Saturday, 28 January 2012

What I've been reading this week

I’m firmly of the belief that participants in the TMT industry need to read widely in order to understand the present and future dynamics of the market. To that end, this post is a collection of the articles that have caught my eye.

This week – pirates take over your 3-D printer, antivirus, military industrial complex, the EU goes 1984, the world realises that Chinese data might not be all it seems while Apple continues to take it over

New business models

A nice analysis of Google’s earnings, which were released late last week. The headlines are that although Android devices are being “lit up” at a rate of nearly 750,000 a day, most of Google’s mobile revenue comes from search on iOS. Google also persist in saying that Motorola will stand alone and not receive preferential treatment – not sure I buy that, but stranger things have happened! Revenues outside advertising were very low. Goes without saying...

The TV advert for the first Macintosh inferred that Apple was the antidote to all-powerful mega-corporations and 1984-style blind obedience. Now it seems that Apple is fast becoming the very kind of monolithic corporation foretold in dystopian future visions. Be afraid, be very afraid...

...Nokia. I remain bullish about Nokia’s potential – they’re the best engineers in the mobile industry. My worry is that despite appearing to turn a corner on the marketing of the Lumia, their results demonstrate that the device itself just isn’t selling. A real shame, because it offers a great experience that is in some ways superior to iOS. Unfortunately, Apple is the new Nokia, the safe haven in a storm of smartphone choices. Nokia desperately needs to find new categories to compete in – for now I think that smartphones are a losing game. 2012 is a critical year – I think NOK has 18 months before the decline is terminal (pun intended...)

The brand potential for sports is ever-rising. With fragmented, confusing media options, sport delivers consistent value for viewers and advertisers; principally because it is almost unique in being best consumed live and in the highest resolution vision and sound possible.

I’ve said it before and I’ll say it again. Chinese data is like sausages. If you like the taste, don’t ask where it came from! The Chinese market clearly has long term potential, but to judge it today by the terms of a democratic, market capitalist system is to use flawed logic. This is a brutal, communist dictatorship that uses just enough capitalist language to trade with the world on its own terms and thereby achieve its national goals, which are to promote the survival of its own political system. In my opinion.

I guess we all assumed that the US could do this sort of thing. Now we know. Cyber warfare is going mainstream this year. Its ramifications are still a total unknown.

Therefore: my prediction is that one major corporation will suffer a similar breach every month this year (on average).

And although Anonymous are the least of our worries – principally because they don’t (yet) have war fighting capabilities (!), they do have Symantec’s source code...

...Although if they can take over your 3-D printer, then with Pirate Bay’s help perhaps they can make... a club? 10th Century war fighting capabilities...

Digital Media

Not a huge surprise that Sony has pulled Google TV – it doesn’t really fit with their in-house 4 screen strategy even if the technology itself was any good. Which it isn’t. I’m generally pretty sceptical about the consumer benefit of any of the current or proposed connected TV propositions. Bearing in mind the amount of content that can be crammed into a PVR and the amount of TV that the average consumer can physically watch in a day or even be aware exists is rather limited, I don’t see the need to sully the TV experience with needless “search”. Put that on the second screen.

Good that someone is making money from News Stand. I also like the refreshingly frank comments about the nature of magazine business models online. The rule book is indeed blank.

Following last week’s news about Facebook taking #1 spot in Dutch social media, here’s a wider ranging study that shows the company’s increasing dominance elsewhere in the world. This is great for Facebook as it’s fast becoming a global social directory, however I still feel that consumers will have numerous social profiles, aggregated together by computing platforms at the handset/ tablet/ laptop. As such, revenue may not flow to Facebook so much as to the aggregator. Flipboard, for example, has changed the way I use my iPad. Active tiles on Windows 7.5 are even better. Sadly it’s yet to catch on.

Emerging technology

Kinect is an astoundingly clever technology and proof (if any was needed) that Microsoft are still innovative. I’ll be interested to see how this gets integrated into Windows 8 devices – not obvious what it’ll be used for outside of the corporate presentation and performance arts markets.

Not the most insightful article on behavioural pricing, but the aggregation of customer data for use in decision making is topical because... afraid, be very afraid! The EU has decided to wade into the consumer data arena with a typically misguided attempt to control something they don’t understand. It doesn’t feel to me like many of these measures would be enforceable in the real world. Even if you could technically use deep packet inspection to work out whose data was flowing where (which would be very hard to do in practice) doing so would violate the laws it was designed to enforce because you’d need to know what the customer data was in order to identify it. Very Big Brother, and I suspect quite scary to many consumers... or perhaps just to me!

Also appalling for innovation in the sector and for European competitiveness writ large. Still, that’s never stopped the EU before – see the demise of our high tech’ industry for prior art.

Self-healing materials will ultimately be a standard feature on our consumer devices. Also great to see cross pollination of advanced materials between technology categories.

Breakthrough technology

As ever, fascinating news about the long term direction of computing... but this is a 2020 technology, not a 2013 one. Improving the architecture of silicon devices will have far more impact in the next 5 years than advanced materials. It’s notable that in many areas of silicon chip design (e.g. mobile), the industry is significantly outperforming Moore’s law and its equivalents.

Thursday, 26 January 2012

Keeping MAM - will familiarity with files consolidate the post production technology industry

Having written previously about how the proliferation of devices and device formats creates a complex supply chain problem for digital content distributors and retailers, I thought it was worth writing about how the production technology market is affected by the same trends.

Post capture production was traditionally a business of tape-based cameras, consoles, decks, switches and related technologies for the purpose of content capture, manipulation, management and storage. It has historically been a hardware market with defined replacement cycles and, in the case of cameras, a lucrative ongoing revenue stream in tape sales.

As editing became file-based and output formats proliferated, more attention focussed on the need to create automated workflows for content production and distribution (an integrated production system). This move to file-based media threatens the traditional post-capture technology model as increasing proportions of post-capture technology is moving onto software that runs on commodity hardware and requires no ongoing investment in removable storage media. Furthermore, many software and service companies have moved into the hardware vendors’ traditional space and are competing effectively with them in some areas.

The crucial battleground in this multi-billion dollar market is that of media management. It is the media management component of an integrated production system that co-ordinates the flow of media around an organisation, ensures that its integrity and identity are retained and that its use is understood. In my view, media management includes a number of processes within post-production:

  • Ingest from various formats (e.g. tape, internet file transfer, camera hard drive)

  • Asset management (e.g. store content and metadata, search, view, transcode)

  • Integration with business systems (e.g. ERP, finance, BI, MI)

  • Integration with editing, QC

  • Outgest to various formats (e.g. tape, internet file transfer, camera hard drive, DVD)

  • Linear playout based on schedule

  • Studio playout

  • Integration with the VOD platform

As software supplants hardware in this market, so the make-up of the supplier base will change, from a market where every system is bespoke and integrated, to one where the systems are common and are configured to an organisation. This shift is also vital if media management is to become a capability used by organisations outside those who create and distribute content as a core business. The shift to third screen experiences in the physical world will entail other organisations to make, manage and use a huge collection of media and make it available at point of sale based on external queues. Although distribution can potentially be bought in from network providers, media assets that describe and promote physical products may become differentiators for organisations in the real world

Media management may therefore become a market at which a much larger industry develops and therefore become (even) more attractive to investors. I have a number of hypotheses about the development of this market:

  1. The global media management market will grow strongly over the next decade and its scope will expand outside of broadcasters and studios to include most major consumer-goods brands.

  2. The pace of carrier network upgrades means that the majority of media management technology will be deployed within the firewall until at least 2022.

  3. The media management software market will consolidate. There will be two or three major end-to-end software platforms that are configured to the requirements of the organisation, rather than the current market, where solutions are customised on a case-by-case basis from a variety of products.

  4. Because configuration will become the norm when deploying media management systems, the systems integration market will not consolidate significantly. Instead, traditional systems integrators will be able to do the work traditionally performed by broadcast engineering specialists. The economies of scale of large SIs will give them an advantage in this market.

  5. Media management systems will be hosted on data centres running a mixture of conventional servers and specialist media servers, containing hardware optimised for video processing. The latter will be rendered economic by the scale of the media management market globally (bringing scale economies), the volume of content being processed and external factors, such as the cost of electricity.

  6. In life, media management solutions will typically be managed as part of IT outsources in large organisations and by in-house IT teams in small organisations.

  7. The value chain in media management will therefore consist of four types of organisation: software developers, hardware manufacturers, systems integrators and IT outsourcers. The highest margins will be in software, although there will be high value areas of the hardware market.

I’d like to pull out a couple of areas from those hypotheses. Firstly – and despite the views of much of the technology industry – I do not believe that cloud-based solutions will be viable for media management in the foreseeable future. The principal reason for this is that raw media files are too large to economically move up into a cloud solution – the bandwidth is simply not available in the real world. It is also the case that it is very difficult to outsource a process or workflow to the cloud that is not mature in environment that exists within the firewall. This is not mature technology and to treat it as such risks running into bugs in the process as well as the service model. I’ll write about cloud in relation to production at a later date.

The second key point in my view is that hardware still has a place in this industry. File-based processes are very hard on commodity fileservers, which are by their nature designed as a utility solution. Since the GPU was designed – as is still predominantly used – for graphics processing, it could be that more specialised hardware based on hybrids of GPU & CPU computing could be an energy, time and cost saving solution for the industry as it moves to a software driven technology base.

Such a change will shake up the industry. Players like Open Text & VizRT have established themselves as very credible players in media asset management and could easily widen their reach, while others like EMC, SAP and Oracle are beginning to offer more enterprise alternatives. Traditional players like Sony and Panasonic have been rather slow to respond, however they have the financial muscle, industry know-how and credibility to make large plays. My personal view is that they should do so through acquisition – developing cutting edge technology from scratch in this market may be a flawed approach. They should instead search out good technology services that are not being marketed effectively (if they want value), or go large and go after one of the major MAM vendors.

Either way, if I were a shareholder of a good file-based production technology company right now, I’d be feeling rather smug.

Tuesday, 24 January 2012

Telecoms flies south for the Spring as investment falls across Africa

New investments in African telecoms infrastructure fell 42% in 2011, from $17.6Bn in 2010 to $10.2Bn in 2011. While at face value this seems like a profoundly negative thing for the continent, the story is actually still mostly positive for its population. In total, the average African citizen benefited from just under $29 of new infrastructure since January 2010, often coming from a very low base. Many countries, such as Zimbabwe, Mozambique and Malawi experienced quantum leaps in backhaul and access network connectivity, taking them from laggards to leaders and closing the gap to traditionally leading countries like Kenya and Ghana. There are also a number of mitigating factors that should be taken into account when looking at the raw numbers.

First amongst these are the effects of the Arab Spring uprisings, which began in the early part of 2011 and rumbled on throughout the year. Egypt and Morocco suffered worst in telecoms infrastructure terms - shown below - receiving only nominal new investments in 2011 and experiencing slowdowns in deployment of programmes announced in previous years. My estimate is that if it weren’t for the Arab Spring, an additional $2.2Bn would have been invested both in the countries in question and by vehicles such as LAP Green, the formerly state-owned Libyan investment vehicle, which is now owned by a UK-based investment consortium. It should be noted that the peaceful separation of Sudan and South Sudan in 2011 led to an upsurge in investment in both countries, who sit close to the top of the table in investment uplift.

Secondly was the South African World Cup, which led to massive investment by local operators to provide additional capacity for the influx of tourists, but moreover, to sustain national pride and international standing. My view is that the World Cup led to operators and other telecoms companies bringing forward $1.2Bn of network upgrades and has left a lasting legacy in South Africa in the form of a deep, effective HSPA+ network and the basis for LTE – the spectrum for which is due to be auctioned in 2012.

Third was the largest acquisition ever made in African telecoms – the $10.7Bn take-over of Zain by India’s Bharti Airtel. Although I don’t count the acquisition in my analysis per-se (for starters, Zain was based in Kuwait), appeasement of local governments by the buyer led to roughly $1Bn of upgrades being brought forward and announced with great fanfare in 2010.

Fourth is something less well known. In March of 2010, the Ethiopian Government announced a massive $2Bn programme to build a backbone network for the country, which is presently starved of good telecoms services by the monopolistic position of the state-owned incumbent. This was a one off investment that, because there is no competition in access, did not spur commercial investment in the rest of the infrastructure required to provide consumers with the services they need to compete in the fast-growing African tech and online market.

There is a lesson in this for African governments considering similar national infrastructure programmes. Unfashionable or unpalatable as it may seem, the money to connect Africa has largely come from private sources. In areas where this is not the case, development has been slow or stagnant. Kenya, in particular should pay close attention to this as it embarks on a state-run, monopoly LTE network. Although Kenya is well served by infrastructure in comparison to its neighbours, the last 2 years have marked a fall in new builds, to a level below surrounding countries and far below its regional competitors. The private sector in the main and Safaricom in particular made Kenya into the digital savannah. It would be a shame if that head start went to waste.

My appeal for market capitalism aside, taking out the out of sync’ investments, leads to an adjusted baseline of $12.2Bn, against 2011 could be judged if not a resounding success, but a decent progression, considering the turmoil in the global markets that surround it.

Structurally, the end point of investments has shifted south, benefiting Central African countries, which have hitherto been under-invested. In fact, Central Africa was the only region of the continent to show absolute growth in investments, if from a low base. The principal reason for this is investors seeking new areas of growth outside hyper-competitive markets, plus the undoubted impact of cable landings on the surrounding coasts, seeking routes across the stem of the Continent. This southwards shift - shown below - will be something I’ll keep a close eye on in 2012.

Saturday, 21 January 2012

What I've been reading this week

I’m firmly of the belief that participants in the TMT industry need to read widely in order to understand the present and future dynamics of the market. To that end, this post is a collection of the articles that have caught my eye.

This week – Retail Fights Back, it’s Zuck’s year in the Netherlands, how Microsoft is making games gamier and dreams of an iPad duck hunt.

Emerging technology

Why do I need this? I want a camera to start super-fast, be incredibly reliable and focussed (sorry) on taking brilliant pictures. Do I need a jury-rigged smart phone O/S for that? Of course not. I predict... Fail.

A big moment for Nokia and Microsoft. The 800 has received great reviews, but the sales figures I’ve seen have been a bit lacklustre – only a few tens of thousands of units finding a home in the UK since launch. I hope the 900 does better as I’m very bullish about Nokia – they remain great engineers and use radio and energy resources on the handset much more efficiently than the consumer-electronics-based competition.

Corporate tablets were a minor story in 2011 as millions of executives used their iPad ownership to proclaim digital understanding. If only it were so simple. This infographic shows a few nice numbers about the market. I now have 3 tablets (iPad, Playbook, Fire), so I guess you could say I buy into the concept, although I’m not sure that any of the current crop are the perfect business device. Much of the reason for that is the lack of integration with back-end systems like email. Unfortunately most corporates are way behind in this regard.

New business models

Ouch! Bad enough that smart phone customers have become local experts in the products they’re looking at in store (hence exposing the poor quality of store staff, which has plummeted over the last 20 or 30 years), now those self-same customers are treating shops like brochures. Many retailers have made noises about creating digital strategies in the last year or so – they need to move fast to avoid being further weakened by online. Their product suppliers need to watch out too – more value and retail savvy points of sale could spell bad news for them as the retailers seek to maximise value by pushing customers towards more profitable product lines.

I’m sure being able to start a conversation from the self-same search results in store will make matters worse, if not massively so.
The Retailer Fights Back – combining in store screens with NFC or short range wireless for identification and loyalty apps for incentivisation brings the best of the web experience to the store and somewhat offsets poor quality of store staff. I’ve decided to call these connected, asset managed and contextually aware in store displays “the third screen”. Pass it on J

What a great piece of analysis by the GSMA and a fabulous example of the ancillary benefits of connected consumers and the data they generate. A more socially valuable take on Tom Tom Live...

A great piece of research into attitudes towards entrepreneurship in various countries. Not a surprise that Indonesia and Nigeria are constrained by poor infrastructure. Sometimes we in the UK forget how lucky we are. And on the subject of entrepreneurship...

If only it were that easy! The Internet is ever-reducing the barriers to entry for all kinds of business. Now, with 3-D printing on the rise and the digitalisation and down-scaling of factories and other manufacturing technology there are more opportunities for the start up than ever. I’m sceptical in the UK, however. Access to capital is still poor and, as has been pointed out to me in the past, the average British citizen is not driven by a great urge to push the limits of modern commerce. Sad but true.,%20start%20educating%20entrepreneurs

Here’s a South American incubator looking for projects.

Meanwhile, within the corporate walls, I like this interview about how the iContest internal competition for interns led to Apple’s textbook venture. Harnessing the most creative - but traditionally least listened to - part of the workforce is part of the solution for large enterprises trying to keep up with start-ups.

Digital media

Last year’s Deloitte paper “Killer Apps” made reference to the fact that apps are very often not the best solution to enabling customers to access content on mobile devices. It seems Penguin agree. This idea of “flat” content is not that new, but will be topical this year as big guns like Sony realign their content strategies in this way.

Seems that the same is happening in News – ITN unifying their ad sales across platforms using Rightster

Interesting study on the way that the Dutch use social and search in 2011. The Netherlands has one of the most Internet-savvy and entrepreneurial populations in Europe, so they’re a nice benchmark for future behaviour in some of the larger countries. What stands out for me is Facebook overtaking local equivalent Hyves in terms of usage – it seems even the strongest of the local social networks can’t resist them. 2011 really was Zuck’s year.

Microsoft are the coolest company in gaming at the moment and this extra feature set to gamify professional games created using Visual Studio. As mobile devices and tablets become ever faster, localised rewards become more feasible and attractive. I’ll be watching with interest to see how the mobile and social gaming category develops this year – I can see budgets sky rocketing. This must not increase consumer prices too much or the casual nature of purchasing will be lost and with it the value of the market. Catch 22?

Just for fun

If only he’d used the “Duck Hunt” light gun. Still extremely cool!

Thursday, 19 January 2012

20,000 reasons for carriers to consider clearinghouses

Despite Apple’s continued (official) non-participation and the announcement that this would be Microsoft’s last year, CES 2012 proved to be a bumper year for gadget spotters. 20,000 new devices were launched in the course of a week and although I expect that more than a few will fail to achieve the lofty aims of their promoters, they serve to demonstrate the electronics business’ believe that even a weak economy can’t dim consumer appetite for devices.

With so many devices finding their way into the eager hands of consumers this year, I thought it was worth going back to a subject I first talked about after last year’s NAB – that of content clearinghouses. This is a concept that I often get asked about as the buzz surrounding Verizon’s VDMS launch is still reverberating around the carrier industry. The following is a brief introduction to the concept, technology, business model and market for content clearinghouses and in-network media engines.

The challenge of mass distribution of digital media

Mass distribution and monetisation of digital media has been a long held objective for businesses across the media, technology and telecoms industries, dating back to the Enron Intelligent Network of the late '90's. It’s been a long wait, but it seems that consumer enthusiasm and therefore demand for streamed media is finally beginning to match the enthusiasm of suppliers. In the UK, where digital consumption is very well advanced, online viewing makes up less than 5% of total consumption and is growing steadily, driven in part by viable alternative experiences to the BBC’s iPlayer finally appearing (personally, I now use Sky Go more than iPlayer...).

As streamed media becomes more mainstream, so a number of commercial, operational and technical challenges that the industry has coped with for the last decade become more manifest. Despite its relative maturity, the process for taking a TV programme, a movie or a live streamed sports event or news broadcast and making it available to an audience is still cumbersome and costly. There are numerous reasons for this, of which I believe the following to be the most impactful:

  • Consumers have many different types of devices and use many different types and providers of networks to receive streamed or downloaded content

  • A large number of content creators are producing video for consumers to consume digitally

  • An even larger number of digital retailers are selling that content to consumers, or pushing it to them to enable another form of monetisation

  • Content creators have one-to-one distribution and licensing relationships with retailers and each retailer distributes to its own customers exclusively, so commercial relationships are complex and content is stored in many different places. Economies of scale and scope do not truly exist in digital, outside a few US digital retailers (Amazon, Netflix, Apple)

  • There are no standard formats for the essence or metadata of media content, so the task of preparing content for all retailers is a Sisyphean one

  • Rights and regulatory requirements vary by geography and genre, making exporting digital content expensive and complex

  • Core network bandwidth is expensive and controlled by carriers who do not extract great value from the great volume of digital media traffic on their networks

  • The TMT industry is still experimenting with the best way to monetise digitally delivered video – there is no playbook that works consistently and therefore organisations in the industry are still involved in repeated technical exercises to create digital products

  • Despite some consolidation, the supplier base in digital distribution is fragmented.

  • Deploying a digital distribution capability of scale therefore necessitates relatively significant capital investment and investment in skills to deploy, run and upgrade the necessary infrastructure

  • Furthermore, focusing on the detail of delivery often entails reducing focus on business fundamentals such as a sound creative base and licensing strategy for content creators, or differentiated retail proposition for retailers of digital content

In-network media engines

I believe that an answer to the above challenges can be found in a simplification of the supply chain for digital media by telecoms carriers. Conceptually, this means creating next generation services in the telecoms network that enable media to be handled in the same way as voice or data traffic. Commercially, this means taking away the need for every content creation and content retailing business to build and maintain its own digital content warehousing and distribution systems. Content creators can therefore focus on their core business of creating great brands that excite and delight consumers. Retailers can focus on their differentiators of engaging, personalised merchandising experiences.

The clearinghouse is a purely B2B service. It is invisible to the consumer and provides services to any business that can either create professional content or has the rights to sell it on behalf of the creator.

Practically, building a clearinghouse means deploying a number of “in-network media engines” – systems located in the telecoms network that provide services of any kind in order to enable the creation, distribution and monetisation of media. A content clearinghouse is a wrapper for a number of these engines, to:

  • Ingest and transport content efficiently from many sources

  • Transcode master video files into mezzanines that can be used to create versions for consumer devices

  • Quality check the results of those transcodes

  • Manage and store all of the potential versions of a piece of content

  • Manage security, consumption and distribution rights

  • Distribute to end users through the most commercially efficient path at massive scale (say, 20%+ of total video consumption being pushed through the clearinghouse)
Business model

The clearinghouse serves both the creation and retail sides of the digital content market.

To content creators, the clearinghouse sells services that ingest their content and transcode it automatically into the formats required by retailers and distributors, thus simplifying non-differentiating aspects of their distribution. In doing so the clearinghouse makes content more available and therefore more monetisable through different (read smaller) business models and, by reducing cost, stimulates experimentation with new business models.

To retailers, the clearinghouse provides a single service to distribute content to consumers on any device they may have. Because that content is contained in a single logical location, digital retailers benefit from increased speed to market and greatly simplified distribution to end users. The majority of the revenues of a clearinghouse business come from digital retailers. A further advantage besides simplification and reduced cost comes from enhanced quality of service (because the carrier network is inherently more stable and resilient than a CDN alone). There are also security advantages to keeping content in a single logical network from storage to user. Finally, there is additional upside on both sides of the market because a more transparent market place for content will enable an ecosystem of models that are precluded today by excessive cost.

It is worth pointing out that the “retailer” in this model can be an organisation that is not a traditional player in the media content market. For example, the connection of high street retail outlets and their subsequent proliferation of digital signage creates an explosion in the amount of content that these non-traditional players much manage and distribute to the edge of their networks. When more advanced merchandising techniques involving the use of customer data with marketing imagery become common place (as indeed they are in premium retailers like Burberry), then complexity and cost will sky rocket, leading traditional retailers to seek a sustainable solution. The same logic could be applied to education, healthcare and pharmaceutical institutions.

State and future of the market

At present, we are at a very early stage of this evolution of the market. Only Verizon in the US and Bharti in India have publicly announced clearinghouse or related media-engine-based businesses. My understanding is that a number of other carriers in other geographies are at an exploratory phase of similar efforts.

With the growing level of interest and investment, I believe that it is worth stating my view on the ultimate make-up of the clearinghouse market. It seems likely that the (locally borderless) topography of the Internet and the need of supply chain businesses such as the clearinghouse to drive economies of scale through massive throughput will lead to a small oligarchy of clearinghouses. These could form around content features, such as language, or geographic location (i.e. there could be a clearinghouse for Western Europe, one for the Middle East and so on).

This forecast is also based on the fact that content creators are unlikely to favour a model in which they have to provide content to multiple clearinghouses within a single geography. To do so would re-impose some of the inefficiencies that exist in the current media supply chain.

In my view much of the future of the clearinghouse business will be determined by early movers in 2012 and 2013 as they sign up content creators and build the capabilities to distribute within their logical or physical territory. The value of the global clearinghouse industry in 2011 was below $100Mn, however I estimate that the sum value of the services that could be substituted by a clearinghouse were in excess of $5Bn. As consumption over non-traditional media grows in developed and emerging markets and drives increasing desire by content owners to export their content, I expect this business to offer substantial upside to telecoms carriers over the next decade.

Saturday, 14 January 2012

What I've been reading this week

I’m firmly of the belief that participants in the TMT industry need to read widely in order to understand the present and future dynamics of the market. To that end, this post is a collection of the articles that have caught my eye.

This week – businesses binge on social, Google gets it wrong in Kenya, CES points to everything going wireless in 2013 and my ultimate home goes on sale.

Digital media

I’ve always thought that companies having social network accounts is a bit like expecting consumers to talk to a building. In my mind, it is much better to expose individuals within the organisation, so customers can talk to a real person. Anyway, this research just shows the level of experimentation major brands are undertaking in social – not much in comparison to their overall PR spend.

New business models

Google has a number of operations and investments in emerging markets and has done a lot of good things in Kenya. This story, I assume, is an aberration, but serves to demonstrate the difficulty of working in emerging markets. “Entrepreneurism” can go too far in these markets, as in every other – Google will hope that this doesn’t damage their reputation in Kenya, where trust of enterprise and government is historically quite low.

O2 recently messaged subscribers to inform them that access to The Cloud was no longer included in tariffs. This is why. In the UK, Sky is becoming ever more aggressive in pursuing revenues in the communications market. As owners of The Cloud and with substantial ISP market share, I could see them making the opposite play into MVNO this year.

I’m not sure this has any real significance, as terminal devices will remain prohibitively expensive for emerging market merchants... unless reliable, secure, mobile payment apps can be created for those devices, in which case I retract my previous statement!

I have no doubt that Smarterphone is a good technology, I just wonder how it will fit into the Nokia range without confusing consumers. That said, I’ve long believed that most consumers don’t care whether they have an Android, Bada, Symbian or any other operating system, they just want something that works well at a price they can afford. As long as Nokia recognise that and don’t push the O/S in its own right, then they’ll be fine.

X-Box is becoming a more and more important part of Microsoft’s consumer product strategy. I’m looking forward to seeing what they offer to mobile consumers – Vita shows what’s possible in mobile gaming these days and although I don’t expect quite that level of graphics performance, Microsoft should be able to create a great integrated experience. Fingers crossed.

Technology evolution

With ARM seemingly on the verge of breaking into larger format computing through the TV screen, it’s about time Intel made a fist of its efforts in mobile. I’ll reserve judgement on the success of this effort, but as a confirmed Intel-phile I suspect this technology and the partnership with Google are encouraging signs.

Wireless display will be one of the must have technologies of 2013 – with their share in chipsets, a standardisation play by Intel is important for the market.

Another high-speed personal area networking technology, but for data rather than just image. The low power aspect is particularly important as information displays become smaller and people carry more of them.

Low power 3D is becoming a major market as the spec-sheet for smartphones grows ever longer. PowerVR were one of the first entrants into the GPU market in the mid-90’s and remain very experienced and credible. One to watch.

Breakthrough technology

Long term, long range space missions will be vital for the continued prosperity and survival of the human race. Since even short hops seem beyond our collective vision, it’s refreshing to see that at least some people are thinking about that fact.

3-D printing and rapid manufacturing are finally coming of age, due in large part to the availability of designs through – now common – social information share, like Sculpteo’s “Cloud Engine”.

Just for fun

If I had $3Mn lying about, then this is where I’d be living.

And this is what I’d arrive in – what a beautiful machine.

Wednesday, 11 January 2012

Estimating the consumer mobile data opportunity in Africa

I had a discussion with a colleague today, in which he claimed that consumer data will soon become a driver of mobile revenues in Africa. Suffice to say, I disagree, but he wasn’t to be shifted. So I did the following calculation to back up my point of view.

Taking Safaricom as a good baseline (because it is large, technically and commercially sophisticated and based in Kenya, where the populous is relatively rich and educated), I first calculated the maximum possible capacity of their 3G network. Safaricom has about 1,300 3G sites. After overheads, those sites can physically serve about 86TB of data in a year if they are 100% utilised all the time.

Safaricom charges about 1c per MB for data, meaning that if fully utilised all the time, the maximum return the network could produce today is $860Mn. There are 5.1Mn 3G subscribers on Safaricom, so data ARPU in this scenario is about $14.

All well and good, except that the maximum utilisation of the network is about 60% in the real world – demand is lower at certain times of day and in certain locations. With this in mind, data revenue falls to about $500Mn. Still a big number, and about half of Safaricom’s billion dollar revenues.

But there’s a further problem. In real terms, mobile data is about 20 times more expensive in Kenya than in the UK. Although it has great utility, it’s very hard to see Kenyan consumers wanting to pay such high rates. Either they will pay less per unit or use less – commercially the same difference. Being conservative and saying that a Kenyan would pay a 10x mark-up on the UK price gives a revenue for that 3G network of about $50Mn.

Safaricom’s current data revenues were actually about $25Mn in H2 2011 – this includes EDGE as well as 3G – but shows that the above assumptions are in the ballpark. Small change against the backdrop of the investment being put into Africa. It’s also worth noting that Safaricom is a great success story, with a wonderful reputation in-country and substantial market share. Smaller operators would not do so well in price or customer mix terms.

I’ve done a bit of modelling based on the above assumptions and the size of the markets in other geographies. From this I estimate that in 2012, mobile cellular data revenues in Africa will be around $1.5Bn – an increase of over 50% from 2011.

Sunday, 8 January 2012

Zimbabweans the biggest winners in 2011 telecoms investment bonanza

Although Nigeria and South Africa received by far the largest share of the $10.2Bn of investments in African telecoms infrastructure announced in 2011, the biggest winners were citizens of Zimbabwe.

In absolute terms, Nigeria ($3.3Bn) and South Africa ($1.8Bn), represent 50% of the total investment, but at $54 per person, Zimbabweans benefited from more than twice as much investment per person as Nigerians ($21) or South Africans ($37.50) and received more than double the continental average ($24).

Much of the new $700Mn going into Zimbabwean telecoms was spent on mobile data services, either direct to modem or to 3G handsets, taking advantage of new sub-sea bandwidth - such as that provided by SEACOM - to provide Internet connectivity to consumers. Zimbabwe, it must also be remembered, has been a significant beneficiary of Chinese investment dollars for all manner of infrastructure projects.

Worst off of the large nations were citizens of the Democratic Republic of Congo ($2.75), which despite its giant population lacks the physical and investment security to make it an attractive destination for telecoms capital. Curiously, Kenyans also did poorly, their providers receiving only $4 of stated additional investment in 2011.

In the coming weeks, I'll provide further breakdowns and time series of this data

Friday, 6 January 2012

What I've been reading this week

I’m firmly of the belief that participants in the TMT industry need to read widely in order to understand the present and future dynamics of the market. To that end, this post is a collection of the articles that have caught my eye.

This week – mobile applications the must-have gift for Christmas, how to make a very cheap computer very expensive and how to use a watch to avoid getting mugged.

New business models

Smartphones are now a must have device and there are signs that consumers are beginning to utilise apps in a much more meaningful way. I got an iTunes voucher for Christmas... which I spent on music. Perhaps I’m now a Luddite?

Although, according to Comscore MORE PEOPLE ARE DOWNLOADING APPS THAN BROWSING! Freak out mobile industry! Or, alternatively, this isn’t statistically significant. Let’s see how this one goes – personally I don’t buy it, but I’ve been wrong before.

A very cogent analysis of the myth of exploding data demand – in short, demand is up, but only by a low double digit percentage.

Neat hack, although it should really be unnecessary. I pay a not-inconsiderable sum for 3G data access and I should be able to do what I want with it!

Technology evolution

I love two things about the Raspberry Pi. First the idea of a full feature $35 computer, which should enable far more screens to become connected in a meaningful way – this would be particularly impactful in enabling retail screens to become both interactive and insightful to shoppers. Second, the funding model of auctioning the first devices to generous techies, which is smart and very social. I hope this product is a big success.

Another full screen tablet, using an Apple TV this time. All this makes you wonder why YouView has taken so long to come to market and makes me very excited about the much-rumoured full size Apple TV.

And speaking of TVs, here’s the coolest one I’ve seen to date. Just how thin can these things get? One way or another, Apple are going to have to have something very special up their sleeve to decommoditise this industry.

Personal Area Networks (PAN) are just beginning to gain traction and although a bit of a gimmick at the moment, there is considerable utility to being able to access certain smartphone features without having to pull out the phone itself. Navigation seems like a prime candidate, also SMS and instant messaging, particularly if combined with a Siri-alike voice-to-action technology.

...and this is the type of navigation technology that could enable the growth of PAN devices. Very smart, although possibly controversial!

HUDs are the next logical step in interfaces – heads up displays have gone from fighter jets to cars to ski goggles and now to the high street. I hope they fit over my NHS specs though...

Digital media

Nice use of social network behaviour to increase the accuracy of polling. I’ll be interested to see whether it leads to genuine improvement, seeing as Twitter and Facebook use may be misaligned to the voting population, however I do like the idea. Perhaps they should build location or Foursquare usage into the system as well?

Breakthrough technology

The X37 is one of the coolest pieces of tech on (or off) the planet right now. I personally don’t buy that its spying on a Chinese space lab – more likely their orbital paths are coincidentally intersecting – however whatever nefarious purpose it’s in orbit for, the technology behind it and the speed with which it hit the launch pad suggest that the future of mankind in space might not be as bleak as we first thought.

Monday, 2 January 2012

African telecoms investments - December 2011

$723Mn of investments in African telecoms infrastructure were announced in December 2011, taking total publicly released investments for the year to $10.2Bn. Towers remain a hot market, with American Tower and Vodacom investing a total of $264Mn for a Ugandan towers joint venture. My estimate is that American Tower paid about $175,000 per tower, which looks like a good deal for Vodacom - $100,000 is the mean value for towers in comparable African markets this year and the only emerging market deal to top this was American Tower's almost simultaneous acquisition of 2,500 Pegaso PCS' towers at $200,000 per unit in the much larger and more mature Mexican market.

If this Uganda deal was the largest of the month, probably the most important news was Cameroon's activation of 10GBit/s of metro fibre in the second city of Douala. This upgrade from the previous 20MBit/s loop should have massive benefits for the public and service sectors in the city. I think that this kind of small but impactful upgrade by state and telecoms companies will be commonplace in 2012. Even if it only advances the cities in question to the standard of a regional town in the developed world, the benefits from such a low base are huge. Returns for private investors should also be excellent; or at least better than yet more dollars flowing into the over-competitive and over-invested consumer mobile market.