I first started using clouds in my presentations in 1990 to illustrate Metcalfe’s Law and how data would scale and supersede voice. John McQuillan and his Next Gen Networks (NGN) conferences were my inspiration and source. In the mid-2000s I used them to illustrate the potential for a world of unlimited demand ecosystems: commercial, consumer, social, financial, etc…Cloud computing has now become a part of everyday vernacular.The problem is that for cloud computing to expand the world of networks needs to go flat, or horizontal, as in this complex looking illustration to the left.
This is a static view.Add some temporality and rapidly shifting supply/demand dynamics and the debate begins as to whether the system should be centralized or decentralized.Yes and no.There are 3 main network types:hierarchical, centralized and fully distributed (aka peer to peer).None fully accommodate metcalfe’s, moore’s and zipf’s laws.Network theory needs to capture the dynamic of new service/technology introduction that initially is used by a small group, but then rapidly scales to many.Processing/intelligence initially must be centralized but then traffic and signaling volumes dictate pushing the intelligence to the edge. The illustration to the right begins to convey that lateral motion in a flat, layered architecture, driven by the 2-way, synchronous nature of traffic; albeit with the signalling and transactions moving vertically up and down.
But just as solutions begin to scale, a new service is borne superseding the original.This chaotic view from the outside looks like an organism in constant state of expansion then collapse, expansion then collapse, etc…
A new network theory that controls and accounts for this constant state of creative destruction* is Centralized Hierarchical Networks (CHNs) CC.A search on google and duckduckgo reveals no known prior attribution, so Information Velocity Partners, LLC (aka IVP Capital, LLC) both lays claim and offers up the term under creative commons (CC).I actually coined the CHN term in 2004 at a Telcordia symposium; now an Ericsson subsidiary.
CHN theory fully explains the movement from mainframe to PC to cloud. It explains the growth of switches, routers and data centers in networks over time. And it should be used as a model to explain how optical computing/storage in the core, fiber and MIMO transmission and cognitive radios at the edge get introduced and scaled. Mobile broadband and 7x24 access /syncing by smartphones are already beginning to reveal the pressures on a vertically integrated world and the need to evolve business models and strategies to centralized hierarchical networking.
*--interesting to note that creative destruction was original used in far-left Marxist doctrine in the 1840s but was subsumed into and became associated with far-right Austrian School economic theory in the 1950s. Which underscores my view that often little difference lies between far-left and far-right in a continuous circular political/economic spectrum.
Is reality mimicking art?Is Android following the script from Genesis’ epochal hit Land of Confusion? Is it a bad dream on this day that happens once every four years?Yes, yes, and unfortunately no.Before I go into a litany of ills besetting the Android market and keeping Apple shareholders very happy, two points: a) I have an HTC Incredible and am a Droid fan, and b) the 1986 hit parodied superpower conflict and inept decisions by global leaders but presaged the fall of the Berlin Wall and 20+ years of incredible growth, albeit with a good deal of 3rd world upheaval in the Balkans, Mid-east, and Africa.So maybe there is hope that out of the current state a new world order will arise as the old monopolies are dismantled.
Apple clearly has the digital formula right at present; simplicity, ease of use, performance, and yet, at the same time unlimited choice and customization.Contrast that with this parody from SNL of Verizon and 4G/3G/2G/noG and the Samsung Superbowl Ad portraying a wild party.The result is a disturbing trend if you are an Android phone lover. The ecosystem’s rate of new technology adoption is slowing down even if better technology is being made as consumers are clearly confused. In the tablet market there is even a greater disparity, with Android tablets hardly making a dent in Apple's share.
Yesterday Eric Schmidt prognosticated at MWC a world where more is better and cheaper; which may be good for Google but not necessarily the best thing for anyone else in the Droid ecosystem, including consumers.Yet, at the same time Apple managed to steal the show with its iPad3 announcement.Contrast this with HTC rolling out some awesome phones that will not be available in the US this year because their chip doesn't support 4G.
The answer is not better technology, but better ecosystems.The Droid device vendors should realize this and build a layer of software and standards above Google/ICS to facilitate interoperability across silos (at the individual, device and network level); instead of just depreciating their hardware value by competing on price and features many people do not want. They can then collectively win in residual transaction streams (like collectively synching back to a dropbox) like Apple.
Examples of these include standardization and interoperability of free or subsidized wifi offload, over the top messaging, voice and other solutions and the holy grail, mobile payments. Companies like CloudFoundry allows for cross Cloud application infrastructure support, with AppFog and Iron Foundry are pursuing these approaches individually. But just think what would happen if Samsung, HTC, LG and Motorola were to band together and coordinate these approaches and develop very low cost balanced payment systems within the Droid ecosystem to promote interoperability and cooperation, counteract Google and restore some sanity to the market. Carriers (um battleships?) will not be able to stop this effort and may even welcome it just as the music industry opened its arms to Apple.
Apple hasn’t been an innovator so much as a great design company that understands big market opportunities and what the customer wants. The result is an established order that other industries and their customers clearly prefer. Millenials are too young to know Land of Confusion, but the current decision makers in the Droid ecosystem do and so they should take a lesson from history on this Leap Day.Hopefully we’ll wake up in 4 years and there will be a wonderful new world order. Oh, and a Happy 4 Birthdays to everyone present and past who was born on this day.
Wireless service providers (WSPs) like AT&T and Verizon are battleships, not carriers.Indefatigable...and steaming their way to disaster even as the nature of combat around them changes.If over the top (OTT) missiles from voice and messaging application providers started fires on their superstructures and WiFi offload torpedoes from alternative carriers and enterprises opened cracks in their hulls, then Dropbox bombs are about to score direct hits near their water lines.The WSPs may well sink from new combatants coming out of nowhere with excellent synching and other novel end-user enablement solutions even as pundits like Tomi Ahonen and others trumpet their glorious future.Full steam ahead.
Instead, WSP captains should shout “all engines stop” and rethink their vertical integration strategies to save their ships.A good start might be to look where smart VC money is focusing and figure out how they are outfitted at each level to defend against or incorporate offensively these rapidly developing new weapons.More broadly WSPs should revisit the WinTel wars, which are eerily identical to the smartphone ecosystem battles, and see what steps IBM took to save its sinking ship in the early 1990s.One unfortunate condition might be that the fleet of battleships are now so widely disconnected that none have a chance to survive.
The bulls on Dropbox (see the pros and cons behind the story) suggest that increased reliance on cloud storage and synching will diminish reliance on any one device, operating system or network.This is the type of horizontalization we believe will continue to scale and undermine the (perceived) strength of vertical integration at every layer (upper, middle and lower).Extending the sea battle analogy, horizontalization broadens the theatre of opportunity and threat away from the ship itself; exactly what aircraft carriers did for naval warfare.
Synching will allow everyone to manage and tailor their “states”, developing greater demand opportunity; something I pointed out a couple of months ago.People’s states could be defined a couple of ways, beginning with work, family, leisure/social across time and distance and extending to specific communities of (economic) interest.I first started talking about the “value of state” as Chief Strategist at Multex just as it was being sold to Reuters.
Back then I defined state as information (open applications, communication threads, etc...) resident on a decision maker’s desktop at any point in time that could be retrieved later.Say I have multiple industries that I cover and I am researching biotech in the morning and make a call to someone with a question.Hours later, after lunch meetings, I am working on chemicals when I get a call back with the answer.What’s the value of bringing me back automatically to the prior biotech state so I can better and more immediately incorporate and act on the answer?Quite large.
Fast forward nearly 10 years and people are connected 7x24 and checking their wireless devices on average 150x/day.How many different states are they in during the day?5, 10, 15, 20?The application world is just beginning to figure this out.Google, Facebook, Pinterest and others are developing data engines that facilitate “free access” to content and information paid for by centralized procurement; aka advertising.Synching across “states” will provide even greater opportunity to tailor messages and products to consumers.
Inevitably those producers (advertisers) will begin to require guaranteed QoS and availability levels to ensure a good consumer experience. Moreover, because of social media and BYOD companies today are looking at their employees the same way they are looking at their consumers.The overall battlefield begins to resemble the 800 and VPN wars of the 1990s when we had a vibrant competitive service provider market before its death at the hands of the 1996 Telecom Act (read this critique and another that questions the Bell's unnatural monopoly).Selling open, low-cost, widely available connectivity bandwidth into this advertising battlefield can give WSPs profit on every transaction/bullet/bit across their network.That is the new “ship of state” and taking the battle elsewhere.Some call this dumb pipes; I call this a smart strategy to survive being sunk.
The sports world is a great place to test and prove out management tactics and strategies.Unlike in the commercial world where reasons for and measurement of product success are highly variable and of uncertain duration, sports leagues provide tightly controlled competitive conditions that enable consistent quantitative comparisons.As a result, one can clearly see winning strategies and tactics based on season over season performance.None is more remarkable than Sir Alex Ferguson’s record at Manchester United, probably the best record of any team/coach at the top leagues in any sport over the past 2+ decades.Others have written about his management style here and here.
A great leader is one who gets the best from himself, his employees and customers regardless of the situation or context, be they sports teams, armies, corporations, academic institutions, societies, etc... SAF's record is more remarkable in that it has improved the game of soccer at the same time. Ultimately everyone is subservient and bound by the objective of the team, including himself. SAF's style is best described as a disciplined command and control approach that leads to employee empowerment. SAF has grown, bought, developed, and nurtured superstars and when they've outgrown the team, they are gone.
In his own words SAF says detail is important. He is probably an acolyte of Edward Tufte, who says more information is better.Through analytics SAF looks to gain the proverbial inch to give him the advantage over other teams.In the process his staff has increased from 8 to 30 people over the past 2 decades.In order to synthesize the information and implement strategy leading to individual decision making SAF has implemented an organizational matrix approach and not a management pyramid (or inverted one for that matter).The result is that on game day ManU teams are capable of making decisions on the field and have the resolve to come from behind more often than not.
Furthermore, soccer records and trophies are won not just by outright wins, as in most other sports, but by a combination of wins, goal differentials and draws. As well, Home and Away records are typically very important and a better than 50% winning percentage away from home means a lot. In the table of SAF's points analysis we see that he achieved his remarkable record not just because he won, but because he managed to lose fewer than half his games away from home. This record was achieved because he managed the goal differential ("for" over total goals in last column) significantly in his team's favor away from home. Anybody who knows the game of soccer knows the manager's strategy and tactics before and during the game typically has more of an impact on goal differential than luck. The chart illustrates that ManU's goals for percentage mirrors the total winning points percentage. For those who don't understand the subtleties of soccer's scoring, a 0-0 draw away from home can be the deciding factor in a trophy if a home win is managed. Furthermore drawing 0-0 away from home to a big club is synonymous with a victory during the regular season. (Of course an away goal in a cup competition is worth more than a home goal.)
So how did SAF manage this? As a soccer purist, I love the style of play that is uptempo and attacking.As a former defender I love when ManU’s right or left defenders become 3rd and 4th attackers up the wings. But at the same time, striking the correct balance offensively and defensively is key. By establishing a matrix approach SAF made it easier to move players around between and during games and to identify and increase their value relative to other players around them, so that a weakness in one area can be countered with strength in another. Furthermore, the matrix approach empowers weak players and makes superstars out of "ordinary" players like Ryan Giggs and Paul Scholes; whom many would never have guessed to have such an impact on the team, or the game, as individuals.
In a matrix, employees have a 3D view of their decisions and the impact on the rest of the organization (resource constraints/availability). From a tactical perspective (micro level) it enables forwards to play midfield and help on defense and defenders to develop the attack and even score.A good example is a player like Valencia who used to just be a wing at another team, but has become a very dangerous midfielder and at times has started at right-back for an injury-riddled defense this season.Strategically (at a macro level), the matrix defines key technology/product (supply) and customer/market (demand) parameters. With a matrix approach micro and macro perspectives can be easily related.For instance, SAF would never have let an individual player take over an entire organization’s public perception as Luis Suarez has at Liverpool this season.
Because of the matrix SAF’s strongest player is often the one others' consider weakest.Rather than focusing on his superstars, he focuses on getting the superstars to work with the weakest players and vice versa.Bringing this closer to home and more timely, the New York Knicks should implement a matrix approach both at the management/organizational and team levels.Just look at the benefit the team gets from a player considered weak, Jeremy Lin, but who passes the ball effectively to very talented players versus superstars like Carmelo Anthony or Baron Davis who have a hard time being “matrix” players.Every organization should develop its matrix and understand how employees play together as a team and how the organization is positioned in competitive industries.
Last week we revisted our seminal analysis from 1996 of the 10 cent wireless minute plan (400 minutes for C$40) introduced by Microcell of Canada and came up with the investment theme titled “The 4Cs of Wireless”.To generate sufficient ROI wireless needed to replace wireline as a preferred access method/device (PAD).Wireless would have to satisfy minimal cost, coverage, capacity and clarity requirements to disrupt the voice market.We found:
marginal cost of a wireless minute (all-in) was 1.5-3 cents
dual-mode devices (coverage) would lead to far greater penetration
software-driven and wideband protocols would win the capacity and price wars
CDMA had the best voice clarity (QoS); pre-dating Verizon’s “Can you hear me now” campaign by 6 years
In our model we concluded (and mathematically proved) that demand elasticity would drive consumption to 800 MOUs/month and average ARPUs to north of $70, from the low $40s.It all happened within 2 short years; at least perceived by the market when wireless stocks were booming in 1998. But in 1996, the pricing was viewed as the kiss of death for the wireless industry by our competitors on the Street.BTW, Microcell, the innovator, was at a disadvantage based on our analysis, as the very reason they went to the aggressive pricing model to fill the digital pipes, namely lack of coverage due to a single-mode GSM phone, ended up being their downfall. Coverage for a "mobility" product trumped price, as we see below.
What we didn’t realize at the time was that the 4Cs approach was broadly applicable to supply of communication services and applications in general. In the following decade, we further realized the need for a similar checklist on the demand side to understand how the supply would be soaked up and developed the 4Us of Demand in the process. We found that solutions and services progressed rapidly if they were:
easy to use interface
usable across an array of contexts
ubiquitous in terms of their access
universal in terms of appeal
Typically, most people refer only to user interface (UI or UX) or user experience (UE), but those aren't granular enough to accomodate the enormous range of demand at the margin. Look at any successful product or service introduction over the past 30 years and they’ve scored high on all 4 demand elements.The most profitable and self-sustaining products and solutions have been those that maximized perceived utility demand versus marginal cost.Apple is the most recent example of this.
Putting the 4Cs and 4Us together in an iterative fashion is the best way to understand clearing of marginal supply and demand ex ante. With rapid depreciation of supply (now in seconds, minutes and days) and infinitely diverse demand in digital networked ecosystems getting this process right is critical.
Back in the 1990s I used to say the difference between wireless and wired networks was like turning on a lightswitch in a dark room filled with people.Reaction and interaction (demand) could be instantaneous for the wireless network.So it was important to build out rapidly and load the systems quickly. That made them generative and emergent, resulting in exponential demand growth. (Importantly, this ubiquity resulted from interconnection mandated by regulations from the early 1980s and extended to new digital entrants (dual-mode) in the mid 1990s). Conversely a wired network was like walking around with a flashlight and lighting discrete access points providing linear growth.
The growth in adoption we are witnessing today from applications like Pinterest, Facebook and Instagram (underscored in this blogpost from Fred Wilson) is like stadium lights compared with the candlelight of the 1990s. What took 2 years is taking 2 months. You’ll find the successful applications and technologies score high on the 4Cs and 4Us checklists before they turn the lights on and join the iOS and Android parties.
You all know Monsieurs (MM.) Moore et Metcalfe.But do you know Monsieur (M.) Zipf?I made his acquaintance whilst researching infinite long tails.Why does he matter, you inquire?Because M. Zipf brings some respectability to Moore et Metcalfe, who can get a little out of control from time to time.
Monsieur Moore is an aggressive chap who doubles his strength every 18 months or so and isn’t shy about it.Monsieur Metcalfe has an insatiable appetite, and every bit he consumes increases his girth substantially.Many people have made lots of money from MM Moore’s et Metcalfe’s antics over the past 30 years. The first we refer to generally as the silicon or processing effect, the latter as the network effect. Putting the two together should lead to declines of 50-60% in cost for like performance or throughput. Heady, rather piggish stuff!
Monsieur Zipf, on the other hand, isn’t one for excess.He follows a rather strict regimen; one that applies universally to almost everything around us; be it man-made or natural.M. Zipf isn’t popular because he is rather unsocial.He ensures that what one person has, the next chap only can have half as much, and the next chap half that, and so on.It’s a decreasing, undemocratic principle. Or is it?
Despite his unpopularity, lack of obvious charm and people’s general ignorance of him, M. Zipf’s stature is about to rise.Why?Because of the smartphone and everyone’s desire to always be on and connected; things MM Moore and Metcalfe wholeheartedly support.
M. Zipf is related to the family of power law distributions.Over the past 20 years, technologists have applied his law to understanding network traffic.In a time of plenty, like the past 20 years, M. Zipf’s not been that important.But after 15 years of consolidation and relative underinvestment we are seeing demand outstrip supply and scarcity is looming. M. Zipf can help deal with that scarcity.
Capacity will only get worse as LTE (4G) devices explode on the scene in 2012, not only because of improved coverage, better handsets, improved Android (ICS), but mostly because of the iconic iPhone 5 coming this summer!Here’s the thing with 4G phones, they have bigger screens and they load stuff 5-10x faster.So what took 30 seconds now takes 3-10 seconds to load and stuff will look 2-3x better!People will get more and want more; much to MM Moore’s et Metcalfe’s great pleasure.
“Un moment!” cries M. Zipf.“My users already skew access quite a bit and this will just make matters worse!Today, 50% of capacity is used by 1% of my users.The next 9% use 40% and the remaining 90% of users use just 10% of capacity.With 4G the inequality can only get worse.Indignez-vous! Which is the latest French outcry for equality.” It turns out Zipf's law is actually democratic in that each person consumes at their marginal not average rate. The latter is socialism.
Few of us will see this distribution of usage as a problem short-term, except when we’re on overloaded cellsites and out of reach of a friendly WiFi hotspot.The carriers will throw more capex at the problem and continue to price inefficiently and ineffectively. The larger problem will become apparent within 2 years when the 90% become the 10% and the carriers tell Wall Street they need to invest another $50B after 2015 just after spending $53B between 2010-2014.
Most people aware of this problem say there is a solution.More Spectrum = more Bandwidth to satisfy MM Moore et Metcalfe.But they’ve never heard of M. Zipf nor understood fully how networks are used.Our solution, extended as a courtesy by M. Zipf, is to “understand the customer” and work on “traffic offloading” at the margin.Pricing strategies, some clever code, and marketing are the tools to implement a strategy that can minimize the capital outlays, and rapidly amortize investment and generate positive ROI.
We’ve been thinking about this since 1996 when we first introduced our 4Cs of Wireless (cost, coverage, capacity and clarity) analyzing, understanding and embracing 10 cent wireless pricing (introduced by French Canada's revolutionary MicroCell). As a result we were 2-3 years ahead of everybody with respect to penetration, consumption and wireline substitution thinking and forecasts. Back in 1995 the best wireless prices were 50 cents per minute and just for buying a lot of local access. Long-distance and roaming charges applied. So a corporate executive who travelled a lot would regularly rack up $2000-3000 monthly phone bills. The result was less than 10% penetration, 80 minutes of use per month, and ARPUs declining from $45 to $40 to $35 in analysts' models because the marginal customers being added to the network were using the devices infrequently and more often than not putting them into the glove compartment in case of emergencies. Fewer than 3% of the population actually used the devices more than 1x day.
We used to poll taxi drivers continuously about wireless and found that their average perceived price of $0.75 per minute was simply too high to justify not having to pull over and use a payphone for $0.25. So that was the magical inflection point in the elasticity curves. When MicroCell introduced $0.10 late in the Spring of 1996 and we polled the same set of users, invariably we were just able to avoid an accident they got so excited. So we reasoned and modeled that more than just taxi drivers would use wireless as a primary access device. And use it a lot. This wireless/wireline substitution would result in consumption of 700-800 minutes of use per month, penetration hitting 100% quickly and ARPUs, rather than declining, actually increasing to $70. The forecast was unbelievably bullish. And of course no one believed it in 1996, even though all those numbers were mostly reached within 5 years.
But we also recognized that wireless was a two-edge sword with respect to localized capacity and throughput; taking into account the above 3 laws. So we also created an optimal zone, or location-based, pricing and selling plan that increased ARPUs and effective yield and were vastly superior to all you can eat (AYCE) and eat what you want (EWYW) plans. Unfortunately, carriers didn't understand or appreciate M. Zipf and within 2 years they were giving away night and weekend minutes for free, where they could have monetized them for 3-6 cents each. Then some carriers responded by giving away long-distance (whose marginal cost was less than a minutes without access; but still could cost 2-3 cents). Then AT&T responded with the One-rate plan, which destroyed roaming surcharges and led to one-rate everywhere; even if demand was different everywhere.
Here’s a snapshot of that analysis that is quite simple and consistent with Zipf's law and highly applicable today. Unfortunately, where my approach would have kept effective yield at 8 cents or higher, the competitive carriers responded by going to all you can eat (AYCE) plans and the effective yield dropped to 4 cents by 2004. Had intercarrier SMS not occurred in the 2003-4 timeframe, they would have all been sunk with those pricing models, as they were in the middle of massive 2G investment programs for the coming "wireless data explosion", which actually didn't happen until 3G and smartphones in the 2008-2009 timeframes. It was still a voice and blackberry (texting and email) world in 2007 when the iPhone hit. With ubiquitous SMS and people's preference to text instead of leaving vmail, minutes dropped from 700 to 500, lowering carrier's costs, and they were able to generate incremental revenues on SMS pricing plans (called data) in the 2004-2007 timeframe.
All that said, the analysis and approach is even more useful today since extreme consumption of data will tend to occur disproportionately in the fixed mode (what many refer to as offload). I let you come up with your own solutions. À bientôt! Oh, and look up Free in France to get an idea of where things are headed. What is it about these French? Must be something about Liberté, égalité, fraternité.
Every institution, every industry, every company has or is undergoing the transformation from analog to digital.Many are failing, superseded by new entrants.No more so than in the content and media industries: music, retail, radio, newspaper and publishing.But why, especially as they’ve invested in the tools and systems to go digital?Their failure can be summed up by this simple quote, “Our retail stores are all about customer service, and (so and so) shares that commitment like no one else we’ve met,” said Apple’s CEO. “We are thrilled to have him join our team and bring his incredible retail experience to Apple.”
Think about what Apple’s CEO emphasized.“Customer service.” Not selling; and yet the stores accounted for $15B of product sold in 2011!When you walk into an Apple store it is like no other retailing experience, precisely because Apple stood the retail model on its head.Apple thought digital as it sold not just 4 or 5 products--yes that’s it—but rather 4-5 ecosystems that let the individual easily tailor their unique experience from beginning to end.
Analog does not scale.Digital does.Analog is manual.Digital is automated.Analog cannot easily be software defined and repurposed.Digital can.Analog is expensively two-way.With Digital 2-way becomes ubiquitous and synchronous.Analog is highly centralized. Digital can be easily distributed. All of this drives marginal cost down at all layers and boundary points meaning performance/price is constantly improving even as operator/vendor margins rise.
With Digital the long tail doesn’t just become infinite, but gives way to endless new tails.The (analog) incumbent sees digital as disruptive, with per unit price declines and same-store revenues eroding. They fail to see and benefit from relative cost declines and increased demand. The latter invariably occurs due to a shift from "private" to public consumption, normal price elasticity, and "application" elasticity as the range of producers and consumers increases.The result is overall revenue growth and margin expansion for every industry/market that has gone digital.
Digital also makes it easy for something that worked in one industry to be easily translated to another.Bill Taylor of Fast Company recently wrote in HBR that keeping pace with rapid change in a digital world requires having the widest scope of vision, and implementing successful ideas from other fields.
The film and media industries are a case in point.As this infographic illustrates Hollywood studios have resisted “thinking digital” for 80 years.But there is much they could learn from the transformation of other information/content monopolies over the past 30 years.This blog from Fred Wilson sums up the issues between the incumbents and new entrants well.Hollywood would do well to listen and see what Apple did to the music industry and how it changed it fundamentally; because it is about to do the same to publishing and video. If not Apple then others.
Another aspect of digital is the potential for user innovation.Digital companies should constantly be looking for innovation at the edge.This implies a focus on the “marginal” not average consumer.Social media is developing tremendous tools and data architectures for this. If companies don’t utilize these advances, those same users will develop new products and markets, as can be seen from the comments field of this blog on the financial services industry.
Digital is synonymous with flat which drives greater scale efficiency into markets. Flat (horizontal) systems tend toward vertical completeness via ecosystems (the Apple or Android or WinTel approach). Apple IS NOT vertically integrated. It has pieced together and controls very effectively vertically complete solutions. In contrast, vertically integrated monopolies ultimately fail because they don’t scale at every layer efficiently. Thinking flat (horizontal) is the first step to digitization.
Data is just going nuts!Big data, little data, smartphones, clouds, application ecosystems.So why are Apple and Equinix two of only a few large cap companies in this area with stocks up over 35% over the past 12 months, while AT&T, Verizon, Google and Sprint are market performers or worse?It has to do with pricing, revenues, margins and capex; all of which impact ROI.The former’s ROI is going up while the latters’ are flat to declining.And this is all due to the wildness of mobile data.
Data services have been revealing flaws and weaknesses in the carriers pricing models and networks for some time, but now the ante is being upped.Smartphones now account for almost all new phones sold, and soon they will represent over 50% of every carriers base, likely ending this year over 66%.That might look good except when we look at these statistics and facts:
1% of wlx users use 50% of the bandwidth, while the top 10% account for 90%. That means 9 out of 10 users account for only 10% of network consumption; clearly overpaying for what they get.
Streaming just 2 hours of music daily off a cloud service soaks up 3.5GB per month
Carriers still derive more than 2/3 of their revenues from voice.
Cellular wireless (just like WiFi) is shared.
Putting this together you can see that on the one hand a very small percentage of users use the bulk of the network. Voice pricing and revenues are way out of sync with corresponding data pricing and revenues; especially as OTT IP voice and other applications become pervasive.
Furthermore, video, which is growing in popularity will end up using 90% of the capacity, crowding out everything else, unless carriers change pricing to reflect differences in both marginal users and marginal applications. Marginal here = high volume/leading edge.
So how are carriers responding? By raising data prices. This started over a year ago as they started capping those “unlimited” data plans. Now they are raising the prices and doing so in wild and wacky ways; ways we think that will come back to haunt them just like wild party photos on FB. Here are just two of many examples:
This past week AT&T simplified its pricing and scored a marketing coup by offering more for more and lowering prices even as the media reported AT&T as “raising prices.” They sell you a bigger block of data at a higher initial price and then charge the same rate for additional blocks which may or may not be used. Got that?
On the other hand that might be better than Walmart’s new unlimited data plan which requires PhD level math skills to understand. Let me try to explain as simply as possible. Via T-Mobile they offer 5GB/month at 3G speed, thereafter (the unlimited part) they throttle to 2G speed. But after March 16 the numbers will change to 250MB initially at 3G, then 2G speeds unlimited after that. Beware the Ides of March’s consumer backlash!
Unless the carriers and their channels start coming up with realistic offload solutions, like France’s Free, and pricing to better match underlying consumption, they will continue to generate lower or negative ROI. They need to get control of wild data. Furthermore, if they do not, the markets and customers will. With smartphones (like Apple's, who by the way drove WiFi as a feature knowing that AT&T's network was subpar) and cloudbased solutions (hosted by Equinix) it is becoming easier for companies like Republic Wireless to virtually bypass the expensive carrier plans using their very own networks. AT&T, VZ, Sprint will continue to be market performers at best.
“There is no clear definition, but usually the Singularity is meant as a future time when societal, scientific and economic change is so fast we cannot even imagine what will happen from our present perspective, and when humanity will become posthumanity.”Futurist Ray Kurzweil wrote the Singularity is near in 2005 and it sure felt that way at CES in Las Vegas in 2012.
In any event, we didn’t come up with this association.Matt Burns at TechCrunch did during one of the live streamed panel discussions from the show floor.But given that we’ve been at the forefront of mobile devices and networks for 2 decades, we couldn’t have said it any better.After all this time and all these promises, it really felt like all the devices were connected and this app-ecosystem-mass was beginning to move at a pace and direction that none of us could fully explain.
Vernor Vinge, a sci-fi writer, coined the expression back in the early 1990s.When you look at the list of publications at the Singularity Institute one can’t help but think that the diaspora of different applications and devices self organizing out of CES 2012 isn’t the beginning of AI.Will AI develop out of the search algorithms that tailor each individuals specific needs, and possibly out-thinking or out-guessing the individual in the process?
We probably won’t know the answer for at least a decade, but what we do know is that we are about to embark on a wave of growth, development and change that will make the past 30 year WinTel-Internet development look embryonic at best. After all the Singularity is infinity in mathematical terms. Hold onto your seats.
Yahoo executed on the portal concept better than any other company and one time was worth $113B.Today it is worth $17.6B and is trading at 12.9x operating cash flow.But its interest in Chinese and Japanese subsidiaries is $19B pretax or $13B aftertax.Either way YHOO is absurdly cheap on $5B of revenue and $1.4B cash flow and 700 million users.So new CEO Thompson has a chance to pull off the turnaround of the century for a company that is hard to define by many.
What would we do in his shoes?
First, we would go back to what made Yahoo so valuable in people’s eyes to begin with, namely an approach that used others’ content and turned it into gold via traffic streams and advertising revenue.As a tools and application company they have been pretty poor at monetizing their innovations.Ultimately, the chief reason people came to Yahoo was the breadth and easy accessibility of the information, making people shout “yahoo” in joy.The brand is a great brand after all and one of the real internet originals which will fix itself.
So what is the “new” content today?Applications.Yahoo should evolve from content portal to "app-portal".More specifically we are about to witness an explosion of cross application solutions and commerce that will develop entire new ecosystems of revenue opportunity.And these will exist across multiple platforms and screens as one writer points out.Facebook is trying to harness this opportunity with Opengraph, but already people might be concerned that it is just too much confusion and overkill and TMI.
Yahoo can not only remove that confusion but allow people to tailor their own environments.HTML5 and connectivity across smartphone, TV, tablet and PC/ultrabook will pave the way.Understanding and harnassing the big data required to do this is one of Thompson’s key attributes. At the same time virtual currencies can be created to monetize this interactivity beyond mere advertising and that’s what Thompson brings from Paypal.
With over 70 different services/tools and 14,000 employees, Thompson will definitely have to restructure, reduce and refocus in order to have the resources to aggressively develop an app-portal future.
I first started using clouds in my presentations in 1990 to illustrate Metcalfe’s Law and how data would scale and supersede voice.
theory needs to capture the dynamic of new service/technology introduction that initially is used by a small group, but then rapidly scales to many.
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providers started fires on their superstructures and WiFi offload torpedoes from alternative carriers and enterprises opened cracks in their hulls, then 
highly variable and of uncertain duration, sports leagues provide tightly controlled competitive conditions that enable consistent quantitative comparisons.
regardless of the situation or context, be they sports teams, armies, corporations, academic institutions, societies, etc... SAF's record is more remarkable in that it has 
