2014: Network Crisis

February 23, 2014. Sochi Olympic Winter Games. Canada faces the U.S. in yet another hockey final. Sidney Crosby, now 27, scored the winning goal 4 years earlier in Vancouver to win the gold medal for Canada, 3-2 in overtime.The entire country is counting on him again…I am waiting in line to re-charge my car battery. 20 more minutes and I will be home enjoying the game in HD3D – for now my iPhone 8 will do. I pull it out, facial recognition boots: the network is saturated again. Damn you Rogers! I can’t believe I am missing the final…

By 2014, the demand for mobile broadband will surpass the spectrum available. According to the Cisco Visual Networking Index (VNI) forecast, global mobile traffic will reach 3.6 exabytes per month (that’s 3.6 billion gygabytes per month) reaching a yearly total of 40 exabytes – the equivalent of roughly 100 million streaming DVDs. Peter Rysavy, in a report sponsored by RIM for the Mobile World Congress, suggests that wireless networks will not be able to cope with this surge in data traffic. Analysts dub this prediction the “spectrum crisis”, whereby the data demand and use of mobile devices will outpace the carriers’ capacity to provide connectivity.

I was attending SAP World Tour recently, and an analogy made by Duncan Stewart, director at Deloitte Canada Research, painted a very clear picture of the challenges of mobile broadband in 2014. Imagine a notoriously traffic-heavy bridge during peak-time (we all have one of those in our cities) would it matter if you increased the speed limit to 700K per hour? No matter how fast the network is in theory (3G, 4G, you name it), it is the number of devices consuming data on that network that is the real issue. The increased computing capacity of the devices themselves (maybe by then our smartphones will be running on 3 GHz processors?) is the equivalent of driving a sports-car in traffic jam.

There is two major global trends expected to significantly drive up data usage. The first and most obvious is the increase in the number of data-consuming mobile devices. According to Cisco, there could be an expected 5 billion personal devices connecting mobile networks and over 400 million of those devices may be the only way of connecting to the Internet for some people. Deloitte estimates 1/5 of those devices could be the US and Canada.

As Duncan Stewart illustrates, with the average selling price of desktop computers falling to an estimated $500 in 2014, the disposable income available to spend on mobile devices becomes less of an issue and  we can expect the North American smartphone and tablet market to go from $36 billion in 2009, to an estimated $133 billion market by 2014.

The second major trend driving up data traffic is the consumption of video on mobile devices. Cisco estimates that by 2014 mobile video is expected to account for 66% of all mobile data traffic worldwide – a 66-fold increase from 2009. Mobile P2P, VOIP, gaming and Web/Data will account for the remaining 34%.

This double punch of increased demand in mobile bandwidth could lead to a crappy user experience and/or heavy-handed data pricing. Carriers are already abandoning unlimited data plans. Data capacity is clearly a scarce resource, any economist will tell you that tiered data pricing is the way to go – in the short term at least. In the long term, wireless carriers around the world are moving toward a technology called Long-Term Evolution, or LTE, that ramps up the speeds and capabilities of their networks. In the U.S. Verizon, AT&T, Sprint, T-Mobile and Clearwire have layed out their strategy to transition to LTE. In Canada, Rogers, Bell and Telus are all following suite. But while there is excitement about LTE, analysts point to a number of factors that indicate that it will not be enough to quench the thirst for data in 2014.

One thing is certain, with Android and Windows Phone 7 pushing their OS onto more and more handsets and the foothold of Apple and RIM devices, data-hungry smartphones and tablets are here to stay. The big question remains: will carriers have the capacity to stomach the surge in data traffic?

This blog post was published previously on Socialemon.

Advertise your business for FREE on Google

Do you own a business or know somebody that does? Many small and medium businesses do not know that you can get some free advertising using Google Places. Verified Places owners can promote their business online and even view and respond publicly to user reviews. By providing the service for free, Google is looking to increase the value of their local mapping and search algorithm. Enter some basic information about your business and when a potential (local) customer looks up your type of services on Google, your business name appears at the top of the search page – resulting in more traffic, leads and customers. Here is a 5-step how-to guide to help you achieve this.

1. Check if your business is already listed. It is possible that your business is already listed on Google. If so, you will still need to claim your listing to make sure that the information is accurate and up to date. Go to Google Maps and search for your business name.

  • If your business name shows up it will appear on the place-mark on the left pane. Click on it and a pop-up menu will appear providing you with a few options. Click on “more” to get to the “edit” option. If your business is unclaimed, once you click on “claim your business” you will be prompted to to choose between “Edit my business information”, “Suspend this listing” or “This isn’t my listing”. The first option will simply allow you to claim the current listing and modify some basic information. “Suspend this listing” will remove the entire listing entry from Google Maps. “This isn’t my listing” will allow you to set up an entirely new listing for your business.
  • If your business name doesn’t show up you can go directly to Google Places and “add a new business”.

2. Verify your business. Google will ask you to verify the authenticity of your business listing either by phone or snail mail. This is a “curating” step of the process to help you get some control and manage your presence online.

3. Add information about your business. Now we get to the crucial part – this is your time to shine. Think practical + advertising. You want to provide your basic contact (name, address, phone number, website) but also practical information to potential customers (hours of operation, payment options) and even go the extra mile (why not include a link to your Facebook or Twitter page?). Keep in mind that your business will appear depending on the type of business google’d, so make sure you list yourself under the right category. Think 411.

4. Monitor your listing. Most businesses stop at step 3. Don’t you want to know if your listing is actually driving traffic to your business? Google provides statistics that can show you specific information about your business listing. “Impressions” indicate the number of times your listing has been displayed during a search. Keep in mind that the statistics are not in real time, so don’t check in the next morning to see how many new customers Google brought to your doors.

5. Engage with potential customers. The ability to respond publicly to reviews – positive or negative – is a great way to engage directly with customers and deal with specific issues in a timely manner. Google Places also allows you to add coupons that potential customers can print off and bring when they visit your business. There is a wide range of (paid) advertising options you can opt for. Not sure which one to choose? Fear not – Google just announced a new advertising program called Boost. It will automatically determine what keywords your business should bid on and recommends a range of monthly advertising budgets based on the competitiveness of your business sector.

Hope this helped. Don’t forget to spread the word by sharing this link! If you would like to dig in deeper you might want to check out the official Google Places user guide.

This blog post was published previously on Socialemon.

Google is NOT a one-trick pony

Google recently reported a very strong quarter with an impressive 23% jump in revenue from last year.

In a statement, CEO Eric Schmitt cited strength in the company’s core search business and disclosed that Google is now doing $2.5 billion of “non-text” revenue and $1 billion in mobile revenue. “Our core business grew very well, and our newer business – particularly display and mobile – continued to show significant momentum,” he said.

Critics were quick to do the math and estimated that only a very small portion of Google’s profits actually comes from other segments. They contend that the $1 billion of mobile revenue is still “search” revenue. Google likely passes at least 50% of its $2.5 billion of non-text ad revenue through to content partners. This means that, on a “net revenue” basis, Google’s non-text ad business generates only $1-$1.25 billion of revenue, or only about 5% of Google’s total revenue.

While I can’t argue with the maths behind this report, I very much disagree with the conclusion that Google is a one-trick pony. It’s like saying that “Microsoft is a one-trick pony because they make most of their profits from Windows” or that “Subway makes most of its profits from selling sandwiches”.

I am not a Google fanboy, some of you might already know this from my previous articles, but I have a lot of respect for Google as a company and its agenda for innovation. I am not naive enough to believe that “search” has nothing to do with Google’s other initiatives such as Android, Google Docs, GMail or Chrome. In fact I believe that most of these activities are very much geared towards a strategic positioning of Google’s search and advertising business – Google is still a business after all and they have shareholders to report to.

What I admire is that Google figured out a way to do what they have to do to fund what they love to do – and the value they have created for the rest of us is not measurable by earning reports. Tim O’Reilly talks about great innovative companies as companies that create more value than they can capture. Google is a great example of that just as Facebook, Microsoft or Apple. Regardless of the business agendas behind these companies they have undeniably contributed to making the technology world what it is today – they all have created and/or innovated in ways that brought more value to the world that they could ever capture.

6 Characteristics of Successful Freemiums

Since venture capitalists Fred Wilson and Chris Anderson showed us the business opportunities of “free” on the Internet, Freemium has become one of the most popular business models for web companies. Freemium is based on the concept of providing a version of a service for free alongside one or several premium versions.

For a time, the default model for high-traffic but unprofitable websites was displaying ads, but companies such as Flickr, Linkedin, Youtube and Pandora did things differently and proved Freemium to be a very viable business model. Or is it?

Billing systerm provider Chargify launched a year ago with an attractive pricing model for Web 2.0 and SaaS companies including a free package for companies with less than 50 subscribers. But that model proved to be very ineffective in the long term so a few days ago they decided to switch things up with premium-only plans.  The company twitter account was responding to complains all day and a popular thread of negative publicity even made it to Hacker News. Other companies such as NingPhanfare or the now defunct LucidEra also failed using Freemium.

So what makes some companies succeed where others fail? What do successful Freemiums have in common?

1. Freemium is right for their business. Venture Capitalist Seth Levine of Foundry Group suggests that if your product offers value out of the gate, if your service is such that it doesn’t necessarily benefit by having a large volume of users – you may not be the right candidate for Freemium. A good rule of thumb is that the lifetime value of a paying customer needs to be greater than the cost it took to acquire them, plus, the cost of servicing all users: Lifetime value > Cost per acquisition + Cost of Service (paying and free). Typically the marginal cost of acquisition and service are very close to zero and the free version must generate a large customer base.

2. They treat users and customers as separate entities. According to “business model alchemist”  Alexander Osterwalder, all groups for which a company creates value through a product or a service are users. Customers are simply users who pay for the value that is created for them in the form of a revenue stream for the company. The keyword here is “value” – you need to understand where the value comes from. For example since Skype is based on Peer 2 Peer technology, free users are creating value for paying users by ensuring good calling quality. Flickr free users on the other hand generate costs that the company has to recuperate with its paying customers.

3. They have the right tiered model. Levine suggests that more pricing tiers mean more complication and confusion. Most companies overestimate their prospective customers’ ability to understand the features of their product. You also need to have a clear distinction between your pricing tiers. Andrew Chen notes that the key is to create the right mix of features to segment out the people who are willing to pay, but without alienating the users who make up your free audience. Do it right, and your conversion rates might be as high as 20%. Do it wrong and your long term value gets really close to zero.

4. They know their target conversion rate. From the get-go Phil Libin, CEO of Evernote, knew that he needed a 1% conversion rate. Right now, roughly 2% of all Evernoters are premium customers. 2% has largely been used by VCs from companies such as Google Venture as the “natural rate”. That said, conversion rates are different in each company – some are as high as 25%. The key is to know what rate you need to become profitable – looking at your Cost per Acquisition (CPA)  and Cost per service (CPS) is a good place to start.

5. They are not afraid to charge. Josh Kopelman of Fist Round Capital once tweeted that too many Freemium models have too much “free” and not enough “mium”. When you have a product that is valuable and that people love, you will be surprised how much they are willing to pay for it. Levine argues that many products have a lower price elasticity than their creators realize. If you get it wrong it’s a lot easier to lower prices than to raise them.

6. They maintain premium value. Management consultant Anders Sundelin suggests creating a strong control mechanism to ensure competitors do not offer free features to win over users until there is nothing premium left for the free-based version. Maintaining the value of your premium also means keeping an eye on dropout rates. Sales cycles can be very long in a Freemium model with subscriptions going for as long as a year. Keep an eye on the competition and revise your conversion rate targets based on you estimated dropout rates.

Android is Google’s Agent Smith

Smith began as an agent, an AI program in the Matrix destined to keep order within the system by terminating troublesome programs and humans, which would otherwise bring instability to the simulated reality. Smith is significantly more open from the start, seeming far more intelligent, adaptable and destructive than other agents. At the end of the first Matrix movie, Smith appears to have been destroyed by Neo, but he makes a calculated return with somewhat altered motivations and abilities. The Matrix has lost control of Smith – he can no longer be forcibly sent to the system source to be deleted. This process makes him into a renegade program with the ability to make uncontrolled and non-conforming copies of himself, rather than simply having the ability to switch between bodies, as normal agents are able to. Smith is now threatening the very stability of the Matrix…

When Andy Rubin, co-founder and former CEO of Android named Google’s mobile OS, little did he know that his very own Android would – like Agent Smith – become a renegade program...

Google’s motivation behind Android is a very controversial topic, but we can all agree that behind the simulated reality of “free-for-all openness”, lies a calculated set of control points to bring to the masses a platform that would extend the reach of Google’s main source of revenue: advertising. At first glance, it looks like Android is doing a pretty good job at that. Google made plenty of partners (both carriers and handset makers) and acquired a very strong developer support. Armies of Android-powered or Android-based devices of all shapes and sizes hit the market every day. At its base, Android is a customizable low-level operating system that is perfectly suited for embedded devices. It has built-in support for networking and familiar user tools that can easily be integrated into a higher-level application ecosystem. With Google’s acquisition of Admob, the mobile-ad sales market is growing faster than anything we’ve ever seen. A new report from analyst firm Piper Jaffray even suggests that in the long run, Android is going to be the OS running on around 50% of the Smartphone market. So it seems all is going as planned for Google? Not quite…

"You hear that Mr. Schmidt?… That is the sound of inevitability…"

Over the past few months, the Tech world has been imploding over Android’s openness. MG Siegler’s Techcrunch article on the topic created a riot of comments (over 1000 replies, 3500 tweets and 2000 Facebook shares) all over the blogosphere. Fan-boyisms aside, the fact IS that Android is breaking itself free from Google…and as in the Matrix, users are starting to wake up to the simulated reality of the Android landscape.

Since July, just to cite a few, we have faced four major releases with four different firmwares: Droid X launched with Android 2.1, Droid 2 followed with Froyo, Dell Streak shamelessly displayed Android 1.6 and then came along Dell Aero with the egregious Android 1.5. Of course, users are always promised updates to the newer version but in an environment driven by a different set of priorities and incentives, they are often faced with the short end of the stick (e.g. Samsung Behold II). Complaints of fragmentation across versions of Android are nothing new; the question is: is this a problem for Google? The short answer to that question is “yes” but the long version is far more convoluted.

In the short term, Android is making a whole lot of people a whole lot of money. Android, single handedly gave life back to Motorola and increased HTC’s earnings by 58%. Verizon is cashing in off AT&T’s iPhone exclusivity deal. The real problem is that customers are not going to come back to Android if they keep being lured into different versions of the OS. A lot of Android users are feeling shafted and once their contracts are up they will most likely want to switch to a more stable OS. Handset makers are the only ones able to fix this problem but where is the urgency? Why devote valuable time and investments into a phone that you have already sold? Wouldn’t you rather have your engineers focus on the newer upcoming version to boost your future earnings? Result: some new devices are released with Android OS versions as old as 18 months…

"Mr Schmidt, welcome back. We missed you…Like what I’ve done with the place?"

Now, let’s take a look at what is happening outside the U.S. and Canada. In China, the world’s largest mobile market, officially sanctioned versions of Android are flourishing, starting with last year’s Ophone OS from state-owned China Mobile. Motorola is also developing a line of Chinese flavors for Android with Baidu as the default search engine (ouch!). In Europe, French newspaper Lefigaro reported last week that heads of France Telecom-Orange, Deutsche Telekom (Germany), Telefonica (Spain) and Vodafone (UK) met to discuss the possible creation of customized common platform for mobile devices based on Android.

In the tablet market, manufacturers are making their own versions of a compatible Android-based OS to fight Apple’s iPad (e.g. Samsung Galaxy tab) even though Google’s view is that Android is not suited for tablets. But guess what? They don’t need Google’s benediction to act on their impulses. Will this affect Android and Google’s reputation in the tablet market? You bet!

Sadly, fragmentation amongst versions of Android is the least Google has to worry about nowadays. Agent Android has now acquired the ability to duplicate Google’s very own app marketplace. The symbiotic relationship between manufacturers and carriers is coming to an end. Carriers have now realized that they can exploit the open-source nature of Android to their own advantage. Verizon is expected to launch it’s own V CAST App store on Android – and the new store will exist outside of the Google Marketplace. Verizon could in this way sell some valuable mobile real estate to the highest bidder (just as it recently did shoving Bing into Android phones). The trend has been set and we can expect a lot more companies to follow. Rumor has it Amazon is also going to launch its own Android app Marketplace – now Google should worry about this one! Amazon has a lot of experience running online stores – more so than Google, or even Apple for that matter.

"Can you feel it, Mr. Schmidt, closing in on you? Oh, I can"

So what does all this mean in the long term? Android users will soon have (on top of pre-loaded apps on their devices) to shop around different app stores with possibly different products and price structures. For things to really work for them, maybe there should be one kind of device, one OS version and one App store (sounds familiar?). Nexus One was Google’s attempt at that but the experiment failed and Agent Android is now in the wild making copies of himself and gaining new abilities and powers that are often not in Google’s own interest. The stability of Google’s Matrix is now threatened and they need The One to save it. Will it be a new phone? New OS? New licensing terms? Or maybe a full system reboot? (worked for the Matrix…and Facebook). The fact remains that cracks are starting to show and Google needs to get their act together and clean things up – it is not too late.

This blog post was published previously on Socialemon.