Professional Documents
Culture Documents
edition
The
f
Shi t
The Evolving Market, Players and
Business Models in a 2.0 World
www.theshiftonline.com
2 nd
edition
The
f
Shi t
The Evolving Market, Players and
Business Models in a 2.0 World
Alcatel, Lucent, Alcatel-Lucent and the Alcatel-Lucent logo are trademarks of Alcatel-Lucent. All other
trademarks are the property of their respective owners. The information presented is subject to change
without notice. Alcatel-Lucent assumes no responsibility for inaccuracies contained herein.
Copyright © 2011 Alcatel-Lucent. All rights reserved.
Table of contents
Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293
the shift
forEword
foreword | 5
the shift
6 | foreword
the shift
Employees are Tweeting their bosses, people are legally listening to any music
they like (without paying for it), the newspaper may stop printing soon and
many intelligent people are unafraid that that will lead to a new “Dark Age.” We
flip and scroll through iPads that look like they are from The Jetsons cartoons—
and those futuristic tablets were the fastest product in history to hit $1 billion in
sales. It’s an incredible time.
The pipes through which all this Internet and telephony data flows are dumb. To
a greater or lesser degree, they just shoot all the data through, undifferentiated
by content type or source. There is a political perspective that says this is how it
ought to be: network neutrality legislation might make the pipes stay dumb. But
let’s consider another side of the story.
foreword | 7
the shift
That’s what this book is about. It’s about the unique types of data that network
providers can offer a larger ecosystem over which developers can build software
and services. What kind of data can network providers offer a developer
community? This is key. The network knows the presence, availability, location,
and profile of a software user at the end of the pipe, on a laptop, or on a phone.
Maybe hospitals want to know where in the facility a doctor is located and what
their professional profile is. (“Which cardio specialist is closest to the fourth
floor right now?”) That’s something a network could expose to a developer, who
could build an interface to serve up that data in a way the software user at the end
can make use of. In the parlance of the milieu, the network provider could offer
an Application Programming Interface (API) that can be used by third-party
developers to create integrations, interfaces, and mashups.
The network also knows what’s going on with its own quality of service and it
has diagnostic data. It has security and billing capabilities. Those are things that a
smart network could offer developers as a service. The research you’ll find in this
book is evidence that there is developer demand for exactly that.
Large quantities of meaningful data are available in real time from the network
provider. That means there are opportunities for innovation—limited only by
processing capacity, policy, and the imagination of a wide-open world of software
developers. What does that mean? It means new apps, new user experiences,
better performance, more engagement, and new types of software we didn’t even
know we wanted yet.
Cerra and James spend most of this book discussing the cultural changes that various
groups of people in society (Baby Boomers, Millennials, advertisers, enterprise IT
developers, and education and healthcare workers) are undergoing, based on market
8 | foreword
the shift
research and contemporary anthropology. They discuss the needs these groups have
that could be filled by network provider APIs. The different groups have different
desires and aims, but a smart pipe has something to offer them all.
Multiple markets are willing and able to pay for these kinds of features, according
to the many studies, both original and compiled, that you’ll find in these pages.
That’s key. Consumers and developers want and will pay for the kinds of features
that can be built on top of presence and availability data, for security and
diagnostics. What does that money then help pay for? More pipes!
Everyone wants more and faster bandwidth and consumers would like to get it for
less money than they pay today. How on earth will providers build out additional
capacity, while lowering the cost of basic service? Cerra and James argue that the
types of features that could be upsold to developers and consumers could be the
source of revenue that pays for the much-needed build-out of more network capacity.
There’s a lot to be enthusiastic about, but there are warnings here too. The
authors are not in the “privacy is dead” camp, for example. In fact they make
some bold statements about the primacy of user control over their own data.
Value adds built on top of user activity and profile data have to be opt-in, they
argue. The authors offer an unusually sophisticated and multi-generational
analysis of peoples’ changing requirements for privacy with regard to their
personal information.
Cerra and James have written here an informative articulation, not just of
the consumer privacy landscape, but of many places where technology and
contemporary culture intersect.
This is a book that many people will find informative, however, whether they are
a candidate for Alcatel-Lucent’s services or not. That’s the best kind of marketing
foreword | 9
the shift
The potential here is so rich that I hope people new to the world of APIs are
properly excited about it. It’s one of those things that you might have to see to
believe. Thus the importance of ProgrammableWeb, as it’s the place to go to see
a lot of these recombinations of real-time flows of data and functionality from
multiple sources put into new contexts and given new interfaces, analyzed to
tease out new hidden patterns and opportunities.
How will the computing clouds around us know where we are? How will they
know what we want to see? How will security be managed and diagnostics
run? Intelligent networks could provide exactly that kind of information to the
developers of the augmentation applications.
Some people say they like their pipes dumb. Proponents of network neutrality
legislation may disagree with the premise that network traffic ought to be
instrumented, analyzed, and handled differently. Cerra and James make mention
of this for sure, but argue that we’ll have to wait and see what kind of legislation
comes into play. Some will, probably.
10 | foreword
the shift
Meanwhile, the Internet waits for no one. There is incredible potential for
the development of mutually beneficial technology based on what’s called
application enablement in this book. Give it a read and imagine the possibilities.
Marshall Kirkpatrick
Co-Editor, ReadWriteWeb
Marshall@MarshallK.com
August 2010
foreword | 11
the shift
12 | foreword
the shift
prologue
The End
of the World
Wide Web as We
Know It
prologue | 13
the shift
14 | prologue
the shift
Ten years later I found myself at a different, and much smaller, regional service
provider. And again I sat in a healthy debate about the company’s broadband
service. Only this time we weren’t contemplating if anyone would actually pay
for faster Internet speeds; instead we were asking ourselves how we could afford
to continue with the flat-rate broadband retail pricing popularized in the 1990s.
Our issue was no longer in attracting new customers to the network. We found
ourselves in a much more difficult position: How could we keep pace with
our customers’ usage when the traffic consumed on the network was growing
prologue | 15
the shift
at a rate faster than anyone could have anticipated? The debate around the
table—and the landscape around us—had changed radically in the past decade.
What happened? How did we get here? Just a couple of landmark moments in
broadband history show us a hint of the answer:
In February 2005, three unknown former PayPal employees took a quantum leap
forward in revolutionizing the Web as users knew it. What started as an obscure
video-sharing site marked the shift toward a Brave New Web World. A scant 21
months later, the phenomenon now ubiquitously known as YouTube would sell
to powerhouse Google for an astounding $1.65 billion. Less than 2 years later,
the site added one more coup to its meteoric ascent as a Web 2.0 heavyweight,
displacing Yahoo! as the second most popular search engine worldwide.
This certainly wasn’t the first time in history an unknown web fledgling
would command a premium on the market. The “superhighway” was littered
with investments in start-ups. But this was different. YouTube wasn’t just any
web start-up. It sat at the crossroads of two game-changing web trends: the
proliferation of user-generated content married with bandwidth-hungry video
distribution. The result was a seismic shift that rippled far beyond user behavior
to impact the underlying broadband networks strangled beneath the weight of
exponential data usage almost overnight.
16 | prologue
the shift
the wireless world with new business models directed at a burgeoning developer
community. The 2.0 shift had moved from wireline to wireless networks,
indelibly changing the broadband landscape once again.
Quite simply and subtly, the consumer had become the producer. Few could have
anticipated such a radical shift back in the 1990s when broadband first reached
critical mass. In a Web 1.0 world, the consumer is just that—the beneficiary of
content provided by others. A Web 1.0 world is characterized by professional
content providers creating a one-way communication path to consumers.
Download speed reigns supreme. Text-rich environments are the norm. And
consumers are happy simply to digest media and content made available to them
by others.
Web 2.0 changed everything. With greater ease, more attractive pricing, and
higher quality than ever, consumers became equipped to produce their own
content. The digitization of everything from cameras to cost-effective storage
made every user a potential cinematographer, paparazzo, or artist. Further,
always-on broadband networks delivering speeds once reserved for the
enterprise power user and available at mass-market pricing fanned the flames
of growth. For the first time, consumers were given a voice. And that voice
would be heard. Without making professionally generated media extinct, user-
generated content created a new forum of expression. Blogging, podcasting,
social networking, texting, and crowdcasting all changed the landscape from
a one-way communication aimed at the masses to a two-way conversation of
millions. The proliferation of content produced and consumed would spawn a
new generation of bandwidth-insatiable “Millennials,” who would literally grow
up in this online, immersive world.
prologue | 17
the shift
Where do we go from here? Some would argue that the service providers that have
invested in these networks simply must continue to do so. After all, they benefit
from subscription-based revenues paid directly by end users for the privilege
of access. But, if these service providers must continue to make investments in
networks in the face of escalating broadband traffic and do so with flat, if not
declining, retail pricing plans, how can they generate an attractive Return on
Investment (ROI) to shareholders? Some point to greater efficiencies in networks
themselves, akin to Moore’s Law, a trend coined by Intel co-founder Gordon E.
Moore all the way back in 1965, which finds computing power doubling roughly
every 2 years. Though Moore’s Law certainly plays a part in allowing the service
providers the benefit of more attractive costs per transported bit, not even it
can offset the incremental expense born of an insatiable broadband appetite
on the part of end users. And, if there is no compelling reason for these service
providers to continue investing, how does the next Facebook or YouTube reach
an audience over a network capable of delivering its value?
Some are turning to the broadband cap as one potential answer. Rather than
offer end users a flat-rate, all-you-can-eat, monthly broadband price, cap their
18 | prologue
the shift
usage at a specific allotment per month, after which point the user pays per byte
downloaded. The cap places the tax of the network largely on the backs of those
consuming it the most. The challenge remaining, however, is two-fold:
Many would argue with us on these points and refer to several successful examples
of broadband caps being imposed elsewhere around the world as proof points in
their corner. While we certainly agree that other service providers worldwide have
successfully transitioned from a flat-rate to usage-based broadband pricing model,
we submit that there are other, perhaps better, ways to monetize the incremental
traffic load on networks rather than through a purely transactional model between
end user and service provider. This shift simply commoditizes gigabytes on the
provider network as opposed to megabits per second. Network providers remain a
utility through which others provide services and applications with perceived value
to the user, and they still fail to establish a richer relationship with consumers and
developers that creates enough revenue to cost-justify continued network investment.
prologue | 19
the shift
1.0 2.0
One-way communication Two-way experiences
Another lesson from the iPhone is the hunger consumers have for being able to
do everything they need to do and access all the data, video, communications,
social media, and any other imaginable content in a seamless way with a simple
interface. Consumers want the content they want, when they want it, and how
they want it. With demands like that, even a device like the iPhone fails to
deliver completely.
20 | prologue
the shift
To fill this need, over-the-top competitors take advantage of service gaps between
providers, offering point solutions that tie together traditional communications
services, video, and social media. Right now, consumers are forced to use these
makeshift point solutions to achieve their goal of anytime, anywhere access.
So what role does the network play? Networks are robust in many ways. First,
they are device-agnostic. The same network is capable of connecting thousands
of varieties of mobile devices, broadband modems, and even set-top boxes with
prologue | 21
the shift
ease. Second, they are pervasive. They are not constrained by battery challenges
that are often the bane of wireless devices, for example. Finally, networks are
powerful. From storage to processing power, networks are equipped to handle
the load equivalent of thousands of devices. Now, this isn’t all to suggest that
devices are less important. Quite the contrary. Device intelligence allows the
network to provide more capabilities. This is a symbiotic relationship in the
ecosystem. When devices become more powerful, so too do networks. And, in
the end, the user benefits from a richer experience.
However, this line of thinking does argue that, if one device as a platform can
attract thousands of developers, why couldn’t a network with capabilities of
reaching even more users across even more devices? Here are just a few examples
of the intelligence capabilities that could be exposed:
22 | prologue
the shift
You may find yourself criticizing this approach in one of two ways:
> You may wonder why a developer community would need access to
these capabilities, given the proliferation of web-based application
programming interfaces (APIs) widely available through sites like
prologue | 23
the shift
24 | prologue
the shift
If we haven’t made it clear by now, let’s state this differently: The approach argued in
this book is about creating profitable and sustainable broadband models across a broad
ecosystem of content and application developers, device manufacturers, advertisers,
and service providers to create better end-user experiences. This is not about slicing
up the same pie and offering a strategy that delivers a larger slice to network providers
or developers. It’s about baking a bigger, better pie with developers enabled to create
new flavors and varieties, generating revenue for everyone. In other words, it does
not suggest service providers must profit at the expense of developers, or vice versa. It
starts from the fundamental argument that a 2.0 world necessitates an ecosystem of
interdependencies. If there is no incentive for service providers to continue to fund
next-generation broadband networks, investments will stop. Likewise, if developers
cannot find profitable business models, innovation is compromised. When one
stakeholder group perseveres without damaging the larger ecosystem, others stand to
benefit. Likewise, when one group loses, its interdependencies are also at risk.
prologue | 25
the shift
This book seeks to understand the new business models enabled through a 2.0
world, where the consumer remains in control of his experience, a developer
community benefits from enhanced capabilities, and service providers monetize
their investments to fuel future innovation. It does so with a scientific approach,
based on extensive research commissioned by Alcatel-Lucent and conducted by
Penn Schoen Berland, across thousands of consumers, enterprises, commercial
developers, and advertisers to assess their unique worldview and willingness to
pay for smart network capabilities as they look through the 2.0 lens. Further,
since research provides directional and strategic insights, but can be more
limited in precisely predicting the future, we will incorporate market examples
that lend additional support.
26 | prologue
part 1
the
generational
impact
the shift
28
the shift
chapter 1
baby
boomers
the eternally
young
30 | chapter 1
the shift
Recent research by the network TV Land highlights how mistaken this approach
can be for networks, media companies, advertisers, and companies creating
innovative products and services in the technology sector.
This study along with TV Land’s “Joy of Tech” study and subsequent research
seek to examine preconceived notions about the Baby Boom generation and
its approaches to entertainment and technology. What they revealed was
that many of the defining generational moments identified by Baby Boomers
involved television.
For Baby Boomers, their experience of the world, what they remember, and
how they remember are profoundly shaped by television. They remember
getting their first TV, the shift to color, and witnessing the nation’s most
historic moments via television. The research also revealed that only 17%
of qualifying “Baby Boomers” identified with that term.3 Baby Boomers
thought of themselves as too young to fall into the category and had negative
associations with the label. Instead, at least according to the TV Land network,
57% of respondents preferred to call themselves the “TV generation.” TV
32 | chapter 1
the shift
Land responded with an advertising campaign with the tagline, “TV Land:
TV for the TV Generation.”
This technological interest and acumen plus their spending make them a rich,
yet underserved, target for products, services, and advertising. Baby Boomers
know this and indicated a penchant for punishing companies, networks, and
media that ignore them. At the time of the TV Land study, Baby Boomers spent
$2.3 trillion annually, outpacing 18–39-year-olds by 53%.5 And more than half
Great opportunity exists to mine the buying power of Baby Boomers and their
desire for high-quality entertainment, which research suggests they are willing
to pay a premium for if it simplifies their lives and offers them greater options
and control.
34 | chapter 1
the shift
Whereas for previous generations, retirement was a goal and welcomed stage
of life, Baby Boomers are forming an “anti-retirement” ethic and forging a new
view of old age where they remain active and engaged in the world they so
strongly influenced—in part as a matter of principle and in part because it will
be necessary for them to maintain their lifestyles and stay in their homes.
Though they will likely live longer, by 2030 six out of ten Baby Boomers will be
managing multiple chronic illnesses, with diabetes affecting one in four.10 Today,
the first Baby Boomers are reaching retirement age and getting their first taste of
aging life in America as they care for their parents. Their experiences will drive
their own expectations when they reach elder age.
In a 2007 article on caring for aging parents, USA Today detailed the move away
from nursing homes toward living options that offer more independence, such as
assisted living facilities and at-home care either at the aging parent’s home or the
home of the adult child. Beyond the costs of care, adult child caregivers, many of
them Baby Boomers, put in extended time doing what would normally be done
for them in nursing home care, including:
In 2006, these activities and others added up to an average of 21 hours per week
for caregivers with aging parents, which had the total economic value of $350
billion—more than the United States spent on Medicare in 2005.11
36 | chapter 1
the shift
According to the American Hospital Association, “In 2005, there was a U.S.
shortage of about 220,000 registered nurses; by 2020 that gap will be over one
million. The nursing shortage is caused by both increased demand and by the
aging of the nursing workforce—nurses are Boomers too.”13
The impact of new approaches to care and the role of application enablement
will be discussed in the chapter on healthcare, but with regard to the Baby Boom
generation, delivering consumer-side healthcare applications and extending advanced
communications services to the home are of vital social and financial interest.
Grandma’s on Facebook?
Of course, Baby Boomers won’t be connecting with family just to share their
fasting blood sugar readings in the morning. They also have a strong desire to
find out what’s going on in their families’ lives and stay connected to children
and grandchildren. The desire for connection has driven a growing number of
Baby Boomers to join online social networks.
Their use of social networking sites certainly lags behind that of their younger
cohorts, but Baby Boomers are a growing demographic. In a 2009 Pew survey,
20% of younger Baby Boomers (aged 45–54) reported using social media,
compared to 9% of older Baby Boomers (aged 55–63). Most of those are users of
Facebook, which is the dominant networking site for older adults.14 In January
2010, adults over the age of 55 were Facebook’s fastest growing age group, up
tenfold year over year.15
The AARP/Microsoft study found three drivers for Baby Boomers’ use of social
media: connecting with family, connecting with friends (old and new), and
business networking. As they look to work longer in an uncertain economic
climate, they see social media as a way to stay in touch with colleagues and find
new opportunities.
38 | chapter 1
the shift
They are much more accustomed to parental involvement. One of the defining
characteristics for the younger generation is its members’ willingness to share
information with less concern about blocking off their personal lives from their
professional lives and their families. Plus, they are already learning to adjust what
they put online, understanding that privacy limitations on a social media site
don’t mean that their data isn’t out there, somewhere, forever. Another idea is
that the coming of the Baby Boomers signals the coming of commercialization
and corporate influence and reduced utility as a “private playground” for the
young. So far, that has yet to happen. In the same period from January 2009 to
January 2010, Facebook use is still growing in the younger demographics, up
more than 50% for ages 18–24 and up 88% for ages 13–17.
The blogger quoted above was postulating that iPhone game developers don’t
know their audience and, after doing research to prove or disprove his theory,
he discovered the “astounding” truth via stats from AdMob. The February 2010
stats are slightly different. Now, 87% of iPhone owners are over 18 and 75%
over age 25. This shouldn’t be shocking. Owning an iPhone is still relatively
expensive—both the device cost and data plan—and the number of people
under the age of 18 who can afford one or whose parents trust them with such a
device is understandably low. It’s a device for those with their own jobs and their
own discretionary income, which brings us to a truth that goes even further:
One-third of iPhone owners are over 45 and 14% over 55.17
> Baby Boomers are living longer, more productive lives. They will not be
put out to pasture. They are America’s idealists—the eternally young.
Those that allow the Boomers to reinvent themselves with applications
aimed at continuous development will reach the pulse of this generation.
> Further, with Baby Boomers increasingly caring for elderly parents
and growing older themselves, healthcare applications that meet two
seemingly contradictory needs—the desire for independent living
married with continual clinical observation—all within an increasingly
compressed budget, will find favor among this lucrative market.
> Baby Boomers crave simplicity. Providers and developers should avoid
overcomplicating value propositions. This generation is the most time-
starved of all as they care for elderly parents on one end and Millennials
on the other, with about one in eight of the latter over the age of 22
having “boomeranged” back home during these recessionary times.18
They expect consistent and superlative support (remember, these are
the architects of the TQM era) and providers would do well to listen.
Otherwise, they will quickly find themselves out in the cold among a
generation that does not place brand loyalty above performance.
However obvious the buying power of Baby Boomers should be, it bears repeating.
Just as advertisers and TV networks need to realize it, so too do application
developers and service providers. Baby Boomers are living longer and will remain
a ripe market for advanced applications that fit in with their goals, values, and
lifestyles for some time to come.
40 | chapter 1
the shift
X
chapter 2
gener-
ation
america’s
middle
children
42 | chapter 2
the shift
In a 1990 article about the newly adult Generation X, Time Magazine declared:
Generation X was the first generation of children born during the new period
of legalized abortion, birth control, increasing divorce rates, and economic
instability that laid off their parents. As a result, this “baby bust” generation
distanced itself from the idealism of their Baby Boomer parents.
And contrary to the slacker moniker, Generation X met the new technology
with adaptability and independence, which drove the entrepreneurial spirit
behind the tech boom days of the 1990s. Gen X slaved away, Neate says, working
“80-hour weeks for the noble goal that one day everyone might have access to
affordable pornography.”
44 | chapter 2
the shift
Pornography aside, Generation X drove technological and cultural change that later
generations will take as a given. When Gen X entered the workforce, they brought
their desire to work more independently and without rigid hierarchical structures.
They rejected the “put in your time and get your gold watch” model for employee
advancement because they know there’s no guarantee of the gold watch. Gen Xers
believe loyalty is for themselves, their friends, and their families—not their companies.
The work relationship is driven by even exchange and mutual benefit, which they
expect to payoff now—not in 50 years when they retire. As illustrated by the dot-
com boom days, they would work extraordinary hours in the hope that there was
extraordinary pay off in the end. If the balance tips away from serving their purposes,
Gen Xers have a roving eye career-wise, and that has earned them accusations of
disloyalty and selfishness from previous generations. Over time, however, Gen Xers
have changed the work place, as noted by generational observers Neil Howe and
William Strauss in a 2007 article in Harvard Business Review.
While this phenomenon has given workers incredible freedom and flexibility,
it has also, ironically, breached the boundary between work and home. The
first instance of “worlds colliding” was not your boss looking up your Facebook
page, it was your boss hearing your little Millennial kids in the background on
a conference call.
Generation X is about options and flexibility. As Baby Boomers retire from the
ranks of national power and Gen Xers move into their place, this approach has
profound effects, according to Howe and Strauss.
As free agent workers and consumers, Gen Xers focus on end results, custom
products, and services that deliver personalized benefits and bottom-line value.
This shift is reflected in the current era of technological change. The explosion of
applications development reflects the explosion in entrepreneurialism as much
as an explosion in technology.
The service provider network, which blossomed in the post-war era, is viewed
as a middleman. New entrants—staffed, if not run, by Gen Xers from the 1990s
tech boom to today—are saying: I have 1,000 different ways to deliver services that
go over the top and skip service providers. My goal isn’t to ensure their survivability.
If they don’t add value, then they should and will be forced out or, at the very least,
treated as a dumb pipe and classified as just merely transport.
46 | chapter 2
the shift
ecosystem of players. But the sacred cow is out of the barn and on its way to
the slaughterhouse with regard to needing new business models that make new
modes of service delivery profitable and sustainable.
Look at the dilemma facing the entertainment industry—movies, music, and broadcast
television. As Neate mentions, it was Generation X that started downloading video
and music files, trading them on the Internet, and bypassing the economic model of
the entertainment industry, aka stealing and fencing intellectual property.
While entertainment corporations were able to challenge piracy and illegal file
sharing, and use technology to track and prosecute enough offenders to deliver
a chilling effect on the practice, legal means of fighting the problem alone were
not enough. The corporations also had to start changing business models and
delivery mechanisms to give young consumers what they wanted at a price point
that met their demands. What did they want? Only specific songs, not the whole
album, and a personalized, portable music library.
Now consumers are starting to want the same with other types of entertainment:
TV and video on demand, online video, portable video, and video streaming to
wireless devices, time- and place-shifted video with DVRs and Slingbox® hardware.
> The 2008 writers’ guild strike and threats of actors’ and directors’ strikes
were driven in large part by arguments over revenue from digital media
rights.
> The growth of DVRs and video on demand, trends toward online
viewing, and the rise of subscription cable have threatened the
profitability of an advertising-based TV network model.
> Financial crises of broadcast networks—revenue lost from the writers’
strike, dips in advertising revenue, and no answers yet on how to adapt
video content delivery in a way that will replace the revenue generated in
the old business model.
What’s next? Not just why buy the album, but why buy the TV service with
networks and shows I don’t want? A new business model will emerge. How
do you handle advertising? Do you need advertising? How do subscription fee
deals between providers and networks change? How do production studios
make enough money to continue creation of new content? Are networks as we
know them even necessary to that process?
“That’s the way the system is set up to work,” as one Baby Boomer colleague
recently declared concerning the current TV advertising/entertainment model,
will not be a sufficient answer for Generation X and certainly not for Millennials
and subsequent generations. The resolution to these and other questions will be
somewhat Darwinian. Only the fit will survive. The fit will be those that figure
out how to create profitable markets with—and this is inevitable—brand new
business models that are flexible enough to adapt to whatever the next wave of
technology and consumer demand brings.
Entertainment
As already demonstrated, Gen X wants portability for its media and accessibility
from anywhere, from any device. Online video use exploded with the Millennial
generation, but Generation X is now catching up, with 31% downloading
videos, compared with 38% of Millennials.24 Their desire for flexibility will also
lend itself to multiscreen video applications that allow them to control and view
their home entertainment from anywhere they have a network connection. For
example, a person could watch recorded shows while on a trip and then delete
them to clear out the DVR. Or, vacation videos could be uploaded to be seen on
the set-top box by family members back home.
Commerce
Generation X leads the generations in its use of e-commerce, including online
shopping, banking, and travel reservations. Eighty percent have recently made
online purchases, compared with 71% for Millennials and 70% for Baby Boomers,
48 | chapter 2
the shift
and 65% have recently used online banking, compared with 57% for Millennials
and 51% for Baby Boomers.25, 26 Generation X is also now entering its peak
spending years, but they are bringing their sense of pragmatism to their shopping
behaviors, particularly in the current recession. They are now defining ROI as
“return on involvement”—the return on their use of online tools, opt-in emails,
search, meal planning tools, coupons, comparison sites, etc. that are intended to
deliver information and value.
As the trend toward mobile data increases, applications that further support
their new ROI in mobile e-commerce, such as opt-in mobile advertising, mobile
couponing, and mobile wallet services, will also be attractive for the Gen X cohort.
> With the birth of the PC and video game console during their formative
years, Gen Xers are the original technology enthusiasts.
> Gen Xers also appreciate entertainment. Remember that household
television sets began multiplying and cable channels proliferating during
their childhood years. As such, Gen Xers hold firm to the pop culture
ties that bind them (think of the nostalgic shows about the 1970s
and 1980s as evidence). This also points to a generation that values
entertainment more than their generational counterparts.
> Gen Xers are the “Me” generation. These are the children of divorce,
corporate layoffs, the Cold War, the bankruptcy of Social Security, and
AIDS (just to name a few). Their trust must be earned, and it is easily
lost with this segment. Minimize the fine print and allow these users to
remain in the driver’s seat (with privacy controls, for example).
Gen Xers may suffer the proverbial middle child syndrome, but those who seek
to understand the misunderstood stand to grab a piece of their $125 billion
purchasing power. And, as America’s original technology enthusiasts, Gen Xers
will push those in this value chain to earn their business, or they will simply
find ways around the traditional models, as they have done with online music
and video. If not for a share of their purchasing power, providers would be wise
to keep tabs on Gen Xers to avoid being disintermediated by them. And, that’s
enough to give this misunderstood middle child a very loud voice.
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chapter 3
Millennials
the digital natives
52 | chapter 3
the shift
It’s one thing to move from vinyl to 8-track to cassette to digital compact discs to
digital online music over the course of a generation. It’s another thing entirely to
have no recollection of pre-digital music and, for some in the Millennial group,
no experience buying music that can’t be loaded onto an iPod. The rapid shift in
technology also makes it difficult to make comparisons between this generation’s
use of technology versus that of generations past.
Another key factor distinguishing the Millennial generation is what critical Baby
Boomers and Gen Xers would call “coddling,” and others might describe as more
intensive parental involvement and tailoring of family life around the children—
scheduled sports and other extracurricular activities, increased presence in the
classroom, and constant contact enabled by technology.
Some of these parents are Baby Boomers heavily affected by the advent of child
psychology and a desire to break away from the “children should be seen and
not heard” philosophy of parenting. Others are Gen X parents who grew up
as latchkey kids and who place more emphasis on work-life balance and being
physically present for their children. Neil Howe, co-author of Millennials Rising:
The Next Great Generation, says one indicator of the change in attitudes about
parenting for Gen X to the Millennials is the change in movies about parenting.
The 1970s featured demon children in The Omen, Rosemary’s Baby, and Damien.
At the same time, the baby-proofing industry took off, and the number of fathers
present in the delivery room went from about 20% to 65%. Parents of Millennials
emphasized being their child’s protector and advocate in the outside world.
“Helicopter parenting” or “defense attorney parenting” debuted first in school, then
college, and now, to the annoyance of Boomers and Gen Xers alike, in the workplace.
In a 60 Minutes report in 2007, Mary Crane, a former White House chef who
now consults with businesses on generational issues, talked about the extension
of parenting into the workplace.
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The report from Morley Safer, who predates even the Baby Boomers, chronicled
the disdain some in older generations felt for the newly employed Millennials.
Ironically, this same 60 Minutes report revealed the dangers of dismissing this
generation as soft, entitled, and without focus, self-sufficiency, or a work ethic.
In the online comments section accompanying the video and a transcript for the
report, Millennials sounded off.
Some of the intergenerational bickering is simply par for the course. Every
generation thinks successive generations are sending society down the tubes with
their laxity and sense of entitlement. Each new generation thinks what went on
30 years ago has no bearing on their world. No doubt in 30 years, Millennials
will be shaking their heads at society and wondering what went wrong while
their kids call them dinosaurs.
The protective “coddling” and the fears behind it could be one reason Millennials
use technology the way they do. As researcher Danah Boyd put it in a Pew
Research Center panel discussion:
The time previous generations would have spent unsupervised in physical gathering
places—soda shop, sandlot, or shopping mall—is now spent in virtual spaces via
social media and gaming. In a Pew Research Center study published in February
2010, 75% of Millennials aged 18–29 use a social networking site, and over 50%
of Millennials have been using social networking sites since 2006.32 Social media,
texting, and instant messaging also free them up to connect with friends in their
heavily scheduled and structured lives. The Pew study also highlighted that:
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The effect on technology is a reverse shift from the changes that took place as
Generation X entered the workforce. With Generation X, the desire for work-
life balance drove changes in business technology that eventually made their way
to consumer applications. With Millennials, the change is being driven the other
way. As they bring their personal selves into the workplace, they’re bringing their
personal technologies, gadgets, and philosophies with them—pushing consumer
technologies into the enterprise and changing the game once again.
How they weigh these elements changes depending on their social class, future
plans, and age, but the impact of social media on perceptions of how they judge
those behaviors may have already been altered.33 The assumption that “youthful
indiscretions”—to borrow a phrase from George W. Bush—must negatively
impact how you are perceived is not as readily accepted.
Many, many years ago, you wouldn’t have been able to become a
presidential candidate or a viable president if you had admitted to
drug use. And then we had Bill Clinton who didn’t inhale and then
onward and onward with George Bush and Barack Obama. And so
we’ve shifted in our values and attitudes toward that and toward
what makes you an authentic young person.34
Their natural inclination toward openness is changing the rules for everyone. A
2009 Monitor Group report looked at Millennials on the job.
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sites. There’s already evidence that they will openly share salary
information, coaching conversations, and development plans—
testing the integrity of the organizational systems.35
For example, the traditional classroom format, particularly traditional for colleges and
universities, is going out the window. Students no longer respond to being talked at for
an hour while they furiously take notes. Not only do they want a more interactive and
collaborative learning experience, they are now conditioned to be more responsive to
this type of learning by their experiences with the Internet and new communications
technologies, a topic we will explore further in our chapter on education.37
Don Tapscott, author of the 1999 book Growing Up Digital and the 2008
follow-up Grown Up Digital, responds to sentiments like these in an article
posted in the online publication Edge.
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> Millennials share the idealism of their Baby Boomer parents. They are the “We”
generation, fully connected and socially conscious. Technology is immersive to
them—an extension of themselves. And, they are using the technology for far
more than just checking what their buddies ate for breakfast. Cause marketing
has a viable role to play among these idealistic activists.
> Millennials are acculturated to multitasking. They will not sit idle in
front of a television for hours at a time as their Gen X predecessors
did in their youth. Nor will they spend all of their time isolated in
front of a PC. No, for this generation, it’s about multiple media
simultaneously. They pay with more than just their wallets. They pay
with their attention. If providers can grab and keep it longer than
their competition, they stand to inherit their share of $200 billion
in Millennial purchasing power (not to mention the portion of Baby
Boomer spending Millennials also greatly influence).
> These are the original prosumers. That is, they are both consumer
and producer—of their online environment and of the services they
use. Opportunistic providers and developers will tap into this highly
collaborative segment to allow them to not only sound off about
brands, but to help create new services.
> This is the first generation to compete in a global economy. Technology can
help narrow the achievement gap currently facing the United States
when compared with its global peers. Expect the implications to the
education sector (both K–12 and higher education) to be significant.
Millennials live in their own world—one they create and shape every day in their
2.0 environment. They are consummate collaborators, wide-eyed idealists, and
multitasking machines. They do not know of a world without digital media,
broadband, or on demand and, as such, they are the most demanding for content and
communication on their terms. Eighty million strong helps explain why this market
captures the majority of headlines. Now, if only capturing their attention was as easy.
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part 2
the 2.0
ecosystem
stakeholders
the shift
64
the shift
chapter 4
the
developer
market
14 million creative
minds and counting
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Early ripple effects into the competing netbook category had some analysts
questioning how far the iPad could go in making device alternatives all but
obsolete. As an example, the annual growth rate for netbooks cratered from
641% the year before the iPad’s introduction to just 5% growth the year after.
Barclays Capital recently predicted the iPad’s momentum would place downward
pressure on netbook price points from just over $300 to sub-$200.45 Beyond
impacting netbook growth, Morgan Stanley found iPad consumers to be former
prospects for multiple device categories, some of which are still nascent on their
own: 17% selected an iPad instead of a portable game player, 28% instead of an
e-book reader, and 44% instead of a laptop.46
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impressive. However, throw in the application downloads, and you once again
have an ongoing revenue stream that exploits an evolving business relationship
with these users. As evidence, not only are iPad customers willing to pay more
for the device but also for the downloads when compared with their iPhone
counterparts. According to a study by analytical firm Distimo, the average price
of an iPad application is $4.67—22% higher than the average of $3.82 for the
iPhone. Further, the study suggests that the ratio of paid applications on the
iPad exceeds that of the iPhone, with 80% available at a price for the former
compared to 73% for the latter.47
What does it all mean? Many of us have grown up in a time where reaching
critical mass for a particular service or device meant considerable marketing
muscle over several years (for example, it took the mobile phone 20 years to
reach 10% penetration of US households). In today’s world, years have been
replaced with months. With the iPad’s current trajectory, it will reach the
10% penetration threshold in less than a year. And, current user behavior is no
longer a reliable predictor of future consumption. As consumers migrate to the
iPad, willingness to pay for applications increases. You could argue that this is
a function of a more early adopter profile for the device combined with a larger
form factor that provides fertile ground for higher-priced multimedia gaming,
entertainment, and business applications. Or, it could also reflect the changing
appetite patterns as consumers drift toward a new connected device category.
In any case, assumptions based on historic consumption are only as valid as a
relatively unchanged communications landscape. And, as we have seen with the
seismic shifts with just one company in only one decade, these assumptions are
less relevant every day.
Clearly, with over $2 billion in quarterly sales from one device alone,
consumption translates to topline growth for Apple. And, while the ongoing
sales of applications provide future revenue potential and supplement the one-
time revenue boost of selling the device alone, the proportion of revenues earned
through the iPad app store pale in comparison to its hardware sales. This is due,
in large part, to the relatively small portion of revenues Apple collects with the
sale of each application—30%. This 70/30 revenue split between Apple and its
developers has become so popularized, thanks to the company’s success with
the iPhone, that few even mention alternative business models, though others
certainly exist. In Apple’s case, 12 million monthly downloads at an average
price of $4.67 for the iPad, multiplied by its 30% cut of the revenue, equates to
approximately $50 million back in the company’s coffers for the quarter. While
this is respectable for one quarter’s work, it’s a pittance in comparison to the
$2 billion in quarterly sales the company collected in iPads alone.
And, when you wring out costs, the profits from Apple’s App Store are even
slimmer. According to an analysis by Piper Jaffray, Apple’s App Store has
generated less than 1% of the company’s overall profits since it opened its virtual
doors in June 2008. Analyst Gene Munster estimates that sales since launch have
been $1.43 billion, of which Apple takes 30%. Excluding costs associated with
credit card transactions, storage, and delivery, gross profit generated through the
App Store has been $189 million—compared with the company’s overall gross
profit of $33.7 billion over the same period of time.48 Clearly, Apple’s business
model is built upon using its popular App Store to pull through demand of its
devices—not a bad business model when one has a hardware horse in the race,
and, one where a 30% cut of the revenues is easily justified in an attempt to
attract more developers to an already growing app storefront.
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Now, the length of time to progress through this entire cycle varies with the
complexity of the program or service being introduced. But, the cycle itself
reflects the rigor associated with a successful launch.
practical economic limitations. For example, physical stores have limited shelf
space in which to stock items. As such, more popular items tend to win favor
over less popular fare. But, in the virtual world, the aggregate sales of these
less popular items outnumber the sales of the bigger hits, and the incremental
cost of offering these niches becomes palatable in an economy unencumbered
by physical constraints. The millions of niches that result comprise the now
famous “Long Tail.”
Though that example reflects the way a virtual world addresses physical constraints
to attract greater niche markets, its underlying premise involves scarcity. Just
as scarcity exists in a physical retail environment, it is also represented in the
enterprise IT resource constraint challenge referenced earlier. That is to say, just
as the “Long Tail” allows retailers to offer more in a virtual world, it also can be
applied to companies seeking to offer more services and applications by tapping
into a virtual economy of developer resources.
Not only does the company benefit with a project that is guaranteed to come
in on time and within budget, it also gains the critical and elusive speed-to-
market advantage. No matter how smart or talented a company’s development
resources may be, it’s difficult to compete against nearly 275,000 soldiers—and
that’s representative of just one development community. This comes down to
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Profound as that may be, how does it relate to the web developer market that
is the focus of this chapter? Think of SOA as the grandfather of web services.
And, web services are the fuel that propels the developer market forward. Web
services are based on APIs. An API is an interface that allows a program to
interact with other software or networks. Consider it a common language that
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enables one program to speak to another. In this way, web developers are able to
use APIs to create brand new services, consisting of mashups from previously
existing applications, and leverage the work of others to create something new.
Again, speed-to-market is attained and the developer is able to optimize his
scarcest resource—time.
By now, your own observation of the changing environment around you, if not
the evidence from this chapter, has likely convinced you that a new marketplace
is being created through the growing development community. While
macroeconomic factors point to how such a market is created and sustained,
they do little to address the developer mindset contained therein. If supply and
demand activate this community, what passions motivate them intrinsically?
Let’s explore in our next chapter.
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chapter 5
through the
looking
glass
of the commercial
developer
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APIs are readily available—whether one wants to develop for a device, such as
the iPhone or Droid, or aspires to create a new web mashup using APIs on sites
such as ProgrammableWeb.com. If APIs are ingredients and the end product
is a new service or application, did the service provider have a right to play in
this space by exposing its own network-based capabilities to a fluent developer
community? Before we could answer the question, we had to delve into the
developer mindset. What were the current pain and entry points for a new
contender to gain a foothold?
Communication
Development is as much art as it is science. The more a provider can simplify the
relatively mundane parts of the process, the more the developer is empowered
to create. In a series of developer focus groups commissioned by Alcatel-Lucent
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Community
If architecture choices influence how a developer communicates with code
to build a new application, his exchange of ideas with others is found in his
community. The last chapter explored how web-oriented architectures allow
developers to reuse the work of others to create new mashups. In our focus
groups, the importance of community unites developers in a microcosm only
they truly value and understand. The community is what separates a developer
from a layperson. It is where ideas are exchanged, problems are solved, and peers
Commerce
Commerce is where reward is exchanged, whether the developer is interested in fame
or fortune. Here is where the developer brings his creation to market, either for sale
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or for buzz. When we asked developers in our focus groups for the more important
considerations that influence their choice of providers, responses tended to converge
around reach as a critical variable. That is, developers want exposure to as many eyeballs
as possible to have the greatest chance for success. This is not surprising.
We have been trained since youth that eyeballs matter; look no further than the
marketplace around us where advertising a product has its roots in the concepts
of reach and frequency. How many people can I reach and how frequently can
I affordably bombard them with my message before the Law of Diminishing
Returns is hit? Developers expressed this same desire in marketing their
application. To be clear, they want to build their creation once and have it available
on as many storefronts as possible. (Hence the reason providers avoiding web-
based architectures may soon find themselves out in the cold.) This is a potential
point of conflict for a service provider, which seeks differentiating applications
to retain customers. If all service providers expose the same capabilities, attract
the same developers, and thereby have the same applications available, where is
their differentiation against one another to acquire and retain customers? It’s a
provocative question and one that deserves further exploration.
First, recognize that a service provider’s desire for differentiation and a developer’s
interest in standardization may coexist. There are certain capabilities, such
as location, that are far more valuable to the marketplace when exposed and
standardized across multiple service provider networks.
If you leap to the answer of reach, you fall victim to a classic mistake in
research—taking at face value what respondents say they want. Indeed, some
of the biggest debacles in marketing’s history (New Coke comes to mind as the
poster child) are based upon simply asking respondents what they want and
delivering the same. More sophisticated research techniques involve laddering
and revealed preference. The former is used more in exploratory research by
asking a respondent a series of “Why” questions following his initial response
(e.g., “Why do you feel that way?”, “Why is that important to you?”). The latter
is used more in quantitative research where you force a respondent to make
complex trade-offs through a series of questions to statistically determine
which variables have the most profound influence on choice.
Both methodologies are derived from the premise that respondents have latent
desires that are often masked through a filtered answer. Research respondents
don’t intend to be manipulative and certainly aren’t clueless. They are simply
often incapable of expressing the true underlying motivators to an initial
response. Alcatel-Lucent used both techniques in our developer study (laddering
in our focus groups and revealed preference in a follow-up quantitative phase).
While reach was often mentioned as a top-of-mind response, developers actually
crave discoverability. The two are not one and the same. In a sea of hundreds
of thousands of iPhone apps, one has a challenge in having his app discovered,
despite the millions of eyeballs reached by an iPhone today. Service providers
can inoculate the reach concern by offering the developer greater discoverability
alternatives—a point we will discuss later in the chapter.
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Our goal was to identify the underlying Hierarchy of Needs that addresses how
developers actually make decisions when asked to trade off these variables. To
do this, we used an experimentally based research design conducted among
1,300 commercial developers in North America (over 1,200 of whom are in the
United States). In our discrete choice exercise, developers were asked to select a
preferred bundle from multiple sets of two options. Each bundle was composed
of differing APIs, support options, price points, and reach. After having each
developer complete this exercise several times, we were able to identify the most
important variables on a developer’s choice through a complex statistical analysis.
Because this design forces the developer to make choices, it is more reflective
and emulative of the real-world market conditions developers face each day. The
results may surprise you.
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the API functionality, the third most important determinant attribute is the
way in which these APIs are bundled together. Bundling is no stranger to
the service provider. Calling feature bundles have been around for decades,
and service providers have evolved in recent years to triple-play or quad-play
bundles that incorporate voice, broadband, video, and mobile plans. The trick
to the bundle has always been around price discounts. The more you bundle
as a consumer, the more of a discount you receive from the service provider. In
a market where consumers must be compensated for putting all of their eggs
in one service provider’s basket, this notion of bundling makes sense. Service
providers are often rewarded with lower churn—that is multi-play consumers
tend to have lower attrition than their single-play counterparts. Consumers win
by earning a discount for their loyalty and volume purchases. It has been a fairly
straightforward model that has grown in popularity in recent years.
However, just as service providers need to change their notion of what support
means to a developer, they also must change their perception of bundling. In
the developer’s situation, bundling is a case where more means more. That is,
developers are likely to pay up to twice as much for APIs that are bundled together
than when offered discretely. How could this be? Are developers not in the same
market that you and I live in every day—one where bundling equals discounting,
whether considering value meals at McDonald’s or the latest service provider
packages? This would assume the developer’s primary currency is money. As
mentioned earlier, it is not dollars and cents that developers universally shell
out, but time. Bundles afford the developer more time by packaging together
complementary APIs, such as those from presence and location, through a
common communication, community, and commerce framework. The result is
a more powerful creation developed more quickly.
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want to tap into this billing asset that a service provider can offer, and its
attractiveness only increases as emerging micropayments via mobile devices
become more popular.
1) the estimated retail price for an application relying upon the APIs in the bundle
and 2) how many times per day across an estimated number of users the API would
be triggered, or called. In so doing, we were able to calculate the estimated revenue
derived for a provider under either a revenue-sharing or per-dip model. The results
were provocative. Not only did developers not have an aversion to a per-dip model
(meaning that the number of developers selecting a per-dip bundle was comparable
to that of the revenue-sharing alternatives), service providers actually stand to earn
more revenue through a per-dip model based on the developer’s own estimates of
retail price opportunity versus usage of the APIs.
We can hear the collective gasp of those reading this, so let’s explain further.
Our study revealed that there are very few commercial developers who also have
a solid financial orientation. We are not suggesting that developers cannot be
businesspeople. Rather, developers are creators first, businesspeople second.
They are highly specialized in their technologies, working independently or in
small groups with other developers and without specialized business resources.
Tools that support their profitability and allow them to focus on development
are attractive and needed. Look no further than the Web for evidence of very
popular and creative applications without a sound business model to accompany
their “success.”
In 2009, Credit Suisse put YouTube on a path to lose $470 million, which made
it several times less profitable than many traditional newspapers suffering from
lost audience.49 YouTube clearly had the audience; it just didn’t have a profitable
way of monetizing the traffic. While the site has introduced several advertising
alternatives to generate revenues, it was wildly unprofitable and, at the time,
unsustainable when its founders collected $1.65 billion from Google.
Many developers have very creative ideas. What they often lack is a means of
making them profitable. As such, our study found that, based on developers’
estimates of usage and retail pricing potential, service providers stand to make
more money, without disenfranchising developer participation, with a per-dip
versus revenue-sharing model. This preference exists particularly as the estimated
retail price for the application increases. That is, the more money the developer
assumes he can earn for an application that uses the API functionality, the more
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You could interpret this data to suggest many developers struggle with the
business side of their equation. After all, the data suggests that a service
provider could earn up to twice as much revenue, without deterring developer
participation, with a per-dip versus revenue-sharing model. How could developer
participation stay constant in spite of what amounts to a twofold price increase?
Is the market really that inelastic? We would argue not. What we are seeing is
evidence for the high marketability of business-oriented tools and information
that support a developer in gaining fortune, not just fame. And, as we discussed
earlier, the need for these advanced business intelligence tools actually surpasses
the importance of pricing for the APIs itself, further reinforcing the point.
The bottom line in this analysis is: Providers offering a combination of business
models, including revenue-sharing and per-dip varieties, will appeal to the needs
of multiple developer groups. And, bundling web-based and network-based
APIs offers an attractive business model in itself. Finally, at the risk of sounding
like a broken record, developers have a passion for creation—not necessarily
economics. A service provider offering network-based intelligence that allows a
developer to understand his market helps maximize revenue potential for both
players in the ecosystem and creates more value for end users.
the creation may be lost in the clutter. Service providers seeking to gain
exclusivity for an application have a bartering chip on the table: don’t focus on
reach but discoverability.
Don’t assume that a provider with fewer eyeballs can’t compete against a perceived
heavyweight. And, don’t conflate reach with discoverability. The two are not one
and the same. Service providers offering options to enhance a developer’s chance
of having a creation discovered will find a viable value proposition. It’s not about
the total number of eyeballs on the storefront per se, but how many of those
users are in a developer’s sweet spot and how likely they are to be exposed to the
application. Providers that shift the debate to these more meaningful concerns
will be speaking to a developer’s latent motivations, not simply expressed interests.
> Service providers have a right to play in this space. Not only do
developers value the APIs that could be offered by a network provider, the
functionality of these APIs is the most important factor in influencing a
developer’s participation and willingness to pay.
> Support is critical, but not all support is created equal. Developers value
their community and the collective wisdom it produces. However, they
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also want accountability when these forums fall short of fixing the problem.
Offering low-cost support options, such as email and moderated forums,
attracts almost as many developers as much more costly alternatives, such
as 24x7 live help desks. Further, sweetening the pot with advanced support
options, such as billing on behalf of the developer and offering network-
based intelligence tools to help identify the optimal price point for an
application, is a void that can be uniquely fulfilled by the service provider.
> Time is their currency. Don’t assume price is the be-all and end-all. Before
service providers can convince a developer to open his wallet, they must
first convince him to give his time. As such, time-savers, such as unique
bundling approaches, generate significant revenue potential for the service
provider and address a developer’s most precious and scarce resource.
> Creation is their passion; business is a necessity. Don’t assume revenue-
sharing is the only viable business model alternative. Providers offering a
combination of business models will appeal to multiple segments in this
nuanced market.
> Don’t conflate reach with discoverability. Smaller providers that satisfy a
niche and/or offer advanced discoverability options can easily attract
more than one in three developers to their proposition. Further, the
value of the API functionality itself can neutralize any perceived reach
advantage offered by a provider.
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chapter 6
through the
looking
glass
of the enterprise
IT developer
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half of these social networkers post sensitive private information online, leaving
themselves vulnerable to cybercriminals trolling for their next victim.52
In fact, look no further than cloud computing as the recent headline grabbing
attention from this audience. A simple Google search on the topic renders
more than 40 million matches. According to Wikipedia, cloud computing
is “Internet-based computing, whereby shared resources, software and
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Given the similarities to the two topics, we wanted to delve further into cloud
computing as a proxy for how enterprises may react to application enablement.
In a survey among 550 large enterprise IT developers in the United States, nearly
half of whom are adopters of cloud computing, Alcatel-Lucent discovered that
conventional wisdom is not always reality. For example, while one may assume
that the prevalent reason for adopting cloud computing is one of economics
(the smarter the cloud, the less must be spent on intelligent devices), our data
reveals this is the least persuasive argument for adoption. Instead, respondents
were more likely to cite functionality, mobility, and reliability as the primary
motivators for their foray into the cloud.
Among our focus group participants, the very topic of security raised the
temperature of the room. On one hand, respondents were eager to offload a
headache that literally keeps them up at night. On the other, the mere notion of
handing over responsibility for such a sensitive issue was downright heresy. As
many of our respondents put it, the buck stops with them in the event of a breach.
Their proverbial tails are on the line to protect the assets of their companies, not
some faceless provider’s. (They used much more colorful language to express this
point but, at the risk of offending some, we will let you use your imagination.)
Among our survey participants, the significance of security was further validated
when respondents were asked to consider network-based APIs. When asked for
the most important characteristic a provider offering such capabilities could deliver,
50% of respondents cited security in transmitting or storing their data. As in the
McAfee study, security was the dominant motivator, dwarfing the percentage of
respondents who pointed to price as the key concern (less than 20%).
Most recently, the latest crop of cyberterrorists set its sights on Amazon, PayPal,
Visa, and Mastercard, all of which denounced their support for the now infamous
website WikiLeaks. The assaulters used denial of service attacks to attempt to
crash the sites of their victims, fanning the flames of security worries for enterprises
far and wide and bringing cyberterrorism to the forefront of mainstream news.
Make no mistake—as seen in the headlines and corroborated by our research
and other sources, the security concern is legitimate and pervasive. However,
opportunistic providers who address this issue stand to inherit significant market
share by cashing in on the trust paid by these discerning enterprises.
No Pushovers on Support
If a provider must first address the security concern to gain access to this
discriminating audience, it must raise the bar on support to keep them. While
these enterprise developers share a commonality with their commercial brethren
in using forums for support, they are far less tolerant when the crowd fails them.
Since more is at stake—including the performance of their employer—a system
glitch, or worse, meltdown, is unacceptable. Unlike the commercial developers,
these respondents were much more likely to expect and willing to pay for high-
maintenance support options, including 24x7 live help desks.
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No Compromisers on Taste
Our commercial developer study revealed an audience eager to use and pay for
network-based APIs. If commercial developers are the enthusiasts, enterprise
developers are the extremists. That is, respondents were much more likely to
either love or loathe network-based APIs depending on their functionality—
and their willingness to pay fluctuated commensurately.
For these APIs and others, enterprise developers expressed a much stronger
willingness to pay than their commercial counterparts.
However, on the opposite extreme, certain APIs were so unappealing, their mere
inclusion in an offering had a negative impact on respondents’ willingness to pay.
Among them were:
> A presence API that intelligently finds an end user based on the device
that person is using at the time
Interestingly, the APIs for which respondents had a higher willingness to pay tend
to center around efficiency gains at the management level more targeted toward
groups of employees. An API that tracks network and application consumption
across departments facilitates better management of the IT budget. One that
stores content in a secure and highly reliable cloud allows for better management
of information across multiple users. An API that provides for universal messaging
across any device enables better management of communication to large teams.
On the other hand, those with a lower (actually negative) willingness to pay were
more likely to revolve around individuals. Persistent network-based preferences that
follow a user across any device were not in favor. Intelligent call forwarding APIs to
find a particular party also did not perform well.
Critics in the audience may immediately point to the API that allows users—or
groups of users—to temporarily boost bandwidth as the conspicuous exception
to this rule. Why would this API rate so negatively if, in general, APIs benefiting
groups tended to perform well? Most would assume this would be a particularly
hot item in an enterprise, where productivity can be measured in dollars and cents.
However, enterprise developers clearly panned this API as low-value. Based on
our focus group research aimed at this same audience, we believe the point lies in
expectation. These network-savvy developers expect the network will perform at the
service level agreements (SLAs) dictated in their contracts with service providers.
We found a strong negative reaction to any API that may suggest the network SLA
was not delivered on a 24x7 basis and, as such, would require any “boosting” in
performance. This argument assumes these developers have appropriately forecasted
their bandwidth needs in the first place—perhaps a reason why the profiling API
that monitors IT consumption patterns across the organization performed as well as
it did. These developers want smarter tools that allow for better forecasting, which,
in turn, precludes a need (and appetite) for APIs that address the unexpected.
Since security has been such a strong theme in this chapter, we would be remiss
in omitting how it fared in the mix. When asked which APIs these developers
would be most likely to use, one focused on creating and maintaining a secure,
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authenticated connection across any device was at the top of over twenty APIs
tested—with more than one in three enterprise developers indicating they would
be very likely to use this API if it were made available. The security influence
remains powerful even when represented as an API competing against several
robust functionality alternatives.
The stakes are clearly much higher for this audience and, as such, items like
security, support, and performance are non-negotiable. And, as the data
reveals, this reality leads to more polarizing opinions on API appeal. Enterprise
developers are loath to compromise. However, for APIs they value, they exhibit
a much higher willingness to pay when compared with their commercial
developer counterparts. In fact, more than six in ten would reallocate their IT
budget to obtain the APIs tested in the study if they were made available. But,
service providers should take caution. APIs that do not deliver perceived value
are met with a commensurate, polarizing disdain that places this audience in a
league of its own.
> When asked for the top benefits third-party APIs currently provide their
organization, over 50% of respondents cited a reduced strain on internal
resources (the top benefit reported).
> When asked for the top challenges associated with third-party APIs,
more than one-third of respondents pointed to time-consuming process
requirements (the top challenge indicated).
> And, perhaps most convincingly, enterprise developers are willing to pay
up to three times more for APIs configured in a bundle versus those sold
separately. As in the case for the commercial developer, for the enterprise
developer bundling is a case where more equals more—or in the latter’s
case, way more.
However, the differences between these groups cannot be denied and have
implications for providers attempting to tap into the enterprise:
> Security is both the challenge and opportunity when addressing these
developers. As many in our focus groups put it, their reputations are
on the line in the event of a security breach. And, as the headlines
corroborate, one security mishap translates to millions of dollars in cost
or lost equity to a corporation. In short, security is not an option. It is
the table stake by which a provider earns the right to play in this space.
> Enterprise developers are far more discriminating. They love some APIs
and loathe others. While this audience is hit or miss, the hits are big.
Therefore, they may be more selective than their commercial brethren,
but they also reward providers with a much higher willingness to pay.
> Enterprise developers demand support. Unlike commercial developers who
are more content to rely on the power of the crowd to address questions,
these individuals expect the buck to stop—and stop quickly. If security is
the ticket for admission to this market, advanced support options, such as
24x7 live help desks, keep a provider’s seat at the table with this audience.
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As the past two chapters have illustrated, the developer market offers a largely
untapped reservoir of incremental revenues for providers of network-based
APIs. In turn, these developers benefit with improved functionality and faster
speed-to-market. The question now becomes one of determining whether
commensurate value exists for other stakeholders in the ecosystem. Let’s explore
how advertisers stand to gain in this evolving value chain.
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adver-
chapter 7
tising
the eyes have it
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We say “seek” to monetize because the road to online advertising pots of gold is
littered with failures. In 2000, Freei, a free ISP hoping to sustain itself on display
ads, went from IPO to bankruptcy in 6 months. Freei was ultimately acquired by
NetZero, a company that swallowed up failed free Internet access copycats and,
by 2001, began charging for its services.
More recently, video sites Hulu and YouTube launched with ad-based models and
have yet to prove their profitability. Hulu—a tight partnership of broadcaster
networks—has tinkered with its ad model and added paid content, and YouTube
got an influx of cash from its Google acquisition on the promise that there is
money to be made somewhere. Nevertheless, advertising is a key piece of
revenue for companies within the 2.0 ecosystem—from newer companies like
Google to TV networks. New media for advertising are also trying to establish
themselves as part of the marketing and advertising mix. Consumers have gone
more mobile, shifted time and attention to social media, and spread their TV
watching across more varied broadcast and cable network options, plus the PC.
Wherever consumer eyes go, advertising will follow. Plus, the new technologies
provide advertisers and agencies capabilities they don’t have with traditional
print and electronic media.
The movement toward online marketing has meant advertisers and agencies
forming new partnerships “to access deeper data and analytic capabilities and
expand into high-growth platforms such as mobile and social networking.”
But then comes the question of what this looks like and how it will work.
The marketing survey points to spending increasing for “digital” and “mobile”
advertising, but there are numerous applications that fall into those broad
categories. What kind of advertising can the 2.0 world offer? How do advertisers
reach their targets?
To understand the new media advertising world, let’s start by looking at how
advertising works in traditional media. Print media (newspapers and magazines)
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have their own tools, processes, and business models. Advertising for mobile
devices is still establishing its rules of engagement. For now, systems used for
traditional media have expanded to include new media advertising, and agencies
and software companies specializing in new media and/or mobile advertising
spring up every day, marketing themselves as helping advertisers make sense of
new media marketing platforms.
In our chapter on social networking, we will discuss the growing consumer trend
of using social media as a filter and navigator for the vast amount of information
online—including to research products and services before buying. As social
media grow as a resource for pre-purchase decision making, brands will expand
their presence. Social networking is great for uniting the personal intelligence of
your family, friends, and colleagues with the reach of technology to gather personal
testimonials and horror stories. Of course, trusting personal recommendations
predates the upswing in web-based technology, but as people become more
accustomed to connecting to their personal network online, this is where social
media become places for brands to intersect with consumers as they exchange these
personal recommendations in a way never available to them before.
Already some brands are using social media in an attempt to engage more deeply
and personally with their customers and establish an online relationship with
them. They are launching Facebook pages and Twitter feeds to keep interested
consumers up to date on product news, offerings, and discounts.
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On Facebook, paid media includes the paid display ads that appear on a user’s
home page along with the option to become a fan. The next type of advertising is
a homepage ad with social context, which includes the name of a network friend
who has already become a fan of the brand. This is a mix of paid and earned
media. Thus far, display advertising alone hasn’t been a huge money maker for
social networking sites. Low click-through rates caused social media revenue to
grow just 4% in 2009, despite exponential user growth, to $1.2 billion in the
United States, the largest market for social media ads.56
Finally, there are organic brand impressions. Organic impressions occur when
a friend “fans” a brand page or when a friend incorporates a brand mention or
a link to brand content in their status or wall. An organic impression shows up
in a user’s news feed, and the brand has no direct control over its appearance.
However, because these mentions now occur in the public space, companies
do have more awareness than ever of how consumers are responding to their
brand—either positively or negatively.
Facebook engaged Nielsen to measure the effectiveness of paid and earned media
and found significant increases in ad recall, brand awareness, and purchase intent
when advertising was combined with organic impressions. Ad recall and brand
awareness tripled—from 10% to 30% and from 4% to 13%, respectively—and
purchase intent quadrupled from 2% to 8%.57
The reach of social media is also combined with the ability to use basic profile
information—gender and age—to target ads. For Sony Entertainment, demographic
targeting helped them create a successful customer engagement campaign to
promote three movies in 2009.
The studio ran a series of ads on Facebook promoting three of its films
they had just featured in a traditional television campaign. District 9
was aimed at young men, Julie & Julia at middle-aged women and
The Ugly Truth at younger women. Awareness of the films was
measured after the TV ads had run and then again after the web ads
had run. Each time the online ads significantly boosted awareness.58
As suggested by the Nielsen study, the campaign was effective because it balanced
the reach of a paid social media ad with reach of another mass medium to drive
increased consumer participation and engagement.
What creates value for marketers is the ability to tie social media use with the use
of other media and with a wider set of consumer activities, particularly those that
create more organic impressions. The use of social media lends itself naturally to
behavioral targeting, using a consumer’s web searches and websites visited, to
deliver content, ads, and articles personalized for the user.
Mobile Advertising
The next area of focus for the next generation of advertisers is mobile. If
advertising goes where the consumer’s eyes go, it had better go mobile. And
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signs are pointing that direction. According to Informa Telecoms & Media, the
mobile advertising market was worth $2.3 billion in 2009 and will be worth more
than ten times that—$24.1 billion—in 2015.60 This exponential increase seems
reasonable given the current trajectory of mobile growth, with smartphone sales
increasing three times faster than PCs, according to Gartner.61 Morgan Stanley
is equally bullish, predicting that smartphone shipments will exceed those of
PCs by 2012.62
Industry guru Tomi Ahonen has declared that as the seventh mass medium,
mobile encompasses all the capabilities of print, recordings, cinema, radio, TV,
and the Internet, plus eight unique qualities that make mobile superior to them all.
1 Mobile is personal.
2 Mobile is permanently carried.
3 Mobile is always on.
4 Mobile has a built-in payment method.
5 Only mobile is always present at the creative impulse.
6 Mobile has the best audience measurement.
7 Only mobile captures the social context of
consumption.
8 Only mobile enables augmented reality (as a
consumer-oriented mass media device).63
Companies like Xtract are pulling this data from service provider networks to
help them track behaviors that indicate churn for customers and their social
communities as well as helping them monetize the mobile network with
targeted third-party advertising. Targeting and personalization are key promises
of mobile advertising. With mobile, you know where consumers live, where they
are, and some details about what they do—their social context.
As sellers gather more information about those who are buying and deliver targeted
messages that address a consumer’s needs and interests, the messages become part
of a relationship. Advertising will need to be more than an enticement to buy. It
needs to foster an ongoing customer engagement that builds brand loyalty.
The implications of profiling a user’s behavior on the mobile device are not
without challenges. However, consider this: In an Alcatel-Lucent study of 2,000
US consumers, over 50% indicated increased comfort of sharing sensitive profile
information (such as location, presence, and online behaviors) when made
available to their mobile provider. In fact, the mobile provider earned more
“trust” votes in this poll than people respondents knew personally.
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for agencies. Each has a different set of required players and processes. Who
are the media owners selling advertising inventory? With traditional media,
this is a much simpler question—TV networks, radio stations, newspapers,
etc. In mobile media, there is an ecosystem of “owners” who have the ability to
implement a mobile advertising solution. Mobile carriers, device manufacturers,
application developers, and mobile website owners are just a start. There are also
mobile ad networks that bring these players together.
There’s been a spate of acquisition in this space as the usual Web 2.0 suspects race to
position themselves. Google acquired AdMob, Apple acquired Quattro Wireless
to launch its iAd offer, and Microsoft has made noise about bidding for Millennial
Media. These mobile ad networks provide platforms for developing and serving
ads in mobile websites or applications, while providing a means for agencies and
brands to book and measure campaigns by cost per click or page view.
Google/AdMob
Winning approval from federal regulators in May 2010, Google immediately
announced mobile advertising plans sprouting from its $750 million acquisition
of AdMob. AdMob was one of the first companies to provide ads embedded in
mobile applications. Prior to the Google acquisition, AdMob had 9,000 mobile
websites and 3,000 applications and top advertisers like Diet Coke, MTV,
Disney, and Best Buy in its network. In the acquisition announcement, Google
also emphasized its continued focus on search, saying, “search advertising will
remain the central way that many businesses connect with consumers on mobile
devices.”66 Whether this is true given the passivity of waiting for consumers to
search and the increasing desire for interactive customer engagement on the part
of brands, Google owns search in the online ad space and would like to extend
that dominance to the mobile arena.
Millennial Media
Millennial Media is, as of this writing, one of the last independent mobile ad
networks. In March 2009, Millennial Media took over the #1 spot for impressions
from AdMob, reaching 80% of the nearly 67 million unique mobile users.67 All the
major media companies use Millennial, which has built its business without exclusive
ad agreements with the philosophy that publishers should use multiple ad networks.
Apple iAd
Announced in April 2010, Apple iAd was viewed as just another step in Apple’s
desire to control the customer’s experience of their brand from end to end within
their walled garden. This was borne out when, in June, Apple provided details
about the offer, including verbiage in developer’s terms that prevents third-
party advertising platforms from collecting the kind of user data that enhances
ad targeting—such as location information. This move in effect shuts out
competing platforms from Google, Microsoft, and others. While this is expected
to attract anti-trust attention from US regulators, Apple’s position as the #2
smartphone handset behind RIM’s BlackBerry will help them avoid trouble.
Another issue is the end of the unlimited data plan for new AT&T iPhone
subscribers, which means users will become more sensitive to the data consumed
by their applications. A user won’t want to pay for a free app by paying to receive
an ad or, worse, an eye-catching but data-hogging multimedia commercial. On
the plus side, the breadth of the Apple developer community has the ad industry
highly interested in what new ad formats and ideas are forthcoming.69
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advertising dollars went to paid search, and 35% went to display advertising.70
Today, advertisers who choose to promote their products and services via online
ad platforms may extend their dollars to include the mobile ad platforms as part
of their campaigns. Mobile users search using Wireless Application Protocol
(WAP) or mobile web browsers. Display ads appear on mobile websites or are
embedded in mobile applications.
Given the most common price for paid apps is 99 cents, in-app advertising is
the revenue stream for many hopeful app developers.71 However, like many
others who pinned their hopes on advertising dollars, very few apps get enough
downloads and enough repetitive use to generate real income. Many of those
that do come from companies with established brands on the mobile Web—like
ESPN and The Weather Channel, which offer news that draws frequent visits.
Right now, most of the 300,000+ applications from Apple represent more of an
ad inventory glut of unknown value.
Spanish car magazine Autofacil has used watermarking to revitalize its print product.72
All editorial and ad content is digitally watermarked, embedding a mobile, digital
experience into the magazine. Just point your phone at an image in the magazine and
be taken to video of a car, a website, or some other kind of information.
The available ad inventory for mobile advertising is the mobile customer base in
combination with the advertising options available on each device. For example, a
carrier might have one million customers, each with a device. Some of those devices are
smartphones. Most will not be. At the end of 2009, just 17% of mobile subscribers in
the United States carried a smartphone. If the advertising is geared for a smartphone—
that is applications for iPhone or Android devices—an advertiser is missing a huge
portion of the ad inventory. A basic mobile phone may offer text messaging and nothing
more. This endless diversity of devices and standards is one of the main challenges to
an industry-wide, standardized approach to mobile advertising, which would enable
effective execution of ad campaigns consistently across the customer base.
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This is one reason why industry watchers like Tomi Ahonen promote messaging
as the key mobile advertising option. Standards for interoperability are already
established. Another reason is that copying advertising options from other
media (paid search and display ads) is an incomplete strategy that doesn’t
provide the customer engagement possible with mobile media. Messaging offers
two-way communication with the customer that can be instantaneous or on the
customer’s own terms. Currently, some brands offer messaging-based marketing
directly to customers using opt-in codes that require a customer to pay to send
and receive messages from brands. This method is difficult to scale—scalability
being a benefit offered by ad agencies who allow brands to buy placement across
aggregated inventories.
Aggregation of the mobile messaging inventory is an entry point for the service
provider in the advertising value chain. By leveraging their relationship with
their customers, providers can incent the customer base to opt in for advertising
offers, allow them to set their interests and preferences, and make that inventory
available to advertisers. And, as was evidenced through the Alcatel-Lucent
study, the ability to send a variety of messages, including SMS, MMS, IM,
and email, to any device regardless of form factor also scored particularly well
among developers, further proving the power of messaging in mobile and other
environments. In April 2010, Alcatel-Lucent launched its Optism Mobile
Advertising offering, which goes a step further by providing a hosted solution to
aggregate ad inventory across multiple providers, while giving providers control
over what campaigns go out to their subscribers. On the agency side, Optism
offers the campaign booking tools that allow agencies to buy media; execute,
track, and tweak campaigns on the fly; and measure results.
them. Once they’ve asked a question, they get a response in less than 3 minutes
from one of ChaCha’s 55,000 guides, actual humans who research and log
answers for the service.
Advertisements, including targeted ads for users who’ve opted in, are pushed
to the user during the wait time. For example, ChaCha and a national movie
theater chain pushed location-based ads for an Indianapolis-area theater
showing Twilight Saga Eclipse to females aged 13–30 for a week prior to the
movie’s opening. The impact was a 23% uplift in ticket sales for the advertised
theater over the chain’s other local theater. The ad campaign won a Mobi award
for “Best Location-Based Mobile Campaign.”74
Desktop Mobile
Solitary Social
3+ hours 3 minutes
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Ad-based online video sites, such as Hulu, have thus far generated more press
than revenue. As reported in a March 2010 article in Advertising Age, offering
its network TV content for free to consumers has brought Hulu just enough
advertising revenue to cover the cost of delivering the service.
Second, Hulu has worked to improve its ad delivery with more targeted
advertising. Hulu profiles its users based on their viewing history and claims it
can tell with 99% certainty whether a viewer is male or female by looking at their
choice of content. Hulu plans to start personalizing ads by addressing users by
name. Targeted ads on Hulu, CEO Jason Kilar says, get a 10% response rate and
have made its ads 55% more effective than traditional channels. 80
Hulu’s primary source of revenue is still through advertising, though the exact
mix of ad and subscription revenue isn’t disclosed. CEO Kilar has said that
over 40% of revenue in the online video industry comes from advertising.81
The bottom line is: Pure ad-supported online and broadcast video content
as we know it is, according to Advertising Age, “increasingly becoming an
endangered species.” This doesn’t mean that ad-supported content goes away.
As long as consumers are still watching television, advertisers will continue to
be interested in supporting video content. However, the video entertainment
business model will be a mix of ad-supported and subscription-based, and
the nature of TV advertising must evolve with the times to become more
interactive and offer greater return.
Interactive TV Advertising
Attempts to create an interactive advertising experience on television are not
new. Thirty years ago, Warner Cable launched Qube, a two-way interactive
cable system in Columbus, Ohio. In the 1990s, other ventures including WebTV
and AOLTV came and went, failing because of bandwidth constraints. Today,
bandwidth-to-the-home has grown and network infrastructures are vastly more
equipped to handle two-way data flow.
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Entry points into the interactive ads can be presented to the viewer in
numerous ways, from a banner on a menu or pause/delete screen to interactive
tags inserted onto the screen while viewing, which prompt the viewer to click
a button to receive additional content. The ads can link to web content pulled
into a widget displayed on the screen or to rich media content like video on
demand with information about offers and discounts. As mentioned earlier,
using audio or video watermarking and fingerprinting, TV advertising can
also be merged with mobile. The ABC network tested the technology with its
now defunct show “My Generation,” embedding audio watermarks that would
trigger an iPad app to launch with additional content about characters and
storylines.83 The show failed, but ABC is looking to integrate the technology
into other shows and as an opportunity for brands.
Within the advertising applications, advertisers can also turn the television—
or mobile device—into a point of purchase, using the service provider as a
billing intermediary or having the customer link the loaded widget with an
Service providers offering triple play services also have the opportunity to
converge not only the customers’ services across multiple screens, but also
the touch points for advertisers, adding even further value in terms of reach,
measurement, and enrichment of the customer-brand relationship. Right
now, that is something no other player in the advertising ecosystem can offer,
but it’s up to providers to recognize and seize that advantage.
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are able to know more about a customer (in the way of preferences, location, and
presence, to name a few) will find themselves in an interesting position to potentially
monetize such information. However, there are a few pitfalls to acknowledge
before jumping head-first into what could be the shallow end of the pool:
> No one can control the customer; providers should not even aspire to
it. The customer must remain in control at all times. He controls who
has access to his profile and when such access is permitted. Attempting
to obfuscate or complicate in this realm will only serve to disassociate
providers from their market.
> Trust becomes the new currency of the relationship. The provider
that possesses the greatest amount of trust by the customer stands to
inherit the earth. Customers must have the option to opt in with full
transparency. Control empowers customers. In turn, they will empower
trusted providers with more information. This information, in turn,
can be parlayed to an advertising community willing and able to pay
dividends. However, it all starts with trust and can easily end the same
way if a provider fails the customer at any point in the cycle.
> Aggregators that enable advertisers to create an ad one time and have it
optimized and transmitted across any device (including TV, PC, and
mobile) will play a unique role in the value chain. Advertisers are eager
to eliminate the complexity within today’s fragmented media and device
markets. Providers that can address this need will tap into another part of
this evolving value chain.
The days of “spraying and praying” one’s advertising message across a slew of
channels, hoping to garner enough reach and frequency to move the revenue
needle (but with virtually no evidence to support one actually did) are quickly
coming to an end. Reach is being replaced with targeted impressions. Awareness
advertising is giving way to performance-based metrics. Critical network
capabilities, like presence, location, and profiling of end users, have a new role
to play in this game.
first with consumer trust. Users must remain in control of their profile at all
times—no exceptions. Providers that earn this trusted relationship will find
themselves in a unique position to monetize this information, while honoring
their customers’ interests. And, advertisers will finally be able to demonstrate
their ROI with clear performance metrics, not hypothetical estimations.
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part 3
the
consumer
2.0 influence
the shift
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VIDEO
chapter 8
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Maddening as it may be, the growth of alternatives for the eyes of the consumer
has dramatically shifted the landscape of entertainment. It started with music,
file sharing, and iPods, and now the consumer trend toward “when I want, how
ComScore reports that online video viewing grew 42% in 2008, about ten times
the growth rate of TV viewing.85 YouTube accounts for 26% of total time spent
watching online video, more time spent than on the rest of the top twenty-five
sites combined. However, most online video viewing, 52%, occurs on the scatter
of sites emerging in the long tail.
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Why is this?
1 Money – The plethora of free online video content. Nearly all network
television shows, and a small set of cable shows, are available for free
online. A 2009 Washington Post story mentioned one 23-year-old cord
cutter who said, “I wouldn’t say that watching TV online is about saving
money because it was never something that I expected to pay for in the first
place.”91 Even if not all shows are available during their TV run, viewers
can catch up on shows via iTunes, streaming from Netflix or Amazon.com,
and DVD releases. Some TV viewers also opt for over-the-air solutions,
including HDTV antennae.
The shift in video entertainment is about more than just cord cutting. It’s about
why these people are cutting the cord and what it says about the wider viewing
public, whether they’ve dropped TV service or not. TV service providers must
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deliver more flexible delivery options along with answering the money question
to create value—whether it means offering new services that beat cheaper
options or leaning on content providers to nix free because it may cannibalize
the revenue stream. The solution will probably entail both.
Of course, this issue is much bigger than the business relationship between
TV service providers and their customers. The business model for producing
television has remained relatively unchanged since the dawn of the soap opera
in the 1950s, and a vast web of corporations across different industries is built
to operate within that model, from production studios and networks to creative
unions to advertisers across the consumer landscape to Nielsen and its ratings
system. Shows launch in the fall, running roughly from September to May, and
go on hiatus for the summer when networks show re-runs.
The customary nine-month TV season has changed in recent years. And why?
Because cable networks, who relied more on subscription fees than ad revenue
and the TV calendar driven by it, began launching new series over the summer
and mid-season and gaining traction when network series were on hiatus. These
shows had shorter seasons (read: cost less), but had loyal fan bases. The writers
strike pushed the issue even further, as the declining appetite for repeats met the
softening economy in 2008. Advertisers widely praised networks’ willingness to
move to more year-round launches of new content and the resulting reduced
demand for them to purchase their entire ad inventory each spring at the
upfronts. (The upfronts are the networks’ annual unveiling of new shows where
networks pump up their fall schedules and sell their ad inventory upfront,
locking in income well ahead of time.)
Players on both sides are hesitant to walk away from the system that generates
billions of dollars in revenue for those involved. Networks like the idea of locking
in income well ahead of time. Buyers like securing better rates than they might
get later after a show is a hit. As challenged as various aspects of the business
model may be, as we’ll discuss, the main players are skeptical of alternatives. In
a recent article, Business Week explains their skepticism: “The makers of movies
and TV shows are attached to the billions they receive from cable companies
and are understandably reluctant to engage in grand experiments with upstarts
touting unproven business models.”93 But consumers don’t care about their
business models, and not only are they watching network content online, but
consuming more and more alternatively developed content that doesn’t pass
through Hollywood. In response, the networks are trying to find ways to absorb
alternative technologies and content into their system.
Once inside the studio system, “By Moms” went out the window in favor of
union writers. Submissions from viewers would continue, but authors of the
winning ideas wouldn’t get paid. Instead, viewers would get a screen credit. Story
ideas and writing for free didn’t make the Writers Guild of America (WGA) very
happy at all.
“‘This kind of call for submissions is not allowed for in the contract,’ says WGA
spokesman Neal Sacharow. ‘It’s not our goal to curtail experimentation, but
people who do the work should get paid for it.’ These kinds of submissions
deserve the WGA minimum, he added, which is roughly $7,000.”94
Producers certainly weren’t going to add the cost and headache of compensating
mothers across America and dealing with amateur contributors under union
rules. So the idea was scrapped. Gone was the one element that provided the
personalization that hooked women in the first place. Early low ratings killed the
series after just four episodes. Commenting on the demise of In the Motherhood,
Clay Shirky, new media consultant and teacher at New York University, said:
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One might just blame the writers union for its inflexibility. However, the union
is reacting to a system that is squeezing out scripted shows in favor of reality
TV and game shows, which employ limited stables of writers. Why pay a writer
when some viewers are just as interested in the things Snooki might say while
drunk in a Jersey Shore hot tub? The writers are in the position of having to
protect their role in the content creation process. User-generated online content
(i.e., YouTube) is another example of the traditional content producers being
squeezed. Clay Shirky brings up a YouTube hit:
Shirky was writing in April 2010. As of June, over 200 million people had
watched Charlie bite his brother’s finger. Ridiculous as it may seem, traditional
TV programming, even online, is competing for viewer attention with baby
Charlie, cats that play the piano, and endless Beyoncé wannabes singing
“Single Ladies.” At the end of 2009, GigaOM did a survey of online video
enthusiasts:96
The launch of In the Motherhood followed on the heels of the late 2007 writers
strike, which took original programming off the air for 100 days, knocked down
ad revenues, and left a bad taste in the mouth of everyone involved—writers,
actors, producers, and viewers. At the heart of the strike? Arguments over
distribution of profits from new media. Together, new media and reality TV
are generating anxiety for writers, as well as actors and directors who narrowly
avoided their own strikes. Part of the fallout from labor angst has been an
increased focus on surer bets. The studios have become highly risk averse, causing
a trickle down effect that has threatened agencies focused on lesser known talent
and offers TV and movie creators shorter leashes on budget and performance in
the ratings or at the box office.97
Once the anchors of a network’s offerings, the hour-long drama and the 30-minute
sitcom have been replaced on many nights by reality TV and game shows like
American Idol (Fox), The Biggest Loser (NBC), Survivor (CBS), and Dancing with
the Stars (ABC). Why? Money. You don’t have to pay for higher priced actors and
for writers to produce a season’s worth of scripts. It costs $3-5 million per episode
to produce an hour of primetime broadcast television, with some shows going
over $10 million for big-name talent.98 TV series are deficit financed, and turning
a profit requires producing enough episodes to get the series into syndication.
Today, series get a much shorter time to build an audience.
Cable networks have had some success offering up the traditional formats, like
the hour-long drama, profitably and with 25%–30% lower cost than equivalent
broadcast programming.99 First, and most importantly, they have subscriber
fees to supplement revenue. Second, they order a limited number of episodes,
which was initially done because they would be introduced for a shorter summer
season as an alternative to re-runs. It’s now par for the course. Third, they have
high international orders. For example, The New York Times reports that FX’s
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Damages is sinking in the ratings, but has international orders for $2 million
per episode. Lastly, for dramas that catch fire with a loyal audience, DVD sales
become a strong revenue source. Over the long haul, broadcast TV dramas are
generally more profitable—ironically because they get long-term revenue from
syndication to cable networks. But upfront, the risk and cost associated with
launching a show makes cable a safer bet.100 And syndication requires production
of at least 100 episodes, typically a five-season run.
In 2010, Hulu is expected to make more than $240 million—more than double
the $108 million it drew in 2009.101 Viewers and ad revenues have increased,
and as we mentioned in our chapter on advertising, Hulu also introduced more
personalized ads with improved targeting and user profiling. In addition, the
cost of serving ads has been distributed between Hulu and content partners, and
the mix of subscription fees has created a new business model that networks are
invested in developing. As Kit Eaton wrote in Fast Company:
“What the online video business does reveal is that Hulu is less
about delivering futuristic TV experiences for its users, and
more about being a money mill to generate cash for its TV
show producing lords and masters. It’s also a nice little system
that gives these content providers a claw-hold in future TV
delivery models.” 102
Hulu CEO, Jason Kilar, has said as much himself, reiterating that “Hulu, Hulu
Plus, and Netflix have all been consciously designed … not to be a substitute for pay
TV services” as they lack sports and other content.103 Embedding the Hulu Plus
application in consumer devices has also become a way for Hulu’s network owners
to get their piece of the connected TV and set-top box pie.
Broadcasters and content producers still look to subscription fees for substantial
revenue. NBC Universal’s TV arm relies heavily on its cable properties like
MSNBC, USA, and Bravo for income.104 Now, NBC itself and the other
broadcast networks are trying to get a piece of that action, which research firm
SNL Kagan estimates could be more than $1 billion this year and reach $2 billion
by 2014, which is still well below the $37.3 billion in fees basic cable networks
will get in 2014.105
Getting more money out of the TV service providers, however, isn’t a guarantee
and deals are often worked out on a provider-by-provider and region-by-region
basis. Squabbles over providers paying the fees to carry certain networks—
both broadcast and cable—have resulted in loss of access to TV content for
subscribers. For example, battles between Scripps and Cablevision in the
northeast resulted in 3 million homes in New York, New Jersey, and New
Hampshire losing the Food Network and HGTV. Eighty thousand viewers
complained to Cablevision, which has refused to re-open negotiations.106 So
who gets blamed? Everyone. And that only provides more reason to opt out of
the system (and their business model) altogether.
Assuming providers do pay the networks additional fees, in the end that cost will
be passed on to consumers, at least in part. How long can that continue given
the growing number of people who have already decided the price isn’t right, the
product isn’t worth it, and they have other options? Charging people more for a
product that is in essence the same certainly won’t help.
“In order to keep growing those fees, (networks) have to deliver some blockbuster
programming,” said SNL Kagan analyst Robin Flynn.107
In one sense, the analyst is correct. In fact, one of the caveats for many online
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So what is the way forward? This remains to be seen, but new players, driven by
applications development, will shape the future of video content delivery and
the nature of TV services.
boxes, Blu-ray players, gaming consoles, and other devices now in American living
rooms. Companies including Yahoo!, Netflix, and VUDU are already leveraging
that capability with apps embedded in devices that provide video streaming,
interactivity, and e-commerce directly to the TV with remote control navigation.
Yahoo!
Yahoo! was one of the first to get its platform integrated into consumer devices,
and, from its launch in mid-2009 to September 2010, Yahoo’s Connected TV
platform had shipped with 3.5 million TVs.110 Available widgets include social
media apps from Facebook, Twitter, and Flickr and streaming widgets from
Amazon, Blockbuster, and CinemaNow. Yahoo! is still exploring how it can
serve up advertising, which will be essential to its long-term survival. Another
downside for Yahoo! and others rolling out embedded TV applications is
fragmentation due to the number of providers and devices. For developers, this
means to get an application in the market there are numerous approvers—the
service or app store owner and each device manufacturer.
Netflix
The Netflix “Watch Instantly” service allows subscribers to stream content instantly
to their PCs as well as via set-top devices. Thus far, according to GigaOMPro, of
the Netflix users who have home broadband, one-third use the service exclusively
on their PCs, 8% view the content exclusively on their TVs and 24% use both their
PCs and TVs.111 The Netflix service, and others like it, combine the convenience
of online viewing with the preferred experience of TV viewing. This recipe lends
itself to exponential bandwidth demands of the underlying broadband networks
providing this instant viewing experience, with Netflix now accounting for 20% of the
downstream Internet traffic in the United States between 8:00 p.m. and 10:00 a.m.112
Further, there is evidence to support Netflix’s cannibalization of paid TV service,
with 37% of Netflix subscribers between the ages of 25 and 34 saying they use
Netflix instead of a paid TV service and 30% of its customers aged 18–24 stating
the same.113 Netflix announced in September 2010 that it would begin streaming a
new cache of movies from Epix, which owns the digital rights to Paramount, Lions
Gate, and MGM films.114 Netflix is paying $900 million over the next 5 years for
the privilege of including newer movies like “Iron Man 2” in its instant streaming
service. Part of the trade off for digital distribution is longer wait times for content,
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but it’s one Netflix is willing to make as it shifts away from physical distribution
models—a move that will allow Netflix to reduce or eliminate the $600 million the
company spends annually in postage.115
VUDU
VUDU is focused on delivering online video to the TV with a proprietary
encoding format optimized for screens over 40 inches and has numerous
deals with TV manufacturers, including Vizio, LG, Samsung, and Toshiba. Its
influence will only increase following its $100 million acquisition by Walmart
in February 2010. Backed by the world’s largest retailer, VUDU gains significant
leverage with device manufacturers.
Google TV
In May 2010, Google announced the “Google TV™” platform, which launched in
the fall of 2010, via a partnership with Intel and Sony. Consumers get Google TV
either in the form of a Logitech set-top box or embedded in Internet-enabled Sony
TVs. Google TV combines an Android-based embedded application platform,
a version of the Google Chrome™ browser, and a full version of the Adobe® Flash®
player. At the Google TV announcement, Sony Chief Executive Howard Stringer
also announced, “Sony was likely to gradually adopt Google’s software, which he
cited as more robust and comprehensive than the company’s own Bravia Internet
service, for its other Internet-connected TVs.”116
On one hand, Google’s offering is very similar to what’s already on the market.
On the other hand, it’s Google, and also on stage with the Google, Sony, and
Intel executives were executives from Best Buy, Dish Network, and Adobe.
Unlike the niche players that have popped up in this space, Google has the
influence to achieve what others couldn’t with regard to standardization and
ubiquity. Applications developed for Android mobile devices will also work on
the Google TV platform. Plus, Google already has a strong relationship with
advertisers via its online and mobile search properties.
What it doesn’t have are attractive TV content partnerships. The four major
networks—ABC, CBS, NBC, and Fox—have all refused to pony up their
content. Viacom has pulled access for its properties, including Comedy Central,
Nickelodeon, and MTV. Even Hulu, which has made its Hulu Plus content
available to other consumer devices, blocks Google TV users. 117
Industry analysts also point to the 10%–15% premium for the Blu-ray players and
TVs and lack of clear value proposition for Google’s trouble.118 Slow sales prompted
Sony to announce a $100 price cut for its newest Google TV the weekend after
Thanksgiving, the busiest, most important shopping days of the year.
Without content and viewers, it will be hard for the industry to capitalize on
the hope for Google’s entry into this space—its advertising advantage. One
Hollywood industry watcher promoting the promise of Google TV and updates
to the Apple TV platform asked:
The possibilities for Google TV will be wide open for development. Google is
releasing a developer toolkit for TV-based apps and a new version of the Android
Market in early 2011.120
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Apple TV
Announced by Apple CEO Steve Jobs in fall 2006, Apple TV didn’t meet
with nearly the same success as other recent Apple innovations. With Apple’s
latest Apple TV product, announced at the end of August 2010, the consumer
electronics leader hoped to change that. In addition to the reduced size and
reduced pricing, Apple also eliminated storage on the device. Instead, the box—
just one-quarter the size of its predecessor—streams content from the cloud and
the Internet (via iTunes, YouTube, and Netflix). The new Apple TV has built-in
Wi-Fi® for simpler integration into the home entertainment setup.
At the same time that Apple announced its new hardware, it announced the
availability of 99¢ TV show rentals for standard and HD content. The cheap
TV rentals are an iTunes offer that initially includes just Fox and Disney network
properties. Interestingly, Amazon.com immediately countered the same day with
its own 99¢ TV content, pitting its Video on Demand application on numerous
consumer platforms up against Apple’s walled garden approach. As one blogger
put it, “[T]his move from Amazon should make some consumers look closely at
their current equipment before dropping $99 on the new streamer. I count three
devices in my house with Amazon Video on demand.”121 In the first edition
of The Shift, we talked about the wide speculation around the next Apple TV
device, and in the end, the prognosticators who bet on leveraging cloud storage,
media portability, and a consumer-friendly price point won out.
One clue came from Jobs himself, speaking at the “All Things Digital” conference
in May 2010. Jobs described what he sees as a go-to-market problem with the
digital living room and the “subsidized business model that gives everyone a set-
top box for free or for $10/month.”122 He declared that this quells innovation and
results in a living room full of divergent set-top boxes, remotes, and user interfaces.
As Paul Sweeting at GigaOM Pro reported, “The only answer, according to Jobs,
is to ‘go back to square one and tear up the set-top box and redesign it from
scratch.’”123 Consumers don’t seem to be turning away from adding more boxes
to their TVs just yet—if it means getting the content they want. Although, as we
mentioned in our introduction, business models are ripe for change as long as
they require consumers to be living room network integrators/technicians just
to get their needs met.
Sweeting explains why a move toward a cloud-based media service makes sense:
Our own consumer research dovetails with the direction of the video innovators,
like Google, Apple, Netflix, and others. Consumers are willing to pay for seamless
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delivery of entertainment across all their devices with the same quality and
features they get when they are sitting on their couch. In addition, they want a
blend of traditional video content (TV, movies) with user-generated content—
from sources like YouTube or personal video content generated by themselves or
their social network.
Any provider of video services must be in the position to support a unified service
profile across the variety of media sources, which requires centralized identity
management, billing, and management of the user’s digital rights—not for
intellectual property but for video sharing between users in a social network. The
question is: Who is in the best position to provide profile management not only
for these services, but for the blended applications combining social networking,
gaming, and communications? Plus, in order to support any kind of ad-based
revenue, that profile information will need to be aggregated, so that some form of
targeting and ROI measurement can be provided to advertisers. We believe this is
where the service provider offers the strongest value. Our research of 1,000 online
video enthusiasts in North America shows that these consumers trust their service
providers—phone, Internet, and mobile—more than developers of over-the-top
offerings, and they are more likely to look to service providers for support. Cable
and IPTV companies are seeking better monetization of their video investment,
and regardless of how the industry shapes up, they should be active players.
will pay for enhanced services. Specifically, multiscreen services that allow
the seamless shifting of content from device to device and augmented
reality services that provide visual recognition of an object viewed through
a mobile device (such as a movie poster) and render a related multimedia
asset back to the user (such as a movie trailer) for action (such as ordering
the movie for delivery to the user’s TV set-top box or mobile device)
command high interest and willingness to pay from these consumers.
> These consumers are primed for higher quality video. Among the APIs
tested, QoS scored particularly well among this bandwidth-hungry audience.
> The business model matters. These users are more likely to prefer a
monthly fee plan versus pay-per-use or one-time fee options. To optimize
revenue, providers should offer services with nominal monthly fees.
> Like their Web 2.0 counterparts, these users are very tolerant of high-
frequency advertising as part of their service definition. Plus, they are
more likely to trust their service provider over their application developer
with sensitive profiling data. This is the one-two punch that puts a
service provider in a unique situation to augment lower subscription-
based fees with targeted advertising revenues for a segment acculturated
to advertising-based models.
The seismic shifts to the video business model make the abandonment of landline
phones look uneventful by comparison. Indeed, video has the potential to
simultaneously be the biggest disrupter and opportunity for stakeholders across this
ecosystem. To capitalize on the benefits, players must be willing to break ties with
conventional thinking and business models and embrace an increasingly tech-savvy
audience. Doing so could mean the difference between survival and extinction.
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SOCIAL
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networking
monetizing billions
of conversations
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The more pertinent conversation for our purposes, however, is about how
the rapid growth of social networking as a player in the Web 2.0 world can
be leveraged successfully to create business opportunities for the application-
enabled ecosystem. In our conversation, we’ll differentiate the terms social
networking and social media. Social networking is the activity and way of
communicating that people practice. Social media are the websites, applications,
etc.—including Facebook, MySpace, Twitter, and so on that are the forums for
social networking. Whatever we might think about the positive or negative
impact of particular social media, social networking as an activity and way of
communicating is already shifting Internet business models and opening up new
angles for marketers to increase customer engagement.
The rise of social networking as a practice has made social media a force in our
cultural, technological, and personal lives. Today, Facebook is the big climber,
consuming 7% of the world’s time spent online and becoming the fourth largest
site in terms of reach, behind only Google, Microsoft, and Yahoo!.126 There are
exceptions to Facebook’s dominance in a few countries. For example, in Brazil,
Facebook’s reach is just 20% compared with 72% for Orkut, Google’s social media
outfit, which failed to reach mass adoption in North America. 127 And while the
reach of the search and portal sites may be higher, Facebook and YouTube draw
much more of users’ time. For the first time ever, in August 2010 US web users
spent more time on Facebook than on Google.128 Overall, two out of every three
global web users visited a social networking site in December 2009.
Of these 18%, whom Gibs calls “socializers,” 26% agreed with the statement, “There
is too much information online,” versus 18% of portalists (viewers of customizable
portals and topic-specific sites, like CNET). Only 5% of searchers, who represented
37% of total respondents, agreed. Gibs offers a reason why social media may be a
preferred means of navigation and content discovery for a subset of web users.
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The idea that social media will overtake search, if not make it obsolete, is echoed by
the GigaOM Pro report, “Why Google Should Fear the Social Web,” which states:
This doesn’t mean that search goes away, but it does mean its dominance as a
source of information, such as product information used to make purchasing
decisions, may be challenged by content discovery mechanisms that provide a
guide to navigating the overwhelming volume of information online. As user
interaction with the Web becomes more mobile, this is particularly true and
has led to companies like ChaCha, a mobile service by design, but one that also
gets 20 million hits each month to the archive of answers on its website.132 Gibs
doesn’t provide a demographic breakdown of socializers, portalists, and searchers,
but some evidence suggests younger generations are more likely to be socializers.
person will ultimately receive. Today’s users crowdsource their information. And
what better crowd than their online networked community? I can search Google
for information about restaurants and hotels in Denver or I can ask my “tweeps”
or pose the question in my Facebook status. While it doesn’t offer a quick response
like Google, I trust my social network and its response to me is truly personal.
When Nielsen asked consumers which form of “advertising” they trusted:
Two key ideas emerge from the Nielsen data. First, objective recommendations
carry more significant weight. Social networking and media clearly facilitate
the ability to reach out for those recommendations and crowdsource buying
information. Second, the higher ranking for opt-in emails and the very high
ranking for brand websites suggest that information delivered directly from
the brands that is sought (by visiting the website) or asked for (through opt
in) garners trust from consumers. We discussed the impact of this fact in more
detail in our chapter on advertising. Permission-based marketing is the key to
gathering the consumer data needed for more targeted advertising that builds
stronger brand relationships without turning off consumers.
Microsoft and MIT surveyed some Microsoft employees and summer interns
on what questions they ask their social networks. Many of the questions involve
some kind of purchasing decision—product recommendations, buying options,
choices for dining out, and information about product use. Today’s search
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engine tools are expanding the visibility brands have into their social networking
mentions, which adds a unique wrinkle to the social networking privacy
debate, as we’ll see later. Consumer inquiries via social media are a marketing
opportunity for brands to create more responsive customer engagements. While
this is a sample that probably skews younger and more technologically engaged
than might be average, the results are still quite interesting.
Source: “What do people ask their social networks?” GigaOm.com blog post, February 22,
2010, http://gigaom.com/2010/02/22/what-do-people-ask-their-social-networks/
And at any rate, the flood of information on the web affects older web users
as well. As mentioned in the Baby Boomer chapter, this generation is under
As one blogger who believes Twitter will be the new search engine wrote:
“Search engines have no personality and don’t engage in conversation. It could
be considered an invasion of privacy if search engines used previous search
information. There’s no such expectation from public conversations.”135
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preferences. The next step for brands is to apply the knowledge they gain to deliver
targeted or even personalized advertising and marketing. As to be expected, targeted
marketing that takes advantage of the data that is collected on subscribers via social
media takes many hits in the press as consumer groups raise concerns about privacy
issues. Naysayers argue that people are not participating in social media to be sold
stuff—no matter how attractive what they do there may be to marketers.
Another problem arises when your social media updates aren’t just stored within
the walls of that application anymore. As one blogger predicted in December 2009:
The real trouble will start when Facebook starts sharing these
status updates with the search engines and other third parties.
… Up until now, Facebook alone has maintained control over
the vast majority of content uploaded to the site. Get rid of
it on Facebook, and it’s usually gone, at least from the prying
eyes of a stranger.136
Negative responses flooded the press in April 2010 when Facebook announced
that it has partnered with sites—Microsoft Docs.com, Pandora and Yelp—
on a new feature called “instant personalization” made possible through its
Open Graph programming interfaces. At the heart of the concern is perceived
consumer discomfort with unknown eyes on the Internet keeping track of
where you’ve been, what you’ve been doing, and making decisions about
what this means about you in order to “personalize” your web experience. In
the case of Facebook and its partners, this means delivering content such as
articles and ads that are tied in with aspects of your Facebook profile. Have
you fanned your favorite band’s Facebook page? That’s the music that shows
up on the Pandora home page when you visit the site.
But how sensitive are people to privacy concerns over commercial “intrusion”
into their social networks? The answer is somewhat TBD. While studies show
> Taking steps to limit personal information available online – 44% of young
adults say they do this, compared with 33% of adults aged 30–49, 25% of
those aged 50–64, and 20% of those aged 65 and older
> Changing privacy settings – 71% of social media users aged 18–29 have
changed the default privacy settings on their profile to limit personal
information versus 55% of users aged 50–64
> Deleting unwanted comments – 47% of social media users aged 18–29
have deleted comments that others have made on their profile versus 29%
of those aged 30–49 and 26% of those aged 50–64
> Removing their name from photos – 41% of social media users aged
18–29 say they have removed tags to identify them in photos versus just
24% of users aged 30–49 and only 18% of those aged 50–64137
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So therein lies the conundrum: Even though studies point to how effective
targeted ads are and how much consumers prefer them, consumers are nervous
about exposing their information in order to make that possible. They, as we
say repeatedly, want control over their options and transparency from those
providing the services. Consumer education about how information is gathered
and used also contributes to the openness that can reduce fears and prompt
consumers to embrace the benefits of targeting that they themselves recognize—
establishing a relationship they have with brands they like and trust.
Much of the anger directed at Facebook, and there’s been plenty, is over
how often the site changes its privacy policies, how veiled these changes
seem to be, and how flippant Facebook leadership has been in the past when
answering questions about user privacy. This has led to a lack of consumer
trust in social media and in online advertisers. Facebook has responded by
rolling out “simpler” privacy controls in June 2010, complete with a new
privacy guide and video tutorials to help users gain the control they want.
The social media world has responded by offering up new “un-Facebook”
sites that work on an opt-in rather than an opt-out basis, such as Diaspora, a
“privacy aware, personally controlled, do-it-all, open source social network”
founded by students at New York University, and Pip.io, a “self-described
‘social operating system.’”139, 140
Our research across 2,000 US Web 2.0 consumers reveals a similar story.
with location information for consumers aged 30–44 (42% vs. 55%) and for
urban consumers (44% vs. 53%). Bo.th groups showed a strong preference
for being able to determine when they were sharing where they are.
In the end, the question always comes back to value. Consumers like having
messages and services targeted to them and enjoy the benefits of sharing information
to connect with others; providers and application developers can monetize those
preferences if they provide access control to mitigate privacy concerns.
… Presence
Another outcome of our consumer research was the importance of presence
to social networkers. As a single network API, presence was the most popular
capability as indicated by our respondents. Not only were consumers most
willing to share their presence, but they were most interested in applications
that gathered presence information from friends in their network. Of the
applications we tested, social networkers were very interested in an advanced
friend finder application, which would allow a user to contact friends on their
most accessible devices and know when they are in close proximity to a favorite
location where they can meet. The friend finder application also includes some
location-based information.
… Location
As we mentioned in our developer chapter, using a site like Foursquare, you can
become the Mayor of your favorite Thai restaurant or the Starbucks closest to
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your house. Tie that together with Facebook or Twitter or use Facebook’s Places
feature, and now your network has just seen your personal recommendation and
is prompted to check out that business. And, advertisers are keen to jump on
board with enhanced business models that also provide value for consumers via
offer notifications, coupons, etc. delivered to the mobile device as a reward for
customer loyalty or referrals.
… Gaming
Social media gaming has become a big business and changed industry ideas
about gamers. Who is the average social gamer today? A 43-year-old working
mom (48 in the United States), not a teenage boy living in his parents’
basement as one might expect. Women make up 55% of social gamers in the
United States and almost 60% in the United Kingdom, most often playing
with their friends. They are among the most avid social gamers with “38% of
female social gamers saying they play social games several times a day, vs. just
29% of males.”141 Much of this is due to social networking games like Mafia
Wars, Farmville, and Happy Aquarium.
Social gamers skew older and more female because the games are simpler to play
without additional equipment over shorter time periods. They are mostly free
and don’t involve the intricacies and violence of traditional gaming. Working
moms don’t have hours to spend to get to the next level of a game with a headset
and special controllers. They also have less interest playing against strangers
online and more interest playing with friends in their social network. Social
networking plus gaming has created applications of universal appeal, opening
the lucrative gaming market to new users.
We’ll discuss social gaming in more detail in our next chapter where we will
show more examples of how the two worlds of social networking and gaming
are increasingly colliding.
> These users are interested in obtaining more information about their
social circle, including the presence, location, and preferences of their
friends. However, they are less comfortable sharing such information
about themselves. Herein lies the very interesting paradox that makes
tapping into these social networkers so challenging.
> Providers should never underestimate the importance of privacy. Privacy
must be opt-in and temporal. That is, consumers must remain in full
control of who has access to their information and when that access is
granted. Consumers must remain in the driver’s seat and the roadmap must
be clear and conspicuous. Providers choosing to bury their privacy policy
in an onerous licensing agreement will pay the ultimate price—lost trust
among these consumers. Privacy settings must be simple, transparent, and
fully controlled by the consumer. Anything short is unacceptable.
> Social networkers are the most price-sensitive of all groups tested
(including gamers, connected parents, and online video enthusiasts).
That said, they are still willing to pay for certain capabilities, including
presence, location, and profiling.
> The business model matters. Providers seeking to optimize revenues
among this price-sensitive base should offer the features on a per-use
basis. Monthly and one-time fees are less attractive to this audience.
Instead, providers should let this price-sensitive audience ease into a
commitment by offering services for a nominal per-use fee.
> For this segment, it is all about trust. And, the good news for network
providers is that these respondents are more likely to trust their operator
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Perhaps the best reflection of this new era of social engagement comes from
our focus group respondents who were self-professed experts on the topic. For
them, social networking is a chance to connect with others on their time, an
opportunity to maintain friendships when traditional modes of communication
fail and a chance to be at the center of their virtual world. They want access to
the most sensitive details of their friends’ lives but are uncomfortable sharing
such information about themselves. They are simultaneously voyeurs and
exhibitionists, friends and narcissists. Perhaps these multiple layers are what
make this segment so difficult to target. But, players who are willing to embrace
this complexity stand to monetize a growing army of hundreds of millions. Isn’t
that potential worth the challenge?
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gaming
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not a spectator
sport
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But increasingly, it’s not just hardcore gamers bringing in the money. The
assumption about gamers is that they are all pale, teen-aged boys living in their
parents’ basements and playing video games with their friends. In truth, gaming
has actually expanded beyond what people expect. Yes, teen-aged boys are big into
gaming. Gaming has, for some in that demographic, replaced TV watching as the
all-time entertainment pastime. However, yesterday’s teen-aged boys are today’s
grown Millennial and Gen X men who are still gaming and for whom video
games are a central part of family time. Women are gaming more than ever on the
Nintendo® Wii® and via social media. Younger kids of both sexes are gaming—
through consoles at home, their computers and, increasingly, on mobile phones.
At the Mobile Marketing Forum in New York in June 2010, Elizabeth Harz, senior vice
president for global media sales at gaming company Electronic Arts, delivered a keynote
address and shared some demographic information about the gaming community:
Ages % of gamers
12–17 7%
18–24 18%
25–34 24%
35–44 22%
45–54 13%
55–65 6%
Home video gaming gained widespread popularity in the United States with the
Atari 2600, introduced in 1977. Atari became synonymous with home video
games and sold 30 million units.143 It was overtaken long ago by gaming consoles
like Sega Genesis and the early Nintendo systems. By 2000, the US video game
market—portable and console hardware, software, and accessories—was nearly
$8 billion. At the end of 2009, it reached $19.66 billion, down 8% over 2008 in a
softening economy that saw people cutting back on discretionary spending. Still,
the industry had record-breaking sales in December, suggesting people put off their
purchases until the holiday season. The other uptick in the sector was a 6% increase
in revenue from portable hardware. That increase for portable gaming devices is
set against the largest decline of the year—home console hardware, down 13%.144
Growth in the gaming market has not only included increases in sales, but
new means of distribution—including online gaming. In 2009, 20% of games
were digitally downloaded and 54% of gamers reported that they played games
online. Consumer market research company The NPD Group, who conducted
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the survey, also found that online gamers’ purchasing habits remained steady
throughout the economic downturn. Mobile gaming is also taking hold,
according to analyst Anita Frazier:
Many of the games in the App Store are under $10 versus $25–$40 for a portable
console game. Part of this difference is the result of different markets. Console
games typically appeal to more hardcore gamers who play development- and
graphic-intense games—like Call of Duty, The Sims and World of Warcraft. Much
of the App Store games are simpler and aimed at the casual gamer market—
think Words with Friends. While mobile gaming doesn’t replace the experience
of a home gaming system on a large-screen HDTV, the iPhone and iPod Touch
certainly challenge the portable console gaming devices with their unique
interface, multipurpose functionality, and instant wireless access to over 21,000
games and counting. The iPod Touch is a key platform, not just the iPhone.
According to AdMob, 78% of iPod Touch users are under 25 and 65% of users
are under 17. The average age of an iPod Touch user is 23, and they download
and use more applications than users of the other platforms.147
Average Age 37 23 35
% under 17 25 65 24
In our chapter on video, we mentioned the speculation in early 2010 about the
next version of Apple TV. Many expected that it would be a small device like
an “iPhone without a screen” that offered living room access to media content
stored in the cloud as well as to the App Store. Some thought the platform might
include games, since Apple didn’t—and still doesn’t—have a play in the gaming
console business.148 The thought was that cloud computing would offer benefits
not only for online video, but also for gaming. One analyst wrote about the
“glaring opportunity” offered in such a scenario by gaming. The market exists
for new kinds of scaled-down devices that can serve as gaming consoles as well
as access devices for online video. With the use of cloud computing, upgrading a
computer wouldn’t mean possibly losing your games, and users could access their
gaming data from anywhere, on any device. The hardware will be less important.
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against each other. … We are going to be moving to an era when different software
stores fight against each other.”149
New Customers
The casual gaming market should not be overlooked. While serious gamers
make significant investments in hardware and accessories, the casual gamer keeps
things much simpler—and cheaper. Gaming companies—Sony, Nintendo,
and Microsoft—have focused primarily on the hardcore segment, often to the
exclusion of the gamer who doesn’t want to dedicate hours upon hours with
a headset and complex controller to reach the next level of a game. Nintendo
broke away somewhat with the introduction of the Wii in 2006. Wii provides
easier-to-learn games with a less complicated interface, but the graphic intensity,
complexity of development, and price tag for games are the same. Microsoft
comes at its competition with iPhone from within the smartphone arena. There
are games for Windows Mobile®, but Windows® phones are currently marketed as
more business-oriented. However, this doesn’t preclude Microsoft from getting
more serious about the mobile gaming space as they see the market potential.
per day with the applications. In terms of reach, that places the size of this
audience somewhere between NBC’s Sunday Night Football and ABC’s
Dancing with the Stars and only 4 million pairs of eyeballs shy of the top show in
American primetime television, Fox’s American Idol.151
Game Developer Research reports that the economic downturn led to layoffs in
the gaming industry, resulting in an uptick of independent gaming developers
and developers working for smaller companies. Development cost matters. And
since developers surveyed in the report listed ease of development and market
penetration as the key factors in deciding which platforms to use, creating games
for app stores would be appealing. Plus, any programmer can develop an App
Store game by buying the $99 developer kit and doing the work. Developers for
Nintendo and Microsoft Mobile 7 must be approved in advance. While the price
points and competition make it a competitive business, the ease of entry is still
very attractive.
The study also revealed that support for mobile more than doubled in 2009, up
to 25% from 12% in 2008. By comparison, 41% developed for console games.
Nearly 75% of those supporting mobile said they are targeting iPhone and iPod
Touch development—more than double those who said they support Nintendo
DS and Sony PSP. Over 70% of developers said they were developing games for
PC or Mac, including browser and social games.152
In the spring of 2009, Sony proclaimed that the iPhone market is a “separate”
business from the portable Sony PSP and no threat. Sony Senior Vice President
of Marketing, Peter Dille, followed up with this:
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This declaration was either bluster or bluff and probably the latter. Just a few
months later, Sony introduced the PSP Minis, which one blogger described as
“a line of low-price, small-scale video games aimed at the upcoming PSP Go
handheld. The list of planned games, including Air Hockey, Bowling, and Pac-
Man Championship Edition, sound a lot like what you’d find in the iPhone’s App
Store.”153 Although Sony insists it isn’t in competition with smartphones, the
move clearly illustrates an intention to capture customers who have less than 20
hours to spend mastering a game.
In addition to having less time than the hardcore gamer, casual gamers are also
interested in less violent, more family-oriented games—a key target for the
Nintendo Wii. As a result, the Wii has become the dominant gaming platform
for women. President of Nintendo America, Reggie Fils-Aime, presented a
breakdown of console gaming in the United States in November 2009. There
are 45 million players of which 26% are female, just under 12 million. Of those
women, 80% are on the Nintendo Wii, 11% are on the Microsoft Xbox 360® and
9% are on the Sony PlayStation 3®.154
Social Gaming
Gamers are a social breed. In fact, Alcatel-Lucent focus group research reveals
that gamers are the most socially active of any of their Web 2.0 counterparts,
including social networkers. Gamers love their friends more than they hate their
enemies. For them, the experience is more than the thrill of gaming itself; it’s
about connecting with others who share the same passion.
When asked how gaming compares to social networking, our focus group
respondents were clear: there is no comparison. For them, social networking is
a more superficial view of relationships. Gaming is where true connections are
formed. That said, many in the group agreed that there is an intersection where
these two activities collide quite naturally.
In fact, our gamers perceived their avatars as an extension of their physical selves
when discussing certain network capabilities, such as profiling. For other focus
With the rapid growth of social networks, developers have moved to sites like
Facebook and MySpace to expand social gaming, which has had a dramatic
impact on the number of people gaming and has diversified the gaming audience.
Michael Dowling, CEO of Interpret, a new media research company, described
the phenomenon in his blog, SkipLogik. He talked about tracking gaming in a
variety of media every quarter for the past 3 years without much change in the
size of the gaming audience. Then came a 28% increase in late 2008, which his
researchers initially thought was an error.
After several late nights, much analysis, and the harried nerves
of our analysts, we determined the data was correct. Over
the following quarters, video gaming in the United States
held at those higher numbers. The Wii had been in the market
since December 2007, so we attributed some of that growth
to it. But, another interesting trend was emerging that was
slowly proving to be a major factor in expanding the gaming
audience—social networking. From Q3 of 2008 to Q3 of 2009,
the video gaming audience increased 28%; over the same time
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Again, as with the Wii, social gaming has high appeal with women. PopCap,
a maker of social games, did a survey to profile social gamers. The result? The
average social gamer in the United States is a 48-year-old woman.157
> Two-thirds of social gamers also play other video games, including both
casual and hardcore games.
> 39% of their time is devoted to social games, 31% to casual games, and
30% to hardcore games
> 52% access games on the computer, 22% on a console game system, 14%
on a handheld gaming device, 12% on mobile phones
> 36% play several times per day, 32% once a day, 28% 2–3 times per week,
and 4% once a week or less
Social gaming requires less time, no special equipment, and allows users to
connect socially with their friends within the context of the game. Friends
will water your virtual crops while you’re on real vacation or lend you money
to buy weapons. “With more than 80% of social gamers stating that playing
social games strengthens their relationship with friends, family and colleagues,
social gaming reinforces the core appeal of social networks,” said Robin Boyar of
Thinktank Research, commenting on the PopCap study.158
For many, it’s Facebook that reminds them it’s their friend’s birthday on Thursday
or tells them their cousin just got a new job or broke up with her boyfriend.
Within this virtual social context, a user can send virtual drinks, flowers, and
birthday cake to their friends. There’s no reason those virtual gifts couldn’t be real
money or coupons earned through playing games online, viewing advertising, or
just buying credits. In fact, in assessing the attractiveness of several new gaming
applications among 1,000 hard-core gamers in North America, the clear winner
involved rewarding gamers for virtual achievements with physical coupons and
Farmville won the first “Best New Social/Online Game” Choice Award at the
GDC in April. In an interview at the conference, the game’s general manager,
Bill Mooney, made a plug for Zynga as a developer-friendly environment:
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Web 2.0 world. We tested several new gaming services with active gamers, who self-
identified as playing at least two massively multiplayer online role-playing games
(MMORPGs) for at least 7 hours per week. Each service combined gaming with
a varying mashup of network APIs—presence, storage, and QoS. We asked about
user preferences as well as how much they would pay for the various services. The
outcome revealed gamers’ favorite APIs and their relative willingness to pay.
How this data would translate for casual gamers is unclear. Many games in the
App Store and on social networking sites are free. Would they follow the pattern
of online video and social networking and have a reduced willingness to pay?
Possibly. There’s the “freemium” market where gamers play for free and then pay to
have additional advantages within a game, which may appeal to competitive casual
gamers. One other potential opportunity to head off reduced willingness to pay is
to take advantage of the mashup that gamers liked the most—game-play rewards.
A provider of gaming services could offer brands the opportunity to promote
products via coupons and credits for online purchases. In application stores,
branded games that tie into larger marketing campaigns for music, movies, food
service, etc. are another option. Think: a new kid’s movie that has merchandising
tie-ins can offer a free game where kids can play to earn sneak previews of additional
content or credits toward online purchases. A viral marketing campaign might also
give them extra benefits for inviting friends to download the game.
Another opportunity lies in building services using the clear favorite API for
gamers: presence. Given the increasingly social nature of gaming, it makes sense
that gamers would value an asset that helps them know when their friends are
available and connect in real time. The greatest opportunities are in blending
all of a provider’s assets to enhance the increasingly social and mobile aspects of
gaming, such as allowing users access to their services from anywhere through
network- or cloud-based services. Gamers, like the other Web 2.0 consumer
groups we tested, are willing to pay more for more robust services. In this case,
bundling multiple APIs together into one massive mashup, or service definition,
increases willingness to pay as much as 34%. The more powerful the service, the
greater a gamer’s willingness to pay.
For gamers, high-dollar (in the form of a much higher willingness to pay) does
not translate to high-maintenance for a network provider. Specifically, when
asked whom they would be most likely to initially contact for assistance in the
event their favorite gaming application was not working, far fewer gamers were
likely to turn to their service provider as their first response. Specifically, only
35% of gamers were likely to pursue their network operator, compared with 63%
of parents, 48% of online video enthusiasts, and 44% of social networkers. The
support channels gamers prefer reflect their online sophistication, with gamers
much more likely to engage in online forums than their Web 2.0 counterparts.
> Have a much higher willingness to pay for services enhanced with
network-based capabilities, such as presence, QoS, and storage (compared
with social networkers, online video enthusiasts, and connected parents)
> Are more likely to pursue other channels for support in the event their
favorite application is not working, making them a lower-maintenance
segment to service (compared with the groups mentioned above)
> Have no clear preference for a billing model (such as a monthly or per-
use fee for an application) but do have a clear aversion to one-time fees.
That is, based on take rates, service providers are better served avoiding
one-time fees when targeting the gamer segment as potential revenue is
sub-optimized with this approach.
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Gamers have grown up from the Atari generation of the 1980s. This is no longer
an activity for the socially isolated. In fact, gamers are among the most socially
connected 2.0 enthusiasts we examined in our research. They have a passion
for their pastime and a willingness to pay for their addiction. They are also
more sophisticated in caring for their support needs. Finally, their acceptance
of advertising that does not disrupt the gaming experience creates yet another
revenue stream to tap into this lucrative market. If you’re not servicing gamers,
perhaps it’s time to get off the sidelines.
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part 4
the
enterprise
2.0 imperative
the shift
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small
chapter 11
business
The American dream
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A separate poll by the Pew Research Center conducted among 2,500 American
adults in March of 2010 found that small businesses outranked the media,
corporations, and government in their contribution to society. More than 70%
of respondents said small businesses positively affect society. Surprisingly, this
was the highest figure of any entity assessed, even churches and synagogues,
which earned favorable ratings from only 63% of respondents in comparison.162
Indeed, these surveys support that small business is no small wonder, surpassing
Uncle Sam, big business, and even organized religion in its societal impact and favor.
Maybe that’s because small businesses represent more than 99% of all US employers
and have created 64% of all new jobs in the past 15 years according to the US Small
Business Administration, which defines a small business as one employing 250 or
fewer employees. (In Europe, that job creation figure has been as high as 80% in
recent years).164 In 2010, Intuit’s Small Business Employment Index reported that
small businesses in the United States generated 49,000 new jobs, up 3% over 2009.165
Indeed, small business is the American dream, with 61% of Americans indicating
they would prefer self-employment to working for someone else, a higher share than
in 25 European countries, according to the EU Flash Eurobarometer.166
And, lest you believe that the impact of small business is relegated exclusively
within the confines of the US border, the US Commercial Service, which helps US
companies expand internationally, reported that 23% of its clients exported for the
first time, entered a new market, or increased their international penetration in 2009.
That represents a 3% increase over 2008.167 In fact, confidence in small business is
even stronger overseas, with 66% of European CEOs saying small business will
be the primary source of job creation in their countries through 2011 (compared
with 40% of US CEOs), according to a recent NYSE Euronext CEO Report. For
CEOs in the rest of the world, the figure was 44%. In all cases, CEOs across the
globe predicted more job growth from small business than from the government,
public companies, or new ventures in their countries.168 Perhaps these bullish
estimates reflect the point that small business is a pivotal growth element in any
economy. In fact, for all the optimism that Americans have toward small business,
it may surprise you to learn that small business currently accounts for less of the
total economic activity in the United States than in many European nations. In
fact, the Organization for Economic Cooperation and Development (OECD)
reported that in 2008, the self-employment rate in 25 European countries was
higher than in the United States and was lower only in Luxembourg.169
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Small business is not small potatoes in the telecommunications world either. Compass
Intelligence estimates Information/Communications Technology (ICT) spend of
businesses with 5–99 employees to reach nearly $280 billion by 2012.170 Despite the
opportunities, this audience has been a challenge to providers attempting to cash in.
Indeed, small businesses suffer the proverbial middle child syndrome, sandwiched
between the behemoths of mass-market consumers on one end and large corporations
on the other. There are too many of them to be treated as a custom market with
the same costly go-to-market tactics, such as face-to-face and dedicated account
management options, typically offered to large enterprises. And, they are too complex
in their buying needs to be treated with the same one-size-fits-all packaging and media
options, typically more common in mass consumer markets.
In yet another study, Travelers polled 101 small business owners in May of
2010 at the US Chamber of Commerce America’s Small Business Summit in
Washington, DC. Respondents were asked to rank their top priorities from a
list of seven, including managing cash flow, attracting financing, and acquiring
talent. Interestingly, marketing and sales surfaced as the top priority among the
seven, outperforming critical financial drivers in the race.172 As this evidence
supports, current recessionary times place a priority on growing topline revenues
among these small business owners.
Our data found the same. We asked respondents to indicate their top three
factors that drive decision-making from a list of ten possibilities. Creating
revenue streams and increasing customer satisfaction scored in the top three,
cited by 44% and 37% of respondents, respectively. In fact, only reducing overall
operational expenses scored better, selected by 50% of respondents.
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First, though this audience will increase its willingness to pay for bundled
network capabilities, their appetite is less than that of their survey counterparts.
Specifically, services consisting of bundled network capabilities garner about
5%–20% more revenue than those represented by single functionality. This
range is significantly lower than that seen from the other survey groups above.
Second, bundling represents increased revenue potential but there is a law of diminishing
returns at play. After this revenue-maximizing point, the inclusion of more features or
functionality begins to decrease willingness to pay in some cases. It’s almost as if this
audience is unafraid of saying when enough is enough. Too many features and too
much functionality begin to erode value of the service. Inserting more complication in
the system sub-optimizes willingness to pay. For this audience, the addition of weaker
performing APIs (as measured by functionality within a service definition) brings
down the value of the overall bundle. For this audience, less can be more. Hence, they
are a visible representation of the now popularized tenet, “Keep it Simple, Stupid.”
First, when it comes to interest and willingness to pay, the size of the firm has
something to do with how network features and functionality are evaluated. For
these network capabilities, smaller firms (those with 19 or fewer employees) tend
to have lower willingness to pay than their mid-sized counterparts (those with
20–99 employees)—when compared on a revenue-per-employee basis. While
revenue potential may differ, the attraction to particular network capabilities is
similar, regardless of firm size. That is, small and medium-sized enterprises were
equally drawn to QoS capabilities (including the abilities to temporarily boost
bandwidth or diagnose how an application is performing across the network)
and presence APIs (including the abilities to click to connect with or send
messages to multiple individuals based on the devices they are currently using).
This first point is true when considering the stickiness, or retention factor,
of a service. In a finite market, churn is the enemy. For every subscriber that
deactivates service, a provider may spend up to six times the expense to attract
a new customer to take the former’s place. It’s no wonder that retention and
loyalty are critical measures in this space. Again, we find that both increase with
the size of the organization. In short, offering advanced network capabilities
generates incremental revenues for providers by attracting new customers and
retaining existing ones, and both opportunities are positively correlated as the
employee size of the customer’s enterprise increases.
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We once again put security to the test among this audience. The findings were a
bit surprising. When pitting security (as expressed by services being offered over
a secure network) against five competing value-added options, it rivaled the most
comprehensive support package in attracting respondents’ interest and increasing
their willingness to pay. This point bears repeating. In a fragmented market
where dedicated account support is all but non-existent, the mere presence of a
service traversing a secure network alone rivaled a very expensive support package
inclusive of localized account management and a live IT help desk. If this point
does not put the security threat in perspective, we’re not sure what would.
Won’t Be Fooled
Finally, these entrepreneurs demonstrate what makes them savvy businesspeople
in the first place: they are open to a good deal. And, in a market where advertising
can subsidize the cost of a service, these decision makers are eager to trade their
attention (and even that of their employees) for money back in their wallet. We
asked respondents how likely they would be to subscribe to a service that was
discounted over a period of time in exchange for a set number of advertisement
exposures to their employee base. Among the findings were the following:
> Indefinite discounts of 20% off the cost of a service attracted more than enough
incremental respondents to justify the cost of the discount. In this case, a
provider can neutralize the discounted revenue per respondent by making it up
in volume with incremental demand. Note that this analysis does not even factor
in the incremental advertising dollars afforded a provider under this approach.
> This was a case where size did not matter. All firms in the sample were
amenable to advertising as an option to subsidize their communications costs.
> In cases of more attractive ad formats tested (such as video, for example),
the 20% discount in exchange for advertising could be as little as 6 months,
showing that preferential ad formats require less of a discount period to
attract buyers.
The tenets for providers and developers looking to tap into this space are
straightforward:
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These arguments point to an interesting and practical course for service providers.
A market where fragmentation was once their most significant challenge can
now be their biggest opportunity in an application-enabled world. With small
and medium-sized businesses ready and willing to participate, let’s turn our
attention to another hot topic in today’s headlines: the healthcare segment.
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health-
chapter 12
care
high stakes
higher rewards
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Whether ICT enables preventative care, allows clinicians to spend more time
with patients, or bridges geographic boundaries separating medical experts, its
significance in this game has never been greater. As the United States seeks to
insure tens of millions more Americans without breaking the bank in the process,
efficiencies in this sector take on new meaning. And, as we will prove, ICT has
an important role to play in this story. Healthcare is extremely complex. But, its
passion is straightforward. Caregivers enter the field with the noble intentions of
curing the sick and saving lives. The Hippocratic Oath becomes the compass by
which new technologies and enablers may be measured. With patient care as the
desired outcome, access to funding and talent are imperatives. Let’s examine the
role of ICT in transforming this critical field—all while supporting its noblest
of intentions. Later, we will cover how healthcare decision makers evaluated
Application Enablement in an environment where seconds can literally mean
the difference between life and death.
“Meaningful use.” The seemingly innocuous phrase stepped into the limelight
shortly after President Obama—2 weeks prior to taking his elected position
in January 2009—prophetically proclaimed, “We will make the immediate
investments necessary to ensure that within 5 years, all of America’s medical records
are computerized.” Shortly thereafter, the American Recovery and Reinvestment
Act was approved, and with it some $36 billion in funding to make this ambition
a reality. True to a classic behavioral modification model, the plan uses a carrot
and stick approach. Financial incentives are available for those practitioners and
sites jumping on board quickly. Likewise, those who have failed to adhere by
2015 will find their Medicare reimbursement payments adversely affected. The
set of criteria to measure compliance is extensive. To demonstrate “meaningful
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use” of electronic health records, doctors and hospitals must meet 15 and 14 core
objectives, respectively. Among some of these, doctors would need to provide
patients with an electronic copy of their health information on request. Doctors
and hospitals would need to demonstrate that they can “electronically exchange
key clinical information.” And, since dollars and cents are at play, this new standard
of electronic health certainly has the attention of the medical community.
At the heart of meaningful use is the electronic health record (EHR). Today,
most hospitals and healthcare practitioners wade through a sea of paperwork,
much of which must be maintained and secured for several years under current
regulations. A patient with multiple practitioners and a lifelong history of
medical visits often finds himself the subject of fragmented recordkeeping.
Caregivers requiring the efficient exchange of patient information—particularly
for complex cases—must frequently rely upon archaic search and retrieval
capabilities inherent in paper-based systems. For example, a recent study by
Jackson Healthcare across nearly 2,500 nurses found that only one-quarter of
a 12-hour shift is spent on patient care, with the vast majority of the nurse’s
remaining time being consumed by paperwork activities.176 Digitizing patient
information and making it accessible across clinician and hospital boundaries
addresses this challenge and optimizes patient care.
> Achieved $9.3 million in benefits associated with reduced lengths of stay
and decreased adverse drug effects
> Attained $9.4 million in savings associated with improved retention
of nurses and lower overtime and contractor costs (key accelerants to
nursing turnover)
The bottom line? Sentara exceeded its projected $17 million return on investment
by $12 million in 2009.177 Not too shabby for a system that also optimized
patient care in the process. In fact, analysts at Thomson Reuters recently pegged
the estimated annual savings associated with such system improvements to be
$50 billion across the industry, simply due to avoidance of duplicated tests and
inappropriate treatments made possible by electronic records.178
With significant time, resources and money riding on healthcare reform, the
pivotal aspect of electronic patient records has profound impact on network
providers. If we have been impressed by how the digitization of content, such
as music and movies, has changed how we consume entertainment, imagine the
tsunamic effects of transforming our healthcare identities in the same way. Not
surprisingly, the key concern among both patients and practitioners rests in the
security of such sacred content. A study by Harris Interactive found that over 70%
of consumers have “significant” concerns about the security of electronic health
records.179 Similarly, another study by the California HealthCare Foundation
found that two out of three Americans are concerned about the privacy of their
health information.180
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Let’s take a couple of examples. We’ve discussed how EHR will remain at
the center of incentives and penalties for healthcare providers over the next
several years. However, it is also a key attractor for technologically advanced
physicians. According to a recent study by Epocrates, 84% of medical students
had experience with electronic medical records during their clinical rotations,
and 90% indicated that such functionality would be an important factor in
choosing where to practice medicine.184
activity the rest of the time. The challenge is apparent for a large hospital in an
urban market—limited specialists to attend to multiple critical care patients.
Imagine how much more the problem is exacerbated in rural America, where
access to specialists is even scarcer.
Approximately 250 hospitals in the United States have turned to the eICU
as one remedy to a complex problem. By remotely connecting specialists
with patients through instant multimedia capabilities (including real-
time videoconferencing and collaboration functionality at the patient’s
bedside), these geographically disadvantaged institutions are tapping
into a breed of technologically sophisticated specialists. And, the benefits
surpass talent acquisition. Officials from Union Hospital in Clinton,
Indiana report that the program has resulted in a decreased patient stay of
26%, allowing the facility to admit 18% more ICU cases. 185 The Leapfrog
Group, a consortium of large employers, estimates 54,000 people a year
could be saved if every US ICU case were co-managed by a specialist—
an impossible feat without technology due to the scarcity of specialists
available. As a case in point, we’ve already mentioned Sentara as an early
adopter of EHR. Not surprisingly, this innovator was also among the first
to adopt an eICU system. Based on death rates before and after the system
was introduced, the pioneer estimates that its eICU has saved nearly 500
patients who would have died in traditional care—all while decreasing the
cost per ICU case by nearly $3000, or 25%. 186
Finally, if networks bridge the distance between talent and facility, devices
level the playing field for a new wave of mobility and computing. We
discussed the commercial success of the iPad in an earlier chapter, but the
potential impact of this device and others like it stands to catalyze this
industry forward into a brave new mobile world. As an example, Kaweah
Delta Health Care District in California plans to buy more than 100 iPads
in the next couple of months. Beyond the mobility the device affords
(especially critical given the movement to EHR), the facility also estimates
cost-saving benefits. Its emergency department can substitute one Computer
on Wheels (COW) at $7,500 for three iPads costing $1,500—all without
compromising functionality or patient care.187
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While the Internet’s impact has been impressive on its own, the same networks
that connect patients to information can further redefine the landscape of
preventative care. If the Internet connects individuals to sources, the next wave
of innovation links patients to caregivers. We are not simply speaking of Web
2.0 tools akin to social media, though these have certainly facilitated a new
doctor-patient relationship. This concept goes far beyond communication. We
are referring to ICT as a critical enabler in the ongoing management of chronic
diseases. If the Internet evolved the patient from passivist to participant in
managing health, this new era promotes the patient to partner.
Take home monitoring devices as one example. With healthcare savings derived
from a greater focus on patient involvement in care, placing the individual as an active
partner—as opposed to a passive bystander—of treatment, imposes a new level of
accountability with measurable results. A study conducted by Kaiser Permanente
Colorado, the American Heart Association, and Microsoft put this theory to the
test among 348 patients divided into one of two groups: home monitoring or usual
care. The former group received a blood pressure device with a USB connection
that allowed users to transmit regular readings to a secure network server. Clinical
pharmacists were then able to access these results and consult with these patients on
medicinal adjustments. The control group had no personal monitoring capabilities
available. After 6 months, 58% of patients with the monitoring device had lowered
their blood pressure, compared with 38% in the control group.188 Though further
study is required, the preliminary results are an encouraging indicator of the ICT
potential in placing the patient at the center of care.
And, if extending patient care unobtrusively into a home environment changes the
landscape once again, the EHR puts the patient in the driver’s seat. With boundary-
less collaboration, consultation, and communication between physicians, patients,
specialists, and clinicians, the possibilities in this space are equally boundless. In
fact, according to the previously mentioned survey by the California HealthCare
Foundation, consumers engage more in their own healthcare when they have
access to their personal health record.189 That is, consumers with online access
to their health information pay more attention to their health. Once again,
underlying networks are a key enabler to this powerful end.
> When asked to evaluate over a dozen new ICT service definitions,
decision makers favored those that optimized clinician workflows or
facilitated preventative medicine.
- In an industry where seconds matter, it comes as no
surprise that one of the most valued applications, based on
respondents’ willingness to pay, involved the seamless shifting of
communication from various modes (for example, escalating from
a voice to video call in one session) in a collaborative environment.
- Given all of the discussion surrounding EHR and the role of the
network in facilitating the transport of such content across devices
and individuals, another top performing application incorporated
QoS optimizers during periods of network congestion. (For the
non-technophiles in the audience, think of this as having a smart
network that can detect when more bandwidth is needed and can
temporarily give you a boost when transmitting large files.)
- Finally, given the rise of home monitoring, the capabilities
afforded through an unobtrusive network medical monitoring
device also garnered high willingness to pay among respondents.
Interestingly, in a separate module of our research aimed at
206 | chapter 12
the shift
> When looking at which network capabilities had the most profound impact
on influencing a respondent’s willingness to pay for a particular service, the
results corroborate the challenges faced by these decision makers:
- Presence capabilities, such as being able to seamlessly and
automatically click to connect to a clinician based on the most
accessible device, scored particularly well in this time-crunched
environment.
- Location capabilities, such as being able to physically locate the
nearest clinician to a patient, also performed well. In fact, the
healthcare segment is unique when compared to all others in that
it perceives location characteristics as more attractive and with a
higher willingness to pay than its vertical counterparts.
- Advanced security options, such as biometric identification, also
scored well in terms of willingness to pay.
- Storage and QoS capabilities that provide for the transmission
of electronic patient records to any device, and optimized for
delivery across the network, received particularly high marks from
respondents in terms of both interest and willingness to pay.
> Healthcare decision makers are among the most enthusiastic of all
vertical segments tested. One in five healthcare decision makers would
place a very high priority in obtaining the applications tested, compared
with one in six across all segments.
> Providers should follow the Hippocratic Oath as the compass. Patient
care is at the heart of this sector. Any application that improves patient
care will grab attention. However, with many facilities operating at or
below breakeven points, doing more with less is more than a trite saying
on a coffee cup. ICT stands in a unique position to simultaneously
provide enhanced patient care options while improving efficiencies (as
the cases of eICU, EHR, and remote home monitoring illustrate).
> Less is more. Like its large organization counterparts, these healthcare decision
makers are likely to reduce take rates on overly complex service definitions. In
other words, the more advanced the service, the more likely the decision maker
is to restrict its access to a more finite employee population. The result would
be decreasing revenues for service providers that bundle too many capabilities
in an offering. Providers should offer the basics in a world where simplicity
is craved. But, they should also provide incremental capabilities for niche
audiences willing to pay more for innovation.
> Security and support are second nature. This is a market where seconds
count. Providers should offer comprehensive support options, including
standard 24x7 live help desks, enhanced with dedicated and localized
account management, when possible. Security takes on a whole new
meaning with this segment. End-to-end network security is a table stake,
and providers won’t earn much more in willingness to pay by offering
this fundamental requirement, though they also won’t get past the front
door without it. Providers should think of network security as their
ticket just to earn the right to play the game. But, those offering advanced
biometric techniques (such as voiceprint authentication for callers) will
appeal to this security-conscious audience that is willing to pay more for
more robust performance.
208 | chapter 12
the shift
Now that we’ve explored how regulatory reform is changing the complexion of
this market, let’s turn our attention to a market that is no stranger to regulation
itself—state and local governments.
210 | chapter 12
the shift
govern-
chapter 13
ment
protector,
employer,
and servant
212 | chapter 13
the shift
Despite (or because of ) its enormity, the government often finds itself lagging the private
sector in technological advancement. And yet, it hardly trails the private sector in its need
to share information urgently. Recent examples, such as 9/11 and Katrina, are painful
reminders of what can happen when communication breaks down. For government
agencies, security breaches or lapses in communication translate to far more than just
lost dollars and cents. When you consider constitutional freedoms, if not very lives, may
be at stake, the dynamic becomes much more interesting and challenging. If any entity
needs seamless, interoperable communications, it’s the government. And, the confluence
of a new administration’s promise for transparency intersected with an increasingly tech-
savvy, connected constituency marks an interesting time for providers serving this space.
If results from the American Customer Satisfaction Index (ACSI) are any indicator,
President Obama may be on to something. The independent organization, which
measures satisfaction ratings across several industries, discovered a simple truth in
its latest study: Transparency builds trust. According to the study, citizens who
are highly satisfied with a federal government website are 52% more likely to trust
the government.192 To the extent trust translates to votes, government leaders
face an interesting and unenviable dichotomy. On one hand, constituents expect
and even prefer to use social media tools to engage with their public leaders. This
point couldn’t have been made clearer than when Facebook reported it accurately
predicted more than 70% of the 2010 Congressional races, based on the number
of fans the candidates had earned on the site.193 On the other hand, transparency
214 | chapter 13
the shift
> The previously mentioned ACSI study also shows that citizens’
perception of e-government services went up for a second consecutive
quarter in 2010 and, at the time, was at the highest level since
measuring for the index commenced in 2003. In contrast, satisfaction
for offline government services had been dropping.194 In short, citizens
are more satisfied with tools that facilitate virtual transactions and
communications. These offer a better alternative for most than waiting in
onerous queues at their local agency or on the phone.
> When the federal government was interested in taking the pulse of the
American people to capture their thoughts on the next major discovery
breakthrough, it received over 2,000 replies via Twitter and Facebook
within 48 hours of asking the question via the sites.195
> When Pinellas County, Florida hosted its first e-town hall meeting
(a live, virtual event where local citizens can engage via their computers),
it attracted over 1,000 viewers and 602 blog readers, generating over
300 published comments from this audience. In comparison, an average
conventional town hall meeting gathers 100–150 attendees.196
Citizens have also been educated that virtual capabilities are, or at least should
be, more cost-effective than other alternatives. As such, there is a growing
expectation that governments do more with less by adopting these newer
technologies. Here are some examples:
> Based on a study of 1,000 US registered voters conducted by Google and Clarus
Research Group, 92% believe “public agencies should make better use of new
technologies to cut government spending and improve efficiency.” Further, 70%
agree we should use “the computer power and expertise of private companies
to improve information technology departments in government agencies.”197
> According to Google, Los Angeles saved more than $1 million per year
after outsourcing the hosting and management of its email system. In the
same study, over 70% of voters want their state and local government to
consider the same solution.198
> In addition to e-town hall meetings generating significantly more traffic,
costs are up to 66% less than the traditional face-to-face alternatives.199
> A survey among 300 state, county, and municipal tax collecting agencies
found 70% of respondents unwilling to put document or payment automation
in a cloud-based environment (Sources: The Association for Work Process
Improvement and International Accounts Payable Professionals).200
> According to a study by EastWest Institute, a nonpartisan think tank,
nearly three out of four government officials polled were uncomfortable
using social media to share information.201
> A study commissioned by Lockheed Martin Cyber Security Alliance found
one-third of government IT decision makers unfamiliar with cloud computing
with a similar percentage distrusting of it. Seventy percent of respondents were
most concerned about data security, privacy, and integrity in the cloud.202
At the time of this writing, security worries have reached a fever pitch, with US
intelligence and actual lives put at risk with the WikiLeaks exposure. However,
despite these legitimate concerns, multiple examples point to a government
tapping into a new wave of innovation, using developers and popular app
storefronts to further its cause. Developer competitions offering prize money
for applications that leverage public data are becoming more commonplace, led
by the pioneering efforts of New York, Washington, and Portland, Oregon. The
Pentagon issued its “Apps for the Army” challenge to the developer market. In
total, more than 350 applications using public information are now available
216 | chapter 13
the shift
Speaking Volumes
Similar to other end-user segments, we disguised network-based API functionality
in the form of service definitions identifiable by respondents. Each service
was a composite of several network-based APIs working in harmony. By first
understanding which applications were most appealing to these decision makers
and then dissecting those services into distinct API functionality, we can assess
how these capabilities affect respondent demand.
To this end, we tested over a dozen applications and measured interest and
willingness to pay for each. Given our preamble on the increasing transparency
of government and convoluted interworking relationships between disparate
agencies, it is not surprising that communication-oriented services reigned
supreme. This was the case whether the application facilitated better internal
cooperation or a more participatory engagement with constituents.
And, when it came down to measuring what service functionalities most moved
the respondents’ willingness to pay, presence-based capabilities took the prize.
Respondents showed high interest and demand for the ability to do the following:
When asked for their key priorities in allocating budget and resource requirements,
the majority of respondents pointed to increasing employee productivity (56%) and
reducing operational expenses (52%). And, based on their evaluation of services
and functionalities contained therein, communication enablers are critical factors
of persuasion. When it comes to communicating, these decision makers can’t seem
to get enough real-time information. Given their current challenges in collaborating
with one another and their constituents, this point speaks volumes.
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the shift
For providers and developers addressing this estimated $100 billion ICT
market,205 consider the following:
220 | chapter 13
the shift
And, for many reading this book, that answer is now up to you.
222 | chapter 13
the shift
edu-
chapter 14
cation
the global
achievement race
224 | chapter 14
the shift
The result from this growing academic gap to Gross Domestic Product (GDP)
is staggering and sufficient for everyone—whether a parent or not—to take
notice. According to a 2009 McKinsey report, had students from the United
226 | chapter 14
the shift
What MP3 players did for music, e-readers like the Kindle, Nook, and iPad are
hoping to repeat for the publishing industry. According to the Association of
American Publishers, US book sales dropped 1.8% in 2009 to $23.9 billion, but
e-book sales tripled to $313 million. While physical book sales clearly dwarf those
represented by e-books, some industry estimates place e-books as high as 20%–25%
of the market by 2012.215 And, given youth are typically among the frontrunners
of technology adoption, schools and universities seeking to learn from the music
industry’s mistakes are positioning themselves to exploit this emerging trend.
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the shift
Virtual campuses are not a new concept in the higher education space. According
to numbers released by the Instructional Technology Council (ITC), distance-
learning enrollment continues to grow faster than overall college enrollment
numbers, jumping by 22% in American community colleges during the 2008-
2009 academic year.219 Another study by the Alfred P. Sloan Foundation found
a 17% increase in online course enrollment, with more than one-quarter of US
college students participating in at least one web-based course during the fall
2008 semester. According to the same study, three-quarters of campuses with
online programs said demand increased over the past year and two-thirds of
colleges that do not offer web-based classes indicated student requests for such.
Despite the encouraging growth, a stigma still prevails among some educators,
as Sloan found only a third of chief academic officers agreeing that their faculty
“accepts the value and legitimacy” of online learning, a figure that has held
steady since 2002.220
While born and popularized on the college campus, the virtual classroom is
now gaining traction in the K–12 space. Massachusetts state officials report
that approximately 40% of school districts had at least one student enrolled
in an online course in 2009.221 Advocates behind the approach cite expected
improvements to the statewide dropout rate, offering students struggling to
adhere to the rigidity associated with the traditional brick-and-mortar alternative
a flexible and convenient option.
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the shift
> According to a recent study by San Diego State University, more than
90% of college students use Facebook or MySpace regularly.223
> Nielsen shows that smartphone usage is 12% higher in households with
children than in those without, a factor potentially attributed to the
presence of children as influencers.224
> According to a Kaiser Family Foundation study of 8–18-year-
olds, children devote an average of 7 hours and 38 minutes per
day to consuming entertainment media. However, because this
generation embraces multitasking—the use of more than one media
simultaneously—they manage to squeeze in a total of 10 hours and 45
minutes into that roughly 7.5-hour period.225
> A separate study by Stanford found that while college students are prone
to multitasking behavior, they actually aren’t very good at it. The study
revealed that heavy multitaskers tended to be worse at filtering out
unimportant information than their low-multitasking counterparts.226
Anyone who has struggled to capture and keep the attention of a
Millennial can certainly identify.
> According to a Pew report, texting has become the de facto standard of
communication among teens. Fifty-four percent of teens report texting
with their friends daily compared with 33% who speak face-to-face with
their friends daily outside of school. One in three teens sends more than
100 texts per day. And, nearly half who take phones to school text at least
once a day in class.227
researchers at the State University of New York in Albany reported that students
who play pro-social games that promote cooperation are more likely than others
to contribute in real-life situations, such as helping someone being harassed.230
Before technology will fully be embraced in the classroom, our educators must
first be convinced it will support, not deter, the learning process. And, short of
capabilities that protect our children, academic integrity, and network security,
the results will be a sub-optimized approach to what otherwise could be possible.
232 | chapter 14
the shift
online exercise with a possible final output being a Facebook page associated
with the legend. However, if a test on the inventor devolves into students
using electronic means to cheat, the balance of preserving academic freedom
while protecting educational integrity is compromised. Remote monitoring
capabilities and network administration rights become increasingly important
in this new learning era.
First, educators are more inclined to select services that facilitate the classroom
as a community. Out of over twelve applications tested by Alcatel-Lucent among
300 educators, these decision makers overwhelmingly favored services that
enhance remote learning environments and secure communications between
multiple parties and devices—particularly between faculty and students.
More than one-third of respondents indicated they would be very likely to
purchase each of these services if it were made available to them. In comparison,
fewer than one in five was very likely to select services associated with better
interdepartmental communications. For these educators, it is first and foremost
about the learning environment. A distant runner-up in this race is facilitating
better internal communications among themselves.
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the shift
As our children continue to be lapped in the global academic race, the role of ICT
has never been more significant. As evidenced through our research, this market
is primed for providers and developers that understand the unique complexities
of being an educator in a 2.0 world. And, this is a case where trillions of dollars in
GDP may be at stake. If that doesn’t get your attention, check your pulse.
236 | chapter 14
the shift
chapter 15
IT in the
large
enterprise
In search of
relevance
238 | chapter 15
the shift
So, what do you get when you mix recessionary times with a cost-center reputation
and perceptual gaps between CIOs and their business peers? A challenging and
often misunderstood role for those in the IT space and ongoing questions about
the evolution of the CIO. In fact, when two multibillion-dollar private companies
decided in 2009 not to backfill their CIO positions at precisely the same time,
some were left wondering if the bell tolled for others occupying the role.236
While fatalists may be quick to prophesy the death of the CIO, we prefer to
view the landscape through a different lens. Rather than embrace Dangerfield’s
philosophy, CIOs would be better served taking a page from talented songwriter
Bob Dylan: “The times, they are a-changin’.” And, the relevance of the CIO at
the executive table is directly dependent on his ability to evolve accordingly.
The good news is that CIOs are aware of these shifting sands and are rising to
the challenge in droves. The same State of the CIO report finds three-quarters
of CIOs identifying the alignment of IT and business goals as a management
priority—the top concern mentioned. Further, the majority also agree that
long-term strategic thinking and planning will be the most critical personal
competency needed by their organizations in the coming year.237
For these reasons, the CIO role is more complex and challenging than ever
before. On one hand, these individuals must maintain the basic blocking-and-
tackling required to sustain operational performance in their organizations. On
the other, these leaders must be attuned to the corporate strategy in order to
anticipate the commensurate ripple effects to future ICT requirements. They
are simultaneously strategists and tacticians, technologists and business thinkers,
implementers and prognosticators.
240 | chapter 15
the shift
For those in the financial segment, the customer comes first, as evidenced
by the more popular applications selected by these decision makers. When
asked to choose from over a dozen new services, these executives were more
inclined to select those that optimized communications among external
customers, rather than between internal employees. Among the more
popular tested were:
In turn, the network ingredients that were more likely to influence a financial
decision maker’s willingness to pay for a service were rooted in profiling
capabilities of the end user. Likewise, secure and accessible storage of these
customer preferences was equally attractive to these business leaders.
Accordingly, for these decision makers, the greatest network value rests in
QoS capabilities. Specifically, respondents were more likely to be influenced
by network characteristics that boost performance, identify and troubleshoot
problems, and maintain session quality across fragmented communication
modes. In all cases, the role of the employee as the critical stakeholder becomes
clear in both the winning applications and network enablers for this segment.
Note that, while these audiences may differ in the value ascribed to internal
versus external communications, there is virtually no difference in their
assessment of key business priorities. When asked to identify the key motivators
in determining how resources are allocated, both groups selected reducing
operational expenditures and increasing employee productivity in their top
two priorities. While improving customer satisfaction ranked fifth in priority
among financial decision makers, their evaluation of services proves otherwise.
Perhaps for this audience, employee productivity translates to better response
times for customers (akin to the Southwest philosophy). Perhaps this is a classic
testament to the importance of peeling beneath the surface to discover latent
desires, not simply expressed needs, in research design. Or, perhaps this is a
case where attempting to parse out which customer—internal or external—is
more important is as fruitful as pondering if the chicken or egg came first. Both
are interconnected and, in an increasingly blurred IT landscape, CIOs will be
expected to serve both masters.
242 | chapter 15
the shift
of the economic downturn, CIOs appeared to channel their CEO and CFO
counterparts: prioritizing security investments based on risk. In turn, the answer
from CEOs and CFOs may surprise you even more. Their response is taken from
a page of the CIO playbook: increasing the focus on data protection.238 It is
one thing to suggest CIOs are beginning to think like the CEOs they serve. It
is quite another to state the opposite. And, one area catalyzing the convergence
in thinking between these functional leaders is security—yet one more aspect
reflecting how relevant this topic will be for years to come.
Our data also suggests a strong willingness to pay for the most comprehensive of
support packages surrounding these services, inclusive of 24x7 live help desks,
moderated forums, localized account support, and training classes. Both financial
and general enterprise leaders are likely to increase demand and willingness
to pay for a service encapsulated with responsive support. However, general
enterprise decision makers demonstrate a much higher willingness to pay for
this option than their financial segment counterparts. In fact, the former group
has the highest willingness to pay for support, services, and network capabilities
when compared with any other business segment tested (including finance,
government, education, and healthcare)—by several orders of magnitude.
Recall that we saw the exact opposite effect among enterprise IT developers.
For these individuals, bundles of APIs translate to a simpler, faster development
process. And, that represents tangible value to an audience with limited time and
resources. These individuals are willing to pay up to three times more for a bundle
of network capabilities when compared against the total revenue opportunity of
each API offered separately.
But, in the case of a decision maker allocating funding to secure new enhancements,
the over-engineering of a service can have the exact opposite effect. More complicated
functionality creates a mindset for a more limited employee population.
244 | chapter 15
the shift
However, there is a catch. This phenomenon was only realized when the discount
was offered indefinitely rather than for a discrete period of time, such as 6, 12 or
24 months. For any of these fixed periods, advertising subsidization resulted in
lower total revenue potential for the provider. In other words, the discount was
not offset by sufficient incremental demand.
It is evident that “the times, they are a-changin’” for CIOs. Cost pressures
persist. Lines between employees and customers are blurred. Security challenges
abound. Rather than admiring the problems surrounding them, effective CIOs
are evolving to adapt to these changing times. And, leveraging the network
as an asset is a concept familiar to this ilk. As these leaders align IT priorities
with CEO agendas, network performance and profiling capabilities create
new opportunities to optimize customer engagement and enhance employee
productivity. We’ve quoted comedians and songwriters. But, neither captures
the state of the CIO’s world as perfectly as one who lives in it. Pat Toole, CIO of
IBM, once said of his professional peers, “If they [CIOs] don’t come out of that
cost-cutting mode and help drive the transformation of their company, they’re
going to be irrelevant.”239 We couldn’t have said it better ourselves.
246 | chapter 15
the shift
part 5
248
the shift
brazil chapter 16
and mexico
a tale of
two countries
250 | chapter 16
the shift
Beyond these physical threats and casualties, the drug war has taken its toll on
the economy, with state-owned Petroleos Mexicanos reporting approximately
$350,000 in lost natural gas production daily due to physical threats against its
employees who are attempting installations in northern Mexico. That equates to
about $10.5 million per month, or roughly 2.3% of Mexico’s $450 million per
month average in monthly natural gas revenues.244 And, given that about half of
Mexico’s 107 million people still live in poverty despite its status as the twelfth
largest economy in the world,245 the socioeconomic impact of this drug war
reflects the current battle of a country whose revolution is more than an annual
commemoration. Unfortunately, it also overshadows the economic potential of a
country recently identified with nine others that, when combined, wield the third
largest economy globally behind the United States and the European Union.246
252 | chapter 16
the shift
Indeed, Brazil is in the midst of its own uprising, reflected in the might of its growing
middle class. A few decades ago, a fraction of Brazilians, roughly 30 million, held
most of the country’s buying power. In just the past 8 years, the middle class—known
as Class C in Brazil—has swelled by 30 million, now representing 100 million of the
country’s 200 million inhabitants and propelling the world’s eighth largest economy
to an impressive growth rate. Most promising, this is a country where 20 million
people have risen out of poverty since 2003.251 As most of the globe struggles with
a recession, Brazil’s $1.3 trillion economy is booming, surpassing India and Russia
with a per-capita income twice that of China and creating over 2.2 million formal
jobs in the past 9 months, a record for the country.252
The rise of the middle class translates to a rise in consumption. In 2009, 4.5 million
cars were sold in Brazil, more than double the rate in 2003. The number of credit
cards issued to consumers has increased 438% over the past decade. Airplane
boardings have risen 70% in the past 6 years.253 And, the growth of Brazil’s
telecommunications market is equally remarkable. With an online population
of more than 80 million, Brazil is South America’s largest Internet market and
now has more Internet users than any single country in Europe, according to
Forrester Research.254
These online users are no strangers to social networking. LinkedIn reports Brazil
is one of its two fastest markets in growth (rivaled only by China).255 comScore
ranks it second behind Indonesia in Twitter popularity, with 20.5% of Brazilian
Internet users over the age of 15 tweeting (compared to just 11.9% of the US
online population). In fact, Brazil leapt into the record books of pop culture
in the summer of 2010, when clever, albeit mischievous, Brazilian Twitterers
made the phrase “Cala boca, Galvao” one of the most popular retweeted
phrases globally. Puzzled by the meaning of the phrase, English-speaking
Twitterers were duped into retweeting it when told that doing so would result
in a 10-cent donation to save a rare Amazon bird on the verge of extinction
(a “Galvao”). In actuality, Galvao was the first name of Galvao Bueno, a Brazilian
sportscaster who irritated many with his pronouncements during the World
Cup. The phrase’s literal translation was a rebuke against Galvao, who was told
to “shut up.” And, it will be immortalized as one of the most popular tweets of
the year, thanks to the wit of a socially connected Brazilian online population.256
Finally, although Google has yet to make a dent in social networking in most
of the world, it has done so in Brazil with its site Orkut. In fact, over 51% of
Orkut’s total traffic comes from Brazil, with over 36 million unique visitors in
September 2010 from Brazil alone.257 In comparison, Facebook attracts roughly
9 million Brazilian visitors per month, according to comScore.258 Perhaps this
gap helps explain Facebook’s recent introduction of a new tool that allows Orkut
users to link their profile with their account on Facebook.259
254 | chapter 16
the shift
and economic value are correlated, and one could question which causes the
other. One study finds that adding ten mobile phones per 100 people in a
typical developing country increases GDP growth per person by .8 percentage
points.261 And, the wave of mobile broadband growth fueled by 3G networks
is already in full swing in the country, with Morgan Stanley estimating a 148%
increase in subscriptions over the past year.262 Affordable smartphones will
further catalyze this demand with Pyramid Research bullishly anticipating
that Brazil may see its first sub-US$100 smartphone in 2011, compared with
current price points in the US$200–$300 range.263 If accurate, the price point
will offer a swelling middle class the benefit of affordable mobile devices capable
of fully leveraging the capabilities of a 3G network.
Despite their many differences, one thing Brazil and Mexico share is the potential
for future economic growth, spurred in part by a developing communications
infrastructure. To that end, Alcatel-Lucent sought to evaluate consumer appetite
for network-based capabilities under an applications enablement framework.
We solicited the input of 1,000 mobile and broadband users in Mexico and
Brazil and measured their willingness to pay across 19 next-generation service
definitions composed of 22 network APIs. The results confirm a rosy outlook
for communications services despite inherent market differences that reflect the
diversity of these national cultures.
> An advanced Caller ID service that, among other things, reflects the
current location and social networking status update of the incoming caller
While equally popular in both countries, a deeper dive into what features
drive willingness to pay reveals the reality of very different market landscapes.
In Mexico, the appetite for security at multiple levels is clear. Out of the
22 network APIs tested, the one with the highest influence in moving a
respondent’s willingness to pay for a service definition involved biometric
authentication, such as voiceprint identification, to restrict use of the service
and access to network-based content to only those authorized. In fact, the value
of security is so strong in Mexico that a service traversing a “secure network”
increases willingness to pay by over 20% compared with the same service
where such a distinction is omitted. (In contrast, this designation increases a
Brazilian’s willingness to pay by less than 10%.)
256 | chapter 16
the shift
In the case of what Mexicans are willing to share about themselves, the trusted
role of the mobile provider could not be clearer. Interestingly, Mexicans are more
comfortable sharing such contextual information with their mobile operator
than they are with people they know. While the same finding holds true in Brazil,
it is much more pronounced in Mexico, with well over one in two consumers
expressing they are much more comfortable in exposing presence, location, and
behavioral habits to their mobile provider, compared to just over one in three
who feel the same way in Brazil.
The same cannot be said for Brazilian consumers, where increasing the
functionality of a service by combining the capabilities of multiple APIs actually
results in decreased revenue potential for the provider or developer. In Brazil,
consumers follow the adage, “less is more.” For this market, consumers are
attracted to simplicity and core functionality. Overcomplicate a service and
suffer the consequences of lost revenue potential.
258 | chapter 16
the shift
We were curious about the tolerance for new forms of advertising across
online and mobile environments. We tested the influence of advertising on a
consumer’s willingness to pay (and a provider’s ability to maximize revenue
through an advertising-subsidized, or “freemium”-based approach). Unlike
North American consumers, who tested as having a surprising tolerance to high-
frequency advertising models, Latin American consumers are not so forgiving.
Revenue potential decreases precipitously across most segments as the frequency
of advertising impressions increases, from a low of eight times to a high of thirty-
two times per month for a particular service. While a provider or developer may
more than offset the decreased revenue potential of consumers who will certainly
not pay the same price for a service that includes ads versus one that does not,
we did stumble upon a finding that should give hope to providers, developers
and advertisers alike. The use of personalized, targeted advertisements can
alone neutralize the negative impact on willingness to pay for some segments
of the population. If targeted advertisements are offered (as opposed to generic
impressions), a consumer’s willingness to pay for the service—even when a high
frequency of ad impressions is incorporated—rivals that of a service that includes
no advertising at all. So, although these Latin American consumers are less
tolerant of high-frequency ad models than their North American counterparts,
their preference for targeted advertisements combined with healthy growth
rates in online and mobile populations, provides fertile ground for providers,
developers, and advertisers.
> Healthy appetite exists in Brazil and Mexico for services that incorporate
network-based functionality, like presence, profiling, and QoS. In Brazil,
there is a stronger inclination to location and QoS capabilities that
enhance one’s entertainment experience. In Mexico, the importance of
security—whether in serving to protect safety as with location-based
services or in authenticating credentials as with biometric capabilities—
should not be ignored. These unique differences reflect the current state
of affairs in each market.
> The optimal business model for maximizing revenue potential is prepaid.
Unlike their North American counterparts where the preferred business
model varies depending on the market segment, this single per-use
business model is overwhelmingly preferred by all consumer groups in
the Latin American study.
> At the same time, the case for bundling is not nearly as straightforward.
While bundling APIs results in greater revenue potential in Mexico
(similar to the North American market), it is the opposite case for
Brazilians, who favor simplicity and core functionality over complex
service definitions.
> These markets are primed for advertising. Not only are online and
mobile subscriptions growing at a rate faster than the population, the use
of targeted advertisements alone can mitigate a lower willingness to pay
among consumers as advertising impressions increase. Using contextual
APIs, such as a consumer’s presence, profile, and location, offers
unique opportunities to serve targeted ads to this market. However,
such an opportunity does not replace the requirement for an explicit
opt-in approach, whereby the consumer remains in full control of this
contextual information at all times.
260 | chapter 16
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262 | chapter 16
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small chapter 17
business
latin america’s
growth engine
264 | chapter 17
the shift
If small businesses are the primary source of job creation and economic
development within a country, then providers can tap into the entrepreneurial
spirit of this market with productivity, efficiency, and revenue-generating
opportunities in mind. And, service providers, developers, and advertisers
clearly have a viable role to play as communications services can favor a small
enterprise across all of these business-minded goals. Alcatel-Lucent assessed
the appetite for next-generation communications services and network-based
APIs across 600 small businesses (those with fewer than 100 employees) in
Brazil and Mexico. The results reflect a market with a potential limited only by a
provider’s willingness to understand the challenges of a segment as unique as the
entrepreneurs comprising it and the courage to debunk the myths that otherwise
shackle one’s success in serving small businesses.
Look no further than the blatant differences between consumers and small
businesses in our Latin American study. First, there’s the matter of the optimal
266 | chapter 17
the shift
business model. While consumers in Brazil and Mexico were clear in their
preference for a per-use approach, small businesses in both countries are equally
transparent in their penchant towards a monthly subscription plan.
Next, there’s the issue of bundling. While Mexican consumers were willing to
pay more for services composed of multiple APIs, the opposite is the case for
Mexican small business decision makers, where the general trend is to eschew
complex service definitions and punish providers with a lower willingness to pay.
In contrast, Brazilian consumers preferred simple services over those composed of
multiple APIs where bundling was proven to negatively impact willingness to pay.
Meanwhile, Brazilian small businesses revealed an opposite inclination, where
bundling APIs, in general, results in greater revenue potential to the provider.
Let’s turn our attention to advertising. Like consumers, revenue potential among
small businesses tends to be inversely correlated to advertising impressions within
the service definition, that is, the more ads required by the service, the less the
small business decision maker is willing to pay. But, that’s where the similarities
end. Unlike their consumer counterparts, where targeted advertising ameliorated
an otherwise negative impact to willingness to pay, the opposite is true for small
businesses. The presence of targeted ads among these decision makers can result
in a further hit to a provider or developer’s revenue potential by as much as 21%.
Finally, there’s the issue of what network capabilities are most influential in increasing
a respondent’s willingness to pay. For Brazilian consumers, location APIs were
among the most attractive tested. In contrast, Brazilian small businesses loathed these
capabilities and voted as such with a negative willingness to pay. (Note that this does
not suggest a provider would have to pay these respondents to take the service, but
it does reflect just how unattractive these decision makers find these capabilities as
incorporated in services they may otherwise purchase.) Mexican consumers didn’t
care as much for QoS functionality, in general. In contrast, QoS was one of the
strongest performing API categories among Mexican small businesses, as measured
by their interest and willingness to pay for services that included these capabilities.
In short, there are far more differences than similarities among consumers and
entrepreneurs in these markets. Providers, developers, and advertisers attempting
We also found that small businesses have clear preferences or aversions toward
certain ad formats. We have already covered an aversion to targeted ads.
Beyond the targeting of the message, the media format also has influence over
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the shift
the decision maker where a clear preference is revealed for more traditional ad
vehicles. While the presence of video-based banners or advertisements yields
a positive revenue impact of up to 20% for high-frequency impressions, the
exposure of mobile SMS or MMS ads actually decreases revenue potential when
compared with the baseline of a service with no advertising at all. If you assume
small businesses aren’t influenced by ad format, targeting, and frequency, you
will unintentionally leave money on the table.
Consider this case in point. Small businesses in both Brazil and Mexico favored
services that optimized meetings or fostered more seamless communications
between employees—so much so, in fact, that these services were among the
top out of 13 tested in terms of willingness to pay. This finding is not surprising
when one considers that these Latin American businesses agreed that reducing
operational expenses earned its place among the three most cited determinants
in influencing resource allocation from a list of ten possible factors. While the
need is clear, and the want for value propositions that make employees more
efficient follows, the ability for these entrepreneurs to use these services is less
certain. Since these services rely on knowing employees’ presence and location
information to seamlessly connect them to others, making employees aware that
their real-time context is fair game may require company policies stating the same.
And this is where the disconnect between the services a small business decision
maker wants and those that are readily implementable becomes problematic.
Only three in five Brazilian small businesses have policies that provide for some
type of employee monitoring in place, with fewer than half agreeing that such
policies are sufficient in protecting employee privacy concerns. In Mexico, the
situation is even worse, with about a third indicating that such policies exist but
only a quarter agreeing they are adequate in addressing employee privacy rights.
Service providers or developers attempting to introduce contextually based
services that rely on real-time knowledge of employees’ presence and location
may discover a bit of a schizophrenic market, one where demand clearly exists
but practical implementation requirements are lacking.
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enterprise developer brands that were also tested. Where these developers
narrowed the perceptual gap was in the delivery of high-quality products and
services backed by superior support.
To this point, not only do businesses value support in selecting a brand with
which to do business, they are also willing to pay more for it. For instance,
although nearly half of Latin American small businesses favor a provider because
of a favorable pricing model, over 40% are also likely to prefer a partner who
offers QoS guarantees. In fact, when we tested the impact of various support
options on a respondent’s willingness to pay, Brazilian entrepreneurs were most
influenced by comprehensive support packages with IT help desk capabilities.
In Mexico, the influence of support on willingness to pay was even stronger,
despite a more price-sensitive market compared with that of Brazil, with
Mexican small businesses demonstrating a significant willingness to pay for
comprehensive support options and enhanced network security (a phenomenon
also recognized among Mexican consumers and reflective of the current safety-
conscious mindset of the market).
This isn’t to suggest that entrepreneurs are somehow immune to the basic
laws of supply and demand. Of course price has a bearing on take rates for
services (as we discussed earlier with the elastic demand curve discovered for
advertising-subsidized services). However, small businesses deserve more credit
for their business sense. In Brazil, productivity enhancements and operational
efficiencies are most important to these entrepreneurs, with approximately 40%
agreeing that these needs are most essential in determining resource allocation.
In Mexico, the situation is a bit different. Here, the absolute top requirement
out of ten tested was in opening up new market opportunities. Nearly 50% of
Mexican entrepreneurs agreed that this was the most important determinant in
influencing resource allocation. This definitely aligns with a culture that embraces
new business ventures as identified by the World Bank. In either Mexico or
Brazil, the latent motivations driving demand reflect business imperatives, not
price. Linking one’s value proposition to benefits in productivity, customer
service, or revenue attainment will find a market primed to respond.
> Do recognize the clear preference for a monthly billing option that
clearly distinguishes these entrepreneurs from their Latin American
consumer counterparts.
> Don’t suboptimize revenue potential with overcomplicated services. While
Brazilian businesses are more receptive to services that bundle multiple
APIs, Mexican businesses respond with a lower willingness to pay.
> Don’t get the advertising equation wrong. Small businesses are receptive
to advertising, particularly when considering the cost benefits they
derive with subsidized services. However, this is a case where targeted
advertising suppresses revenue potential. And, there are clear preferences
for video-based advertisements in lieu of mobile advertising options,
which are met with lower appetite and revenue potential.
> Don’t underestimate the challenges these entrepreneurs will face in
introducing services that rely on employees’ real-time context, such as
presence or location. While these decision makers prefer and are willing
to pay for services that incorporate this intelligence, the majority are not
equipped to address employee privacy concerns with current company
policies. Providers and developers attempting to introduce these
capabilities may find friction in the market until such policies are more
widely adopted.
> Do give credit to these entrepreneurs for their business sense. While
the law of supply and demand is still in play, these decision makers are
not solely influenced by price. In fact, brand loyalty is closely associated
with superior products, services, and support. Beyond remaining loyal
to providers who offer the same, these businesses are willing to pay
for services that address their imperatives of improving productivity,
increasing efficiency, and unlocking revenue opportunities.
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A thriving private sector lifts more than a local or national economy. It creates
an environment where jobs are created, entrepreneurs are rewarded, and citizens
benefit from increased competition. And, while Mexico and Brazil represent
the largest economies within Latin America, the opportunity for prosperity
rests, at least in part, on their ability to sustain private sector growth. This
transformation further requires a communications infrastructure wrapped in
services and support that adapt to the business challenges of a 2.0 landscape.
Perhaps Hanson is correct in expecting more from a country that has endured
its fair share of reform. Or, perhaps the true mettle of a country will rest in its
ability to propel itself forward with a framework that attracts and inspires an
entrepreneurial spirit. For Brazil and Mexico, your time has come. And, for those
providers and developers serving small businesses in these emerging economies,
your market is waiting.
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devel-
chapter 18
opers
brazil’s
emerging
market
276 | chapter 18
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But we’re not simply speaking of a market primed for economic development.
As authors of this book, our primary interest is in the pent up demand for
“development” of a different kind—applications development. If you’re quick to
assume Brazil is a country without the means to afford the high-tech gadgets and
services popular in the United States and other developed nations, consider the
following facts. Brazil has more mobile phones per inhabitant than the United
States.274 Brazilians who have access to computers spend 30 hours per week on
the Internet—more than the 17 hours per week they spend watching television
by comparison.275 They are rabid social networkers, with 86% of the Brazilian
online population regularly using social networking sites, making it the top
country worldwide in this pursuit.276 A survey by Deloitte in early 2010 across
seven countries including the United States, Germany, Japan, and India found
Brazilian consumers to be the most committed to acquiring new technology
products the moment they are introduced.277 Perhaps this craving helps explain
Apple’s recent success with its iPad launch in the country, with the device selling
at up to $1,500 due to the tariffs imposed on imported electronic devices.278
And, despite the scarcity of other Apple products in the country, that hasn’t
deterred Brazilians from paying two to three times the manufacturer’s suggested
price on the black market to satiate their appetite for the latest technology.279
The market potential for information technology across all segments of customers—
consumers and enterprises—places Brazil near the top of the emerging market
heap. Gartner recently predicted that IT spending among end users in Brazil
will reach $134.2 billion in 2014, up from $101.3 billion in 2010. The current
threshold of spending represents 9.6% of the country’s real GDP, placing it above
the 6.1% ratio for the BRIC block. Further, this places Brazil as the second largest
IT market among emerging economies after China. That translates to an IT spend
that is currently more than double that of Russia and 33% more than India’s.280
We’ve covered the appetite for network capabilities across 1,300 commercial
developers in North America. We were curious if commercial developers in Brazil
would be equally attracted to these network APIs. Therefore, we expanded the scope
of our study to include 300 commercial developers in Brazil. We put these developers
through the same paces as we did their North American counterparts. We tested the
willingness to pay for several network-based APIs and various go-to-market support
options that could be offered by a provider. The results prove these developers are
more similar to their North American brethren than they are different.
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Further, the types of APIs that were more popular, as expressed by a likelihood
to use them if available, are surprisingly similar in both the United States and
Brazil. Tied for first place among both developer communities were:
Further, among all network-based APIs tested in both the United States and
Brazil, all commanded a positive willingness to pay among developers. Skeptics
reading this may still question why developers would see value in APIs in a market
characterized by thousands of APIs across web and device environments. We
would submit it is precisely this abundance of APIs that makes network-based
APIs attractive. Developers are faced with thousands of device environments,
hundreds of network alternatives, and several operating system choices. This
fragmentation in the market creates an appetite and willingness to pay for
functionality that is agnostic to device, operating system, and network. In short,
as we have discussed, the commercial developer’s intangible currency is time.
Find a way to crash the development cycle and help a developer accelerate the
revenue path and you will find a market willing and able to pay.
Still not convinced? You may recall the Commercial Developer’s Hierarchy
of Needs that we introduced in Chapter 5. Quite simply, this represented
the statistical analysis of thousands of trade-offs made by North American
developers across a variety of attributes, including API functionality and go-
to-market support options. Those attributes that were most important to
influencing a developer’s willingness to pay were reflected as the most primal
needs (such as the functionality of the network API, which alone had the most
significant impact on demand among North American developers). While we
demonstrated that bundling APIs had a greater impact on willingness to pay
among North American developers than price itself, the effect was even stronger
in Brazil. In fact, the bundle configuration alone had the most significant impact
on a Brazilian developer’s willingness to pay. The revenue potential of bundling
two APIs together earns a provider up to 80% more revenue than offering two
APIs discretely. Why? A bundle of capabilities allows the developer to use the
same tools to create an application. Further, rather than having to scour the
thousands of APIs available in the market today for those with complementary
functionality (such as presence and location, for example) and then stitching
together those APIs with disjointed software development kits and testing and
certification requirements, developers can instead gain value with a bundle of
capabilities that, when combined, create a more powerful product that can be
developed in less time. Corroborating the importance of time to a developer,
when we asked Brazilian developers for the top three benefits third-party APIs
afford, reducing the length of time needed to create new applications was the top
choice cited among eight possibilities—selected by 52% of Brazilian developers.
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Beyond “traditional” support, developers are keen to accept services that help
them monetize their applications. Take the all-important billing engine as one
example. Nearly half of Brazilian developers use micropayments and 40% who
do not are interested in doing so. Of these developers interested in and using
micropayments, they expect revenue derived from that source to grow. As such,
billing is and will continue to be a critical requirement for a developer. While
this may seem obvious, the potential for billing as a revenue platform could
mean big business to a provider. Take PayPal as the most obvious success case.
It accounted for 37% of eBay’s overall revenue in the third quarter of 2010
compared with 23% just 5 years ago. eBay’s payments division, which consists
largely of PayPal, took in $838 million in revenue in the third quarter, up 22% in
a year. The primary core of eBay’s auction operations collected $1.41 billion in
revenue during the same period, an increase of just 3%.282
Indeed, the potential micropayment market has captured the interest of more
than just PayPal, which has cited mobile as one of its key growth opportunities.283
AT&T, T-Mobile, and Verizon announced a joint venture called Isis, which will
use near-field communications to recognize payment through a consumer’s
mobile device. Google has also demonstrated how phones with a new version of
its Android system could do the same. And, in an attempt to capture its share of
Gartner’s estimated $6.2 billion mobile applications market, Apple has recently
hired an expert in near-field communication technology as its new product
manager for mobile commerce.284
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manufacturer when considering with whom they would most like to work. The
fact that these latter companies often have a large “reach” of customers that
consume applications demonstrates how insignificant this criterion is relative to
other factors in a developer’s decision.
This may seem counterintuitive. After all, why wouldn’t a developer want
a larger audience? All else being equal, they would. However, when asked to
make difficult trade-offs that are more emulative of real market scenarios, reach
is not as important. To the extent developers express an overt desire for reach,
we would submit the underlying motivation rests in the time currency we have
cited. That is, if I can develop an application once and simultaneously reach more
potential customers, then I have made more productive use of my scarce time. It’s
the same reason developers in our study that preferred Google as a partner were
likely to cite its large number of customers as a reason. It speaks to why nearly
half of Brazilian developers were willing to accept up to a 30% premium over
traditional API prices to work with a carrier-agnostic aggregator that exposes
APIs across multiple service provider networks. A developer’s expressed interest
in reach reveals a latent need for time. And, this need can be satisfied with
more attractive approaches, such as creative bundling options, which alone can
neutralize a perceived reach advantage by a larger provider.
Developers desire discoverability, not reach. Further to this point, we asked these
developers how likely they would be to offer a minimum of 6 months exclusivity
for their application with a provider in exchange for greater discoverability
in the provider’s storefront. Over 80% of developers would be somewhat or
much more likely to agree to a term of exclusivity if a provider were to offer
optimal search or storefront placement. This is yet one more example of trading
off greater “reach” by limiting one’s application to a particular storefront for
enhanced “discoverability” on the same.
For providers seeking to tap into this market, remember the following:
> Time is the intangible currency. These developers were most influenced
by bundle configurations of APIs in the impact on willngness to pay.
Further, these developers responded very favorably to diagnostic QoS
capabilities that identify and troubleshoot application performance
problems across an end-to-end network.
> These developers are far more like their US counterparts than they are
different. That said, they have a bigger appetite and greater willingness
to pay for network-based APIs. In particular, they were more likely to
gravitate to QoS and storage capabilities than US developers.
> Support options are a fundamental need. Whether this translates into
leveraging a service provider’s billing platform for micropayments,
using network-based intelligence to identify the optimal price point for
an application, or seeking intervention when peer-based forums fail,
providers have an opportunity to earn incremental revenue with each of
these approaches.
> Discoverability, not reach, is the latent desire. Do not conflate the two.
Offering developers greater discoverability capabilities, such as enhanced
storefront position or search placement, is sufficient to earn exclusivity
for an attractive application.
The United States and Brazil are definitely distinct markets. One is developed
while the other is emerging. One struggles with recession while the other stands
at the precipice of economic hope. One has a significant developer community,
while the other is burgeoning. Yet, despite these differences, the similarities
across these developer communities could not be more apparent. They share the
same intangible currency. They crave support. They want discoverability. They
are willing and able to pay for network-based APIs. These similarities represent
a good-news market for service providers. A virtual world knows no geographic
boundaries. And, since developers are more alike than they are different, a service
provider’s potential to attract these creators reaches far beyond its local or national
jurisdiction. Indeed, the market potential is now as global as a provider desires.
284 | chapter 18
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epilogue
The evolved
value chain in a
2.0
world
epilogue | 285
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286 | epilogue
the shift
> The current 2.0 business models are unstable and in need of
transformation. Whether looking at network providers attempting to
keep pace with a seemingly insatiable consumer broadband appetite,
content providers hoping to stem the tide of future video cord-cutters or
advertisers seeking to evolve archaic “spray-and-pray” delivery models,
the shifting sands in our landscape are evident. It’s time to augment
traditional business models with new value chains that can be supported
in a thriving ecosystem.
> This is not about a zero-sum game. Instead, this is about exploring
options that enable multiple parties in the market to thrive. To do so,
incremental value must be created and sustained across the ecosystem.
> Leveraging the network as a development platform—what we have called
Application Enablement—allows developers to tap into new capabilities
while addressing the fragmentation associated with thousands of
devices, networks, and app stores. Developers have an interest in and
willingness to pay for these network capabilities. Bundling these APIs
epilogue | 287
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288 | epilogue
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epilogue | 289
the shift
Undoubtedly, there are still critics who are not convinced service providers have
a right to play in this space. Among the possible objections:
> Service providers are not relevant to developers. True, though this
landscape is changing, the point is valid. Service providers must consider
developers an extension of their market and must be primed to support
them. Otherwise, they should turn to aggregators that are capable of
attracting this market and sell through their capabilities accordingly. In
either case, developers are a critical part of the ecosystem that will require
their own resources for marketing and support. Providers cannot expect
to merely expose APIs and walk away. Cultivating the market is even
more important and will require dedicated effort on the part of providers
or through the aggregators that serve developers.
> Developers will not abandon popular devices like the iPhone and
Android family. True. We would never suggest this is an either/or
option (either develop for devices or for the network providers). Instead,
network capabilities will simply provide developers with additional
options should they want to address multiple devices and operating
systems concurrently. In fact, bundles of network, device, and Web
APIs could be combined to offer the development community greater
simplicity in the development cycle while maximizing the performance
capabilities of their applications.
290 | epilogue
the shift
The race has started. We will continue to analyze and report ongoing shifts in
this value chain on our blog at www.theshiftonline.com. This story does not
end with this book, nor should the dialogue. We will keep our eyes open for
supporting or contradicting evidence that corroborates our arguments or points
to new shifts in the environment.
While many service providers watch from the sidelines, this game continues to
evolve. Whether you agree with our arguments or not, one matter is not up for
debate: A 2.0 world requires 2.0 business models. Opportunistic players will
either find ways to innovate and remain relevant in their value chain or find
themselves commoditized or extinguished as a result. For those seeking to play
in this dynamic ecosystem, the choice is now yours.
epilogue | 291
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292 | epilogue
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references
references | 293
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294 | references
the shift
1. Gail Schiller, “Study Shows Baby Boomers Ignored by Ads,” Hollywood Reporter,
November 15, 2006.
2. PRNewswire, “Americans in Their 40s and 50s Are Far More Likely to Describe
Themselves as the TV Generation Than as Baby Boomers, TV Land Study Finds,”
redOrbit.com, October 27, 2006, http://www.redorbit.com/news/technology/
709898/americans_in_their_40s_and_50s_are_far_more_likely/index.html .
3. Allison J. Waldman, “TV Land Focuses on Baby Boomers,” Television Week, February
2008, http://www.tvweek.com/news/2008/02/tv_land_focuses_on_baby_
boomer.php .
4. Lee Rainie, “Baby Boomers and the internet,” Pew Internet & American Life
Project, January 10, 2009, http://www.pewinternet.org/Presentations/2009/Baby-
Boomers-and-the-internet.aspx , (accessed April 26, 2010).
5. “Baby Boomers Uniquely Positioned to Embrace Emerging Entertainment
New Media, TV Land’s Joy of Tech Study Finds,” TheMatureMarket.com,
September 1, 2007, http://www.thematuremarket.com/SeniorStrategic/baby_
boomers_technologie_media-8196-5.html .
6. Schiller, “Study Shows.”
7. “Baby Boomers Uniquely Positioned,” TheMatureMarket.com.
8. Neil Howe and William Strauss, “The Next 20 Years: How Customer and
Workforce Attitudes Will Evolve,” Harvard Business Review, July/August 2007.
9. Ibid.
10. “When I’m 64: How Boomers Will Change Health Care,” American Hospital
Association, May 8, 2007, http://www.aha.org/aha/content/2007/pdf/070508-
boomerreport.pdf .
11. Sandra Block, “Elder Care Shifting Away from Nursing Homes,” USA Today,
June 24, 2007.
12. “Boomers and Technology: An Extended Conversation,” sponsored by AARP and
Microsoft, October 2009.
13. “When I’m 64,” American Hospital Association.
14. Amanda Lenhart and others, “Social Media & Mobile Internet Use Among Teens
and Young Adults,” Pew Internet and American Life Project, February 3, 2010, 18,
http://www.pewinternet.org/~/media//Files/Reports/2010/PIP_Social_Media_
and_Young_Adults_Report_Final_with_toplines.pdf (accessed on April 29, 2010).
15. Peter Corbett, “Facebook Demographics and Statistics Report 2010 - 145%
Growth in 1 Year,” iStrategyLabs, http://www.istrategylabs.com/2010/01/
facebook-demographics-and-statistics-report-2010-145-growth-in-1-year/ .
references | 295
the shift
16. Robert Strohmeyer, “Are Baby Boomers Killing Facebook and Twitter?”
Computerworld, May 20, 2009, http://news.idg.no/cw/art.cfm?id=5E325460-
1A64-67EA-E408A32F33B5F319 .
17. “AdMob Mobile Metrics Report,” AdMob, January 2010, http://metrics.admob.
com/wp-content/uploads/2010/02/AdMob-Mobile-Metrics-Jan-10.pdf .
18. Paul Taylor and Scott Keeter, eds., “Millennials: Confident. Connected. Open to
Change,” Pew Research Center, February 2010, http://pewsocialtrends.org/assets/
pdf/millennials-confident-connected-open-to-change.pdf (accessed May 4, 2010).
19. “Living: Proceeding with Caution,” Time, July 16, 1990,
http://www.time.com/time/magazine/article/0,9171,970634-9,00.html .
20. Howe and Strauss, “The Next 20 Years.”
21. Patrick Neate, “Generation X: The slackers who changed the world,” The
Independent, February 18, 2007, http://www.independent.co.uk/news/uk/this-
britain/generation-x-the-slackers-who-changed-the-world-436651.html .
22. Howe and Strauss, “The Next 20 Years.”
23. Ibid.
24. Sydney Jones and Susannah Fox, “Generations Online in 2009,” Pew Internet &
American Life, January 28, 2009, http://pewresearch.org/pubs/1093/generations-
online (accessed May 7, 2010).
25. Ibid.
26. Rainie, “Baby Boomers.”
27. “The New Consumer Behavior Paradigm,” PricewaterhouseCoopers,
http://www.pwc.com/us/en/retail-consumer/publications/the-new-consumer-
behavior-paradigm.jhtml .
28. Tom Rosenstiel, “Millennials, Media and Information,” panel discussion transcript,
Pew Research Center, February 24, 2010, http://www.pewresearch.org/
pubs/1516/millennials-panel-two-millennials-media-information
(accessed April 26, 2010).
29. Neil Howe, “Portrait of the Millennials,” panel discussion transcript, Pew Research
Center, February 24, 2010, http://pewresearch.org/pubs/1515/millennials-panel-
one-transcript-portrait-of-the-millennials (accessed April 26, 2010).
30. Morley Safer, “The ‘Millennials’ Are Coming,” CBSNews.com, November 11,
2007, http://www.cbsnews.com/stories/2007/11/08/60minutes/main3475200.
shtml
296 | references
the shift
31. Danah Boyd, “Millennials, Media and Information,” panel discussion transcript,
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32. Paul Taylor and Scott Keeter, eds., “Millennials: Confident. Connected. Open to
Change,” Pew Research Center, February 2010, http://pewsocialtrends.org/assets/
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33. Boyd, “Millennials, Media and Information.”
34. Amanda Lenhart, “Millennials, Media and Information,” panel discussion
transcript, Pew Research Center, February 24, 2010, http://pewresearch.org/
pubs/1516/millennials-panel-two-millennials-media-information
(accessed April 26, 2010).
35. Celia Berenguer, June Delano, and Karin Stawarky, “Catalyst for Change: The
Impact of Millennials on Organizational Culture and Policy,” Monitor Group,
2009.
36. Boyd, “Millennials, Media and Information.”
37. Chris Dede, “A Seismic Shift in Epistemology,” EDUCAUSE Review 43, no. 3
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38. Nicolas Carr, “Is Google Making Us Stupid?” The Atlantic. July/August 2008,
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stupid/6868/ .
39. Don Tapscott, “The Impending Demise of the University,” Edge, June 4, 2009,
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40. Rosenstiel, “Millennials, Media and Information.”
41. “Global Developer Population and Demographics,” Evans Data Corporation, 2009.
42. Ibid.
43. Dan Frommer, “Apple on Track for $1 Billion of iPad Revenue in its First Quarter,”
Business Insider, May 3, 2010.
44. “Apple Predicted to Sell 21M iPads in 2011,” The Online Reporter, September 24, 2010.
45. “iPad is Driving Netbook Prices down to $200,” The Online Reporter, October 22, 2010.
46. “The iPad Will Eat Your Time, Your PC and Every Other Device,” The Online
Reporter, May 14, 2010.
47. Neil Hughes, “Developer Says iPad Downloads Are 5% of iPhone Share on App
Store,” AppleInsider, April 30, 2010.
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the shift
48. “Here’s How Much Apple REALLY Makes on the App Store,” Business Insider,
June 23, 2010.
49. Farhad Manjoo, “Do You Think Bandwidth Grows on Trees?” Slate.com,
April 14, 2009.
50. In the Crossfire: Critical Infrastructure in the Age of Cyber War, McAfee, 2009.
51. Ibid.
52. Alison Diana, “Most Social Networkers Post Private Data,” InformationWeek,
May 5, 2010.
53. Christopher Vollmer, “Digital Darwinism,” Booz & Company, 2009,
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54. “The comScore Data Passport: First Half 2010,” comScore, February 26, 2010,
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55. Jon Gibs and Sean Bruich, “Advertising Effectiveness: Understanding the Value of
the Social Media Impression,” The Nielsen Company and Facebook, April 2010,
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56. “Profiting from Friendship,” The Economist, January 28, 2010.
57. Gibs and Bruich, “Advertising Effectiveness.”
58. “Profiting from Friendship.”
59. “Study Finds Behaviorally-Targeted Ads More Than Twice as Valuable, Twice as
Effective as Non-Targeted Online Ads,” press release, Network Advertising Initiative,
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60. Nicky Smith, “Mobile Advertising Sales to Grow Tenfold by 2015, Informa Says,”
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61. “Smartphones to Outsell PCs in 2012,” The Online Reporter, October 8, 2010.
62. Morgan Stanley, “Ten Questions Internet Execs Should Ask & Answer,” Web 2.0
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63. Tomi Ahonen, “How to do Clever Mobile Advertising in 2010? Don’t copy web!”
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64. Tomi Ahonen, “Everything you ever wanted to know about mobile but were afraid
to ask,” Communities Dominate Brands blog, http://communities-dominate.
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but-were-afraid-to-ask.html .
65. Tomi Ahonen, “Deeper insights into the 7th Mass Media channel, mobile is to
the internet, what TV is to radio,” Communities Dominate Brands blog,
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66. “We’ve officially acquired AdMob!” The Official Google Blog, May 27, 2010,
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67. “mobiThinking Guide to Mobile Advertising Networks (2011),” mobiThinking,
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68. Jamie Wells, “Accelerating the Purchase Funnel with Mobile Advertising,”
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November 17, 2010.
69. Joseph Menn, “Apple likely to avoid antitrust battles,” Financial Times, June 10, 2010,
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70. IAB Internet Advertising Revenue Report: 2009 Full-Year Results, Interactive
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71. Colin Gibbs, “The In-App Advertising Landscape,” GigaOM Pro, June 28, 2010,
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72. “Watermark delivers a printed code via mobile app,” gxpress.net, April 18, 2010,
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73. Colin Gibbs, “Why 2010 Still Won’t Be the Year of Mobile Advertising,” GigaOM Pro,
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year-of-mobile-advertising .
74. “MOBI 2010 Best Location-Based Mobile Campaign Finalist: ChaCha,”
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75. Scott A. Jones, “Mobile Search: From Unpredictable Results to Definitive Answers,”
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76. Platform Status Report: An Interactive Television Advertising Overview, Interactive
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77. Michael Learmonth, “Hulu’s a Towering Success—Just Not Financially,” Advertising
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the shift
78. Ibid.
79. “Hulu’s Business Model,” http://www.hulu.com/about/media_faq .
80. Janko Roettgers, “Hulu Brings in the Dough: $240M in Revenue in 2010,”
GigaOM, http://www.gigaom.com/video/hulu-brings-in-the-dough-240m-of-
revenue-in-2010 .
81. Ibid.
82. IAB, “Platform Status Report.”
83. “ABC iPad app syncs with ‘My Generation’ Using Audio Watermarks,” MacNews,
September 19, 2010, http://macnews.desinformado.com/2010/09/abc-ipad-app-
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84. Cynthia Littleton, “Biz sees decade of tumult,” Variety, December 18, 2009,
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4&categoryid=-1 .
85. Paul Farhi, “Click, Change,” The Washington Post, May 17, 2009,
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AR2009051404522_pf.html .
86. The Battle for the North American (US/Canada) Couch Potato: New Challenges and
Opportunities in the Content Market, The Convergence Consulting Group, April 2010,
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87. “Television, Internet and Mobile Usage in the U.S.,” Nielsen, December 18, 2009,
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ThreeScreenReport_US_2Q09REV.pdf .
88. James McQuivey, “Google TV Is A Bigger Deal Than You Think,” Forrester
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10-google_tv_bigger_deal_you_think .
89. The Battle for the North American Couch Potato, The Convergence Consulting Group.
90. Stuart Elliott, “Marketers Welcome Television’s Shift to a 52-Week Season,” The New
York Times, May 12, 2008, http://www.nytimes.com/2008/05/12/business/
media/12adcol.html .
91. Farhi, ”Click, Change.”
92. Ibid.
93. Ronald Gover, Tom Lowry, and Cliff Edwards, “Revenge of the Cable Guys,”
Business Week, March 22–29, 2010.
300 | references
the shift
94. Lynette Rice, “‘In the Motherhood’: Thanks, but no thanks, for your ideas,
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the-mother-1/ .
95. Clay Shirky, “The Collapse of Complex Business Models,” April 2010,
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models/ .
96. Michael Greeson, “Profiling Online Video Viewers,” GigaOM Pro, April 5, 2010,
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97. Littleton, “Biz Sees Decade of Tumult.”
98. Nellie Andreeva, “Development Wheels Coming Off,” Hollywood Reporter,
December 17, 2007.
99. Andreeva, 2007.
100. Bill Carter, “Weighty Dramas Flourish on Cable,” The New York Times, April 4, 2010,
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101. Roettgers, “Hulu Brings in the Dough.”
102. Kit Eaton, “Repackaging TV: How Hulu Turns a Profit,” FastCompany.com, July 16,
2010, http://www.fastcompany.com/1670893/hulu-plans-ipo-but-where-in-finances-
does-cash-income
103. Roettgers, “Hulu Brings in the Dough.”
104. Wayne Friedman, “NBC: Revs Up, Profits Down, Cable Nets Money Spinners,”
MediaDailyNews, April 19, 2010, http://www.mediapost.com/publications/?art_
aid=126319&fa=Articles.showArticle .
105. Ryan Nakishima, “Despite Declining Share of Profits, TV Networks Bet More on
Programs,” Washington Examiner, June 2, 2010.
106. Nellie Andreeva, “More Retrans Disputes on Horizon,” Hollywood Reporter,
January 3, 2010.
107. Nakishima, “Despite Declining Share of Profits.”
108. Shirky, “The Collapse of Complex Business Models.”
109. Paul Sweeting, “TV Apps: Evolution from Novelty to Mainstream,” GigaOM Pro,
May 17, 2010, http://pro.gigaom.com/2010/05/tv-apps-evolution-from-novelty-to-
mainstream/ .
110. Tom Simonite, “Yahoo Brings Apps to TVs,” Technology Review, September 15,
2010, http://www.technologyreview.com/communications/26295/?a=f .
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the shift
111. Ibid.
112. “Netflix Uses 20% of US Internet Bandwidth,” The Online Reporter, October 29, 2010.
113. Liesdamnliesandstatistics.com, September 24, 2010.
114. Brian Stelter, “Netflix to Pay Nearly $1 Billion to Add Films to On-Demand Service,“
The New York Times, August 10, 2010, http://www.nytimes.com/2010/08/11/
business/media/11netflix.html?src=busln .
115. “Connected Consumer Market Overview, Q1 2010,” GigaOM Pro,
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116 Brad Stone, “Calling on Sony and Others, Google Makes a TV Move,” The New York
Times, May 20, 2010, http://www.nytimes.com/2010/05/21/technology/21google.
html .
117. O’Neill, Jim, “Sony cuts Google TV price $100; trouble in paradise for smart TV
play?” FierceIPTV, November 29, 2010, http://www.fierceiptv.com/story/sony-
cuts-google-tv-price-100-trouble-paradise-smart-tv-play/2010-11-29 .
118. Jim O’Neill, “Google TV, price cuts and slow retail sales; what’s its future?,”
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119. Cory Treffiletti, “Upfronts? We’re Talking About Upfronts?” Online Spin,
June 9, 2010, http://www.mediapost.com/publications/index.cfm?fa=Articles.
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120. Paul Sweeting, “Google TV: Overview and Strategic Analysis,” GigaOM Pro, May 27,
2010, http://pro.gigaom.com/2010/05/google-tv-strategic-analysis/ .
121. Matt Burns, “Amazon Unveils $.99 Fox And ABC TV Show Purchases. Apple
Fanboys say wha?” CrunchGear, September 1, 2010, http://www.crunchgear.
com/2010/09/01/amazon-unveils-99-fox-and-abc-tv-show-rentals-apple-fanboys-
say-wha/ .
122. Paul Sweeting, “Apple’s Path to the Living Room,” GigaOM Pro, July 15, 2010,
http://pro.gigaom.com/2010/07/apples-path-to-the-living-room/ .
123. Ibid.
124. Ibid.
125. Pete Cashmore, “Why It’s Prime Time for Apple TV,” CNN.com, June 4, 2010.
126. “The comScore Data Passport: First Half 2010.”
302 | references
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127. “The comScore Data Passport: Second Half 2010,” comScore, September 20, 2010,
http://www.comscore.com/Press_Events/Presentations_Whitepapers/2010/
comScore_Data_Passport_-_Second_Half_2010 .
128. Jay Yarow and Kamelia Angelova, “CHART OF THE DAY: Facebook Passes Google
In Time Spent On Site For First Time Ever,” Business Insider, September, 9, 2010,
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yahoo-2010-9 .
129. Jon Gibs, “Social Media: The Next Great Wave for Content Discovery,”
nielsenwire, October 5, 2009..
130. Ibid.
131. Om Malik, “Why Google Should Fear the Social Web,” GigaOM Pro, October 29, 2009,
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132. Jones, “Mobile Search.”
133. “Global Advertising: Consumers Trust Real Friends and Virtual Strangers the
Most,” nielsenwire, July 7, 2009, http://blog.nielsen.com/nielsenwire/consumer/
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134. “Boomers and Technology,” AARP and Microsoft.
135. John Goalby, “Twitter destined to replace Google Search,” Twitip.com,
http://www.twitip.com/twitter-destined-to-replace-google-search/ .
136. Jason Kincaid, “The Facebook Privacy Fiasco Begins,” TechCrunch, December 9,
2009, http://techcrunch.com/2009/12/09/facebook-privacy/ .
137. Mary Madden and Aaron Smith, “Reputation Management and Social
Networking,” Pew Internet & American Life Project, May 26, 2010,
http://pewinternet.org/Reports/2010/Reputation-Management/Introduction.
aspx?r=1 (accessed June 14, 2010).
138. “2009 Study: Consumer Attitudes about Behavioral Targeting,” TRUST
e-sponsored survey conducted by TNS, March 4, 2009.
139. Diaspora home page, June 14, 2010, http://www.joindiaspora.com/ .
140. Jim Nichols, “Social Media: The next generation,” iMediaConnection, June 10,
2010, http://www.imediaconnection.com/printpage/printpage.aspx?id=26912 .
141. 2010 Social Gaming Research, Information Solutions Group, January 2010,
http://www.infosolutionsgroup.com/2010_PopCap_Social_Gaming_Research_
Results.pdf .
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142. Elizabeth Harz, Electronic Arts Keynote, Mobile Marketing Forum, New York,
June 9, 2010.
143. “A Brief History of Game Console Warfare,” Business Week, October 16, 2006.
144. “2009 U.S. Video Game Industry and PC Game Software Retail Sales Reach $20.2
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com/press/releases/press_100114.html .
145. Ibid.
146. Barb Dybwad, “Portable Gaming: Can Apple Take Down Nintendo and Sony?”
Mashable.com, September 9, 2009, http://mashable.com/2009/09/09/apple-
portable-gaming/ .
147. “AdMob Mobile Metrics Report.”
148. Joshua Topolsky, “The next Apple TV revealed: cloud storage and iPhone OS
on tap...and a $99 price tag,” engadget, May 28, 2010, http://www.engadget.
com/2010/05/28/the-next-apple-tv-revealed-cloud-storage-and-iphone-os-on-
tap/ .
149. Hiroko Tabuchi, “Apple’s Shadow Hangs over Game Console Makers,” The New York
Times, September 26, 2009.
150. Daniel Terdiman, “At GDC, iPhone game development breaks out,” CNET News,
March 8, 2010, http://news.cnet.com/8301-13772_3-10465246-52.html .
151. The MorningBridge.com, October 13, 2010.
152. “State Of Game Development Survey Reveals iPhone Support Surge, Wii Lull,”
Gamasutra, February 5, 2010, http://www.gamasutra.com/view/news/26846/
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Lull.php .
153. Jared Newman, “Yes, Sony, You Are Competing With the iPhone,” Technologizer,
August 19, 2009, http://technologizer.com/2009/08/19/yes-sony-you-are-
competing-with-the-iphone/ .
154. Wanda Meloni, “The Next Frontier - Female Gaming Demographics,”
Gamasutra, March 30, 2010, http://www.gamasutra.com/blogs/
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Demographics.php?awesm=otf.me_u .
155. Wagner James Au, “Virtual Worlds: Trends and Opportunities,” GigaOM Pro, July 13,
2009, http://pro.gigaom.com/2009/07/virtual-worlds-trends-and-opportunities/ .
156. Michael Dowling, “Social Gaming - the missing link,” SkipLogik, May 13, 2010,
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304 | references
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the shift
173. Symantec, Symantec Global Internet Security Threat Report, Volume XV,
April 2010.
174. Diana Manos, “IT to Play Key Role in Healthcare Change, Leaders Say,” Healthcare IT
News, May 6, 2010.
175. Bernie Monegain, “CIOs Expect Boost in IT Budgets, Staff,” Healthcare IT News,
March 29, 2010.
176. Bernie Monegain, “Nurses Bogged Down in Paperwork,” Healthcare IT News, March
29, 2010.
177. John Morrissey, “Before They Were Famous,” ModernHealthcare.com, June 14, 2010.
178. Besta Shaniker, “Five Ways to Reduce $3.6 Trillion Healthcare Waste in the US,”
International Business Times, June 14, 2010.
179. “Survey: Consumer Support for EHRs Low,” Health Data Management, June 14, 2010.
180. Patty Enrado, “Survey Points to Growing Appeal of PHRs,” Healthcare IT News,
May 6, 2010.
181. Mike Miliard, “Healthcare Data at Risk,” Healthcare IT News, May 6, 2010.
182. Monegain, “CIOs Expect Boost.”
183. Mike Miliard, “Healthcare Top Target for Hackers,” Healthcare IT News, February 24,
2010.
184. Molly Merrill, “Younger Docs EMR Ready,” Healthcare IT News, December 31, 2009.
185. Kyle Hardy, “Telehealth Boosts ICU for Rural Hospitals,” Healthcare IT News, June 2,
2010.
186. “The Doctor is (Plugged) In,” Bloomberg Businessweek, June 26, 2006.
187. Molly Merrill, “iPad can accelerate new era of care,” Healthcare IT News, June 2, 2010.
188. “Digital Monitoring Helps Patients Manage Blood Pressure, Study Says,”
iHealthBeat, May 25, 2010.
189. Enrado, “Survey Points.”
190. “Law Enforcement Needs a Standards-Based Communications Infrastructure,”
Government Technology, May 28, 2010.
191. Shifthappens.wikispace.com.
192. Russell Nichols, “E-Government Score Remains at All-Time High,” Government
Technology, January 26, 2010.
193. Brian Womack, “Facebook Users Help Predict Republican Election-Night
Victories,” Bloomberg, November 3, 2010.
306 | references
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the shift
215. Geoffrey A. Fowler and Jeffrey A. Trachtenberg, “‘Vanity’ Press Goes Digital,”
The Wall Street Journal, June 3, 2010.
216. Lauren Padia and Alex Baumgardner, “Don’t Steal This Video: Internet Piracy Grows,”
Medill Reports: Chicago, June 3, 2010.
217. Ibid.
218. Dennis Carter, “Not Everyone Ready for the Digital Textbook Revolution,”
eCampus News, June 2, 2010.
219. Dennis Carter, “Community Colleges Turn to Online Classes as Enrollments Spike,”
eCampus News, April 16, 2010.
220. Ibid.
221. James Vaznis, “Virtual Schools Soon Reality in Mass.,” The Boston Globe, May 5, 2010.
222. Dennis Pierce, “Survey Reveals Gaps in School Technology Perceptions,” eSchool News,
May 5, 2010.
223. Sharon Jayson, “Are Social Networks Making Students More Narcissistic?”
USA Today, August 25, 2009.
224. Donald Bell, “Can Apps Make Kids Smarter?” CNET News, June 3, 2010.
225. “Study: Too Few Schools Are Teaching Cyber Safety,” eSchool News, February 26, 2010.
226. Randolph E. Schmid, “Study: Multitaskers Do It Badly,” USNews.com, August 24,
2009.
227. Teddy Wayne, “Teenagers Text More Than They Call,” New York Times, May 23,
2010.
228. Bell, “Can Apps Make Kids Smarter?”
229. Matt Richtel, “Hooked on Gadgets, and Paying a Mental Price,” New York Times,
June 6, 2010.
230. “Researchers: Even Violent Video Games Can Be Learning Tools,” eSchool News,
May 28, 2010.
231. Pierce, “Survey Reveals Gaps.”
232. Laura Devaney, “Online Safety Report Discourages Scare Tactics,” eSchool News,
June 7, 2010.
233. EDUCAUSE Current Issues Survey, 2009.
234. Dennis Carter, “Survey: ‘Digital Natives’ Need More IT Support,” eSchool News, April
22, 2010.
235. “State of the CIO Survey,” CIO magazine, 2009-2010.
308 | references
the shift
236. Bob Evans, “ConocoPhillips And Harrah’s Put CIO Positions on Ice,”
Information Week, April 1, 2009.
237. “State of the CIO Survey.”
238. PricewaterhouseCoopers, “Trial by Fire,” 2009.
239. Bob Evans, “Global CIO: IBM’s New CIO Sheds Light on Priorities and Plans,”
Information Week, November 4, 2009.
240. Stoyan Bojinov, “ETFs for the ‘Next 11’ Economies”, ETFdb, November 23, 2010.
241. “Mexico Marks Revolution Centennial Amid New Struggles,” The Age, November
21, 2010, http://news.theage.com.au/breaking-news-world/mexico-marks-
revolution-centennial-amid-new-struggles-20101121-182at.html .
242. David Agren, “Mexico’s $80M Boom Industry: Bulletproof Cars,” USA Today,
November 16, 2010.
243. J. Cox, “Mexican Gangs Reportedly Use YouTube,” November 6, 2010.
244. Mark Stevenson, “Mexico Violence Costs $350K Daily in Natgas Losses,”
Associate Press. November 11, 2010.
245. “Mexico Marks Revolution Centennial Amid New Struggles.”
246. “Ten High Tech Hot Spots,” The Next Silicon Valley, August 11, 2010.
247. Research and Markets: Mexico Telecommunications Report Q4 2010,
Business Wire, November 23, 2010, http://www.businesswire.com/news/
home/20101123006653/en/Research-Markets-Mexico-Telecommunications-
Report-Q4-2010 .
248. Crayton Harrison, “America Movil CFO Sees 50 Million Potential Mexico Mobile
Banking Users,” Bloomberg, November 23, 2010, http://www.bloomberg.com/
news/2010-11-23/america-movil-cfo-sees-50-million-potential-mexico-bank-
users.html .
249. Bill Wilson, “Running the 2016 Rio Olympics”, BBC News, November 23, 2010.
250. Ibid.
251. Juan Forero. “Brazil’s Middle Class Takes Flight,” The Washington Post,
November 4, 2010.
252. Jeff Swicord. “In Brazil, Economic Reforms, Social Programs Expand Middle
Class,” VOANews.com, November 1, 2010.
253. Forero, “Brazil’s Middle Class Takes Flight.”
254. “ATG Powers Successful Web Re-Launch for Netshoes,” Business Wire,
November 23, 2010.
references | 309
the shift
255. Molly McHugh, “LinkedIn Growing at a Member per Second,” Digital Trends,
November 18, 2010.
256. Erik German, “The Internet’s New Billion,” GlobalPost, November 15, 2010.
257. Gabriel Elizondo, “Media in Relation to Brazil’s Election,” November 16, 2010.
258. Frederic Lardinois, “Facebook Growing Fast in Brazil, but Orkut Still Far Ahead,”
ReadWriteWeb, October 7, 2010.
259. Ronny Kerr, “Facebook Links Accounts with Mixi in Japan,” Vator News,
October 29, 2010.
260. “Mobile Penetration Rate Topped 100% in October,” TeleGeography’s CommsUpdate,
November 22, 2010, http://www.telegeography.com/cu/article.php?article_
id=35284 .
261. “Mobile work: A way to earn money by texting,” The Economist, October 28, 2010.
262. “Mobile Web Set to Make Global Impact,” warc, November 18, 2010,
http://www.warc.com/News/TopNews.asp?ID=27517 .
263. Patrick Nixon, “Brazil Could See First Sub-US$100 Smartphone in 2011,”
Business News Americas, November 18, 2010.
264. “Mexico’s Type 2 Diabetes Market will Exceed $1.2 Billion in 2014,”
Decision Resources, November 15, 2010.
265. Jack Boulware, “The Orkut Effect,” American Way, November 1, 2010.
266. “Mobile Penetration Rate Topped 100% in October.”
267. “Research: eMarketer predicts ad spending growth in LatAm of 6-9% annually
through 2014,” Portada, November 18, 2010.
268. Gordon Hanson, “Why Isn’t Mexico Rich?” UC San Diego and NBER,
September 2010.
269. Ibid.
270. “Doing Business 2011,” The International Bank for Reconstruction and
Development/The World Bank, 2010.
271. Mike Dorning, “US Loses No.1 to Brazil-China-India Market in Investor Poll,”
Bloomberg, September 20, 2010.
310 | references
the shift
272. “Brazil the Next Emerging Technology Market – Has a $1.6 Trillion Economy,”
The Next Silicon Valley, May 12, 2010, http://thenextsiliconvalley.com/articles-
reports/technology-development/brazil-next-emerging-technology-market-has-
16-trillion-econo .
273. “Ten High Tech Hot Spots,” The Next Silicon Valley, August 11, 2010.
274. Alexandre Marinas. “Apple’s iPhone Void Leaves Brazil Begging,” Bloomberg
Opinion, November 29, 2010.
275. Ibid.
276. Matt Rhodes, “Brazil Tops League of Social Media Users,” June 17, 2010.
277. Marinas, “Apple’s iPhone Void.”
278. Beecher Tuttle, “$1,500 iPads Flying Off Shelves in Brazil,” TMCnet,
December 3, 2010.
279. Marinas, “Apple’s iPhone Void.”
280. ,“IT Spending in Brazil to Reach $134.2bn in 2014,” The Next Silicon Valley,
September 16, 2010.
281. “Global Developer Population and Demographics Report,” Evans, 2010.
282. Verne G. Kopytoff, “For PayPal, the Future is Mobile,” The New York Times,
November 28, 2010.
283. Ibid.
284. Clint Boulton, “Google, Apple Joust for Mobile Payments via Android, iPhone,”
eWeek.com, August 21, 2010.
references | 311
the shift
312 | references
Allison Cerra is
Vice President of Marketing,
Communications and Public
Affairs for Alcatel-Lucent in the
Americas Region. In this capacity,
Allison oversees marketing
strategy and communications
and engages with North and
South American service providers
on go-to-market approaches
to drive revenue and/or reduce
churn. Allison has more than
15 years of telecommunications
experience in marketing, sales
and product management
functions across service provider
and equipment vendor industries.
She holds two Bachelors
degrees from the University of
South Florida and Masters of
Business Administration and
Telecommunications degrees
from Southern Methodist
University.
Christina James is a
Director of Solutions Marketing
at Alcatel-Lucent with 15 years
experience in marketing
and communications in the
technology sector. She has
helped define, launch and
support strategic solutions for
carriers and for enterprises,
particularly in the education and
healthcare markets. She has also
worked as a marketing consultant
and freelance writer. Christina
has Bachelor of Arts degrees
in journalism and English from
Southern Methodist University
and a Master of Arts degree in
American literature from the
University of Texas at Austin.
www.theshiftonline.com