Tuesday, August 29, 2017

You Wouldn't Buy a Car Because it Has Tires

Very few of us would buy an automobile without tires, or a mobile phone that could not make calls. On the other hand, we do not buy cars because they have tires or mobile phones because they make calls or mobile phone service because it supports voice, text and internet access.

In large part, that is the business model problem faced by mobile and fixed access service providers in mature markets. The former key revenue drivers now arguably are valuable features--but just that, valuable features--and not dominant revenue drivers, not the reason people decide to buy a communications service.

That conversion of “revenue-generating services” to “useful features” can be seen clearly in OTT voice and messaging. Despite much hope in some quarters that service providers could create their own VoIP services that generated revenue comparable to legacy voice, that has been hard to achieve.

In the U.S. market, only cable operators generally were able to do so, and then only because their legacy revenue from voice was “zero.” Generally speaking, VoIP has shown a pattern of disrupting and then largely destroying the legacy markets.

Eventually, that is going to work out in a predictable manner: mobile internet access will be an essential feature of a smartphone service, but perhaps not a growing driver of revenue. Shockingly, for some, mobile internet access might actually become a declining revenue source.

Although 51 percent of U.S. households are mobile-only for voice, and about 70 percent of Millennials (25 to 34) are mobile-only for voice, voice does not get used much.

About 53 percent of respondents to a Gallup survey reported they use a home landline “not at all,” while 44 percent reported using a mobile phone for calling “a little,” and 38 percent said they used mobile voice “a lot.”



Fully 68 percent of 18- to 29-year-olds who were part of a Gallup study in 2014 said  that they texted “a lot” the previous day; compared to 47 percent among 30- to 49-year-olds and 26 percent among 50- to 64-year-olds.

Average monthly voice minutes used by 18-year-olds to 34-year-olds plummeted from about 1,200 in 2008 to 900 in 2010. Texting among 18- to 24-year-olds more than doubled over this period, soaring from 600 to over 1,400 texts a month.

A mobile phone must support voice, texting and internet access. A mobile phone service must support those features as well. But mobile service revenue in many markets largely is dictated by the cost of internet access, not voice or messaging costs, which are relatively minimal. In fact, for most service plans, voice and messaging are included in a basic "you can use the network" price.

For the most part, revenue is driven by internet access and video entertainment services.

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