network monetization

Tech IPOs show need for monetized online services

The IPO success of OpenTable last week may be an indicator that the Internet advertising bubble is bursting. There have been a host of ad-related IPOs this decade following up on the ever-popular “you don’t have to pay for…” theme that was briefly tried for Internet services in the late 1990s.

The economic downturn is blamed by many for the fact that nobody seems to be able to make the ad model work, but we believe that the initial bad experiences of advertisers with things like click fraud created a skepticism that manifest itself in demands for better metrics. That, in turn, has made advertisers wonder if they get what they pay for even where there’s no fraud involved, and that’s not an easy issue to resolve. More people are now stepping up and suggesting that people are going to have to start paying for stuff, something people actually resist less than the VCs do. Pay-for-service models look an awful lot like a service provider business model, after all.

Lack of monetization strategy hangs over telcos/vendors

Huawei’s quarter put it on track as a big gainer in the ranks of major equipment vendors, with fourth place in the bag and second place within its grasp if it can meet its targets. As we said in our Huawei analysis (part of our three-part telecom vendor SWOT series in Netwatcher), Huawei is the winner in the market by default.

Price commoditization of legacy services and lack of credible monetization strategies overall force telecoms to reduce their costs, which moves them to lower-priced suppliers. We believe Cisco’s emphasis on service/outsource models, consumer electronics, blade servers and new market sectors are all reflections of the fact that even Cisco no longer believes telcos will continue to spend on premium vendors.

Certainly the time available to create alternative monetization models for telcos is coming to a close; a big negative step will be taken in May if no credible strategies are available by the spring planning reprise, and the nail in the coffin could come in October with the fall planning cycles.

Nortel bankruptcy: A lesson for everyone

Nortel has filed for Chapter 11 bankruptcy protection, a move that comes as no surprise given that the only likely candidate to buy its business components (Huawei) ran afoul of government policy concerns. Nortel has, over the last decade, fallen from one of the giants to its current state of likely irrelevance.

While the proximate cause was the deferral in spending by carriers worldwide, which Nortel’s reserves simply could not handle, the true cause was a persistent refusal to deal with market conditions as they were. Nortel stayed with its core competences despite the fact that those areas were becoming core irrelevancies.

There is a lesson here for every other player in the telecom space: If you cannot promote service features and monetization you must inevitably be a player in a commodity market. Nortel will likely try to sell off additional business elements, and may even refocus on the enterprise, but unless it can become more strategic, it is unlikely to regain stability, much less stature. We are offering an audio brief on this as part of our new information product series; see New free information product from CIMI Corp.

Over-the-top players: A race to the bottom

One of the forgotten truths of the current economic crisis is that while telcos worldwide will certainly be deferring some projects and obsessing even more about monetization, their competitors are likely to be even more concerned.

The guys at the greatest risk, in fact, are the darlings of the last couple of years—the over-the-top players. Many of these are still struggling to define any revenue model at all, and with advertising slipping and VCs demanding break-even performance, a lot of startups will die, and public companies will slump, shrink, be acquired, or disappear. In a race to the bottom, the guy with the lowest internal rate of return always wins because he can keep investing past his competitors’ pain point.

The issue is whether the telcos can take advantage of their opportunity. The recent interest in service mashups by Cisco and Alcatel-Lucent has the potential to allow the network operator to take control of the partnership with the OTT guys while the latter are down and out. Will they seize on that opportunity? That, according to our research, depends on how well the vendors (particularly the two we named) do to create the right ecosystem.

Obama economic moves strengthen financial markets

The Obama economic plan, and economic team, are both taking shape and the Street likes what it has seen. Obama is set to name NY Fed chairman Tim Geithner as Secretary of the Treasury and Lawrence Summers as chief economic advisor. The former set up a major gain in the Dow on Friday.

The Obama camp has announced it will pursue a broad infrastructure-modernization and works program stimulus that could involve more than $600 billion and take two years. Over the weekend, the government decided to rescue CitiBank, removing the risk of a major bank failure from the market and signaling the end of the apparent policy of non-intervention that allowed speculators to hammer stocks without fear of being trapped by good news. The deal will involve U.S. guarantee of certain mortgage-backed assets, totaling over $300 billion and including some commercial mortgage-backed securities that appeared to be the new problem with Citi. The government will also get $7B in new preferred stock.

Many believe that the move was generated by Obama administration intervention, and in particular Geithner’s relationship with Paulson, and this was the strongest signal that there might not be a period of inaction between administrations. The auto industry, reluctant to agree to sweeping changes that Congress was likely to demand in return for a loan, is now lobbying for a loan program to automakers’ finance arms to spur demand again. The Fed is reviewing measures that would pump up the money supply via direct lending, and also lower long-term rates; these would presumably supplement the traditional rate cuts that are now nearly at an end as rates hit 1%. All this has made the markets happy; U.S. futures were higher this morning, Europe was strong and Asia mixed with Japan higher.

Metered Internet use causing a stir

October 24 2008 regarding metered Internet trends.
Metered Internet usage is stirring comment in the UK and the U.S. trials of the idea, put on hold by the hurricane season, are now expected to get underway shortly at TW Cable.

The notion of reducing capacity growth and slowing the decline in revenue per bit has become more and more popular globally as providers throw up their hands on the issues of monetizing their networks. We have already noted here and in other publications that operators are universally at risk to squeeze in margins because traffic increases are not compensated by revenue increases with classical Internet pricing models.

We believe that unless service-layer improvements add revenue to the pot, spending on transport capacity will begin to slump as early as 2010.

CIMI Corp. tech economic survival guide

CIMI Corp. is accepting orders for its new report, Surviving a Tech Market Nuclear Winter, a guide to the current economic crisis, its causes, its future, and how to optimize your business to make the most of it.

We have posted a special page that summarizes our view on the current economic crisis, a synopsis of what we have included in thereport. The table of contents and pricing matrix is available for download, and we have special packages that combine consulting with the report. Contact CIMI Corp. for more information.

Verizon reveals SMS monitization plan

Verizon has shown some of the teeth behind the monetization frenzy among operators, revealing a plan to reassess the charges levied on bulk SMS generators such as the companies who send phone alerts and market messages.

The decision is linked to a general view that SMS will become another all-you-can-eat service, and that like the Internet, there is a threat to operators in that they might then become simply a passive conduit for another’s business model. That would create investment without return.

We believe this particular item will be readily missed in coverage of the provider space, but the significance in our view is very high. Operators are working to end the free ride because in these times they must, and that will spread to other areas.