Mobile app stores - nice, but where's the money?

I love app stores! I used to (try to) use one back in the early days of mobile phones being able to run other applications - but it was hard! Now I'm a committed Apple iPhone app store customer!

But, even as I use these, I realized that many of the phone manufacturers and mobile carriers, as they rush to create their own app stores, may be missing a larger picture. An app store where you sell 99 cent applications and keep a few cents each -- unless you’ve sold over a billion from a selection of 65,000 , as Apple has recently done -- is a big ho-hum (or, at best, a “that’s nice”) to the CFO of a major carrier or manufacturer. Plus, one more online app store in the cloud is nice, but hardly revolutionary. But carriers, especially mobile operators, who are looking to implement both truly usable customer self-care as well as provide platforms for the “double sided business models” that we have all been talking about should look again at the app store platform. It is, as AT&T recently showed, an excellent way of distributing its customer self-care software (see http://www.billingworld.com/blogs/nextgen/blogdefault.aspx).

And, what better channel to offer services to consumers and a platform for transactions with the businesses they deal with every day? Then, combine it with mobile financial services and transactions – killer.

BSS/OSS Sales vs. Revenue During a Recession – A Simple Model and Explanation

As industry analysts, we at always do our best to forecast accurately the market size for various Billing and OSS markets and do so in our yearly Market Reviews and our special Outlook reports. Besides the normal issues of trying to be accurate in the present market size and shares of the software providers, we also forecast the growth (or diminution) of each sub-segment of the market. To do this, we take into account vendor-supplied data, macro-economic forecasts, CSP spending patterns, historical trends, and other, softer data. But what is it we really forecast? Revenue or sales? It’s actually revenue – we try to put everything in generally accepted accounting principles (GAAP) revenue terms. These are the kinds of numbers that are reported by public companies in their annual reports – they are what companies call the “top line.”

CFOs and product managers in software (and all other) companies spend a lot of time worrying about revenue, which is related to sales, but is not at all the same. Sales are “booked” when the customer signs a contract. Revenue is “recognized” in a way that is much more complicated – especially for software sales. During times of relatively smooth growth, yearly revenue (roughly, from sales of products this year + sales of products contracted for some time in the past, and now fully delivered + maintenance for that year + other professional services contracts completed this year) lags yearly sales (of new products, maintenance, and services) by some time – perhaps by a few months (for simple product sales that are delivered and accepted quickly) or perhaps by a few years (if it is a large, complex contract with multi-stage delivery, none of the revenue can be booked until ALL of the items have been delivered and accepted, and the customer has signed off on all services – in other words, everything in the contract has to be completed and signed off on before any of the revenue can be recognized).

So what does this mean? In the case where there is a recession, there is a flywheel effect on the revenue (or hysteresis, for the engineers and physicists out there) that smooths it out. Take a simple case of a company whose sales are growing by about 14% per year, before and after a two year recession. As seen below, the revenue is rising yearly, along with the product revenue and the total revenue. (I’ve assumed a simple model here where half the projects are completed within the year they are sold, and half the next year. Maintenance is assumed at 20% of purchase price.). Then along comes a recession, where sales drop to only 85% of the previous year’s sales and stay there for two years. Of course, the new sales curve drops. But the total revenue still continues to climb, although at a much smaller rate due to the smoothing effect of revenue recognition and the increasing maintenance base.


The smoothing effect is larger for larger companies, in general, since they tend to take on large, multi-year projects whose revenue is often deferred for some time. The effect is especially large for companies whose revenue includes a large fraction of services or custom work, like Amdocs and Telcordia (such companies also have the ability, during a sales downturn, to focus their development and delivery resources on completing contracts that may be lingering, boosting revenue) For smaller, very product-focused companies, who may be deriving 80% or more of their revenue in-year, a recession can be devastating to their “top line.” But, when times get good, their numbers recover more quickly, while the smoothing effect for the larger companies mean a longer recovery time for their numbers.

Why this complex relationship? Why does a company have to deliver it ALL to recognize ANY revenue? Because regulations were put into effect after the excesses of the dot-com era where some software firms were recognizing revenue when very little of the work had been done on the contract, then something would happen, and the contract was not completed. So now, a company may find itself in the strange situation of having delivered almost all of the components of a contract, perhaps even having been paid most of the money, but unable to “recognize” any of the revenue. Of course, revenue recognition is much, much more complicated than I’ve described here, and varies among the countries of the world, so if you are further interested, talk to your product manager or CFO.

If you want to play with this simple model of sales and revenue before, during, and after a recession, please e-mail me at mark.mortensen@analysysmason.com and request a copy of the spreadsheet that generated the chart above.

A new telecom analyst and the process of forcasting

I just finished up my first major report since joining Analysys Mason, it's description is located at http://www.analysysmason.com/Research/Programmes/Telecoms-software/Service-Fulfilment/ . It is almost 50 pages of text, diagrams, and charts that show my projections of the market for systems in the Order Management, Inventory, Activation, and Engineering Tools markets.

It was a fascinating experience to make such projections, and to gather information about the current sales and strategies of the various vendors. Most of the public company vendors are too large to report at the detail that I needed while the small companies are private, and often do not report any financials. So how do we do it? A number of vendors give us reasonable access to data on their sales at a remarkable level of granularity - all under tight non-disclosure, of course. These data serve us well as we try to put together the puzzle of the market size, along with estimates of revenue we can make ourselves, sometimes just from the number of employees of a company! It's actually rather scientific, but with a fair amount of windage - that's why industry analysts tend to be people who have been around an industry for a long time.

Customer Self-Care Done Right!

On the second day of the TelesStrategies conference on Customer Self-Care and Customer Experience Management was a wonderful talk by cBeyond. They are a VoIP and It provider to SMBs in selected cities in the US. They REALLY provide self-care! User interfaces to allow the customers to do almost anything themselves. But what really set cBeyond apart was its approach to training their customers to use the self-care facilities. The first month after a customer signs up for service, they send out a CSR to the customer premises to train the customer on how to use the self-care interface! Then they give their CSRs a method of remotely controlling a computer on the customers' premises so that they can see what the customer is doing and help them - or even do it for them! Bravo cBeyond!

Customer Self-Care - "You're on Your Own" or "You Asked for It!"?

This week I'm at the TeleStrategies conference on Customer Self-Care and Customer Experience Management. There have been a lot of good talks, mostly from the carriers. I picked up some good date - peak of self-care use is in the 28 year old crowd, dropping off fast with age after that - self-care users are 14% less likely to churn - only about 13% of self-care users are web, with IVR much more - when a customer has a good experience, they tell, on average, 3.5 people. If they have a bad experience, they tell 7! - electronic bill presentment is about as important to medium to large businesses as on-line service ordering is. But what is really striking is the attitude of many of the carriers. While companies such as Allstate, Zappos, Netflix and others talk about how to enhance the customer experience through self-care and good CEM, many (but certainly not all) of the carriers use words more about how to move customers to self-care because it is cheaper. One speaker for a major mobile carrier was actually brave enough to describe an abortive program where they charged their low-end prepaid customers $2 to call a CSR! That didn't last long - it immediately increased their defection rate! Maybe more good stuff today.

Mortensen's Law of Maximum Ambiguity

I'm taking a break from writing a large report for Analysys Mason: "Service Fulfillment Market 2008 to 2013." So I thought I would share something I've quoted occasionally to my friends - a "law" of nature that has some remarkable predictive abilities. I've somewhat immodestly named it "Mortensen's Law of Maximum Ambiguity " (been searching for a pithier name - any ideas?).

MORTENSEN'S LAW OF MAXIMUM AMBIGUITY
In any situation, what will happen next is whatever will leave you maximally confused as to what the best course of action is.

Simple example:
You know that if "A" happens, you know you should do "Z." If "B" happens, then "Y."
What will happen will be a strange admixture of "A," "B," and "C" (maybe something you did not even think of) in precisely the combination that leaves you the most confused as to what is best to do next.

Try this out and see if you agree - many have reported that its predictive powers are amazing!

The TMF Certification Program – It Does What, Exactly?

The TeleManagement Forum recently announced its Compliance Certification Program, and announced that Tribold was the first company to have a product certified. The TM Forum says that the program “enables industry suppliers to test and certify their adherence to individual TM Forum frameworks and standards. Through a combination of prescribed self-testing and external verification, compliance is assessed on a graduated scale to show the level of adoption of the elements of each framework. Products which meet the rigorous standards set by the compliance tests are awarded the TM Forum Compliance Mark for each framework they successfully adopt.”

Now I understand why that’s a good thing for the TMF – revenue for the organization, more “oomph” behind their very good work on projects like MTOSI, OSS/J, their NGOSS framework, and the SID, just to name a few. These quasi-standards have been more successful (although not nearly as successful as they should be – but more on that in another BLOG later) than any other set of telecommunications industry-created standards I have seen in my 30 years in the industry. But what, exactly, will the certification mean for the buyers and users of the systems that will be conforming? Ensuring interoperability with other that meet the standard? Certainly not without rigorous testing and integration work - there’s no such thing as blind plug-and-play in interfaces as complex as they are. For the ISVs, another hurdle to get over, and another cost (and become the 21st Century equivalent of Telcordia’s old hated OSMINE program? Hmmm.).

Let’s remember that the most successful standards have been set as de facto standards in the competitive marketplace, and then “standardized” later. And, somehow, the IETF doesn’t have a certification program and seems to be getting along just fine.

Machine to Machine Mobile Interfaces - Coming faster than you think

Information Week had a good article on the new Coke Freestyle Dispenser ( see www.informationweek.com/?articleID=172301630 ). It is the best example I have seen so far of a Machine-to-Machine interface over, in this case, the Verizon Wireless network.
(Short version - dispenser with water and flavor, mixes the requested drink in real time, giving over 100 possibilities. RFID-tagged flavor cartridges. Software built on Microsoft CE, communicates daily via Verizon Wireless network with dedicated IP range to a Microsoft System Center Configuration Manager for Mobile Devices. Info on sales and re-order of supplies directly to Coke's SAP CRM system.)

Of course, as most of us believe, M2M interfaces over mobile networks are going to be a big thing in the future, representing, I believe, a great growth opportunity for the mobile operators (or maybe new, specialized operators?) over the next decade.