Déjà vu with data growth

We have been here before. Data traffic already exceeds voice on many mobile networks. And it is predicted to increase 1000-fold within a decade as wireless becomes the world’s primary method of Internet access. A massive surge in fixed network traffic started approximately 15 years ago. Data surpassed and then dwarfed voice as Internet access and IP services drove exponential growth.

Major fiber investments around the millennium provided copious amounts of cheap bandwidth for consumers. Unfortunately, overinvestment followed by bankruptcies and significant retrenchment proved to be a painful experience for many network service providers, their vendor-financed suppliers and other investors. The question is: Will these mistakes be repeated in the bonanza to turn 3 billion mobile voice and text users into mobile broadband consumers on Long Term Evolution (LTE) and 4G networks?

Mobile broadband economics

To help ensure profitable growth, mobile operators are revamping their business models. This will include charging on the basis of speeds, data volumes, service levels and advanced services which can be combined with the raw connectivity.

In the fixed telecoms boom of the 1990s, aggressive pricing on highly commoditized connectivity services and vendor financing exposed many operators and their suppliers to significant losses. Today, operators and technology vendors must be careful to ensure services are more differentiated and expenditures are better matched to their revenues.

Some players triumphed through the fixed Internet access revolution. These included incumbent local phone companies, leading DSL equipment suppliers, and many web companies including Amazon.com and Google. But there were also significant financial casualties such as some national backbone and international communications service providers, fiber optic transmission equipment manufacturers and many ISPs. The challenge will be to figure out which strategies will be required to capitalize upon the mobile broadband revolution while avoiding previous mistakes.

Old and new challenges

The old 3G problem was that nobody used it much. At first, flat-rate unlimited data pricing made great sense in developed nations where a sizable segment of price-insensitive users were encouraged to use it while providing them comfort that the monthly expenditure was fixed. The arrangement was also simple for operators with no need for metering or complex billing and no shortage of network capacity. That all changed a few years ago when users – of smartphones as well as data cards and dongles – started using 3G networks a lot.

The relatively new 3G problem and the upcoming 4G challenge is that escalating demand must be economically balanced with supply. This is a multi-faceted puzzle that must use pricing to temper demand and associated network costs. It’s closing time for the one-size-fits-all, all-you-can-eat pricing model because it:

• Fails to extract higher expenditures from those who are willing to pay more
• Excludes price-sensitive users who would be willing to pay lower prices for limited usage or reduced performance
• Subjects operators to extremely high usage and at great cost from a small proportion of customers

Figure 1 illustrates how a single flat rate limits revenues by restricting pricing opportunities with those people who are willing to pay more and restricts subscriber uptake with those who are only willing to pay less.

Figure 1: Flat-rate pricing limits revenues and restricts subscriber uptake

The desire to boost revenues while limiting total costs has made flat-rate pricing with unlimited usage unworkable in mobile except on new networks with excess capacity where the lure of this pricing model can accelerate subscriber acquisition. Unfortunately, speeds on parts of these networks soon plummet due to congestion. Operators carry a heavy burden increasing mobile broadband capacity because costs with spectrum, radio access, backhaul, and core network technologies are significantly higher per gigabyte transported than on fixed networks with fiber and copper access lines.

Furthermore, the vast majority of mobile subscribers worldwide have prepaid, pay-as-you-go pricing for voice and text. With so many of these users in cash-based economies and without operator billing relationships or credit ratings, they will also be best suited and most amenable to prepaid and usage-based arrangements for data.

New mobile business models from many operators worldwide include tiered service pricing on the basis of access speeds, volumes of data and session lengths with prepaid and postpaid charging. Operators are also seeking to enrich services with improved quality of service (QoS), quality of experience (QoE), location-based capabilities and more.

Footing the bill

Bringing broadband IP and Internet access to the world’s masses is a very costly undertaking no matter which technology is used. Wireless broadband upgrades from 2G to 3G or 4G are highly suited to places where there are no landlines including some remote regions in developed nations.

Europe’s millennial 3G licensing also caused an economic shock to the telecoms sector that should not be repeated. Taxing mobile operators with high spectrum costs in conventional auctions extracts excessive capital from the sector and impairs investment for the most expensive to reach places and those consumers who have the least to spend.

The legacy of the over investment and excessively competitive pricing in long-haul, fiber-based communications capacity a decade ago is that some assets were able to be purchased after the bust for a small percentage of original costs. In conjunction with copper landlines funded by preceding decades of monopoly profits, this has provided affordable broadband Internet access to those who happen to live in the right places, but what about everybody else?

Mobile broadband infrastructure is very costly, though not as expensive as pulling fiber to rural and remote communities everywhere. The danger is that mobile network expansion will be curtailed if spectrum is taxed too highly in auction fees. Licensing with more significant coverage and service level obligations in conjunction with less costly spectrum would extend coverage and capacity investment much further.

Bridging the digital divide

Existing fixed broadband Internet users who have mobile lifestyles are the most obvious early adopters for mobile broadband on phones, laptop PCs and other devices. However, their demands could ultimately be exceeded by the billions who today have limited or no Internet access and to whom fixed Internet access with fiber or copper connections are not economical. Mobile broadband is always on and always with you – a weekly commute to an Internet café or a library visit is a far cry from the pervasive Internet experience provided with personal mobile devices. For these people, mobile broadband will become the predominant or only means of Internet access.

Compared to wireline, wireless remains the most economical option for voice and Internet access outside of densely populated areas and for approximately half of the world’s population. Over the last 15 years the Internet was brought to many who already had landline phones, by first using dial-up and then through DSL over existing copper access lines connected to newly built fiber-optic backbones. Meanwhile, remote regions and developing nations were catching up on voice services with 2G cellular-based access.

Cellular devices are now also more accessible and most suitable for the mobile lifestyles and literacy levels of many who spend most of their time outside of a home or office. Looking ahead, LTE will bridge the digital divide. Wireless networks will migrate to 3G and 4G including next-generation IP technologies and will bring mobile broadband Internet to billions of people who have cellphones but no fixed access.

E-mail is out, social networking is in, and all the advertising in the world can't topple Google, according to the ComScore 2010 U.S. Digital Year in Review.

The report, which was released on Monday, provides a snapshot of usage trends across the digital space. Perhaps most noteworthy was the shift in e-mail usage, particularly among young people. Total Web-based e-mail use was down eight percent last year, led by a walloping 59 percent drop among 12 to 17 year olds. The second biggest drop was among 25 to 34 year olds (18 percent) and third biggest was among 45 to 54 year olds (12 percent). The only age category to increase its use of e-mail in 2010 was 55 to 64 year olds (up 22 percent), which the report attributed to continuing Internet adoption among that age group.

"What's really happening is the emergence of so many new communications channels" such as mobile and social networks, said Andrew Lipsman, spokesperson for the Reston, VA-based research firm, which are siphoning off e-mail users. However, those channels are primarily affecting social communication, he said, accounting for the much larger drop-off among those under 17.

Social networking continued its rise as the dominant Internet activity, with nine out of every 10 Internet users visiting a social networking site each month in 2010. "Social networking sites accounted for 12 percent of all time spent online in 2010 with the average Internet user spending more than 4.5 hours on these sites each month," the report read. Women continued to spend more of their Web browsing time on such sites (17 percent) than men did (12 percent).

Facebook was still the 800-pound gorilla in the social networking space, adding millions of users and accounting for 10 percent of all U.S. page views for the year. Three out of every 10 Internet sessions included a visit to the site. Despite MySpace's very public struggles - its audience declined 27 percent and total time spent on the site declined by half - the News Corp. property held on to the number two spot.

Tumblr was a surprise success among social networking sites in 2010, upping its monthly visitors to 6.7 million, an increase of 168 percent. Formspring.me also caught on with young users, growing over 1000 percent for the year and attracting 5.3 million visitors in December.

Lipsman attributed Tumblr's success to its unique balance of blogging and social networking. "It seems to tap into a couple of trends in terms of social media," he said. "And I think the simplicity of it is starting to catch on."

In the search category, despite the continued marketing onslaught of Microsoft's Bing, Google maintained its share of about 66 percent. Yahoo sites maintained their distant second of about 16 percent despite a minor drop of about 1 percent, and Microsoft sites came in third with 12 percent, a two percent increase over 2009.

Google also dominated "powered by" searches, Web searches conducted at third-party entities that carry the branding of major search engines. Google owned 24 percent of searches on the "powered by" market, whereas Bing owned 6.2 percent. Last year was the first time ComScore tracked the "powered by" market.

Zokem’s industry leading Mobile Life panel in the US from the year 2010 reveals that iPhone scores 84% higher in loyalty ratings than the nearest competitor, Google Android. Among non-iPhone users, the number one preference for the next smartphone is iPhone. The benchmark results by Zokem also show that older Windows Mobile devices and Nokia’s Symbian devices have already lost the game in the US. Both Microsoft and Nokia are, however, coming back with new offerings and trying to challenge the top three platforms – iPhone, Android and Blackberry – when measured by user loyalty.

During the year 2010 Android emerged as the single best selling mobile platform in the US. Out of individual device types, however, the few iPhone models that are available on the market are actually selling more than any specific Android device, and for the time being, Apple’s well-controlled ecosystem, including the iTunes app store and traditionally higher revenues per device, seem to make an unmatched combination. As a platform, however, Android is a fair competitor –and in certain numbers, bigger than iPhone – but the industry attention is still geared towards the iPhone as the leading smartphone platform, particularly in the US.
Zokem, a mobile analytics company focused on smartphones, is running mobile consumer panels in all major markets. The panels do not only measure what people do with mobile phones, but also track how loyal people are towards different phone models and carriers.

From the 2010 summary report that was published recently, a few figures are worth pointing out. First of all, “the figures suggest clearly that iPhone is the top performing platform in terms of user loyalty, and therefore, it is an increasingly likely pick for a repurchase” tells Dr. Hannu Verkasalo, CEO of Zokem. “Android is a good number two in the US market, even though the loyalty score is not nearly as high as it is for iPhones, but it seems that people who are using Android are also very likely to buy an Android-based device as their next smartphone too”, Verkasalo continues. Zokem is using a standardized net promoter score (NPS) to analyze user loyalty.

Figure 1.

Figure 1 reflects the loyalty that mobile users have for the phones that they are currently using. Net promoter score between -100 % and 100 %, is measuring the loyalty that people have towards the phone. Generically NPS score higher than 60 % is considered good. The only smartphone platform that exceeds that is iPhone, at 73 %. Google’s Android platform comes second, followed by Samsung’s Bada-based phones (Samsung has now shifted strategy more towards Android-based devices) and then RIM’s Blackberry phones. It is notable that two remarkable players, Nokia and Microsoft, received very low loyalty ratings for their own platforms. Also Palm’s Webos, sold to HP during year 2010, did not achieve a very high NPS score.

Figure 2.

Low loyalty correlates with higher churn, meaning the likelihood to shift to a competing platform during the next 12 months, as seen in Figure 2. There are, however, certain exceptions, like Samsung Bada, Palm WebOS, and Nokia Symbian S60. These platforms have suffered from lack of mass adoption, weak app stores, and relatively moderate push by US carriers. “Even though Samsung Bada, for example, received relatively good loyalty rating, most users were still committed to jump to one of the better known platforms, and therefore the churn for Bada was very high”, says Zhao Hanbo from the Zokem analyst team.

Figure 3

Figure 3 reflects some key correlations, underlining the fact that users of iPhones, Blackberries and Android devices are all more likely to buy a similar device in the future, rather than to change to a competing platform. The results are quite contrasting regarding Palm and Nokia phones, reflecting the fact that the weak platforms of today might be even weaker in the future.

A recent study by Zokem reveals that the use of apps and mobile web goes up in relative terms in the evening and night time, whereas traditional communication services capture more user attention in the day time. For advertisers, this indicates the most important venues for mobile advertising during the lucrative evening time, where apps are, in fact, already ahead of web.

In the future of mobile, advertising will play an increasingly important part of the whole ecosystem. There exists a great opportunity in understanding how to target ads, when and where to advertise, and to whom. An interesting fact is that mobile is everywhere and all the time, so the possible contexts where to advertise and engage with consumers are numerous. As there are various ways to deliver ads through mobiles, choosing the best channel, such as the mobile web versus an application, the right app category or ad network, for the right time of a day have to be decided.

Figure 1

In Figure 1, based on our international Mobile Life panel, we have compared the relative use of smartphones at different parts of the day, calculating for each of the main smartphone use cases (browsing, voice, messaging and apps) an index reflecting the likelihood for people to use them, or launch the application, given they actually do something with their phones during that particular hour. For this we compare the number of usage sessions per category to the total number all usage sessions in a particular hour.

As expected, voice and messaging dominate day time usage, but fall towards the night as people communicate less through calls and messaging in the night time. Voice drops quicker than messaging, perhaps because it is a more business oriented service. In absolute terms, day time usage is still higher than evening time usage for all categories (Figure 2), but interestingly mobile apps and web browsing are stronger in the evening and night time, at least in relative terms.

Figure 2

“The evening hours are actually very crucial for advertising purposes, as people are not so much into work, and are more likely to make decisions, such as whether to go to movies, pick a nice restaurant for a dinner, or purchase a new track on iTunes”, says Dr. Hannu Verkasalo, CEO of Zokem. “If you take a closer look, it is shown that in the evenings apps still continue to capture user attention, actually more so than in day time, even though e.g. voice and messaging usage is already going down. Also mobile web browsing continues to capture user attention, even off the day time hours, but apps are relatively more important than mobile web sites for the purposes of advertising”, continues Verkasalo.

In the publicly available Zokem Insights, these analytics are packetized into more granular form, and more specific results for different application categories, sophisticated user segments, and device models, are available, providing tools for more actionable optimization of ad campaigns and targeting models.

This exemplary piece of analytics was published as a courtesy by Zokem, based on a vast dataset of smartphone users, part of Zokem Mobile Life panels, from the US and main markets of Europe.

The extraordinary growth of Google's (GOOG) Android phones can be traced in six months of smartphone advertising data from Millennial Media, the largest independent mobile ad network.

In a series of pie charts, they show Android overtaking Research in Motion's (RIMM) BlackBerry between July and August in ad impressions, gaining rapidly on Apple's (AAPL) iPhone between June and September and finally coming even with iOS in October with a 37% share apiece.

But an interesting thing happens in Millennial's November report, released early Tuesday. It shows Android and iOS tied for the second month in a row, at 38% each.  After six months of breakneck gains, we have something that looks like equilibrium.

Apple is still the No. 1 smartphone manufacturer, as it has been for 14 months in a row, but there are signs that the iPhone is approaching saturation in the developer community. In a Millennial survey, Android was the No. 1 platform developers plan to support in 2011, with Microsoft's (MSFT) Windows Phone 7 and the iPad tied for second. The iPhone was relegated to fourth place, after the BlackBerry.

Below: Six months of Millennial pie charts.

Source: Millennial Media

In Nigeria, South Africa and Indonesia, more than 90 percent of 18- to 27-year-olds use mobile phones as their primary means to access the Internet, even though smartphones aren't widely used, according to a survey by Norwegian browser company Opera Software.

The survey was displayed to Opera Mini browser users on their handsets and Opera collected 300,000 responses. The results challenge the long-standing belief that smartphone uptake will be the major driver of mobile web usage globally, according to Opera.

Also, the countries with the highest percentage of respondents using desktop or laptop computers as the primary means of Internet access were countries where smartphones are more common among the top handsets used, including the U.S. and Germany, where the split between phone and laptop or desktop is about fifty-fifty.

In October, the most popular phone among U.S. and German Opera Mini users was the iPhone, but in India and Nigeria it was Nokia's 5130 XpressMusic, according to Opera.

That users in developing countries choose feature phones over smartphones and access the Internet is not necessarily a voluntary choice, because the lack of fixed Internet infrastructure and the fact that people can't afford the iPhone 4 or the latest high-end Android-based smartphone.

But the results show that there is a need for a good browsing experience on feature phones as well, according to Opera. And the company isn't alone in thinking that. Opera signed a deal in April with Vodafone to use the Mini browser to push Web browsing in emerging markets. Also, Nokia acquired Novarra with the same intent.

At the same time, the phone market is changing rapidly, with the emergence of smartphones at increasingly lower prices, according to Carolina Milanesi, research vice president at Gartner. The arrival of 3G phones based on MediaTek's Android-based platform next year will help push prices down further, she said.

However, the lower price sometimes also comes with a compromised product, with smaller screens and touchscreens that aren't as good as those found on a more expensive phone. So it's not certain that consumers in developing countries will pick less expensive smartphones, she said.

Here I go again ... using Posterous as a bookmarking aid.

Usage of m.youtube.com is exploding and mobile consumers watch hundreds of millions of video views on YouTube Mobile each month. To better understand these users and their browsing and video consuming behavior we recently ran a survey of users on m.youtube.com and received >16,000 responses.  Some of the results may surprise you:

• 75% of respondents say that mobile is their primary way of accessing YouTube
• 70% visit YouTube Mobile at least once a day
• 58% spend more than 20 minutes per visit to YouTube Mobile
• 38% feel that YouTube Mobile is replacing their desktop YouTube usage

However, these results may not be as surprising when you learn that, according to Nielsen, YouTube Mobile is the #1 video viewing mobile website in the US, with more than 7.1MM monthly unique users.  Advertisers can now own 100% share-of-voice on YouTube Mobile (m.youtube.com) by purchasing a daily roadblock and owning all available ad impressions for 24 hours.  Ads run on the Search, Browse and Home pages of the mobile website. Here’s an example of a recent Diet Coke campaign:

The roadblock runs across the Search, Browse and Home pages of m.youtube.com

Advertisers from a range of verticals have successfully run roadblocks on YouTube Mobile including autos, CPG, entertainment, retail and others.   Many advertisers choose to time their YouTube Mobile Roadblocks to coincide with product launches, sales events, or other days they are making a big media push.  Purchasing a roadblock of YouTube Mobile is an excellent complement to campaigns you may be running on YouTube’s desktop as you can reach users as they interact with YouTube from their device of choice. 

We’ve launched this opportunity in the US and we’re excited to roll it out in multiple international markets soon.

Posted by Johanna Werther, Advertiser Lead PMM, Google Mobile Display Marketing

Since banks like Bank of America launched native iPhone apps for Apple’s app store in late 2008, there has been an ongoing discussion about whether the future of mobile banking will be dominated by native apps or browser-based services.

With the adoption of smartphones that let people download mobile apps (like iPhones, Andoid phones, and BlackBerrry devices)  still being small today, banks will need to continue offering browser-based mobile banking services to reach most of their customers. But with smartphone ownership growing fast, I expect that most growth in mobile banking adoption will come from native apps and not from browser-based services in the coming years because:

1) Native mobile apps offer a much more compelling mobile banking user experience:

• Apps are easier to find. App stores have become an important way for consumers to discover content. To find a mobile app, customers simply need to search for the bank’s brand name in the app store. Furthermore, mobile banking apps often appear in the list of most popular free apps — which creates additional promotion. Banks promote their native apps heavily since it positions the firm as an innovation leader and associates their own brand to other popular brands like Apple. By contrast, it is more difficult for customers to find out about their bank’s mobile banking Web site domain. Initiatives like dotMobi, with specific domains for mobile-dedicated sites still suffer because it is not clear which sites carry the .mobi extension and which don't. Furthermore, — since mobile search is in its infancy —searching via search engines like Google require additional effort.
• They are easier to setup. Once a customer has downloaded an app, it is automatically bookmarked with an icon on the mobile’s home screen and thus easy to access again in the future. By contrast, customers who access a mobile Web site who want to save the link to the URL for future use need to take an additional step to either bookmark the link in the mobile browser or to create a shortcut on its home screen.  
• Apps  provide better usability. Since less information needs to travel via the mobile network, most apps load and respond faster than mobile banking Web sites. Furthermore, apps’ are easier to navigate since they have only one level of navigation that is specifically designed for the user goal they are trying to accomplish. By contrast, mobile banking Web sites make use of the mobile browser’s generic navigation plus an additional app-specific navigation.

2) Native mobile apps enable banks to develop functionality that leverage the unique benefits of the mobile channel

• They integrate more deeply with the handset's hardware. Unlike today’s mobile Web sites, native apps can integrate with the handset’s core functions like GPS and camera. Apps thus enable a wider set of functionality that is unique to the mobile channel like remote check deposits and ATM and branch finders that help to find the way to the nearest ‘free’ ATM or branch. Although more advanced browsers with HTML5 will be able to leverage phone features, it will take several years until they are widespread.
• Apps let banks create a ‘proactive’ channel that provides actionable information. Apps enable application developers to push notifications to the smarthpone without the app being launched.  For banks, that means that a range of services can be offered that notify the customer proactively. Banks can for example show their customers when a new transaction has taken place or alert them when their account reaches a certain limit to avoid overdraft. By contrast, mobile Web sites are — like general Web sites — a reactive channel that only provides information once customers decide to access it. Apps can thus leverage some unique capabilities of the mobile channel.

Nothing new here. But as I get myself in the mood of writing again I have been doing some reading. I came across this little post on the Forrester blog. To summarize... the author says mobile banking adoption will be driven more by native applications (vs mobile browser) due to two main reasons:
(1) user experience and (2) native integration.

The quick version - Samsung didn't pay much serious attention to smartphones until last year, but once it 'woke up' it has run on all cylinders. They tick all the boxes, and have a great strategy - which they are executing perfectly. Do I need to say more? First off - this is an Tomi Ahonen analysis, thus your latte won't get cold while you're reading this. Sit back and enjoy.

To add to Tomi's quick intro above... the gist of the story is that Samsung has become all things to all people. They can provide a phone for every platform that allows licensing to third parties... this means no Apple, no RIM and no Palm/HP. But everyone else is in.

The first week of spring/autumn (Northern/Southern Hemisphere) brought an array of mobile topics from health to gambling and analytics to mobile payment, as mobilists – new, regular and not-seen-for-a-while Carnival contributors – pulled out all the stops.

A lot of good reads on mobility over at this week's Carnival. Click above and head over there.