual event’, online on 2-3 February 2011 and the 12th Telco 2.0/Digital Entertainment 2.0 AMERICAS Executive Brainstorm on 5-6 April 2011 in San Francisco (more here).

The ‘Roadmap to New Telco 2.0 Telecoms Business Models’ report will be published in early 2011.

Cloud 2.0: What are the Telco Opportunities?

Summary: Telco 2.0’s analysis of operators’ potential role and opportunity in ‘Cloud Services’, a set of new business model opportunities that are still in an early stage of development – although players such as Amazon have already blazed a substantial trail. (December 2010, , Executive Briefing Service, Cloud & Enterprise ICT Stream & Foundation 2.0)

  • Below is an extract from this Telco 2.0 Report. The report can be downloaded in full PDF format by members of the Telco 2.0 Executive Briefing service and the Cloud and Enterprise ICT Stream here.
  • Additionally, to give an introduction to the principles of Telco 2.0 and digital business model innovation, we now offer for download a small selection of free Telco 2.0 Briefing reports (including this one) and a growing collection of what we think are the best 3rd party ‘white papers’. To access these reports you will need to become a Foundation 2.0 member. To do this, use the promotional code FOUNDATION2 in the box provided on the sign-up page here. NB By signing up to this service you give consent to us passing your contact details to the owners / creators of any 3rd party reports you download. Your Foundation 2.0 member details will allow you to access the reports shown here only, and once registered, you will be able to download the report here.
  • See also the videos from IBM on what telcos need to do, and Oracle on the range of Cloud Services, and the Telco 2.0 Analyst Note describing Americas and EMEA Telco 2.0 Executive Brainstorm delegates’ views of the Cloud Services Opportunity for telcos.
  • We’ll also be discussing Cloud 2.0 at the Silicon Valley (27-28 March) and London (12-13 June) Executive Brainstorms.
  • To access reports from the full Telco 2.0 Executive Briefing service, or to submit whitepapers for review for inclusion in this service, please email contact@telco2.net or call +44 (0) 207 247 5003.

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The Cloud: What Is It?

Apart from being the leading buzzword in the enterprise half of the IT industry for the last few years, what is this thing called “Cloud”? Specifically, how does it differ from traditional server co-location, or indeed time-sharing on mainframes as we did in the 1970s? These are all variations on the theme of computing power being supplied from a remote machine shared with other users, rather than from PCs or servers deployed on-site.

Two useful definitions were voiced at the 11th Telco 2.0 EMEA Executive Brainstorm in November 2010:

  • “A standardised IT Capability delivered in a pay-per-use, self-service way.” Stephan Haddinger, Chief Architect Cloud Computing, Orange – citing a definition by Forrester.
  • “STEAM – A Self-Service, multi-Tenanted, Elastic, broad Access, and Metered IT Service.” Neil Sholay, VP Cloud and Comms, EMEA, Oracle.

The definition of Cloud has been rendered significantly more complicated by the hype around “cloud” and the resultant tendency to use it for almost anything that is network resident. For a start, it’s unhelpful to describe anything that includes a Web site as “cloud computing”. A good way to further understand ‘Cloud Services’ is to look at the classic products in the market.

The most successful of these, Amazon’s S3 and EC2, provide low-level access to computing resources – disk storage, in S3, and general-purpose CPU in EC2. This differs from an ASP (Application Service Provider) or Web 2.0 product in that what is provided isn’t any particular application, but rather something close to the services of a general purpose computer. It differs from traditional hosting in that what is provided is not access to one particular physical machine, but to a virtual machine environment running on many physical servers in a data-centre infrastructure, which is probably itself distributed over multiple locations. The cloud operator handles the administration of the actual servers, the data centres and internal networks, and the virtualisation software used to provide the virtual machines.

Varying degrees of user control over the system are available. A major marketing point, however, is that the user doesn’t need to worry about system administration – it can be abstracted out as in the cloud graphic that is used to symbolise the Internet on architecture diagrams. This tension between computing provided “like electricity” and the desire for more fine-grained control is an important theme. Nobody wants to specify how their electricity is routed through the grid, although increasing numbers of customers want to buy renewable power – but it is much more common for businesses (starting at surprisingly small scale) to have their own Internet routing policies.

So, for example, although Amazon’s cloud services are delivered from their global data centre infrastructure, it’s possible to specify where EC2 instances run to a continental scale. This provides for compliance with data protection law as well as for performance optimisation. Several major providers, notably Rackspace, BT Global Services, and IBM, offer “private cloud” services which represent a halfway house between hosting/managed service and fully virtualised cloud computing. And some explicit cloud products, such as Google’s App Engine, provide an application environment with only limited low-level access, as a rapid-prototyping tool for developers.

The Cloud: Why Is It?

Back at the November 2009 Telco 2.0 Executive Brainstorm in Orlando, Joe Weinman of AT&T presented an argument that cloud computing is “a mathematical inevitability”. His fundamental point is worth expanding on. For many cloud use cases, the decision between moving into the cloud and using a traditional fleet of hosted servers is essentially a rent-vs-buy calculus. Weinman’s point was that once you acquire servers, whether you own them and co-locate or rent them from a hosting provider, you are committed to acquiring that quantity of computing capacity whether you use it or not. Scaling up presents some problems, but it is not that difficult to co-locate more 1U racks. What is really problematic is scaling down.

Cloud computing services address this by basically providing volume pricing for general-purpose computing – you pay for what you use. It therefore has an advantage when there are compute-intensive tasks with a highly skewed traffic distribution, in a temporary deployment, or in a rapid-prototyping project. However, problems arise when there is a need for capacity on permanent standby, or serious issues of data security, business continuity, service assurance, and the like. These are also typical rent-vs-buy issues.

Another reason to move to the cloud is that providing high-availability computing is expensive and difficult. Cloud computing providers’ core business is supporting large numbers of customers’ business-critical applications – it might make sense to pass this task to a specialist. Also, their typical architecture, using virtualisation across large numbers of PC-servers to achieve high availability in the manner popularised by Google, doesn’t make sense except on a scale big enough to provide a significant margin of redundancy in the hardware and in the data centre infrastructure.

Why Not the Cloud?

The key objections to the cloud are centred around trust – one benefit of spreading computing across many servers in many locations is that this reduces the risk of hardware and/or connectivity failure. However, the problem with moving your infrastructure into a multi-tenant platform is of course that it’s another way of saying that you’ve created a new, enormous single point of commercial and/or software failure. It’s also true that the more critical and complex the functions that are moved into cloud infrastructure, and the more demanding the contractual terms that result, the more problematic it becomes to manage the relationship. (Neil Lock, IT Services Director at BT Global Services, contributed an excellent presentation on this theme at the 9th Telco 2.0 Executive Brainstorm.) At some point, the additional costs of managing the outsourcer relationship intersect with the higher costs of owning the infrastructure and internalising the contract. One option involves spending more money on engineers, the other, spending more money on lawyers.

Similar problems exist with regard to information security – a malicious actor who gains access to administrative features of the cloud solution has enormous opportunities to cause trouble, and the scaling features of the cloud mean that it is highly attractive to spammers and denial-of-service attackers. Nothing else offers them quite as much power.

Also, as many cloud systems make a virtue of the fact that the user doesn’t need to know much about the physical infrastructure, it may be very difficult to guarantee compliance with privacy and other legislation. Financial and other standards sometimes mandate specific cryptographic, electronic, and physical security measures. It is quite possible that the users of major clouds would be unable to say in which jurisdiction users’ personal data is stored. They may consider this a feature, but this is highly dependent on the nature of your business.

From a provider perspective, the chief problem with the cloud is commoditisation. At present, major clouds are the cheapest way bar none to buy computing power. However, the very nature of a multi-tenant platform demands significant capital investment to deliver the reliability and availability the customers expect. The temptation will always be there to oversubscribe the available capacity – until the first big outage. A capital intensive, very high volume, and low price business is the classic case of a commodity – many operators would argue that this is precisely what they’re trying to get away from. Expect vigorous competition, low margins, and significant CAPEX requirements.

To download a full PDF of this article, covering…

  • What’s in it for Telcos?
  • Conclusions and Recommendations

…Members of the Telco 2.0TM Executive Briefing Subscription Service and the Cloud & Enterprise ICT Stream can read the Executive Summary and download the full report in PDF format here. Non-Members, please email contact@telco2.net or call +44 (0) 207 247 5003 for further details.

Telco 2.0 Next Steps

Objectives:

  • To continue to analyse and refine the role of telcos in Cloud Services, and how to monetise them;
  • To find and communicate new case studies and use cases in this field.

Deliverables:

Cloud Services 2.0: Clearing Fog, Sunshine Forecast, say Telco 2.0 Delegates

Summary: the early stage of development of the market means there is some confusion on the telco Cloud opportunity, yet clarity is starting to emerge, and the concept of ‘Network-as-a-Service’ found particular favour with Telco 2.0 delegates at our October 2010 Americas and November 2010 EMEA Telco 2.0 Executive Brainstorms. (December 2010, Executive Briefing Service, Cloud & Enterprise ICT Streamm)

The full 15 page PDF report is available for members of the Executive Briefing Service and Cloud and Enterprise ICT Stream here. For membership details please see here, or to join, email contact@telco2.net or call +44 (0) 44 207 247 5003. Cloud Services will also feature at Best Practice Live!, Feb 2-3 2011, and the 2011 Telco 2.0 Executive Brainstorms.

Executive Summary

Clearing Fog

Cloud concepts can sometimes seem as baffling, and as nebulous as their namesakes. However, in the recent Telco 2.0 Executive Brainstorms, (Americas in October 2010 and EMEA November 2010), stimulus presentations by IBM, Oracle, FT-Orange Group, Deutsche Telekom, Intel, Salesforce.com, Cisco, BT-Ribbit, and delegate discussions really brought the Cloud Services opportunities to life.

While it was generally agreed that the precise definitions delineating the many possible varieties of the service are not always useful, it does matter how operators can make money from the services, and there was at least consensus on this.

Sunshine Forecast: A Significant Opportunity…

IBM identified an $88.5Bn opportunity in the Cloud over the next 5 years, the majority of which is applicable to telcos, although the share that will end up in the telco industry might be as much as 70% or as little as 30%, depending on how operators go about it (video here).

According to Cisco, there is a $44Bn telco opportunity in Cloud Services by 2014, supported by the evidence of 30%+ enterprise IT cost savings and productivity gains that resulted from Cisco’s own comprehensive internal adoption of cloud services (video here). We see this estimate as reasonably consistent with IBM’s.

Oracle also brought the range of opportunities to life with seven contrasting real-life case studies (video here).

Ribbit, AT&T, and Salesforce.com also supported the viability of Cloud Cervices, arguing that concerns over trust and privacy are gradually being allayed. Intel argued that Network as a Service (NaaS) is emerging as a cloud opportunity alongside Enterprise and Public Clouds, and that by combining NaaS with the telco influence over devices and device computing power, telcos can be a major player in a new ‘Pervasive Computing’ environment. EMEA delegates also viewed Network-as-a-Service as the most attractive opportunity.

Fig 1 – Delegates Favoured ‘Network-as-a-Service’ of the Cloud Opportunities

Telco 2.0 Delegates Cloud Vote, Nov 2010

Source: Telco 2.0 Delegate Vote, 11th Brainstorm, EMEA , Nov 2010.

Telco 2.0 Next Steps

Objectives:

  • To continue to analyse and refine the role of telcos in Cloud Services, and how to monetise them;
  • To find and communicate new case studies and use cases in this field.

Deliverables:

Cloud 2.0: What Should Telcos do? IBM’s View

Summary: IBM say that telcos are well positioned to provide cloud services, and forecast an $89Bn opportunity over 5 years globally. Video presentation and slides (members only) including forecast, case studies, and lessons for future competitiveness.

Cloud Services will also feature at Best Practice Live!, Feb 2-3 2011, and the 2011 Telco 2.0 Executive Brainstorms.

 

At the 11th EMEA Telco 2.0 Brainstorm, November 2010, Craig Wilson, VP, IBM Global Telecoms Industry, said that:

  • Cloud Services represent an $89Bn opportunity in 5 years;
  • Telcos / Service Providers are “well positioned” to compete in Cloud Services;
  • Security remains the CIO’s biggest question mark, but one that telcos can help with;
  • and outlined two APAC telco Cloud case studies.

Members of the Telco 2.0 Executive Briefing Service and the Cloud and Enterprise ICT Stream can also download Craig’s presentation here (for membership details please see here, or to join, email contact@telco2.net or call +44 (0) 44 207 247 5003).

See also videos by Oracle describing a range of cloud case studies, Cisco on the market opportunity and their own case study of Cloud benefits, and Telco 2.0’s Analyst Note on the Cloud Opportunity.

Telco 2.0 Next Steps

Objectives:

  • To continue to analyse and refine the role of telcos in Cloud Services, and how to monetise them;
  • To find and communicate new case studies and use cases in this field.

Deliverables:

 

Mobile Advertising and Marketing: Operator and Market Growth Strategies 2010

Summary: The potential of mobile marketing has long been understood and yet unfulfilled. This new report gives our forecasts, plus how Telcos can make the most of the powerful assets available to them to take a valuable role in this market before it is too late. Report extract included.

Context: Mobile Advertising is Hot – Again

With Google’s planned acquisition of AdMob and the launch of Apple’s iAd advertising platform, mobile is back in fashion. But where is the real value in this market and what’s the best role for telcos?

A new Telco 2.0 Executive Briefing report, of which there is an introductory extract below, summarises the current status of Telco-enabled marketing channels, and Operators’ opportunities to grow the market. It was produced, in part, as context for the Telco 2.0 Use Case analysis for the Use Cases Report and the standalone Executive Briefing Mobile Advertising and Marketing: Text-based Local Search Use Case. Our original analysis on this topic is the 100+ Page Telco 2.0 Strategy Report – How to make the Telecoms Advertising Channel work a systematic approach to making it work for brands and profitable for telcos.

The report provides our forecast of the development of the market, and in particular on the near term opportunities for messaging based formats. [NB There will be more on both telco-enabled marketing and consumer data at the 9th Telco 2.0 Brainsrorm in London, April 28-29, 2010.]

Key Advertising Strategy Questions

Mobile advertising has long been touted as a major new revenue stream for the telecommunications industry. The role of fixed operators in online advertising has, so far at least, proved to be limited. Because the mobile device can be traced to an individual, however, mobile operators have substantial information about customers that is of potential value to marketers and advertisers.

So far, however, material mobile advertising revenue has proved to be elusive for operators because they have focused on a vertically integrated strategy that involves making money from advertising inventory that they own and control such as on-portal banner advertising. The problem with this is that the portion of inventory that they control is a small and diminishing portion of the total mobile advertising opportunity. We outline this issue in the chart below as well as the key questions facing operators in terms of increasing their addressable market in mobile advertising.

Can the Telco industry extract value from mobile advertising?

mob%20ad%20opp%20chart%20april%202010.png

The report described here analyses the current strengths and weaknesses and near-term opportunities of mobile advertising. In addition, some customers may also wish to consider participation in our Syndicated Research project, in which we will:

  • further explore differences between the major advertising formats: messaging, banner, video/TV, search, games and widgets
  • produce three different business models for the future mobile advertising and marketing ecosystem
  • map different advertising formats effectiveness in each business model
  • analyse how value would flow through each system as well as forecast potential transaction volumes and prices
  • explore how these different models will be deployed in different geographies within Europe and the US and the factors which will drive their uptake

For more information please see Defining the Telco 2.0 Ecosystems or email Chris Barraclough at contact@telco2.net.

Mobile Advertising Report Extract – Introduction

We’ve been here before: Lots of media attention

The mobile advertising and marketing hype appears to be starting up once again.  A few headlines illustrate the point:

  • ‘Like It Or Not, Mobile Advertising Is Coming’[1]
  • ‘Mobile phones a bright spot for Advertising’[2]
  • ‘Mobile Advertising – The Next Big Thing in Travel Marketing’[3]
  • ‘Mobile web adspend expected to reach $2B a year by 2014’[4]
  • ‘Mobile marketing has potential to grow in Asia Pacific, says MMA’[5]

Things have been quiet for a while after the great promises made for mobile advertising in 2006 but media interest is clearly picking up. 

The economic crisis and greater mobile marketing maturity

Mobile marketing is back in the spotlight for a couple of reasons:

1.     The global recession has focused marketers on media campaigns that have a demonstrable return on investment.  As it has become harder to generate sales, so marketing budgets have moved towards activities that can be shown to directly influence the customer’s purchase decision.  For example, in the UK online search advertising grew three times as fast as display advertising between 2007 and 2008 despite already being three times the size.

Figure 1: Internet search and display advertising sectors in the UK

 

Size, £ Millions
Growth
Format

2007
2008
£ Millions
%
Search

1,619
1,987
368
23
Display

592
637
45
8
Source: Internet Advertising Bureau

SMS advertising (including coupons and vouchers) is the biggest mobile segment and has similar characteristics to online search and traditional ‘direct response’ marketing in that an immediate customer action is sought and measured.  Display can, theoretically, do this too (by measuring clicks) but has tended to be used for raising awareness about a brand or product. 

Many companies have, therefore, turned to mobile to maximise sales during these tough times. High profile campaigns of this sort include Coca Cola, who ran a campaign in the UK in May and June 2009 with digital vouchers for free bottles of Fanta, Sprite and Dr. Pepper being sent to the mobile phones of around 100,000 targets. Recipients of the voucher simply had to text ‘YES’ and their date of birth to a specific number and would instantly receive a text with a code enabling them to redeem the voucher. Participating retailers would key the code into their Paypoint terminal (used for paying utility bills and toping up prepay mobile accounts) which would register the redemption. The use of Paypoint enabled Coca Cola to both monitor redemption rates real-time (87% over the course of the campaign) and pay the retailer within seven days.

Figure 2: Coca Cola’s SMS campaign for 10,000 stores and 100,000 consumers

Fig%202%20Coca%20cola%20SMS%20campaign%20Apr%202010.png

Source: www.presscentre.coca-cola.co.uk

2.     The mobile marketing and advertising market is maturing:

a.     There is greater demand from end users for mobile media:

  i.          The rise in flat rate data plans has increased the volume of media consumed on devices and removed the issue of subscribers potentially being charged to receive marketing and advertising;

   ii.          Mobile devices continue to become more sophisticated – more and more phones now have browsers.  This is important:  the volume of  smartphones in the market is directly correlated to web browsing adoption and usage and to data plan take-up;

   iii.          The combination of i. and ii. above has resulted in a substantial increase in mobile browsing in key markets.  Such browsing increased by 52% in the US from November 2007 to November 2008 and by 42% in the largest European markets (UK, France, Spain, Germany and Italy) according to comScore;

   iv.          SMS marketing has reached critical mass in the last eighteen months.  For example, in the US SMS marketing accounted for 60% ($192 million) of the $320 million spent on mobile advertising in 2008 (according to emarketer.com). Similarly, a survey in the US by the Direct Marketing Association in July 2008 found that 70% of consumers had responded to a text ad over a two month period:

Figure 3: Percentage of responders to a mobile offer

Fig%203%20Ad%20report%20percentage%20bar%20chart%20Apr%202010.png

Source: Direct Marketing Association

b.    There has been more industry-wide activity from the operator and advertising communities:

  i.          The Mobile Marketing Association has developed a mobile advertising code of conduct and guidelines and the Direct Marketing Association has also developed guidelines and ‘help notes’ to standardise mobile approaches for marketers;

  ii.          At the time of publication, the GSMA mobile metrics programme is on the cusp of delivering a complete and standardised picture of mobile internet usage in the UK (and later Germany) so that marketers have a 360º view of audience behaviour across mobile and can plan and buy campaigns accordingly;

c.     There has been more effort and activity (including acquisitions) from individual operators seeking to capitalise on this new revenue source, including:

  i.           In late 2007, Telefonica and Vodafone took minority stakes in Amobee a provider of solutions for operators to deliver ad-funded content and services;

  ii.          Vodafone Egypt bought the digital media agency Sarmardy Communication (Sarcom) in August 2008;

  iii.          In August 2009, Orange bought Unanimis, the digital media aggregator to extend its advertising reach;

  iv.          In May 2009, Vodafone announced that it had successfully rolled out mobile advertising to 18 markets in 18 months.  Services include incoming voice/text alerts, branded applications and location-based advertising.;

  v.          Microsoft paid Verizon Wireless around $600m in early 2009 for the right to supply local internet search and mobile advertising services to Verizon’s customers.

This increased activity, of course, leads observers to beg the question ‘why is mobile deemed to be so valuable and where does it fit into the wider marketing mix’?

Mobile as a part of the Marketing Mix

A framework for customer marketing

Traditionally the ‘marketing mix’ has been described in terms of the four levers that marketers can change to drive the success of their product or service: Product, Place, Price and Promotion (the ‘4 P’s).  More recently, advertising agency Ogilvy has suggested that these should be revised to the ‘4 E’s’ to reflect the impact of digitalisation: Experience (instead of Product), Everyplace (Place), Exchange (Price) and Evangelism (Promotion).

However, to understand the role that mobile can play for marketers it is perhaps more helpful to focus on the customer adoption process for a product or service and explore how mobile can enhance the interventions made by marketing during this process.  Again, there are several models exploring how customers first become aware of a product through to the time they are loyal customers.  We have amalgamated several approaches into 6 A’s: Awareness (& Interest), Assessment, Attempt, Adoption, Advocacy and Abandonment (outlined below).

Figure 4: The 6 A’s of a Customer Lifecycle

Stage

Description

Typical customer engagement

Awareness (& Interest)

Making the customer aware of (and interested in) a brand or product or service.

TV, Radio, Billboards, Internet banners

Assessment

Customer evaluates product or service against substitutes.

In-store, comparison websites, peer reviews

Attempt

Customer trials product or service.

In-store promotion, Direct mail, Internet search

Adoption

Customer regularly uses product or signs up for service.

Store, Direct mail, Telesales, Website

Advocacy

Customer is loyal and promotes product or service.

Refer-a-friend, social media viral growth

Abandonment

Customer stops buying product or does not renew service.

Telemarketing, Direct mail

Source: STL Partners/Telco 2.0

Mobile is a particularly interesting medium for marketers because it is ubiquitous and delivers a message to an individual that virtually guarantees their attention.  If marketers can deliver a relevant message or offer to the individual according to their 6 A’s stage via mobile, then they have a good chance of inducing a positive response.  And mobile can also provide a response channel for the individual enabling them to transact directly using the handset.  Of course, the quid pro quo of using a personal medium like mobile for marketing is that there is a real risk of upsetting customers who feel intruded upon or, worse, spammed.  We discuss this in more detail in the sections below on customer data and customer privacy.

Mobile advertising and marketing formats

The range of formats available on mobile also means that marketers can engage with customers in different ways through the lifecycle.  Other media have relatively few formats.  TV, for example, has traditionally been dominated by the commercial break although, more recently, direct TV sales channels and product placement within programmes have increased from a low base.  Mobile, by contrast, has a wide range of formats.

The key formats outlined in the body of the report are: SMS, MMS, Mobile Internet Banners,Apps & Widgets,QR Codes, Mobile TV & Video, Ad-Funded Content, Mobile Search.

The Relative Strengths of Telco-Enabled Marketing Media are Analysed in the Report

Picture1.jpg

Source: Telco 2.0 Mobile Advertising Growth Strategies Report

To read the rest of the report, covering…

  • The strengths and weaknesses of the various forms of mobile media
  • Applicability: How mobile supports customer engagement
  • Media Richness is inversely proportional to Reach
  • Mobile marketing forecasts by advertising format
  • Operator-centric vs ‘OTT’ approaches
  • Customer data and metadata
  • Customer Privacy: issues and approaches
  • The Operator as service provider or service enabler

…and including…

Figure 1: Internet search and display advertising sectors in the UK

Figure 2: Coca Cola’s SMS campaign for 10,000 stores and 100,000 consumers

Figure 3: Percentage of responders to a mobile offer (March & April 2008)

Figure 4: The 6 A’s of a Customer Lifecycle

Figure 5: Important mobile advertising and marketing formats

Figure 6: Blyk Connexions case study example

Figure 7: Arsenal Mobile: for fans of the mighty Gunners

Figure 8: Mobile marketing and advertising applicability: summary

Figure 9: SMS/MMS marketing: currently the most important format

Figure 10: US Mobile Advertising Market, $ Millions

Figure 11: Lots of data but not necessarily complete, accessible, shareable

Figure 12: Sense Networks’ clustering of users based on their location patterns

Figure 13: Customer data approaches for five example services

Figure 14: Technical approaches to addressing privacy

Figure 15: The two-sided Telecoms business model opportunity

Figure 16: Core Telco 2.0 principles followed in this use case

Figure 17: Telco 2.0 ‘Use Case’ Methodology

…Members of the Telco 2.0TM Executive Briefing Subscription Service and the Dealing with Disruption Stream can download the full 33 page report in PDF format here. Non-Members, please see here for how to subscribe, here to buy a single user license for for £995, and here to buy a license for up to 5 people for £1,450. Corporate-wide licenses are also available – please email contact@telco2.net or call +44 (0) 207 247 5003.

Special Offer

We reommend that non-member readers looking for a comprehensive overview of new Telco Business Models enabling advertising and marketing also consider the Telco 2.0 Briefing report Mobile Advertising and Marketing: Text-based Local Search Use Case and the special report Can Telcos Unlock the Value of their Consumer Data? Each report is available individually for single, group and corporate users, and a also in a package of all three reports at a 33% discount – £1,900 for a single user and £2,900 for all three reports for 5 users. Please email contact@telco2.net or call +44 (0) 207 247 5003 for more on these packages and interest in corporate-wide licenses.

Footnotes:


[1] www.informationweek.com

[2] www.inquirer.net

[3] www.travelmole.com/stories/1138044.php

[4]www.fiercemobilecontent.com/story/mobile-web-adspend-expected-reach-2b-year-2014/2009-08-25

[5] www.velti.com/index.cfm?page=1411&articleID=19334292

New Strategy Report: Mobile, Fixed and Wholesale Broadband Business Models

Best Practice Innovation, ‘Telco 2.0′ Opportunities, Forecasts and Future Scenarios

Summary:  a new 249 page Telco 2.0 Strategy Report on the future of broadband, including analysis of the latest new ideas in broadband business model innovation, new ‘Telco 2.0’ Opportunities, global forecasts, four future strategic scenarios, and a detailed ‘Use Case’ describing a new Managed Offload ‘Use Case’.  (March 2010, Future Networks Stream)

The report covers:

  • Best practice innovation, and detailed assessment of ‘Telco 2.0′ opportunities, in Mobile Broadband, Advanced New Wholesale, and Fixed Retail Broadband Business Models
  • Four scenarios for broadband market players: ‘Telco 2.0 Player’, ‘Happy Piper’, ‘Device Specialist’, and ‘Government Department’
  • Telco 2.0’s forecasts for the Broadband Access market
  • An advanced and detailed ‘Use Case’ for a specific Telco 2.0 Opportunity, ‘Managed Offload of Mobile Broadband to Fixed Networks’
  • Conclusions and recommendations for Telcos and other Broadband Service providers (BSPs) and their partners

 

 cover%20image%20mfbbm%20mar%202010.png   

The report is a ‘must read’ for CxOs, strategists and broadband product managers seeking to develop their business strategies and position their products, both within Telcos and BSPs and for the community of business partners and vendors.

Read in Full (Members only)   To Subscribe click here

This report is now availalable to members of our Future Networks Stream. Below is an introductory extract and list of contents from this 249 page strategy Report that can be downloaded in full in PDF format by members of the Future Networks Stream here

For more on any of these services, please email contact@telco2.net / call +44 (0) 207 247 5003 

Report Details

  • 249 pages
  • 90 charts, tables and forecasts
  • Manuscript format
  • Detailed outline and contents below
  • Published: 25th March 2010

The rest of this page contains:

  • Overview and Report Content       
  • Who is the report for?
  • Contents, Figures and Forecasts
  • Downloads (Table of Contents, PDF Version of this Page)
  • Fit with other Broadband Reports

Report Overview & Content

Introduction

Broadband continues to grow in both market penetration and sophistication, with the addition of fibre and mobile access as key enablers.

Figure 1. Global broadband access lines, 2000-2020

personal%20mobile%20growth%20mar%202010.png

Source: Telco 2.0 Mobile and Fixed Future Broadband Business Models

However, while speeds and mobility are improving, there are complex challenges to the business model for service providers. These include:
  • Maturing products and business models
  • Convergence of fixed and mobile technology and product offerings
  • Greater state intervention in deploying and controlling broadband access
  • A more complex broadband ecosystem
  • New consumer behaviour and higher expectations

See here for an extract from the overview of the report on the main themes and challenges that it addresses. Among these challenges are:

  • What are the realistic prospects for non-subscription models for fixed and mobile broadband, such as prepaid / transactional / free / “comes with data”, bundled with device purchase, “sliced and diced”, etc.?
  • A critical analysis of whether operators can charge content / Internet companies for access to ‘their pipes’, and in what circumstances this may be commercially and operationally feasible.
  • What is the changing role of Government in the broadband marketplace?
  • Is Mobile Broadband substitional or synergistic with Fixed?

Overall, new business models will be necessary to help justify extra infrastructure investment as end-user spending on broadband access reaches market saturation.

Figure 2: Next-generation broadband will need new revenue sources

fbbm%20four%20skittles%20mar%202010.png

Source: Telco 2.0 Mobile and Fixed Future Broadband Business Models
The report covers the impact of key factors such as DPI, QoS. Net Neutrality, LTE, Fibre, IPTV, Video demand, mobile broadband, convergence, LLU, MVNOs, Machine-to-Machine, Cloud Computing, and regulation. It explores both developed and developing markets.

Broadband Best Practice Innovation and ‘Telco 2.0′ Opportunities

Following the introduction and market overview, the report contains chapters of detailed analysis of best practice innovation (e.g. pricing, propositions, technologies, etc.) and ‘Telco 2.0′ new business model opportunities in:

  • Fixed Retail Broadband
  • Mobile Retail Broadband
  • Advanced Wholesale Broadband business models.

The ‘Telco 2.0′ propositions are based on the ‘two-sided’ telecoms business model theory that broadband capacity can sold to “upstream” media or application providers. The report examines theoretical use cases and some compelling potential business models.

Figure 3: the Two-Sided Telecoms Business Model
2sbm%20fbbm%20report%20mar%2023%202010.png

Source: Telco 2.0 Analysis

(NB. Further detail on the ‘two-sided’ telecoms business model can be found here.)

‘Managed Mobile Offload’ Use Case

Taking one of the specific opportunities identified, the report details a ‘Use Case’ for offloading excess mobile traffic to fixed operators. This represents a wholesale opportunity for fixed BSPs and an opportunity for Mobile BSPs to manage the rising costs of carrying large volumes of (primarily video) data traffic.

Figure 4: Forms of managed offload from fixed/cable operators

fbbm%20offload%20mar%2023%202010.png

Source: Telco 2.0 Mobile and Fixed Future Broadband Business Models

Future Scenarios

The report describes four possible scenarios for broadband service providers and the benefits and risks of pursuing each strategy.

Figure 5: Potential scenarios for BSPs

fbbm%20four%20scenarios%20mar%2023%202010.png

Source: Telco 2.0 Mobile and Fixed Future Broadband Business Models

Forecasts and Conclusions

The report is completed by global forecasts for each of the core business models for broadband service providers (detailed below), conclusions, and an overview of the relative attractiveness of the scenarios.

Who is the report for?

Telecoms Operators’ and other Broadband Service Providers’:

  • Strategy departments
  • Central research libraries & market research functions
  • CTO office, Strategic Marketing, Business Development
  • Wholesale Departments
  • Government & Regulatory Affairs depts
  • Network architects & planners
  • Broadband services marketing departments (fixed, cable and mobile)

Vendor audiences:

  • Marketing / business development / strategy functions
  • Fixed broadband access equipment vendors
  • Wireless network radio & transport vendors
  • IP core suppliers
  • Fixed-broadband terminal suppliers
  • Mobile broadband device suppliers
  • Policy management, DPI & control specialists
  • Billing & OSS suppliers
  • Silicon and “enabler” providers

Regulators and other Government departments

Investors

Consultants & integrators

Report Contents

Executive Summary

Part 1: Background to the Broadband Industry

  • Market adoption of broadband and the four scenarios
  • Fibre and next-generation access: the missing business model
  • Video: killer app, or network-killer?
  • Mobile broadband: Hype & realism
  • Convergence of fixed / mobile broadband
  • Evolving regulation: help or hindrance?
  • Government & ‘National Broadband’
  • Broadband in the developing world
  • The vendor landscape

Part 2: Fixed retail broadband business models

  • Retail broadband scenario options
  • Cable vs ADSL vs Fibre – same models, or fundamentally different?
  • Pricing options: capping and tiering, application-specific caps and tiers, specific zero-rated / unmetered sites & services
  • Video: providers: the power-brokers? Triple-play / IPTV.
  • Incremental services, cross-network Internet services, prepay fixed broadband    
  • Fibre
  • Future value-add services? Smart grids, telemedicine and ‘The Cloud’
  • The impact of local-loop unbundling and structural separation

Part 3: Mobile Broadband Retail Business Models

  • Mobile broadband computing
  • Smartphone business models
  • M2M broadband business models
  • Do revenues reflect costs?
  • Wholesale mobile broadband and MVNOs
  • Enablers and technologies

Part 4: Advanced broadband wholesale business models

  • Bulk broadband wholesale models
  • Creating next-gen wholesale
  • Telco-Telco wholesale 2.0
  • Broadband capacity ‘slice and dice’
  • Marketing & selling wholesale

Part 5: Use Case: Managed Offload of Mobile Broadband

Part 6: Forecasts and Conclusions

A full table of contents and figures can be downloaded here.

This report is now availalable to members of our Future Networks Stream. Below is an introductory extract and list of contents from this 249 page strategy Report that can be downloaded in full in PDF format by members of the Future Networks Stream here

For more on any of these services, please email contact@telco2.net / call +44 (0) 207 247 5003 

Key Figures and Forecasts

  • Global broadband access lines, 2000-2020
  • Global broadband access lines by technology, 2005-10
  • Global fixed broadband by region, mid-2009
  • Global broadband traffic          
  • Ultra-fast broadband availability in developed markets
  • Global mobile broadband computing users
  • Examples of government broadband-related stimulus plans
  • How uptake of broadband impacts GDP
  • Global fixed broadband lines
  • Wholesale within global fixed broadband, 2010
  • The Global Online Video Market ($Billions)
  • European fibre penetration forecast 2013
  • Mobile broadband active user base
  • Global 3G data traffic by device type, mid-2009
  • Global mobile broadband computing users
  • Vodafone UK mobile broadband pricing trends
  • Traffic volumes for mobile broadband vs. revenues
  • Fixed and mobile broadband wholesale revenues
  • Global mobile broadband computing subscribers
  • Forecast broadband wholesale revenues by category
  • Global retail broadband subscribers 2005-2020
  • Global average retail charges for broadband 2005-2020
  • Broadband Retail Market Value 2005-2020
  • Percentage of broadband lines supplied via bulk wholesale 2005-2020
  • Average global wholesale prices 2005-2020
  • Global bulk wholesale access market 2005-2020
  • Global slice-and-dice revenues per line 2005-2020
  • Global slice-and-dice incremental wholesale access revenues 2005-2020
  • Global active users of broadband without a subscription 2005-2010
  • Active broadband users including ‘comes with data’
  • Global non-subscription upstream revenues per user per year 2005-2020
  • Global ‘comes with data’ broadband access 2005-2020
  • Global wholesale revenues 2005-2020
  • Global broadband access market 2005-2020
  • Breakdown of global wholesale revenues 2005-2020

Downloads

Fit with other Telco 2.0 Broadband Reports

This report is one of the Future Broadband Business Models Report Series of in-depth analyses of the Broadband market.

Companion Reports:

  • Beyond bundling: winning the new $250Bn delivery game” examines the structural opportunities and potential technical strategies for the next 10 years, including the more infrastructure-oriented aspects of wholesale such as IP data transit, renting-out of fibre/towers and local-loop unbundling, and identifies an overall $250Bn opportunity over this period.
  • The impact of video on broadband business models” analyses the development of online video, identifies possible market winners and losers, and sets out three interlocking scenarios depicting the evolution of the market. In each scenario, the role of Broadband Service Providers is examined, possible threats and opportunities revealed, and strategic options are discussed.

This report is now availalable to members of our Future Networks Stream. Below is an introductory extract and list of contents from this 249 page strategy Report that can be downloaded in full in PDF format by members of the Future Networks Stream here

For more on any of these services, please email contact@telco2.net / call +44 (0) 207 247 5003