Thanks to a link from John Battelle, I came across a fascinating little article about an appearance by Bill Gates on Indian television earlier this week. Noting that Google's "business model is based on advertisements from which they make a lot of money" and that "Google keeps all of the money with itself," Gates said that Microsoft intends to "share a part of its advertising revenues from its search engine with users" - by giving them credits for buying software or even outright cash payments.

What Gates is saying - and it will not be music to Google's ears - is that there's too much profit right now in online advertising.

He's right. Earlier today, in a post at SiliconValley.com's Google discussion, I argued that the wide profit margins Google enjoys on internet advertising are unsustainable:

... if Google has reaped a great and well-deserved bounty from creating a superior search engine, it has also been lucky. It happened on its ad-driven business model just as the advertising world began an epochal shift of dollars over to the net, and the dominant position of its search service and related ad-serving service has meant that it has taken in the lion's share of the spending. Moreover, it's been able to run its AdWords and AdSense services as black boxes, hiding to a large extent the way it divvies up the money that comes in. Advertisers and publishers haven't complained much because their choices have been constrained. In the end, though, markets abhor both black boxes and oversized profits.

Competition, from Yahoo and Microsoft as well as others, can be expected to reduce the profits that flow to the owners of Internet ad-serving mechanisms, while also making pricing more transparent. Moreover, advertising is a cyclical business, and at some point we'll see a stemming of the flood of advertising dollars to the web. Combine greater competition with advertising cyclicality, and you end up with a Google that operates with a considerably lower profit margin than it enjoys today. Then add in the company's free-spending culture, and, well, you've got a problem.

The online ad market is going to become more efficient. Much of the profit that now goes to the operators of the ad-serving technology will be redistributed. Some will go to the advertisers, in the form of lower rates, and some will go to the publishers, in the form of higher commissions. And if Gates is serious - and I'm betting he is - some will go to the internet users themselves, whose clicks, after all, make the whole system work. In the battle for eyeballs, bribery can be a powerful weapon.

10:39:59 PM    comment   

Sun Microsystems is a funny company. It jumped directly from hyperactive adolescence to midlife crisis, complete with ponytail. Ever since the dot-com crash decimated its free-spending customer base, the companyís been on a quest to find itself ñ and give a jolt to its flat-lining stock price. That quest, dutifully chronicled in the blog of company president Jonathan Schwartz, has looked increasingly desperate of late, as Sun has bounced between marketing pitches like Ricochet Rabbit on a meth jag. One minute itís the Anti-Dell, then itís the Leader in Responsible Computing, then itís the Fastest Chip on Earth company, then itís the Volume Is Everything company, then itís the Free Software company, then itís "The Dot in Web 2.0," then it's challenging Steve Jobs to a ìpod duelî ñ and thatís just in the last two months.

The sad thing about Sun's lack of discipline is that it distracts from the company's powerful message about the computer industryís very real energy crisis. In a posting on his blog today, Schwartz writes, ìWe create computers that draw enormous amounts of power, throw off huge amounts of heat, which requires the world to build power plants and install power hungry air conditioners.î He links to a CNET article on the explosion in server power consumption, which in turn cites a recent paper on electricity use by Google engineer Luiz AndrÈ Barroso. Barroso's paper, which appeared in September in ACM Queue, is well worth reading. He shows that while Google has been able to achieve great leaps in server performance with each successive generation of technology it's rolled out, it has not been able to achieve similar gains in energy effiiciency: "Performance per watt has remained roughly flat over time, even after significant efforts to design for power efficiency. In other words, every gain in performance has been accompanied by a proportional inflation in overall platform power consumption. The result of these trends is that power-related costs are an increasing fraction of the TCO [total cost of ownership]."

He then gets more specific:

A typical low-end x86-based server today can cost about $3,000 and consume an average of 200 watts (peak consumption can reach over 300 watts). Typical power delivery inefficiencies and cooling overheads will easily double that energy budget. If we assume a base energy cost of nine cents per kilowatt hour and a four-year server lifecycle, the energy costs of that system today would already be more than 40 percent of the hardware costs.

And it gets worse. If performance per watt is to remain constant over the next few years, power costs could easily overtake hardware costs, possibly by a large margin ... For the most aggressive scenario (50 percent annual growth rates), power costs by the end of the decade would dwarf server prices (note that this doesnít account for the likely increases in energy costs over the next few years). In this extreme situation, in which keeping machines powered up costs significantly more than the machines themselves, one could envision bizarre business models in which the power company will provide you with free hardware if you sign a long-term power contract.

The possibility of computer equipment power consumption spiraling out of control could have serious consequences for the overall affordability of computing, not to mention the overall health of the planet.

If energy consumption is a problem for Google, arguably the most sophisticated builder of data centers in the world today, imagine where that leaves your run-of-the-mill company. As businesses move to more densely packed computing infrastructures, incorporating racks of energy-gobbling blade servers, cooling and electricity become ever greater problems. In fact, many companies' existing data centers simply can't deliver the kind of power and cooling necessary to run modern systems. That's led to a shortage of quality data-center space, which in turn (I hear) is pushing up per-square-foot prices for hosting facilities dramatically. It costs so much to retrofit old space to the required specifications, or to build new space to those specs, that this shortage is not going to go away any time soon.

The only way out is to shift to a much more efficient model of business computing. That means more energy-efficient computers and other gear. But it also means more efficient computing in general. The reigning client-server model of corproate computing is by nature terribly inefficient - it requires massive redundancy in systems, which in turn results in extraordinarily low levels of capacity utilization. The model was necessary in the past because, given the constraints in the capacity of data-communication networks, it was the only way to deliver robust computing to the individual employee. But now that networking capacity is catching up with processor power, we have the opportunity to move to a much more centralized model of business computing, with much higher capacity utilization and hence much greater efficiency.

Standing in the way of this shift is the IT industry itself. Inefficient computing has been a boon to hardware and software firms: What supplier wouldn't relish a situation in which customers have to, individually and in the aggregate, buy far more stuff then they'll ever use? As Barroso notes, in reference to chip design, traditional IT industry marketing is one of the reasons underlying the current energy crisis.

It's here that Sun has a real opportunity - not just to promote its new line of energy-efficient servers, but to break away from the competition and blaze a trail toward a whole new model of more-efficient business computing. (My guess is that the company's recent alliance with Google is less about creating browser-based office software than about conserving kilowatts.) But if Sun is to succeed, it needs to get its act together - to adopt a single, coherent market positioning and stick to it with relentless, unwavering discipline. Blogging is not a strategy.

10:37:21 PM    comment   

There's been much commentary on Bill Gates's suggestion that Microsoft plans to reward users of its search engine by sharing ad revenues with them. Interesting posts have come from, among others, Doc Searls, Mitch Ratcliffe, Umair Haque, Michael Parekh, Peter Hershberg, and Ratcliffe again. Mitch Shapiro does a nice job of summarizing the various viewpoints.

There are two questions in play here. First (and of lesser importance) is the question of whether Microsoft could actually figure out a way to pay users for using its search engine and, if it can, whether it would be a smart thing to do. Haque argues that such a move would be "strategically meaningless." It would spur fraudulent or valueless clicking, and "Google can imitate it overnight." I think Haque makes good points, but I don't think he's right. Microsoft could probably figure out ways to reward users without encouraging gaming. Amazon, for instance, gives users of its A9 search service a small discount off Amazon purchases. As long as you don't tie rewards directly to the raw number of clicks a person makes, you avoid much of the fraud problem. As for the fact that "Google can imitate it overnight," that's precisely why it would be strategically meaningful for Microsoft. A price war for search would hurt Google much more than it would hurt Microsoft because search-related profits are a sideline for Microsoft but they're everything for Google. One good way to hurt a competitor is to cut off its oxygen supply, a tactic that Microsoft has used with great success in the past.

The second question - and the one of greater importance - is whether the profit margins of serving up online ads will tend to shrink. I've argued that they will, as competition heats up and pricing becomes more transparent, but Haque argues that my reasoning "is fatally flawed." On the transparency side, he says that Google's AdSense program isn't a black box, as I called it, because you can figure out in the aggregate how much of the revenue Google shares with publishers. But the aggregate doesn't matter. The reason it's a black box is that individual publishers can't tell what kind of cut they're getting. That information asymmetry, as economists call it, gives Google a lot of power. Competition, though, will almost certainly bring more transparency to the market, which in turn will weaken Google's hand.

As for competition, Haque also takes issue with my statement that "markets abhor oversized profits." "In fact," he writes, "the opposite is true." He's way off base here, for the simple reason that he confuses market forces with anti-market forces. Markets promote competition, and competition erodes profit margins. That's why companies spend so much effort trying to block the natural, profit-destroying workings of the market - by, say, creating superior products or sexy brands or high switching costs or monopolies or information asymmetries. Google has had weak competition up until now, but the outsized profits it's been earning are (as they always do) attracting strong competitors, like Microsoft and Yahoo, and the intensified competition will squeeze profit margins. That's particularly true in a software-based market, where the marginal costs of executing an additional transaction are basically zero. There's a lot of room for discounting.

Now, the size of the market could continue to expand so quickly that Google reaps higher profits even if its margin shrinks and its competitors gain share. But at some point the worm will turn. Google may also come up with an innovation, in search or in ad-serving, that allows it to once again leap so far ahead of Yahoo, Microsoft, and other rivals that it can avoid competition and, in effect, impede the natural workings of the market. That's certainly possible, but five years ago Google had the luxury of innovating in a market that no one else was paying much attention to. That's far from the case today. There's going to be fierce competition from here on out, and don't expect any holds to be barred.

10:24:48 PM    comment   

In his column in today's New York Times, Daniel Akst does a nice job of illustrating the fundamental tension on the internet: that between convergence and anti-convergence, or bundling and unbundling, or centralization and decentralization. The "bundling of the world's computers into a single network," he writes, "is ushering in what may be called the unbundled age." Apple's iTunes has unbundled music, making it easy to buy by the song rather than the album. Amazon has announced plans to unbundle books, selling them by the page. The head of the FCC is lobbying the cable industry to allow people to subscribe to individual channels rather than big packages of channels. With RSS, you can subscribe to stories by your favorite writers rather than buying entire newspapers or magazines.

On the one hand, the unbundling of media is great. It gives us all more control over what we buy. Economically, there's a lot less waste. But there could be a dark side, too, as Akst points out: "Theoretically, all this unbundling will make everyone better off. But one consequence may be to force worthy cultural products to support themselves somehow - without being subsidized by commercial junk." It's not a sure thing, in other words, that an a la carte menu will end up giving us the widest possible array of choices. Rather than promoting the creation of a "long tail" of diverse products, unbundling may end up pushing even more economic rewards to the "hits," squeezing out a lot of the good stuff.

The internet is unleashing a whole bunch of new and contrary economic forces. The fact is, we're a long way from knowing how it will all shake out.

10:23:17 PM    comment   

Tag:3g | Posted in: Countries Specific 3G News AsiaPac China Country
Our 3G Support Service - 3G Launch Management [Daily 3G News]
10:18:22 PM    comment   

Mobicom [the primary Mongolian carrier] offers a student sign-up package. Part of the deal is a mobile phone number with the pre-fix 9961

"It's a good deal, but if I went for a job and gave a [student] phone number they would want to pay me less"

10:11:43 PM    comment   

Overall, 11% of handset sales in this period transpired in major retail stores, and another 11% took place through wireless operator Web sites. Their physical stores did better, accounting for 47% of sales.

I’m hardly surprised at this, but still it’s sad to see this report from eMarketer that Wal-Mart has taken over the number one position in the last 6 months in terms of handset sales in retail stores. Consumers always want inexpensive or free phones, that’s for sure. But Wal-Mart I’m sure is pushing it to extremes, with the cheapest phones and most basic plans. Not good for mobility in general, the mobile market or anyone in particular except maybe Chinese sweat shop owners who have deals with them.

The fact that Radio Shack is number surprises me only in that I thought they’d be number one, actually, as they have great support at their stores. I was in one the other day and the guy behind the counter was *incredibly* patient with a woman buying an iPod Shuffle in front of me. “So this is from Apple? Will it work with my computer?” Also they have continuing revenue deals with carriers, so the more people who sign up at Radio Shack, the more money they make over time. So they have this massive incentive to both promote and support mobile phone sales.

The most interesting thing is that 10% of phone sales are web based. That’s pretty great. I’m sure that number can increase by quite a bit if more effort was placed in that area. But the websites need to take a Radio Shack attitude towards mobile purchases: Support, support, support, support. It’s all about hand-holding and information. If websites can provide more information about the phones, how to use them, and answer questions later, they’ll start selling more and more. Though I’m sure that many people still want to go and *feel* the phones before they buy them, with more hot phones like the RAZR, people will know what they want to buy, it’s just letting them have a warm fuzzy about it. Amazing Amazon hasn’t really taken this on… it seems right up their alley.

Anyways, check out that summary of the report, there’s a couple of other informative graphs as well.

-Russ

10:09:12 PM    comment   

WWJ has been tracking rumours and hints on the entry of Korean terminals for some time now but this is hard fact on the ground. We have seen Sanyo and Casio pushing into the U.S. market along with Sharp and NEC making moves in Europe. It's clearly becoming a two-way street with the recent launch of Motorola's M-1000 with DoCoMo, who have also indicated that LG and Nokia models are in the pipeline.

Note that during a November 2004 press conference held in Tokyo, Vodafone's Dr. Brian Clark was asked why Samsung models, which were approved by Vodafone Global for the Group's then-new 3G line-up, would not be offered in Japan. He said something to the effect of "the decision was taken by Vodafone K.K." and that "they felt that it was not the right product for this market at this time" (the full Q&A session is available as an MP3 here).

In hindsight, the Samsung Z500 could not have done any worse than the foreign-made models they did chose. [Wireless Watch Japan]
10:00:37 PM    comment   

7th December 2005 - Inmarsat (LSE:ISAT), the leading provider of global mobile satellite communications, has announced the successful launch of its Broadband Global Area Network (BGAN) service. Six years in development, BGAN is the world's first mobile communications service to provide both voice and broadband data simultaneously through a truly portable device on a global basis. It is also the first to offer guaranteed IP data rates on demand.

9:56:13 PM    comment   

Nokia opened the doors to its very first flagship store yesterday—in Moscow! I guess the budding mafiya market is something they want to grab early—after all, they go through cell phones like candy, changing SIM cards almost every day to evade Putin's raiders. Promising 17 similar stores in the next 2 years, Nokia says these openings are part of its "revised retail strategy" and have given no details on where the next stores will be located. So get ready New Delhi, Nokia may be coming your way! The company feels these outlets will be mostly used for customer feedback rather than main sales channels and they'll be wholly owned and operated by the Finnish company.

Nokia opens flagship Moscow store in retail push [Reuters]

9:51:59 PM    comment   

With a nickname like "The Father of DVD," I guess Warren Lieberfarb can say pretty much anything he wants about the format these days. And yesterday, he gave a surprising speech in which he blasted Blu-ray. Taking the next-generation DVD battle another step into uglytown, Lieberfarb said Hollywood is acting like a bunch of lemmings, following blindly into Blu-ray's camp because of console battles rather than following their best interests. Accusing Sony of strong-arming the industry, he had this to say:

If you ever read "The Art of War," you will see all of Sony's moves, including taking all its enemies in the same tent and then leaving them empty-handed, are things that they have done historically. They did the same thing to Matsushita and Betamax, they did the same thing to Matsushita on compact disc, they did the same thing to Matsushita on the digital video camcorder.

"Father of DVD" blasts Sony's Blu-Ray plans [Arstechnica]

9:50:07 PM    comment   

The Tata Group has planned an investment of Rs 5,000 crore over the next 2-3 years while expecting its telecom ventures to come to the big league by around 2008.

It has three companies - VSNL, Tata Teleservices Ltd and Tata Teleservices (Maharashtra) Ltd in its stable. While VSNL is making profit, the other two are not.

Tata Teleservices (Maharashtra) Ltd, which operates in the Maharashtra circle, was in a comparatively better financial position hovering around the break-even, but was yet to establish as a profitable venture on sustained basis.

“Telecom is a business where you have to first establish a wide presence before the revenue flow starts. We were a late starter, but have now covered all the regions except the northeast sector,” Irani said…

By 2010, Irani said “The telecom should join the big league of Tata Steel, TCS and Tata Motors” – the top three profitable entities of the Tata Group.

Asked about the proposed merger of TTSL and TTML, he said the plans were yet to be firmed up. However, in terms of their operations, the two companies were functioning almost like a single entity.

9:20:22 PM    comment   

ET story talking about various entry level talk plans of Reliance, Airtel and Hutch.

Operators are aiming to convert a section of their pre-paid customers into regular users. This is because the revenue per month is higher in this category though the numbers are small.

At the same time, telecom companies are also targeting the low-end of the pyramid by offering recharge cards at rock bottom denominations (Rs 10) as well as offering free incoming facilities for two years despite expiry of the card.

As mobile user base increases and the growth rate decelerates, operators will have to shift their focus from customer acquistion to retention and on increasing the average revenue per user (ARPU). This can only be done through value added services and enterprise customers.

9:12:29 PM    comment   

CDMA based operators added a total 14.6 lakh subscribers in November, which includes about 11.8 lakh in the CDMA mobile segment and 2.2 lakh in the fixed wireless and the rest through wireline.

The total CDMA-based mobile base has touched 1.55 crore subscribers. The overall growth in November 2005 has been 6.68% as compared to 5.51% during October 2005, industry association AUSPI said.

Tata Teleservices added 7.28 lakh new users, followed by Reliance Infocomm which added 4.48 lakh users in the month.

Infocomm[base ']s mobile user base stood at 1.22 crore and its total user base, including fixed wireless and wireline stands at 1.45 crore. Bharti Televenutres, which offers wireline and fixed wireless telephony has added 41,681 new users in November taking the total to a little over 11 lakh subscribers. HFCL added 5,737 new users and Shyam Telelink added 645 new users.

Source: Financial Express

9:11:18 PM    comment   

3G Forecasts 2006-2010:The 10% adoption represents a milestone in any consumer technology proliferation. The critical mass point in the diffusion process is generally expected to occur approximately between 10 and 20% adoption. Figure 2 shows the forecast for 3G growth worldwide and for key economies such as Japan, South Korea, UK, Western Europe and the US. As we move into 2006...
Tag:3g | Posted in: Breaking 3G News
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9:03:53 PM    comment