Azenby

Tag: OTT

  • AppsWorld2016

    AppsWorld 2016 was held this week in London so I went along to see what’s buzzing in the world of apps. Its billed by Informa as being ‘Europe’s largest gathering of passionate Developers, Mobile and Marketing professionals.’ The pre-event publicity also said that this was being held in conjunction with Bot World where we could discuss the opportunities in AI technology and Chatbots. At the event one half of the hall was marked as AppsWorld and the other half as VR & AR World. Apps, Bots, ChatBots, Artificial Intelligence, Virtual Reality……………..a chap could easily get confused. My conclusion is that the world of apps is moving on quickly and AppsWorld was simply signalling the changing times. Someone soon will come up with the new idiom for this expanded new genre. Maybe TelAPPathy.
    The blogsphere has been talking down apps of late. Despite Apple telling us that there are 100 apps downloaded for every iPhone sold, other studies show that we use fewer than a quarter of our downloaded apps in any given month and that the average app loses nearly 80% of its users within three days of being downloaded. In the U.S., 30% of the time when an app is downloaded, a person never opens it more than twice. None of this is very encouraging for App for developers which may be the real reason Apps have peaked. See below the data from Statista.

    Have Apps Peaked?
    Have Apps Peaked?

    So perhaps its hard economics driving the app world forward rather than old fashion user demand. Technology advances, as ever, demand changes in user behaviour and the quest for artificial intelligence and is half cousin, virtual reality, is gathering pace. Are Bots a stepping stone along the way or a passing fad? It wasn’t easy to get answers at AppsWorld. There were lots of Bots evangelists on hand to make the case but I for one was struggling on the user cases.

    Apps have dominated the mobile telecoms space for ten years and more now. The dash for Apps forged mobile device operating system consolidation. We went from over 30 to 2 in no time. Big name casualties like Nokia, Motorola and now BlackBerry have found that people want apps and app developers didn’t want to develop on lots of different platforms. Canute like behaviour lead to their downfall and cleared the way for iOS and Android dominance. It wasn’t only device manufacturers feeling the icy blasts of change. Apps were the vital spark that created the OTT challengers that have turned traditional Telco business models on their head. As customers have gradually perceived the value in the applications and the devices, their desire to pay a premium for a connection has waned, fuelled by the abundance of ‘free’ Wi-Fi. And yet, the App revolution, if we are to believe the soothsayers, has peaked and the world awaits a new king. I think in reality we have just seen the inevitable shake out of apps. There were always far too many for all of them to be making money. Rather than the end of apps we are just seeing the emergence of the small percentage of apps that people want to use and that have a viable business model. The natural selection process is ensuring the survival of the fittest and although the total number of apps may well now rapidly fall, there is little doubt that those in the top 20 of downloads will dominate the landscape for some time to come yet.

    All of these thoughts were uppermost in my mind when strolling down the isles at AppsWorld but I’m sure the many others there were having their own thoughts about exactly what will be occupying the other half of the hall at AppsWorld 2017!

  • OTT Players vs Mobile Operators & Lemons

    How is it that WhatsApp and iMessage could make such a large impact on the mobile operators with such apparent ease?

    The mobile operators are not idiots or incompetents; they have access to enormous funds and huge logistical resource, so how could a near zero capex start up like WhatsApp hit their SMS revenues so hard?

    We need to look back at the history of the industry to see how it has developed and then maybe the source of operator vulnerability will become apparent. Historically the mobile operators pretty much sold voice, SMS and data. If you dig a little deeper you can see that the main cost of providing voice and SMS was the cost of the radio network and the backhaul network. Once a suitable bearer has been created then the cost of layering voice or SMS on top is actually quite small from a capex point of view. Of course there are costs in terminating calls and SMSs but the retail charges have historically been quite a lot more than these termination costs.

    So the operators ended up in a situation where they had set a price level and expectation for a service that did not reflect its true cost to deliver. It’s a bit like selling two lemons for a pound but saying that you are charging 50 pence for the lemons and 50 pence for the bag. You still get your pound and you are able to say that your lemons are cheaper than everyone else’s. But then there is a bit of a problem when someone else comes along with their own bag and insists on taking the lemons from you for just the 50 pence. Any time you end up with pricing realities and customer expectations de-coupled from costs, sooner or later someone will drive a coach and horse through your business plan.

    The mobile operators have created a customer expectation that s/he is paying for voice and SMS and the coverage and capacity is somehow free. Then when an OTT player comes along and says that the voice or messaging service is free, the operators have nowhere to go other than a painful attempt to re-balance their pricing to reflect the real cost. This is what we are starting to see happen now.

    What might the full costs look like? Building a large network from scratch? It is probably going to cost upwards of a billion pounds. Let us suppose a radio site costs at least £60k all up, including the radios, site acquisition, build and backhaul. Then assume for a country like the UK, the macro site requirement would be probably 15-20k to give good in-building coverage and capacity, maybe a few more at higher frequencies and a few less at the lower cellular frequencies. On top of the access and backhaul network, we then need to add in some equipment to handle mobility and route data streams to and from the internet and connecting networks. Let’s say these cost another £50 million. Lastly, we need to add in the servers that support SMS and voice. These are actually quite cheap, a high performance SMSC for instance costs less than £200k – a veritable bargain considering the revenue that it can bring an operator – and voice servers probably cost a bit more than that, say £5-15 million for an IMS based voice system for a reasonably sized network.

    Now where does that leave us? Well, it seems to leave us at a place where the vast majority, some 90%, of the network cost, is actually in the access and backhaul network providing coverage and capacity, and very little is actually spent in the service layer (in terms of capex anyway).

    Today however, in customer’s minds, the access and capacity is probably not something they particularly relate to in terms of what they are paying for. They relate to minutes, SMSs, and data bundles. So when someone like Skype comes along and says, “I’ll give you voice and SMS for free, all you need to do is get a mobile data bundle”, it sounds like a good deal, and one which could trigger a conversation with the operator along the lines of:
    “I really don’t need all these SMSs, or minutes because I use Skype and WhatsAapp, so can I have a cheaper deal please?”

    You would think that the response from the operators would be dismissive laughter, but far from it.  In a headlong race to beat each other over the cliff, one operator after another seems to have replied: “Certainly Madam – let me just see how many more paper bags I can throw in with those pesky lemons!” This is really bad news for the operators because to remove the SMS and voice elements of a package won’t really reduce the operator’s cost of providing the package by very much at all.

    So the answer to the question I first posed: “How can an OTT player damage an operator’s revenue line” is simple, they can’t, without the unconscious help of the operators which appears to be there in great measure.  That leads us to the question of what is a good play for the operator to make, and that is a topic for our next blog.