The Shift-Allison Cerra FINAL

The
f
Shi t
The Evolving Market, Players and
Business Models in a 2.0 World
Allison Cerra & Christina James

The Web has transformed our daily lives. While the
Internet of the 1990s was largely characterized by one-
way, text-laden information, the Web of today offers a
dynamic, interactive, multimedia experience unique to
each user. The impact on underlying networks is equally
seismic, as operators struggle to address a seemingly
insatiable broadband appetite on the part of end users.
Developers find themselves in an equally daunting

conundrum as many struggle to generate profit in a
fragmented world of devices, operating systems and
networks. Indeed, the very innovation of the Web is
threatened by the increasing cost of capital facing
network providers and a lack of profitable business
models confronting developers.
As the Web has transformed the way we interact

and communicate, so too must business models be
transformed to address these new opportunities. The
estimated $100 billion market opportunity that results
when service providers offer a growing web developer
community access to powerful network-based
capabilities fuels future innovation and creates a new
ecosystem of fruitful interdependencies. End users
benefit from a better experience, developers benefit
from a richer set of capabilities, and service providers
benefit from monetizing these currently guarded
capabilities. In the end, the impacts to larger social
concerns, including those in education, government
and healthcare, stand to redefine the landscape for
Web 2.0 citizens in a global economy.
www.theshiftonline.com
The
f
Shi t
The Evolving Market, Players and
Business Models in a 2.0 World
Allison Cerra & Christina James

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 © 2010 Alcatel-Lucent. All rights reserved.
Table of contents
Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Prologue The End of the World Wide Web as We Know It . . . . . . . . . . . . . 13
Part 1: The Generational Impact
Chapter 1 Baby Boomers: The Eternally Young . . . . . . . . . . . . . . . . . . . . . . . . 29
Chapter 2 Generation X: America’s Middle Children . . . . . . . . . . . . . . . . . . . . 41
Chapter 3 Millennials: The Digital Natives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Part 2: The 2.0 Ecosystem Stakeholders
Chapter 4 The Developer Market:

14 Million Creative Minds and Counting . . . . . . . . . . . . . . . . . . . . . . 65
Chapter 5 Through the Looking Glass of the Commercial Developer . . . . .77
Chapter 6 Through the Looking Glass of the Enterprise IT Developer . . . . 95
Chapter 7 Advertising: The Eyes Have It . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Part 3: The Consumer 2.0 Influence
Chapter 8 Video: The Next Unstable Business Model . . . . . . . . . . . . . . . . . . 129
Chapter 9 Social Networking: Monetizing Billions of Conversations . . . . . 149
Chapter 10 Gaming: Not a Spectator Sport . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
Part 4: The Enterprise 2.0 Imperative
Chapter 11 Small Business: The American Dream . . . . . . . . . . . . . . . . . . . . . . 183
Chapter 12 Healthcare: High Stakes, Higher Rewards . . . . . . . . . . . . . . . . . . . 195
Chapter 13 Government: Protector, Employer, and Servant . . . . . . . . . . . . . 209
Chapter 14 Education: The Global Achievement Race . . . . . . . . . . . . . . . . . . 221
Chapter 15 IT in the Large Enterprise: In Search of Relevance . . . . . . . . . . . 235
Epilogue The Evolved Value Chain in a 2.0 World . . . . . . . . . . . . . . . . . . . . 245
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255
the shift
forEword
foreword | 5
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6 | foreword
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> The internet has brought us to a remarkable point

in history. Many factors have converged to make the present a very disruptive
time, rich with innovation and cultural change: Moore’s Law, nearly ubiquitous
broadband, cloud computing, and social read/write technology across the
consumer and enterprise Internet.
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.
And yet the pipes are “dumb.”
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
What if telecommunications service providers instrumented their data flow?

What if they measured, monitored, analyzed and made data about the data
available for outside software developers to build services around? Not to peek
into the darkened bedrooms of movie thieves and miscreants, squandering
bandwidth and intellectual property, but to build value-added services that
everyone gains from—on top of an intelligent network.
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 research and contemporary anthropology. They discuss the
8 | foreword
the shift
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, serving the opportunities termed “application enablement” in this book, is

what network provider (and now book publisher!) Alcatel-Lucent intends to do
a lot more of in the future.
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
there is, companies that make a substantial contribution to conversations of

general interest. Their brand rides alongside all the general interest, as readers
pass the company’s contribution around to a larger number of people. That
larger group includes a smaller percentage but a larger total number of sales
prospects. And we all win. That’s the marketing model that’s emblematic of the
new Internet that this book is talking about making all the more sophisticated
through application enablement.
Alcatel-Lucent recently acquired the API database, monitoring service and news
blog—ProgrammableWeb.com, which you’ll see references to later in the book.
It’s a great place to learn about these APIs that will be mashed up with the kind
of data provided by intelligent networks ascribing to the strategy described in
this book.
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.
So that’s a picture of the upsides of this kind of application enablement on the

part of network providers, and it’s a picture that’s very well told in the following
pages. But what about the dumb pipes?
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
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prologue
The End
of the World Wide
Web as We Know It
prologue | 13
the shift
14 | prologue
the shift
> In 1999 I (Allison) was employed by one of the largest

service providers in the United States, marketing a service that was in its infancy
at the time: Digital Subscriber Line. I recall sitting in several meetings where
we held vigorous debates over how to best market this new flavor of telecom
alphabet soup—DSL—to the masses. We were eager, yet cautious, about its
potential. If successful, this service could give us a new revenue stream not seen
since the days of dial-up. At the same time, many couldn’t help but wonder if it
would ever really take off. After all, we lived in a world where email remained
the proverbial “killer app” of the Internet. Why would anyone need, yet alone
pay for, faster Internet speeds when the 56K modem was perfectly adept at
navigating a virtual world largely defined by text?
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.
Fast-forward to another historic date in broadband history: June 29, 2007.

On this date, hundreds of curious consumers lined up at retail stores across the
United States to get a glimpse of the newest device to hit the mobile scene: the
Apple iPhone. Mobile phones come and go. But there was something special
and much anticipated about the iPhone’s debut. A phone with no keyboard,
no complicated owner’s manual and no obtrusive user interface had been the
product of pipe dreams. If any company could deliver on these wildly ambitious
promises, it was Apple. And those eager consumers who waited patiently in long
lines for the next wireless “it” device would not be disappointed. Within a few
months of launch, the iPhone was home to thousands of third-party applications
that produced a ten-fold increase in traffic consumed by users. If YouTube
had revolutionized the Web from a one-way, text-laden experience to a fully
immersive multimedia playground, the iPhone had upped the ante and rocked
16 | prologue
the shift
the wireless world with new business models directed at a burgeoning developer
community. The Web 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.
The Exaflood Cometh?

The traffic explosion born on the wireline network, and quickly replicated on the
wireless front, had prognosticators spinning. Soon there was talk of a new wave
in the broadband industry, coined the “exaflood” phenomenon. The question
was simple: How much exponential traffic could the network sustain given
incremental increases in bandwidth over such a short time frame? The question
prologue | 17
the shift
was not grounded in profitability as an end pursuit; rather, it contemplated the

physical capacity constraints of underlying broadband networks.
While capacity planning is certainly important, a more fundamental question

was on the table: Who would continue to invest in networks crippled by a
seemingly insatiable broadband appetite? Look to history for the obvious
answer. Broadband networks are the product of billions of dollars invested by
service providers. For years, AT&T, Verizon, Comcast, Time Warner, Sprint,
and their communications ilk poured money into fatter and faster pipes for end
users. We witnessed broadband speeds accelerate from a paltry 768 kilobits per
second (still over twelve times faster than the fastest dial-up service) to well over
10 megabits per second. Simultaneously, wireless morphed from a voice-driven
luxury reserved for the enterprise employee or safety-conscious consumer to an
entertainment and communications necessity for the masses. And, at the time of
this writing, a new FCC administration under Chairman Julius Genachowski
has issued an industry call-to-arms to equip 100 million US households with
100 megabits per second over the next 10 years.
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
18 | prologue
the shift
offer end users a flat-rate, all-you-can-eat, monthly broadband price, cap their
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:
1 How does a service provider begin re-educating a consumer base on how

usage will be billed under this new model? The industry spent the better
part of 10 years explaining to the public what download and upload
speeds are and why they are important. Even today, with broadband levels
reaching saturation, few consumers could intelligently answer what a
megabit-per-second rate really provides, though they have been educated
that faster is better. Imagine the complexity associated with educating these
consumers on what a gigabyte is or how many gigabytes their household
consumes in a day, week, or month. Further, how do you empower the
consumer—particularly parents—to monitor their household traffic
and impose limits on children who could easily digest the monthly cap
allotment all on their own? You get the picture. Marketing bits and bytes is
complicated. Bandwidth caps add to the complexity.
2 Caps are interesting, but temporal. Today’s broadband hog is tomorrow’s
casual user. How does a service provider retain flexibility in adjusting
broadband caps dynamically as usage continues to escalate? Yet again, we
have added complexity to the system.
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
If we begin to look at the broadband network and ecosystem fundamentally

differently and more broadly, we can discover new business models that go far
beyond subscription-based billing between service providers and end users.
The Shift: 1.0 to 2.0 Differences
1.0 2.0
One-way communication Two-way experiences
Text-laden web environment Video-rich web environment
Broadband for fixed networks Broadband across any network
Flat-rate broadband pricing Metered broadband pricing
Providers aspire to develop the Ecosystem of developers leveraged

next “killer app” to create apps
The Need for a New Model

If there is one lesson the iPhone has taught us, it’s the value in exposing
intelligence—in this case, through a device—to a broad developer community.
iPhone users have much more than just a phone. They are armed with well
over 100,000 applications in their arsenal, from the most inane and obscure to
the most practical and popular. Consider the power of 100,000+ applications
limited to one device that has only reached critical mass in the past 2 years. If one
device can create this frenzy, imagine for a moment if intelligence in networks
could be exposed in the same way.
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.
For example, if consumers want to watch video they’ve purchased on different

devices, even with all the options available to them, they must be their own
systems integrators. They can load video onto a mobile video device—an iPod
or other portable player. They can hook up their PC to their television. They can
also watch video from on-demand services, like those from Amazon or Netflix,
on the PC or on TV if they have a set-top box or special Internet-equipped
DVD player. They can buy Sling hardware or software to watch their TV service
while away from home. But not all of the services users have paid for are available
across all of the available platforms. A consumer runs into the constraints of the
walled gardens offered by their iTunes, Amazon, Netflix, or TV services, and
these limits occur even after significant investment in subscription fees, digital
content rights for different platforms, and the cost of devices such as portable
digital video devices, specialized set-top boxes, PCs, HDTVs, and more.
What’s phenomenal is that despite the complexity of stringing together these

different services and devices, many consumers are doing it. They are doing it for
video, for communications, and for their social media profiles. They have already
decided it is worth their time and their money.
While they may be loyal to a particular device, such as their iPhone or

BlackBerry® smartphone or their HDTV, providers who can offer the most
seamless experience across platforms and integrate with new media will hold a
strong lure with consumers. In a Web 2.0 world, even a device like the iPhone
is, in the end, a delivery system for the applications and services that consumers
value. A business model that requires systems integration by consumers to derive
maximum value isn’t working well; yet that’s exactly what we have today.
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:
> Presence, or availability status, of an end user across any device or

network type
> Location of an end user, either exact or approximate, with geofencing
capabilities to detect customers entering a particular radius—perhaps
within a store’s footprint—and impulse coupons sent to the customer’s
mobile device as a result
> Profiling of an end user, including what websites he regularly visits, what
channels and programs he watches, and the length of time he spends with
each type of media. For those consumer advocates reading this, we will
continuously emphasize the roles of privacy, security, and permission-based
data collection as cornerstones of any business model throughout this
book. For now, we will summarize by saying that consumers must remain
in control of their profile and explicit opt-in consent must be granted to
ensure the user is protected. However, for those willing to offer some data
about their habits in exchange for more targeted offers, entertainment or
communications options, the benefits are tangible.
> Quality of Service (QoS), which can optimize an end user’s viewing
experience by adapting network performance. The Internet has been
characterized as a best-effort medium. In other words, an end user’s speed
can fluctuate depending on network performance. QoS automatically
tunes a network to provide better performance—or more horsepower—
22 | prologue
the shift
when a consumer needs it (for example, when temporarily downloading

or streaming a video clip). Imagine this capability on a mobile network,
where video transmission can be boosted and content automatically
formatted and optimized for consumption through a smaller mobile
form factor.
> Storage, which has been popularized by network-based approaches led
by Amazon and others. The service provider in this equation offers the
capability to distribute this storage closer to the end user. The more
distributed the network-based storage of content becomes, the better
the end-user experience. Think of it this way: It takes far fewer hops
across the network to download a video located closer to the end user.
The fewer hops, the faster the transmission. And service providers have
strategic storage assets located at the edge of the network, in many cases
even extending into the consumer’s home.
> Security, which can translate itself in a variety of ways. Perhaps most
obviously, the network can create a secure tunnel—or Virtual Private
Network (VPN) type of connection for those familiar with enterprise
communications—that can be maintained across a single session as a user
switches devices.
> Billing, which can manifest itself in the ability, for example, to charge
micropayments directly and securely to an end user’s service provider bill
In short, this worldview is about exposing capabilities in the network in a managed

and controlled way to a broad developer community. We call it “application
enablement” in that the network enables smart functionality that delivers greater
value to multiple stakeholders in the value chain. Developers benefit from robust
network capabilities that can fuel their next application; network providers
benefit from new revenue streams that can fund the next wave of investment; and
end users benefit from more powerful and richer applications.
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
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24 | prologue
the shift
ProgrammableWeb and through devices like the iPhone and Android™

mobile technology platform. This book provides evidence based on a
quantitative study aimed at over 1,300 developers in North America
to prove interest in and willingness to pay for these enhanced network-
based capabilities.
> You may wonder why a service provider would expose the rich
intelligence of its network, given these assets have remained the bastion
of the company’s value. In short, this is not about randomly exposing
network intelligence capabilities to the Wild, Wild West of the World
Wide Web. Instead, this is about reinserting the service provider
back into the value chain, recognizing it is just one very important
stakeholder of many in a large and complex ecosystem. This is also not
about imposing onerous controls by service providers on a developer
community such that innovation is stifled; rather, it is about enabling
collaboration between these two worlds such that both benefit. This
paradigm shift does not place the burden upon the service provider
to identify and build the next killer app. Let’s face it. If history is any
indicator, this endeavor is already in the works by someone in a garage or
dorm room. It is, however, about identifying the tangible assets within
the network that could make the next killer app even better.
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 Web 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
prologue | 25
the shift
group perseveres without damaging the larger ecosystem, others stand to benefit.
Likewise, when one group loses, its interdependencies are also at risk.
This book seeks to understand the new business models enabled through a Web
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 Web 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.
Since much of technology adoption is shaped by generational attitudes, we’ll

start with a look at Baby Boomers, Gen Xers, and Millennials to frame how
emerging behaviors are creating opportunity for seismic shifts in the value chain.
Next, we’ll take a look at disruptors within the ecosystem and those with the
greatest potential to shift business models: developers and advertisers. Finally,
since value to be extracted across an ecosystem depends on addressing an unmet
need in the market, we will cover consumers and enterprises as the critical finale
of our analysis. And, since these end-user markets are not homogeneous blobs,
we will carefully dissect the underlying motivators and challenges unique to
multiple sub-segments, including Web 2.0 behavioral groups for consumers and
specific vertical industries in the case of businesses. In the end, you as a reader
should expect a deeper understanding of the broader ecosystem implications as
business models adapt to a 2.0 influence.
Now, let’s get started.
26 | prologue
part 1
the
generational
impact
the shift
28
the shift
chapter 1
baby
boomers
the eternally
young
baby boomers: the eternally young | 29

the shift
Key Chapter Highlights
At nearly 80 million strong, Baby Boomers spend

$2.3 trillion annually, outpacing 18–39-year-olds
by 53%. Marketers shouldn’t fall into the youth
obsession trap and forget this demographic.
Baby Boomers are interested in and competent

regarding technology—particularly products and
services that serve their values and lifestyles,
including video entertainment, mobile solutions,
apps that leverage increased bandwidth to the
home, and, increasingly, social media.
Baby Boomers are redefining retirement and aging—

working longer, staying more independent, and rejecting
the notion that they should be “put out to pasture.”
In 2006, caring for aging parents took an average of

21 hours per week, which had the total economic value
of $350 billion—more than the United States spent on
Medicare in 2005. Technologies that ease that burden
have significant economic and social impact.
30 | chapter 1
the shift
> When surveying news coverage about the evolution

and future of technology, it’s easy to think that the discussion begins with
Generation X, highlights Gen Y or the Millennials, and then ends looking
forward to the next batch of youth whose name is yet to be determined—maybe
Gen Z or the proposed “Generation Alpha.” Apparently, A to Z, it’s all about the
youth when it comes to technology buzz.
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.
“The widely accepted practice of primarily targeting younger consumers is just

plain wrong. There is a clear and immediate need for marketers to rethink this
approach when it comes to serving America’s 78 million Baby Boomers, who
are now in their power years,” said Larry Jones, president of TV Land, in an
announcement of the network’s November 2006 “New Generation Gap” study.1
The demarcation for the Baby Boom years varies, but generally starts post-
WWII, running from 1946 to 1964. Current estimates of their numbers vary
from 76 million to nearly 80 million.

the shift
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.
Top 5 Cultural Events

• The birth of cable television 45%
• The creation of color television 40%
• The death of John Lennon 37%
• The disco era 33%
• The death of Elvis 29%
Top 5 Historical Events

• The Space Shuttle Challenger explosion (1986) 57%
• John F. Kennedy’s assassination 52%
• The war in Vietnam 52%
• Ronald Reagan’s term as President of the
United States 42%
• Nixon’s resignation/Iran hostage crisis /
Discovery of AIDS 38% (tie)2
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
32 | chapter 1
the shift
preferred to call themselves the “TV generation.” TV Land responded with an

advertising campaign with the tagline, “TV Land: TV for the TV Generation.”
A recurring theme in TV Land’s research points to Baby Boomers’ being invested

in staying current with technology as a badge of honor, a source of fun, and as a
way of staying connected with younger generations. They are not so old that the
pace of technology is as overwhelming or intimidating as it might be for their
parents, and not so young that they take it for granted. Baby Boomers enjoy
a true appreciation for the benefits of technological advancement and are still
actively involved in its creation and production.
Key statistics on Baby Boomers and communications

in 20084
• 74% use the Internet, up from 40% in 2000. This
comprises 36% of the Internet population and 33% of
the traffic on any given day.
• 72% own a cell phone, up from 34% in 2000
• 62% use broadband at home, up from less than 5% in 2000
• 43% connect wirelessly
• 47% use “cloud”
• 38% use video-sharing sites
• Baby Boomers and eCommerce: 81% use the Internet
to research products, 70% to make purchases, 68% for
travel reservations, and 55% for online banking
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

the shift
of respondents in the New Generation Gap Study “claimed to pay little or no

attention to ads that they felt targeted young adults while a third said that they
were actually less likely to buy those products.”6
So what do Baby Boomers want when it comes to entertainment? According to

The Mature Market, four key things: control, choice, clarity, and community.7
Control – 28% of “Joy of Tech” study respondents indicated

timeshifting (TiVo, DVRs and VoD) as the most important factor in
their decision to buy entertainment technologies. Like their younger
counterparts, they want to watch their content on their own timeline,
not the networks’.
Choice – Over 40% believe a large variety of content options at any

given time is “very important.” The benefit of variety was multiplied even
further in their minds by timeshifting.
Clarity – 58% listed “high quality viewing and listening” as very

important. Technologies that improve the quality and vividness of the in-
home experience have high value to Baby Boomers as they build “digital
nests” with dedicated entertainment spaces equipped with the latest
HDTVs and home theater gear.
Community – About one in four believe that “allowing connection

with friends and family” (21%) and “helping you keep up with
entertainment that friends and family enjoy” (25%) are “very important.”
Viewing content is seen as a community experience shared with family or
with people at work as water cooler talk.
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
Baby Boomers and Healthcare

Options, control, and a sense that they feel younger than their age will also drive
desire for home healthcare technologies that allow Baby Boomers to remain more
independent as they age and health issues increasingly affect their quality of life.
Older Boomers are constructing a new social ethic

of decline and death, much as they did with sex and
procreation in their youth. Whereas their youthful
ethos stemmed from self-indulgence, their elder ethos
will hinge on self-denial. To be sure, much of it will be
symbolic only. …[A]ging Boomers will glorify the virtues
of self-denial but personally maintain (to the extent their
incomes allow) their creature comfort indulgence.8
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.
This generation (especially its later-born members) has

experienced a much slower growth in income than the
Silent [Generation], and today faces an insurmountable
lag in average household net worth. Boomers have
neither saved as much nor been as well insured by their
employers — and they expect that public programs like
Social Security and Medicare will be cut owing to the
size of their generation.9
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.

the shift
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:
• Tracking care and quality of care

• Providing transportation
• Coordinating treatment plans between medical
providers
• Administering medications
• Supervising parents too ill to be left unattended
• Providing daily care such as cleaning, cooking, and
visitation
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
With their interest in technology and increasing integration of technology into

their homes, Baby Boomers are going to demand ways for technology to ease
these burdens for their own children and allow themselves greater quality of life
with more years of independence.
In a study commissioned by AARP and Microsoft on Baby Boomers and

technology, focus group respondents talked about some of the key healthcare
applications they want and, in some cases, are using today for themselves and
elderly relatives. One of the favorite advances was telemedicine—including in-
home consultations and monitoring. As one participant put it, “A visit to the
doctor is an entire day. [My grandmother] gets up at six in the morning to get
ready for an appointment at two in the afternoon. If we could do it at home, it
would relieve a lot of anxiety.”12
36 | chapter 1
the shift
In-home monitoring was viewed as an integral part of “aging in place” versus

having to move in with relatives or to a nursing home. In their view, in-home
monitoring would include medical devices that relay information to their doctor
and select relatives and, beyond that, monitoring of the home itself. Another
respondent said, “If there had been a monitor to tell me she hadn’t turned off the
faucet, that would have saved me about $100,000 in my mother’s apartment.”
Communications and location-based services could also help track patients
with Alzheimer’s and other conditions associated with dementia. While some
expressed concerns over the invasiveness of in-home monitoring applications,
security and control over their data and who sees it could mitigate those fears
when balanced against the greater benefits.
Many of these medical applications depend on larger advances in our national

communications infrastructure, such as:
• Increased broadband to homes to provide bandwidth

for transmitting medical data and imaging—in urban,
suburban and rural communities
• Widespread deployment and secure access to personal
health records
• Building connected health systems that expand the
scope of care securely outside hospital walls
• Enablement of all these technologies over the
mobile network
Technology is central to reducing doctor visits, facilitating information flow to

reduce the burden of record-keeping on caregivers, and making it easier for care
to be delivered in the comfort of home. Enabling more self-directed care that is
distributed away from the hospital will be even more important since the size of
the retiring Baby Boom generation will create a vacuum of workers behind it.
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

the shift
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.
As more Baby Boomers joined their children’s social networks, pundits

speculated about whether this actually would signal the end of networks like
Facebook and Twitter. One idea is that younger people would flee once they
realize Grandma is reading their status updates and checking out their party
pics. As we’ll see in our discussion of Millennials, this is not necessarily the case.
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.
Though a few early adopters may jump ship as a social

network that was once on the electronic frontier gets
swallowed up by digital suburbs, most stick around—at
least until a major new network arrives to supplant the
old one, as Facebook has done with MySpace.16
Baby Boomers are mobile!
“94% of iPhone owners are over the age of 18 and an astounding

74% of them are over the age of 25!”
Excerpt from a 27-year-old’s blog on iPhone application development
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

the shift
Putting It All Together

Wielding over $2 trillion in purchasing power, Baby Boomers will not be
ignored. Providers seeking to earn their fair share of this market should note the
following:
> Baby Boomers are living longer, more productive lives. They will not be
put out to pasture. They are America’s idealists—the eternally young.
Providers that allow them 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 should avoid overcomplicating
value propositions. This generation is the most time-starved of all.
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
generation X: America’s middle children | 41

the shift
Key Chapter Highlights:
While a smaller generation, the approximately

60 million Generation Xers are now coming into
their own, reaching the age where they are taking
the reins of corporate and political power. Gen-X
leadership will be marked by its pragmatism and
lack of sentimentality regarding institutions and
traditions. They want things how and when they
want them, without regard for inherited systems
and ways of doing things.
“They are already the greatest entrepreneurial

generation in US history; their high-tech savvy and
marketplace resilience have helped America prosper
in the era of globalization.”
With Generation X, technologies that transformed

the business world moved into the mainstream
consumer world—email, messaging, mobile phones
and video conferencing.
As workers and as consumers, the Gen-X ROI is

“return on involvement”—value for not only their
money, but also their effort, energy, time and loyalty.
“As consumers and parents on the demand side and

entrepreneurs and CEOs on the supply side, Xers will
seek new ways of removing professional middlemen
(lawyers, accountants, brokers, advisers) from
business transactions. Those along the chain who
don’t add essential value may be squeezed out.”
42 | chapter 2
the shift
> Generation X is in many ways America’s generational

middle child. Numbering around 60 million born between 1965 and 1980 (with
some experts ending the demarcation as early as 1976), it is caught between two
large and influential generations—from 76 million to 80 million Baby Boomers
and 80 million Millennials.
In a 1990 article about the newly adult Generation X, Time Magazine declared:
So far they are an unsung generation, hardly recognized

as a social force or even noticed much at all. ‘I envision
ourselves as a lurking generation, waiting in the
shadows, quietly figuring out our plan,’ says Rebecca
Winke, 19, of Madison, Wis. ‘Maybe that’s why nobody
notices us.’18
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.

the shift
Xers learned early on to distrust institutions, starting

with the family, as the adult world was rocked by the
sexual revolution, the rise in divorce, and an R-rated
popular culture. With their mothers entering the
workplace before child care was widely available, many
endured a latchkey childhood.19
Whereas the coming Millennial generation would grow up in a child-centric

society with increased parental participation and supervision, Generation X is
defined by the lack thereof. As a result, Gen X gained a reputation of “hardening
pragmatism,” self reliance, and, as they aged, cynicism and apathy. By the 1990s,
Baby Boomers were sounding the alarm that this new “slacker generation” would
never be fit to lead the nation, and the specter of Gen X slacker ambivalence was
reinforced in popular culture by movies like Clerks (1994), Reality Bites (1994),
and—of course—Slacker (1991). Early analysis of Generation X consistently
used the terms: latchkey kids, morally ambivalent, alienated, distrustful of
authority, lonely, and lost.
In 2007, author Patrick Neate wrote a defense of the “slacker generation” as

it reached middle age, arguing that despite its reputation, Generation X is a
generation of ingenuity and creativity, particularly with regard to technology.
I’m not suggesting we invented the internet. We

didn’t. Nor are we its natural heirs, which is a benefit
bestowed on our successors. We were, however, the
brave foot soldiers in the forgotten years before victory
was inevitable. Look at it this way: it wasn’t the Baby
Boomers nor those young whippersnappers from
Generation Y who tried to download movie clips over
a 9600bps connection; it was us. And it took hours
and the connection kept dropping and the clip was
pixellated to incoherence, but we kept the faith.20
And contrary to the slacker moniker, Generation X met the new technology
with adaptability and independence, which drove the entrepreneurial spirit
44 | chapter 2
the shift
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.”
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.
In jobs they prefer free agency over corporate loyalty,

with three in five saying they someday ‘want to be my
own boss.’ They are already the greatest entrepreneurial
generation in U.S. history; their high-tech savvy and
marketplace resilience have helped America prosper in
the era of globalization.21
Employee development, expanded individual benefits, and discussions of work-

life balance are now de rigueur in the corporate world, bringing about flex time,
flatter organizations, and a focus on getting the job done as opposed to putting
in the hours. This new approach influenced—and was enabled by—technology.
There’s no widespread telecommuting without VPNs, email, and audio

conferencing. Add to that multimedia and mobility applications, which then

the shift
gave rise to the smartphone. These are technologies that started in the business
world and exploded into the consumer market, changing the game for everyone.
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 consumers and parents on the demand side and

entrepreneurs and CEOs on the supply side, Xers will
seek new ways of removing professional middlemen
(lawyers, accountants, brokers, advisers) from business
transactions. Those along the chain who don’t add
essential value may be squeezed out. Sectors that
are currently sheltered from market forces, such as
agriculture, healthcare, education, and public works, may
find their long-held positions under attack.22
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.
In some ways, the challenges facing service providers—including new entrants,

alternative delivery systems, and commoditization of their resources—reflect
the tension between Baby Boomer and Generation X ways of doing business.
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
46 | chapter 2
the shift
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.
Adapt or retire. Of course, we believe service providers don’t have to be relegated

to the role of middleman. The network provides distinct advantages in this new
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.
Generation X pioneered these alternative delivery mechanisms at home as consumers

and at work as developers and businesspeople, causing ripple effects in the industry:
> 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 shift
> 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 would 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.
So what applications do Gen Xers want?
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.23 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
48 | chapter 2
the shift
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,
and 65% have recently used online banking, compared with 57% for Millennials
and 51% for Baby Boomers.24, 25 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.
Shoppers’ experience with these tools and techniques

taught them that the time invested in incorporating
the tools into the shopping experience, i.e., more
involvement in the process, yielded a significant return
(ROI) in terms of both dollar and time savings.26
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.

Gen Xers are America’s most misunderstood generation. With a fraction of the
purchasing power of either their Baby Boomer or Millennial counterparts, they
are literally squeezed in the middle of these behemoths. While they may be easy
to overlook, developers and service providers should remember:
> With the birth of the PC and video game console during their formative
years, Gen Xers are the original technology enthusiasts.

the shift
> 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). As such, 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 providers 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.
50 | chapter 2
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chapter 3
Millenials
the digital natives
millenials: the digital natives | 51

the shift
Many technologies have near ubiquity with

Millennials: texting, social media, wireless voice and
data, and online video. Most have no experience of
the world without portable, digital music and video.
The assumption that Millennials don’t care about

privacy is a false one. They have different views
of the boundaries between public and private and
a greater willingness to share, but they demand
transparency and authenticity.
Millennials have a strong belief in their importance

as individuals and as a collective generation. Social
networking appeals to their sense of community
and desire to share and crowdsource information.
“They’re used to multi-tasking, and have learned to

handle the information overload. They expect a two-
way conversation. What’s more, growing up digital
has encouraged this generation to be active and
demanding enquirers.” Interactivity and two-way
information exchange trump one-way, broadcast-
style communications and technologies.
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> Digital natives. Of all the names and characteristics

ascribed to the 80 million plus members of the Millennial generation, “digital
native” strikes at the core of what distinguishes this generation from any other
that preceded it. While Generation X grew up witnessing rapid shifts from old
to new technologies, living in a world without ever doing things the “old way”
reflects a dramatically different life experience.
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.
The landscape is so different that actually asking Millennials

or any other generation what their media use is like versus
what previous generations did is impossible to do because
tweeting and a lot of these technologies didn’t exist. We
don’t know what Gen Xers did when they were 18 in terms of
tweeting. We didn’t have tweeting then. So some of the data

the shift
that we can look at in other areas about religious attitudes,

about morality, about a host of other things that we can do
longitudinally, we can’t do when it comes to media use.27
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.
In 1982, when the first Millennials were born, we saw the

appearance of baby-on-board bumper stickers all across
America. Right? And suddenly all those child-as-devil
movies—no one wanted to watch them. It was all these
cuddly baby movies. You remember, Baby Boom and
Parenthood and Three Men and a Baby started coming out.27
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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Career services departments are complaining about the

parents who are coming to update their child’s resume.
And in fact, you go to employers, and they’re starting to
express concern now with the parents who will phone
HR, saying, “But my little Susie or little Johnny didn’t get
the performance evaluation that I think they deserve.”
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.
I’ve been required to learn more in my first 20 years of

life than you were required to learn in the first 40 years
of your life, don’t you dare look down your nose at me.
…You spent 4 years and tens of thousands of dollars
going to college, I spend 4 months and maybe $300 on
books from Amazon.com and I became equally adept.
Experience is the only thing that makes you my superior,
and even that can become a liability as your experiences
in 1978 have little bearing on the reality of 2009.
We are the most world-wise and adaptable people on

the planet so far and we lived our lives being talked
down to this way by the GenX Eeyores and their stoned
Boomer parents and we have really had enough.
My generation is poised to be the best since WWII, so mind

your p’s and q’s or we’ll take away your social security.
Some of the intergenerational bickering is simply par for the course. Every
generation thinks successive generations are sending society down the tubes with

the shift
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.
However, their comments reveal key attitudes of their generation: focus on

globalism and connectedness, adaptability, equivalency between traditional
institutions and new modes of learning and living, and a strong belief in their
individual and collective importance. Millennials have been brought up in a
world that sought to protect and preserve self esteem and to champion how
special each child is simply for being.
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:
What we’ve seen is the rise of social network sites at a

time where, starting really with teenagers, they’re in a
social situation where they don’t have the same kinds of
freedom and flexibility that we took for granted in older
generations. … Fear has been unbelievably pervasive in
what we’ve seen with teenagers, and it’s continued on into
young adults such that a lot of teenagers that I went and
interviewed, they weren’t allowed to leave their home.
This whole thing that we grew up with, you know, be on

your bike, get home by dark kind of attitude, has pretty
much disappeared. And so fear is a huge component of it. 28
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 2006.29
Social media, texting, and instant messaging also free them up to connect with
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friends in their heavily scheduled and structured lives. The Pew study also
highlighted that:
Millennials are more wireless – 62% of Millennials

reported using wireless Internet away from home
compared with just 48% of Gen Xers and 35% of Baby
Boomers. Forty-one percent of Millennials have a cell
phone, but no landline, compared with 24% of Gen Xers
and 13% of Boomers.
Millennials text more and more often – 80% of

Millennials texted in the previous 24 hours, sending an
average of twenty texts, compared with 63% of Gen Xers
(twelve texts) and 35% of Boomers (five texts)
Millennials are far more likely to have posted video of

themselves online – 20% reported doing so versus just
6% for Gen Xers and 2% for Boomers.
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.
Approach to Personal Privacy

Millennials are comfortable sharing more of themselves in an attempt to connect.
As we saw with the Pew study, more than three times as many Millennials as
Gen Xers reported posting video of themselves online. The ways in which they
judge what they have to lose and what they have to gain by exposing personal
information are driven by similar motivations as for youth in times past, but
with a new value placed on being noticed by their peers or maybe even the larger

the shift
world. In the world of reality TV and YouTube celebrities, being yourself—or a

more provocative version of yourself—could be your ticket to fame and maybe
fortune. Millenials balance that desire with how their behavior might impact
getting into college or getting a job down the road.
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.30 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.31
Millennials place a high value on transparency and authenticity. Their commitment

to being themselves entails being more open. In the past, information that you
shared in a physical gathering place—such as the school yard—would be private by
default, public through effort. The secret shared with a friend could only become
public with an active breach of trust. In the virtual meeting place, information is
public by default, private through effort. This is the system in which they grew up.
They are also accustomed to high levels of structure and supervision. The threats
of Columbine and 9/11 introduced new levels of security and surveillance, and
they have accepted these measures in the interest of safety.
Their natural inclination toward openness is changing the rules for everyone. A
2009 Monitor Group report looked at Millennials on the job.
Perhaps the most radical impact of Millennials on the

workplace will be triggered by their inclination to freely
share private information and their expectation that
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others will reciprocate. … Human resource policies and,

to a greater extent, managerial practices, tend to assume
that people won’t talk about salaries, bonuses and other
intimate details of their employment relationship. That
assumption won’t be safe as Millennials come into the
workforce with a decade or more of exposure on MySpace,
Friendster, Facebook and other social networking sites.
There’s already evidence that they will openly share salary
information, coaching conversations and development
plans—testing the integrity of the organizational systems.32
So what do they want with regard to privacy? Again, transparency. Personally,

this means: Be yourself and be who you say you are. Technologically and in
business, this means full disclosure and consistency of policies so that users are
in control of their information.33 It means clear choices to opt in and opt out. It
means when something changes, they are notified in plain language about what
has changed and how they can adapt to maintain a comfortable level of privacy.
Everything is a Two-Way Street

To the Millennial, life is about connection, exchange, and collaboration. Social
networking. Crowdsourcing. Mashups. Comments sections on news sites. They
have grown up in a world where they don’t just consume media, they actively
interact with it. They expect their voice will be heard and that it carries weight.
Information coming down from authoritative voices on high is likely to be
questioned and weighed along with their own thoughts, experiences, and research.
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.34

the shift
Recent conversations in the ivory tower have surrounded whether Millennials’

penchant for multisourcing information is a good thing. One professor at Emory
University, Mark Bauerlein, went so far as to write the book, The Dumbest
Generation: How the Digital Age Stupefies Young Americans and Jeopardizes Our
Future (Or Don’t Trust Anyone Under 30). In the article, “Is Google making us
stupid?” Nicolas Carr questions whether we are turning into the movie 2001,
where “as we come to rely on computers to mediate our understanding of the
world, it is our own intelligence that flattens into artificial intelligence.”35
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.
My research suggests these critics are wrong. Growing

up digital has changed the way their minds work in a
manner that will help them handle the challenges of
the digital age. They’re used to multi-tasking, and have
learned to handle the information overload. They expect
a two-way conversation. What’s more, growing up
digital has encouraged this generation to be active and
demanding enquirers. Rather than waiting for a trusted
professor to tell them what’s going on, they find out on
their own on everything from Google to Wikipedia.35
Whether Tapscott is correct that Millennials’ brains have so quickly evolved

to function as he describes, the fact remains that they have expectations for an
interactive experience in nearly all aspects of their lives, which means, Tapscott
argues, the academy is in need of big changes.
In the industrial model of student mass production,

the teacher is the broadcaster. … The formula goes
like this: “I’m a professor and I have knowledge. You’re
a student, you’re an empty vassal and you don’t. Get
ready, here it comes.”
…
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The broadcast model might have been perfectly

adequate for the Baby Boomers, who grew up in
broadcast mode, watching 24 hours a week of television
(not to mention being broadcast to as children by
parents, as students by teachers, as citizens by politicians,
and when they entered the workforce as employees by
bosses). But young people who have grown up digital
are abandoning one-way TV for the higher stimulus of
interactive communication they find on the Internet. In
fact television viewing is dropping and TV has become
nothing more than ambient media for youth—akin
to Muzak. Sitting mutely in front of a TV set—or a
professor—doesn’t appeal to or work for this generation.
Tapscott’s comparison between traditional college lectures and broadcast television

is an interesting one. His goal is to point out how universities must change to avoid
obsolescence. However, it’s questionable whether broadcast television itself has
even prepared for the shifting attitudes and behaviors of the viewing audience.
While we would disagree that Millennials are abandoning TV altogether,

Millennials do want a more interactive and mobile entertainment experience.
Interactivity plus the same preferences for seamless time- and place-shifted media
that older generations want are going to be differentiators in the near term and
table stakes over the long haul. As one Pew researcher put it, young people are
“not interested in the old delivery systems.” If they have “a delivery system that
meets their behavior, their needs, their personality, they’re avid consumers.”37

As the first generation to grow up with digital media, social networks and
online games, Millennials are the most likely to be associated with technology
adoption, and for good reason:
> 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

the shift
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 everyday in their
Web 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.
62 | chapter 3
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part 2
the 2.0
ecosystem
stakeholders
chapter here | 63
the shift
64
the shift
chapter 4
the
developer
market
14 million creative
minds and counting
the developer market: 14 million creative minds and counting | 65

the shift
Developers are significant players within a Web 2.0

ecosystem. Opportunistic providers are best served
leveraging—rather than attempting to compete
against—this growing army of talented creators.
End users are placing incremental pressures on

service providers to innovate quickly. A service
provider attempting to discover the next killer app
on its own will find itself hard-pressed to respond to
an increasingly fickle customer base.
At the same time, developers are multiplying in

numbers. By exposing network-based capabilities
that serve to enrich the development process,
service providers can tap into the creative muscle of
this market to create new services efficiently.
Service providers attempting to attract developers

must speak their language. Web-based protocols
are the norm. Service providers must ensure
network-based capabilities are exposed through this
type of common framework to attract the greatest
number of potential developers.
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> In North America, a developer is born every 8 minutes.38

Not physically, of course, but where more and more of our lives are spent—in the
virtual world. That means that, in about the time it takes you to read this chapter,
another individual will be entering the developer ranks.
At the time of this writing, there are:

> Over 2,000 Application Programming Interfaces (APIs) on
ProgrammableWeb.com, comprising nearly 5,000 mashups
> An estimated 14 million developers worldwide in various disciplines,
with over 6 million involved in Web 2.0 development39
> Over 250,000 developers on TopCoder.com—a site that epitomizes the
definition of “crowdsourcing” (more on this later)
We could go on with a list of seemingly endless statistics. All point in one

conclusive direction: the application developer market is exploding and its peak
is currently nowhere in sight. To support this growth, macroeconomic conditions
must sustain a viable business case—one based on increased revenues and/or
decreased costs—and an infrastructure to enable development. Respectively,
these factors are satisfied by exponential end-user demand, the crowdsourcing
groundswell and a movement toward web-based services. Let’s look at each one.

the shift
Exponential End-User Demand

We have already extolled the virtues of Apple with its release of the iPhone and,
at the risk of being branded Apple zealots, we must once again point to a more
recent case study that demonstrates just how fast user appetite is growing and
changing. On April 3, 2010, Apple debuted its latest “it” device, the iPad. With
a 9.7-inch touchscreen and multiple wireless connectivity options, the iPad
set the new benchmark for the connected appliance category. And consumers
responded in droves, the way they had to the iPhone, but with even greater vigor.
In its first month of launch, Apple sold one million iPads at an average purchase
price exceeding $500. To put this in perspective, it took the iPhone more than
twice as long to reach the same unit penetration at a lower price point just 2 years
ago. It took almost 2 years to reach the same penetration with the iPod. Further,
the iPad generated more than 5,000 applications and over 12 million downloads
in its first month alone. These impressive results helped Apple attain over
$2 billion in sales for the iPad in the quarter it launched. In comparison, the
entire company generated $1.8 billion in quarterly revenues just 10 years earlier.40
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.
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.41
Beyond the sheer numbers of buyers, applications and downloads, the willingness
to pay is also on the uptick. At an average price of $650 (including accessories),
reaching one million iPad sales in its first month by itself is 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 recent 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.
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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.42
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 upon 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 everyday.
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 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.

the shift
And, when you wring out costs, the profits from Apple’s App Store are even
slimmer. According to a recent 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.43 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.
Apple has recently introduced additional revenue-sharing options for

advertising and virtual currency. Again, the lion’s share of revenues earned will
be deposited in the developer’s bank account. Though Apple certainly stands
to earn incremental revenue with this approach, it will be some time before the
sales collected through the App Store come close to rivaling those derived from
hardware. Apple’s model is one of differentiation: favorable developer pricing
yields a greater number of applications, which attracts end users with evolving
appetites. This is just one example of how escalating demand has been satiated
by tapping into a new army of developers ready and willing to create their next
masterpiece for fame or fortune.
The Crowdsourcing Groundswell

In June of 2006, Wired magazine printed an article, “The Rise of Crowdsourcing,”
a term coined by writer Jeff Howe. While burgeoning end-user demand delivers
increased revenue potential, crowdsourcing is a means to address resource
constraints. Now more than ever, companies are facing the challenge of doing more
with less. Typically, expense budgets found in “discretionary” projects, including
those in IT, are at risk of elimination or, at a minimum, reduction. Despite these
challenges, the normal development life cycle has not changed materially. To
develop a new service or application, consider the following as a new take on the
traditional twelve-step program (compliments of www.dummies.com):
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1 Develop the idea.

2 Decide upon the target market or typical user profile.
3 Make a hardware choice for output and identify
associated requirements.
4 Pick one or more programming languages.
5 Design a prototype of the program or service.
6 Write the program.
7 Test the program (also known as alpha testing).
8 Debug any problems identified through alpha testing.
9 Distribute test copies for people, or “friendlies,” to
test (also known as beta testing).
10 Debug any problems identified through beta testing.
11 Release the program or service to the general market.
12 Continue with the debugging process for any
unforeseen issues following rollout.
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.
While enterprise IT budgets are being scrutinized or slashed, the web

development community is booming. This dichotomy represents a fascinating
inflection point for companies and is reflected through a concept derived from
another famous Wired article, “The Long Tail.” Wired editor Chris Anderson
identified and coined this phenomenon, which explores how the challenge of
scarcity is addressed by a virtual economy. In a brick-and-mortar world, we
are challenged by physical constraints. These constraints are manifested by
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.”

the shift
Though that example reflects the way a web-based 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.
Enter crowdsourcing communities like TopCoder.com. On TopCoder,

companies can tap into an army of over 250,000 developers from a variety of
disciplines. Companies post a challenge to the community—for example, to
create a new application or service. Developers respond with their solution or
program. The community then vets the responses to help select the winners, who
are compensated with cash or prizes by the company. The enterprise benefits by
establishing a clearly defined price and timeline for its development project. It
is guaranteed not to exceed budget parameters given the pay-for-performance
business model employed. Further, since the company can tap into the large and
growing community of talent, it circumvents the traditional recruiting process
and bypasses the need to rely upon its own scarce IT resources to accomplish the
task. Developers are rewarded with remuneration and respect by their peers (an
important psychological by-product we will explore in the next chapter).
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 over 250,000 soldiers—and
that’s representative of just one development community. This comes down to
numbers—both dollars and cents and brilliant minds. A company would be
hard-pressed to compete with the millions of developers in the marketplace.
TopCoder’s premise is simply brilliant—instead of competing against this virtual
brain trust, leverage it. Both supplier (developer) and consumer (company)
benefit and voilà—we have another innovative business model at work, one that
addresses the growing organizational challenges faced by enterprises everyday—
and another macroeconomic factor that helps explain a booming developer
marketplace.
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The Web-Based Services Movement

We’ve covered how supply and demand factors shape an accelerating developer
marketplace. But, without an infrastructure to enable and support said
development, it’s a bit like putting the cart before the horse. In other words,
what has changed in the past few years to catapult us into this brave new world
of development? Look to the enterprise for a trend that started well before
this development movement inspired millions: the birth of service-oriented
architecture (SOA).
In the spirit of full disclosure, neither author professes to be an expert in

programming architectures or languages. Despite this, the principles of SOA
are straightforward and logical. Originated in the enterprise, SOA was a means
to accelerate and simplify the intricacies of development by modularizing the
approach. For those in the audience who lack technical depth as we do, let’s turn
to Wikipedia for a brief explanation. In order to meet the requirements for SOA,
interoperability between different systems and programming languages allows
integration between applications on different platforms through a communications
protocol. Rather than focus on the intricate complexity of a communications
protocol, the developer is instead allowed to concentrate on the true application
functionality itself. Since SOA is based on a modular architecture, the principles
of reuse and interoperability are satisfied. Developers can accelerate the process
by leveraging the work of others—in other words, by reusing functionality from
existing software services to create entirely new applications. This represented a
breakthrough in crashing the critical path of program development.
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
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.

the shift
In the first chapter, we referenced multiple network capabilities that an operator

could exploit, such as presence, location, profiling, QoS, and the like. Here’s where a
burgeoning developer market, propelled by a web services approach and supported
by escalating user demand, converges with service provider networks to create
an intersection of new opportunities for multiple stakeholders in the ecosystem.
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These network capabilities can now be identified via web-based APIs familiar to a
development community that is programming with these tools today. By exposing
these network capabilities using a web services approach, service providers can tap
into the expertise of millions of fluent developers to create new services for their end
users. Service providers benefit by leveraging instead of competing against the time
and talent represented by a broad development community. Developers benefit by
tapping into new network-based capabilities to enhance or create new applications.
End users benefit by consuming new services that are more robust in functionality.
The result: a trifecta of macroeconomic forces that positions all stakeholders for
greater economic potential by extracting greater benefit across the value chain.

> Developers represent a growing community of critical stakeholders in a
2.0 world.
> Rather than compete against the millions of developers globally, service
providers would be wise to leverage this virtual brain trust to accelerate
development efforts and tap into unserved or underserved markets.
> Developers value their community. Reuse and recognition are accepted
norms in development circles. Service providers can leverage the
crowdsourcing groundswell by exposing their own APIs.
> Providers attempting to attract developers should look to common web-
based architectures, such as REST, to appeal to larger numbers.
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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looking
glass
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developer
through the looking glass of the commercial developer | 77

the shift
The universal currency uniting all developers

is time. Service providers that understand this
underlying motivator and create value propositions
to accelerate the development cycle will find a
receptive market.
Service providers should employ the “3 Comms”

model in targeting developers:
• Communication of network-based capabilities
should be in a construct familiar to developers.
• Community should be acknowledged and
respected.
• Commerce can go beyond billing of services
to incorporate marketability of a developer’s
application.
Despite the proliferation of free APIs available today,

developers are attracted to and willing to pay for
network-based capabilities that enrich development.
This finding suggests service providers have a right
to play in a new Web 2.0 value chain.
There is also a place for a variety of business models

aimed at the developer community. While the
70/30 revenue-sharing model has been popularized,
developers prefer alternatives, such as properly
priced per-dip models, in some cases. Further,
bundles comprising web- and network-based APIs
represent an opportunity for a new business model
overwhelmingly favored by this audience.
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> Those of us in marketing appreciate the importance of

understanding what motivates a buyer. As consumers, we are bombarded with
thousands of marketing impressions each day with advertisers eager to target
these costly messages to those of us most likely to buy. This goes beyond ability
and willingness to pay. As many marketers will admit, once one understands
the motivations and passions of the target market in the context of the product
or solution offering, relevant messaging, go-to-market support and value
propositions soon follow. The correlation to increased sales is not far behind.
At the end of the day, you must understand your target—not just in the simply
identifiable external demographic categories, but in the more complicated
intrinsic motivating factors. In the case of the developer, this involves a deeper
understanding of that specific worldview.
In 2009, Alcatel-Lucent explored developer attitudes toward leveraging the

network as a platform in creating new applications by incorporating intelligent
capabilities such as presence, profile, and location of end users. The premise
was straightforward: These developers used APIs in their efforts. Would they
care to procure new API functionality from a network provider? Could the
latter actually offer something uniquely valuable that was not already available
through other alternatives? Remember, we live in a world where thousands of

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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?
The Commercial Developer’s Currency: Time

Not all developers are created equal. Their end product varies depending upon
their orientation. For some, development is a hobby with fame being more
important than fortune. For others, the opposite prevails. And, for others,
their output is the direct result of the enterprise for which they work; think of
these individuals as IT professionals developing new applications for their
company. While the motivating factors governing each of these developer
groups vary significantly, one common currency unites them: time. Note that
money is not the common denominator. A developer could build his creation
without paying one tangible cent due to the widespread availability of free
APIs. But, time is a consistent factor of investment, whether the pursuit is
as a hobby or career ambition, for fame or for fortune. Therefore, before a
provider can convince a developer to open his wallet, it must first convince
him to afford it his effort.
If time is the common currency, then motivators surround crashing the

development cycle. As we consider the development process covered in the last
chapter, the mantra of the “3 Comms”—Communication, Community, and
Commerce—helps accelerate a developer’s creation.
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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in 2009, a common theme emerged: simplify communication. Communication can

be a deterrent or an attraction. As humans, we are accustomed to communicating with
one another using mutually understood combinations of sounds, symbols, gestures,
and expression. For those of us who have traveled to foreign countries, where our
language is not the native tongue, many can attest to the challenges in exchanging
the most basic of information when we don’t start from the same semiotic system. In
this case, the language barrier becomes the focus, sometimes to the detriment of the
message we are attempting to communicate. Language is a construct we use to reach
the end goal, which is to share meaning and express ourselves.
For developers, it is no different. There are countless programming languages

one may use in development. The more standard and universal the language (and
even the construct, or architecture, in which it is represented), the easier it is for
the developer to focus on his message—in this case, his application. The language
style and construct are to be used as a means to an end—a tool for designing a
developer’s creation. If a provider offers a more complex language alternative,
not only will it alienate developers who are not accustomed to the style, but it
makes the development process itself more difficult. This is not a book about
programming architectures and languages. However, one only need peruse the
latest articles on web development to find a clear movement toward lightweight
architectures, such as REpresentational State Transfer (REST), that are based
on common web principles of design. In fact, the proliferation of RESTful APIs,
as they are called, is evidenced on popular sites, such as Facebook and Amazon.
The bottom line is this: To avoid repelling developers, service providers should
incorporate simple, familiar architectures that allow developers to focus on their
creation, not on translation.
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

the shift
from a layperson. It is where ideas are exchanged, problems are solved, and peers
are recognized. Community is therefore a powerful psychological influencer.
Explore crowdsourcing sites such as TopCoder.com (which was covered in our
last chapter) and you will quickly discover the importance of respect as a reward
that sometimes rivals remuneration itself.
You will also see community as an influencer in web applications developed today.
Consider the following case in point. Foursquare is a popular mobile application
with over 2 million members that allows its users to tag locations visited. Tag a
location more often than anyone else in the community and be named Mayor
of the venue. There’s no monetary reward in play—just the opportunity to win
the respect of one’s peers. Just as community has a profound influence in the
development process, it can often be seen as an equally important factor within
applications themselves—a case where a developer’s creation is many times a
reflection of his values.
While community is an indisputable heavyweight in accelerating a developer’s

speed-to-market by leveraging the ideas, talent, and work of others, it isn’t
without drawbacks. A challenge in today’s Open Source world, where the
community is the provider, is the lack of the proverbial single throat to choke
when things go awry. To whom does the developer turn when he encounters
a problem? Sure, forums provide answers. But, developers in our focus groups
certainly expressed a preference for additional support options that could stop
the buck where accountability resides. Note that service providers come from
a world of 24x7x365 support—one where answering the phone in seconds
means the difference between keeping or losing a customer or between
paying or avoiding a fine imposed by a regulatory agency. Developers come
from a very different paradigm—one where access to aggregated expertise
and intelligence found across a broad community is more important than
instantaneous “support” provided by a novice representative. Developers want
something to augment, not replace, the forums they produce and consume
everyday. A provider that unlocks this code could find itself in a competitively
superior position.
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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
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.
Consider Short Messaging Service (SMS) as a fairly recent example of this fact.
Though hard to imagine, there was a time in the not-so-distant past when SMS
was a closed standard. That is, a mobile customer could not send an SMS message
to his friend if the two were not customers of the same service provider. Today,
we know that SMS is fully interoperable between carriers. And, the results show
that a rising tide definitely lifts all boats. The number of text messages increased
by nearly 50% nationwide last year, according to the Cellular Telephone Industry
Association (CTIA). And, for the first time in the United States, the amount of

the shift
data traversing mobile networks exceeds the amount of data in cellular voice calls.
Clearly, this trend is the function of multiple factors, including the proliferation
of smartphones and other connected devices. However, one could point to the
interoperability of SMS as the first enabler of the wireless data movement.
While standardization certainly benefits both developers and providers in some

cases, in others, differentiation of services will prevail. If a service provider is
interested in holding a particular application exclusive to its customers, it must
neutralize the reach objection offered by a developer. In other words, if a service
provider craves differentiation, what does a developer demand in exchange?
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-in-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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The Commercial Developer’s Hierarchy of Needs

In 1943 famed psychologist Abraham Maslow proposed his Hierarchy of Needs
to explain the underlying motivations governing human beings. The premise
was based on the hypothesis that humans require more fundamental needs to be
fulfilled first—such as the physiological needs of hunger and thirst—before we
can ultimately evolve to the epitome of self-actualization, or the pinnacle of our
full potential. The model has been used in psychology and marketing to explain
how complex decisions are made and what fundamentally drives us as human
beings and consumers.
Taking a page from Maslow’s Hierarchy of Needs, Alcatel-Lucent was interested

in identifying the same for the commercial developer. Developers make decisions
based on a complex set of variables—from the types of APIs made available, to the
type of support offered, to the price points provided, to the number of potential
customers reached. Each of these is important in the developer mindset—but
there are those that are more important than others.
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 Most Basic Need: The Value of the API Itself

In a world of thousands of free APIs, it may come as a shock that the most
important variable influencing a developer’s choice was the functionality
of the API itself. This factor alone had the most profound influence on a
developer’s selection. We discovered in the focus groups that developers are
often first and foremost creators. And, the results of the quantitative study
proved that the art of creation was more important than any other factor.
Developers love cool. And they enjoy the art of the possible. Despite the
thousands of APIs available today, there is an opportunity for more robust
functionality that ups the cool ante. Specifically, device- and access-agnostic
APIs popped to the top of a developer’s expressed interest and latent desires.
In fact, when specifically asked, nearly 50% of developers would be very likely
to use the more popular network-based APIs from a list of 17 tested. In fact,
nearly one in three still expressed a strong likelihood of usage among the least
popular network-based APIs of the bunch. To attract so many developers
among the least popular APIs tested suggests a void in the marketplace for
even more powerful functionality.
Development Support: One Throat to Choke

Reinforcing the importance of community mentioned earlier, providers must
next offer support options to attract developers. While developers are interested
in one throat to choke, service providers must change their perception of support
to this audience. Alcatel-Lucent tested the impact of various levels of support
from basic (such as email and moderated forums) to advanced (such as 24x7
support for developers and their customers) on a developer’s willingness to pay.
Interestingly, the more robust 24x7 support options did not garner sufficient
incremental developer participation in terms of willingness to pay to offset their
costs. In comparison, developers were almost as likely to select a bundle with far
less costly support alternatives, such as email and moderated forums. The bottom
line is: A developer wants the buck to stop when the community cannot solve
his problem, but that accountability need not reside in a costly 24x7 support
mechanism nor should it replace the community itself.

the shift
Bundling: More is More

Interestingly, the next most important factor governing developer’s choice
is closely related to the first. While the most important factor is the value of
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 everyday—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.
Marketing Support: Give Me More

The next rung on the hierarchy ladder is even greater support options, with
two deserving special attention. The first involves a basic necessity in retailing
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one’s product—billing a customer—an asset a service provider clearly can offer.

Service providers have a trusted billing relationship with their end users. And,
with cybercrime on the rise, the Web 2.0 market can be a scary place. Developers
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.
The second point is more interesting. In a world of hundreds of thousands

of applications on one device alone, developers are swimming in a complex
competitive environment. And, as evidenced by our research, developers
are hungry for information and tools that help them optimally price their
applications. Specifically, third-party network-based intelligence that identifies
the ideal price point for an application based upon aggregated user preferences
for those most likely to purchase it scored particularly well among developers as
an important variable influencing willingness to pay.
Further, as we will discover later in the consumer chapters, consumers

overwhelmingly trust their service provider over their application developer
when considering whether to share such information. This unique intersection
of aggregated customer profiling and a secure billing environment places the
service provider in a competitive position for attracting developers in need
of advanced support. It is also among one of the primary needs that must be
fulfilled to satiate a developer’s appetite.
Price: Not the Be-All and End-All

It may surprise you to see that price finally comes up as a critical factor in
influencing a developer’s participation and willingness to pay. This speaks to the
point that money is not the primary mode of currency, as we have explained
throughout this chapter. What is perhaps more surprising is the type of business
model that prevails for maximizing revenue potential among service providers.
We tested two different business models in the bundling exercise: a revenue-

sharing model (one where the developer shares a percentage of revenue collected
with the provider, similar to the one popularized by Apple) and a per-dip model

the shift
(one where the developer pays the provider each time an API call is made,
similar to options offered by some web providers). Once the developer selected
his preferred bundle in each set, we asked him to estimate two variables: 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.”
Last year, 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.44 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
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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
likely he is to prefer a per-dip business model. Revenue-sharing does well among
those developers who “low-ball” the estimated retail price of an application
using the functionality. Therefore, as the market moves toward higher-priced
applications, per-dip not only affords the service provider greater revenue
potential but also tends to attract more developers than a revenue-sharing option.
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 Final Factor: Reach

As we mentioned earlier, ask a developer outright for his most important factors
for participation and reach will certainly pop to the top of the expressed list.
But, force the developer to evaluate reach among the multiple other trade-offs
made in a more complex decision, and it is the variable with the least influence

the shift
in persuading participation or willingness to pay. What developers really want

is discoverability. Reach is one means to this end. But, if reach comes with a
storefront where a developer’s application is one of several hundred thousand,
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.
In fact, based on the quantitative study by Alcatel-Lucent, nearly 50% of

commercial developers who are actively involved in negotiation or pricing
decisions indicated they would be much more likely to offer at least 6 months of
exclusivity for their application in exchange for guaranteed search discoverability
on the provider’s storefront. Further, more than one in three actually prefer
to develop for a more regionalized, localized provider than a large, national
alternative. Perhaps these developers have a niche that can be better fulfilled by
a local operator. Perhaps they associate a smaller operator with a more nimble,
developer-friendly orientation. Whatever the reason, the preference for this
significant minority is clear.
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.

Quantitative evidence from over 1,300 commercial developer respondents
suggests the following:
> 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
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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
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.
The evidence supports a viable commercial developer market for intelligent

network-based capabilities. These developers are attracted to robust APIs that
simplify the development cycle. Would the same hold true for those building
within the enterprise? Turn the page to discover the interests and motivators for
the IT developer.

the shift
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chapter 6
through the
looking
glass
of the enterprise
IT developer
through the looking glass of the enterprise IT developer | 95

the shift
Service providers attempting to address the

enterprise IT developer must first earn his trust.
This is an intangible toll paid by this audience and is
incremental to the time currency covered in the last
chapter.
Enterprise developers are accustomed to leveraging

the network for performance beyond simple
connectivity. As such, this audience demonstrates
a higher willingness to pay than their commercial
developer counterparts.
Enterprise developers also expect more from their

service provider. While commercial developers are
more tolerant of leveraging their community for
support, the enterprise developer expects the buck
to stop quickly. As such, there is an expectation and
willingness to pay for more costly support options.
For this audience, bundling is a case where more

equals way more. These developers are willing to
pay up to three times more for a bundle of APIs
when compared with the revenue potential of each
API offered discretely.
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> A 2009 McAfee study among IT decision makers across

seven sectors and fourteen countries revealed a sobering landscape. Over half of
these executives represented organizations victimized by large-scale denial-of-
service attacks. On average, respondents estimated that 24 hours of downtime
resulting from said assaults cost their organizations over $6 million. More
startling, 40% predicted such an incident would disrupt their sector within
the next year. As such, it comes as no surprise that over 90% of executives
indicated security was either “vital” or “very important”.45 What is surprising is
that security reigned supreme as the top factor when making IT investment and
policy decisions—surpassing cost-based drivers despite the recession.
In similar news, Amplitude Research’s seventh annual “What Keeps Network

Administrators Up at Night” study found a dramatic increase in those worried
about security breaches. Among the 353 network administrators, nearly 40%
were kept up at night due to this concern compared with only 27% the prior
year. Even more revealing, the study found a statistically significant relationship
between how concerned network administrators are about employee use of social
media and how worried they are about a security breach to their network.46 The
concern is merited. Consumer Reports recently found that 10% of people using
social networking sites have been the victims of a security breach. More than

the shift
half of these social networkers post sensitive private information online, leaving
themselves vulnerable to cybercriminals trolling for their next victim.47
While several similarities exist between the commercial and enterprise IT

developer, the above examples highlight the clear point of distinction: For
the enterprise developer, the stakes are much higher. These individuals have a
responsibility for protecting company assets and information as a fundamental
requirement before pursuing development interests that may benefit their
employer. While time may be the universal currency uniting all developers
as discussed in our last chapter, there is an incremental toll that must be
collected from the IT developer—his trust. He must trust that the vendor of
choice will respond quickly and effectively to any problems, that it will offer a
lower total cost of ownership (TCO) when compared with IT decision maker
do-it-yourself alternatives, and, most of all, that any information transmitted
or stored outside the protected confines of the enterprise wall will be securely
maintained. This factor places these developers in a different league worthy
of examination.
No Strangers to the Cloud

The notion of relying upon networks for intelligence and performance is as
old as computing itself. IT professionals face two ends of the extreme: smart
networks powering dumb terminals or smart devices that rely upon dumb
networks merely for connectivity. Of course, this is a gross simplification of the
options available and the reality lies somewhere in the middle of the continuum
for most enterprises. The point is that enterprises have relied on some factor
of performance or intelligence from their networks that moves beyond basic
connectivity for some time. When Alcatel-Lucent spoke with several IT decision
makers through focus groups in 2009 about offering them greater access to more
network features, the notion was not exactly a new idea.
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
close to 30 million matches. According to Wikipedia, cloud computing
is “Internet-based computing, whereby shared resources, software and
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information are provided to computers and other devices on-demand….” The

underlying concept dates all the way back to 1961. Yet, it is now more relevant
than ever. And the parallels to the topic of this book cannot be ignored. Like
cloud computing, application enablement leverages resources within the
network to enhance device performance. Like cloud computing, application
enablement allows users to access information from any device. And, like
cloud computing, application enablement requires enterprises to trust the
network in protecting their content.
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.
Not surprisingly, we also found data to support the overwhelming importance

these enterprises place on protecting their company’s data and assets. Specifically,
security was the leading concern among those who have not yet adopted cloud
computing. While security is the primary objection, if it were sufficiently
addressed, a provider could entice over half of these non-adopters to increase
their organization’s likelihood of using cloud computing.
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.)

the shift
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%).
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.
Support can be a differentiating magnet for new entrants in this field,

particularly service providers. We asked respondents to indicate which third-
party provider they would be most likely to select for APIs. Not surprisingly,
Microsoft and Google commanded the mindshare preference among these
developers—outpacing popular service providers like AT&T and Verizon by
an order of magnitude. However, respondents who were more likely to select
a network service provider as their preferred partner were also more likely to
attribute their preference to an expected level of customer care not expressed
by those selecting Microsoft or Google. Support is an expectation but it can
also be a competitive advantage for a new entrant with a perceived strength in
this area.
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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.
Among the more popular (and higher valued) APIs were:

> A profiling API that allows tracking of application and service
consumption of enterprise users to allow for better forecasting of IT
departmental needs
> A storage API that centralizes information and content over a highly
secure and reliable network accessible from any device
> A presence API that provides for real-time messaging capabilities across
any device in use by the user (this API was also a top performer among
commercial developers)
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 profiling API that renders content to an employee or customer based
on their preferences across any device (for technophiles in the audience,
think of these as network-based cookies)
> A quality of service API that temporarily allocates more bandwidth to an
employee, group or application for a period of 60 minutes
> 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

the shift
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,
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.
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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.
Time is Not on Their Side

While the differences for this segment have been discussed, we cannot ignore the
universal bond that unites the enterprise developer to his commercial ilk—the
currency of time. Several findings indicate that this tenet is stronger than ever
for this audience:
> 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.
Hence, while trust is an incremental toll paid by enterprise developers, it does

not negate time as a currency. Options that allow these developers to design and
build faster with fewer human resources are attractive. And, since network-based
APIs allow for development across multiple software and device platforms, these
alternatives offer tangible value to a time-starved enterprise market.

the shift

The enterprise developer shares some perspectives with commercial counterparts.
Like commercial developers, those in the enterprise expect communications
interfaces to enhance, not impede, development efforts (recall that SOAs,
the predecessors to common web-based architectures today, originated in
the enterprise). Like commercial developers, those in the enterprise consult
with one another in forums for sharing and support. And, most importantly,
enterprise and commercial developers are both time-deprived and value this
critical resource above all.
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.
> Time is a scarcity. This fact can be viewed opportunistically (such
as through bundling of APIs that increases willingness to pay up to
threefold). It can also be an impediment to a provider that just doesn’t
get it. Remember, the key challenge in using third-party APIs for these
enterprise developers today is time-consuming process requirements.
If a provider burdens the developer with complex processes, any value
perceived in bundling will be quickly eroded.
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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
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the eyes have it
advertising: the eyes have it | 107

the shift
With advertising, impressions are king. In the past,

success meant getting a brand in front of as many
eyes as possible. Now, that means getting the brand
in front of the right eyes and facilitating interactivity,
e-commerce, mobile commerce, and more to turn
impressions into awareness and then into sales as
directly and measurably as possible. Identifying
the “right” eyes means gathering more data on
users and balancing the need for data with the
consumer’s right to privacy.
“Seventy-one percent of agency respondents said

they expect online ad spending to experience
significant share growth in the next 2 to 3 years.”
When asked why, respondents cited behavioral
targeting, speed of campaign execution, improved
measurement and accountability, and a belief that
“traditional media are no longer the most effective
way to build brand equity.”
According to the National Advertising Initiative, ad

inventory from behavioral ads is worth twice that
of non-targeted inventory, with nearly 2.5 times the
click-throughs.
More people in the world have access to mobile

phones than to running water. Users check their
mobile devices 100 times a day on average (200 if
they’re a teenager). As the new mass medium, mobile
technology is the next frontier for advertising.
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> In just 13 years, online advertising reached $20 billion

in revenue in the United States. It took newspapers 127 years to accomplish the
same thing, and broadcast TV and cable TV, 37 and 25 years respectively. The
explosion of the Internet goes hand in hand with one of the key ways companies
seek to monetize it—advertising.
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 make a profit—save for YouTube’s acquisition by Google.
Nevertheless, advertising is a key piece of revenue for companies within the
Web 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

the shift
go, advertising will follow. Plus, the new technologies provide advertisers and
agencies capabilities they don’t have with traditional print and electronic media.
According to a Marketing & Media Ecosystem 2010 survey conducted on behalf

of leading industry groups, “71 percent of agency respondents said they expect
online ad spending to experience significant share growth in the next two to
three years.”48
When asked why, respondents cited behavioral targeting, speed of campaign

execution, improved measurement and accountability, and a belief that
“traditional media are no longer the most effective way to build brand equity.”
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.”
The Changing Advertising Mix

The same survey of marketers found them planning significant shifts in spending
away from traditional one-way consumer engagement.
In developing new technologies and business models that include advertising

as a revenue source, interactivity and personalization are integral for customer
engagement and, therefore, attracting advertisers.
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 Web 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)
and traditional electronic media (television networks, local TV stations, radio)
sell advertising inventory—or ad space—to advertisers either directly or through
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advertising agencies. Agencies act as brokers, leveraging volume ad buys to

decrease pricing and streamline ad placement for advertisers. Agencies also
coordinate the advertising campaigns—developing concepts, producing ads
and managing the advertiser’s budget. The industry has developed systems for
consolidating ad inventory, which now allow agencies to book the campaigns,
track success metrics, and provide billing information.
Marketers get it:

They need to catch up to where the consumer is
Source: Marketing & Media Ecosystem 2010 survey and Booz & Company analysis
In the end, a fill-in-the-blank consumer packaged goods company or auto

manufacturer has purchased ad inventory in The New York Times, GQ Magazine,
the Monday night lineup of CBS, and local morning drive-time talk radio stations.

the shift
Integration of new and old ad media campaigns—buying, tracking, and

billing—is still a fragmented business. Traditional and online advertising each
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 everyday, marketing themselves as helping advertisers make sense of
new media marketing platforms.
Social Media & Marketing

One new area of focus for online advertisers is social networking sites. Facebook
alone now consumes 7% of time spent online around the world with social
networking as a whole totaling 12% of an Internet user’s time.49 Use of social
media in marketing, however, goes much beyond display advertising.
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.
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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.
Marketers are moving from a broadcast-based marketing

relationship with consumers to a relationship that more
explicitly considers how traditional paid media drives
“earned media”—where consumers directly engage with
the marketing messages and pass them along to their
friends. The Web-based aspect of this engagement has
also made it much more measurable, which has inspired
new ideas and research on the relationship between
“paid” and “earned” media and their respective impact
on brand perceptions.50
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.51
But, earned media opens up new market potential. In 2010, Alcatel-Lucent

canvassed over 1,200 advertisers in the United States to solicit their interest in a
variety of next-generation advertising services. At the top of the list? A capability
that works with social media sites to deliver advertisements to a user based on
interests and behaviors of their friends and family. For instance, if one hundred of
Bob’s Facebook friends like a certain new video release, coupons and downloading
options would be sent automatically to Bob. Advertisers like the option of being
able to capitalize on the billions of conversations and expressed preferences on
social networking sites every day. In fact, more than one in three advertisers
indicated they would be very likely to use such functionality if it were available.

the shift
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%.52
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.53
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
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behavioral targeting, using a consumer’s web searches and websites visited, to

deliver content, ads, and articles personalized for the user.
According to the National Advertising Initiative, ad inventory from behavioral ads is

worth twice that of non-targeted inventory, with nearly 2.5 times the click-throughs.54
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. 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).55
Mobile provides a ubiquity that has captured the attention of US consumers.

Most people don’t share their phone—even with a spouse. Users check their
mobile devices 100 times a day on average (200 if they’re a teenager) and sleep
with their phones turned on and within arm’s reach. Worldwide, the ubiquity of
mobile is much the same. More people on the planet have mobile devices—75%
of the world’s population by the end of 2010—than access to running water.56
In addition to delivering the eyes, the personal nature of the mobile device plus
the growing set of activities executed on the phone allow network providers
and—by extension—marketers to gather more user information in aggregate to
segment and target the mobile audience.

the shift
AMF Ventures measured the relative performance

of three media for audience identity. On TV we can
only catch 1% of audience data. On the internet we
can capture far more, 10% of audience data. But on
mobile, we can capture 90% of audience data. … Only
on mobile can we capture the social context of our
consumption. Not what we consume (or when, or
where) but with whom.57
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.
And, advertisers are enthusiastic about gaining access to such information to

better target their efforts. Among the advertisers in the Alcatel-Lucent study, the
one capability that tied the social media service mentioned earlier in popularity
involved tracking a user’s behavior across all devices connected to the network
(mobile, TV, game console, PC, and the list goes on).
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Delivering ads to the consumer via a mobile device can be accomplished in

such a plethora of ways, it can be confusing for advertisers and complicated
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.”58 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.59 All the

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major media companies use Millennial, which has built its business without exclusive
ad agreements with the philosophy that publishers should use multiple ad networks.
Microsoft Mobile Advertising

Microsoft offers integrated display advertising across mobile, PC, and its gaming
platforms and combines MSN and Bing to provide mobile search capabilities.
Rumors abound that it is in conversations with Millennial Media about an
acquisition that would strengthen its dedicated mobile offering. Microsoft has
established relationships with key partners like Verizon Wireless, MSNBC,
CNBC, and Fox Sports.
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.60
Paid search and display ads dominate the offerings for these ad networks,
mirroring the online advertising world. In 2009, nearly half (47%) of Internet
advertising dollars went to paid search and 35% went to display advertising.61
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 WAP or mobile web browsers.
Display ads appear on mobile websites or are embedded in mobile applications.
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Given the most common price for paid apps is 99 cents, in-app advertising is
the revenue stream for many hopeful app developers.62 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 200,000+ applications from Apple represent more of an
ad inventory glut of unknown value.
The third option for mobile advertising is messaging—SMS and MMS. This is
one option that is uniquely mobile. Messaging campaigns require strict opt-in
policies to avoid spamming the consumer with unwanted messages, but allow
delivery of ads, coupon codes, links to the mobile web and, with MMS, a richer
media experience with audio, video, and barcode coupons that can be scanned
at the point of purchase. In the same Alcatel-Lucent study of US consumers,
respondents expressed a surprising tolerance to such mobile-based advertising,
with take rates for a service incorporating SMS or MMS ads comparable to those
containing a PC- or television-based advertising model. Clearly, the emergence
of mobile bandwidth caps may hamper this appetite, but advertisers, developers,
and providers should be encouraged that the presence of mobile ads did not
create an aversion to a service as one may assume.
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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That fragmentation is exacerbated by the rise in the

consumption of applications and the emergence of in-
app ads that—while enormously promising—provide just
one more subset of platforms for advertisers to address.
And that problem is likely to only get worse until we see
some substantial consolidation among OS developers
and application distributors.63
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.
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TV and Video Advertising

As ubiquitous as mobile is and will be in the future, not all content will be consumed
on mobile. Full-length video—shows, sports, movies—still lend themselves to
larger screens. Despite growth in online and mobile video, America still has more
TVs in each home than people. More than half, 54%, of Americans have three or
more TV sets in the home.64 Delivery of these services to the home TV or PC
relies heavily on advertising revenue to make them profitable. However, as we saw
in the Marketing & Media Ecosystem 2010 survey, agencies expect to spend less
money on one-way ad media, including more than 30% less on TV advertising.
The TV business—even broadcast networks—are now 50% ad-supported with

approximately $68 million coming from ad revenue and $68 million coming
from TV subscriber fees from cable, satellite, and IPTV. Despite the notion that
broadcast TV is free, in reality, 90% of Americans are paying for their TV.65
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.
Hulu won’t comment on its economics, but if you

consider that it’s selling video ads and companion
banners together in the $40 CPM range, and it appears
to be about 50% sold out, when 70% is paid back to
networks, Hulu is netting pennies per viewer per hour,
about what it costs to deliver video of that quality.66
As a result, Hulu recently began offering paid premium video services, partly in
an attempt to attract popular cable programming. Cable networks are hesitant
to offer full-length programs online because they heavily depend on subscription
fees, and they don’t want to cannibalize their business. Comedy Central’s The
Daily Show initially authorized its content for Hulu, but then dropped it.
The bottom line is: Pure ad-supported online and broadcast video content
as we know it is, according to Advertising Age, “increasingly becoming an

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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.
The advertising is distributed by the TV service provider or directly to an

Internet-enabled TV or other connected device, such as a Blu-ray Disc™ player
or gaming console. Cable companies are rolling out set-top boxes enabled
with the Enhanced TV Binary Interchange Format (EBIF), which will reach a
projected 48 million cable subscribers by 2012.67
Interactive TV ads are delivered in three primary ways:
Bound applications – Ad content tied to a channel and

displayed as an overlay, full screen with the channel
reduced to a picture-in-picture, or with an on-screen
prompt for the viewer to launch the application by
pushing a button on the remote
Unbound applications – A widget overlay or branded

microsite or interactive virtual channel
Portals/walled gardens – Dedicated information portal

bundled with customer care features
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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.
Within the advertising applications, advertisers can also turn the television
into a point of purchase, using the service provider as a billing intermediary
or having the customer link the loaded widget with an online account (like
Amazon.com) where payment information is already stored. In this case,
the TV and/or connected device serve as a portal to the customer’s online
account. Opportunities are nearly limitless for application developers to create
new ways for a viewer to interact with the service provider, content provider,
or brand through the two-way TV interface.
For interactive TV advertising, as well as with mobile advertising, the service

provider has the benefit of already owning a billing and payment relationship
with the customer that brands could leverage to turn the consumer devices
into points of purchase at the moment of “creative impulse,” as Tomi Ahonen
put it. Interactivity drives more immediate customer engagement, closing
the loop between awareness (seeing the ad) and action (making a purchase)
in the customer buying cycle. With the emphasis on ad success measurement,
generating revenue is infinitely better than tracking TV ratings and changes in
brand recall.
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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In the 1990s, the big idea in communications involved “owning” the customer.
Providers were seen to be in a position of power if they held the billing
relationship with the customer or monopolized their attention with a portal
or walled garden (remember AOL as the classic example?). Today, assuming
you can “own” a fickle Millennial, disruptive Gen Xer, or non-brand loyal
Baby Boomer is about as naïve as attempting to rule the universe. Times have
changed and these segments will not be “owned.”
However, there is an apparent paradigm shift underway and nowhere is it more

visible than in advertising. If “owning” the customer is irrelevant, its popularity has
been replaced with “owning” information about him. In other words, providers that
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.
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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.
However, technology cannot substitute for sound business judgment.

Companies looking to tap into these new advertising opportunities must start
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.
Consumers remain in control and receive targeted and relevant advertising.

Advertisers and developers get hard metrics on performance. Service providers
monetize their trusted relationships with consumers. And, the entire ecosystem
benefits with this trifecta that makes advertising effective and relevant in a 2.0 world.

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part 3
the
consumer
2.0 influence
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128
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VIDEO
chapter 8
the next unstable

business model
video: the next unstable business model | 129

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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.
By year end 2011, the number of cord cutters is expected

to grow to 1.6 million households. This number is still
minute considering the over 280 million households with
TV service, and the fact that the average household has
2.86 TVs and 2.5 people. The concern: cord cutters (or
cord-never-havers) skew younger. Seventy-two percent of
online-only viewers are between 18 and 34.
The traditional system for producing TV and movie

content is deeply entrenched and will be difficult to
disrupt, but consumers’ demand for more convenient
video delivery, à la carte video, and the expectation of
free content will put pressure on that system to innovate
and to restructure to squeeze complexity and cost out of
production and distribution.
To keep customers paying for video services, providers

should look to deliver high-value, customer-centric video
offerings such as multiscreen with the ability to access
and manage all media seamlessly across platforms. On the
advertising side, interactivity, targeting and turning TVs
into a point of sale device can provide additional revenue.
Web-enabled entertainment devices also bring the

opportunity to deliver app stores to the living room, which
opens new revenue opportunities.
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> At the end of 2009, the entertainment industry magazine

Variety published an article looking back at the 2000s. Summing up the decade
that began before the introduction of the iPod, Cynthia Littleton said this:
Perhaps the single biggest change that showbiz has

grappled with this century is the loss of so much of the
control it once wielded over the production, distribution
and exhibition of filmed entertainment. Consumers have
more say in when and how they decide to see a movie
or watch a favorite TV show, or forgo those leisure-time
traditions entirely for a vidgame or an online pursuit.
It’s maddening to many in the biz that ticket buyers and

TV watchers are more fickle, simply because there are
so many more options, or that a $15,000 horror pic with
great Internet buzz can outshine movies with budgets
1,000 times bigger.68

the shift
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
I want” entertainment is changing the TV and film industries. That is illustrated
most starkly by “cord cutters”—those who forgo pay TV entertainment
altogether in favor of online options, many of which are free.
ComScore reports that online video viewing grew 42% in 2008, about ten times
the growth rate of TV viewing.69 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.
In 2009, 800,000 US households dropped their pay TV service to rely on online

and over-the-air video, according to the Convergence Consulting Group. By
year end 2011, the number of cord cutters is expected to grow to 1.6 million
households. Right now, this represents just 3% of online viewers, but that is also
the same number of subscribers forecasted to be added in 2011. 70 By comparison,
according to Nielsen, there are over 280 million US TV viewers, with the
average household having 2.86 TVs and 2.5 people.71 While that doesn’t make a
significant dent in the overall numbers of households, it could indicate slowed
growth, particularly since the online-only TV viewing audience skews younger.
Seventy-two percent of online-only viewers are between 18 and 34.
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2Q09 1Q09 2Q08 %Diff

yr to Yr
Watching TV 284,396 284,574 281,746 0.9%

in the home
Watching 82.297 79,533 62,240 32.2%

Timeshifted TV
Using the 191,035 163,110 159,986 19.4%

Internet
Watching video 133,962 131,102 119,164 12.4%

on Internet
Using a 233,722 230,436 221,651 5.4%

Mobile Phone
Mobile Subscribers 15,267 13,419 9,004 70.0%

Watching Video on a
Mobile Phone
US TV and Video Consumption (in thousands)

Source: Nielsen, 2009
But do people truly prefer watching their video entertainment on their PC

or mobile device? In some cases, maybe. College students in dorms or small
apartments who must have a computer may choose a quality laptop with high
resolution screen because it takes up less space and because it can be used for
classwork, TV, DVDs, gaming, and more. However, once they have more money
and more space, would they really prefer to watch Avatar or the Super Bowl on
an iPad? Viewers’ attention is split more than ever, but they are still watching
TV. ComScore’s survey also found that the TV viewing experience—audio
and video quality and overall experience—is preferred over online viewing. Ten
million households in the United States connect their PC to the TV to be able
to watch that content in a larger format.72 And pay TV earned providers over
$84 billion in subscription revenue in 2009, costing a household an average of
$70 per month for 240 hours of TV entertainment.73

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Consumption of video content remains high. So are those 800,000 consumers

cutting the cord on TV? Or on the business model of TV? Charlie Rutman,
chief executive for the North American operations for international media
services company MPG, phrased it well at the network “upfronts” following
the 2007–2008 writers strike, “We’re in a world where it’s not about TV, it’s
about video. … [Networks] are not in the TV business, they’re in the video
content business.”74 When consumers talk about why they’ve moved away from
cable, satellite, and IPTV providers, they talk about economics, not a declining
interest in video entertainment. They talk about how the monthly fees they pay
no longer deliver value compared with other video content options.
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.”75 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.
2 Choice and convenience – The flexibility of delivery and mobility reigns

supreme. Take it from cord-cutter Danny Ledonne, a grad student and
video producer: “I don’t want an arbitrary television schedule telling me
when and where I’m supposed to meet it every night or every week. …I
want to watch when I want to, I want to be able to download it and listen
on the bike or watch on a plane, and I want to do it for free with minimal
advertising. Otherwise, I have better things to do.”76
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 are 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

the shift
touting unproven business models.”77 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.
The View from Inside

Take the example of the sitcom In the Motherhood. It began as a web series that
solicited story ideas online from mothers, allowed them to vote for their favorites
and then incorporated the winners into future story lines. The show was billed
as “By Moms, For Moms, About Moms.” The tight integration between the
viewers and the creators made the series a hit, illustrating how innovators can
use interactivity enabled by technology to drive increased customer engagement
and loyalty. Seeing the success of the web series, ABC brought it to the network.
And that’s where things went awry.
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.”78
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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The critical fact about this negotiation wasn’t about the

mothers, or their stories, or how those stories might
be used. The critical fact was that the negotiation took
place in the grid of the television industry, between
entities incorporated around a 20th century business
logic, and entirely within invented constraints.79
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:
The most watched minute of video made in the last

5 years shows baby Charlie biting his brother’s finger.
(Twice!) That minute has been watched by more people
than the viewership of American Idol, Dancing with
the Stars, and the Super Bowl, combined. (174 million
views and counting.)… ‘Charlie Bit My Finger’ was made
by amateurs, in one take, with a lousy camera. No
professionals were involved in selecting or editing or
distributing it. Not one dime changed hands anywhere
between creator, host, and viewers.
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 enthusiasts80:

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63% viewed user-generated content like videos on

YouTube
37% viewed video on social networking sites like
Facebook
32% viewed TV programs on broadcast websites like
NBC.com or CBS.com
27% viewed TV programs on aggregators like Hulu
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.81
Once the anchors of a network’s offerings, the hour-long drama and the 30-minute
sitcom have been replaced 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.82 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.83 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
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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
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. 84 And syndication requires production
of at least 100 episodes, typically a five-season run.
In the end, profitability for the networks increasingly depends on subscription

fees. Advertising isn’t enough to sustain content delivery either to the TV
or to the PC. Hulu and YouTube have lots of viewers, but they haven’t made
money. Broadcast networks have seen advertising dip as brands begin spreading
their budgets across new media. While ads still deliver billions in revenue, the
trend toward new media will continue. Hulu, a joint venture between ABC/
Disney, Fox, and NBC Universal, allows those networks to capture some
of that revenue themselves, but the advertising dollars just cover the cost of
distribution—hence the explanation for its recently launched premium service.
In addition to advertising, broadcasters are looking to subscription fees for

revenue. NBC Universal’s TV arm relies heavily on its cable properties like
MSNBC, USA, and Bravo for income.85 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 2014.86
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

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complained to Cablevision, which has refused to re-open negotiations.87 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.88
In one sense, the analyst is correct. Content will always be important. But that
takes us back to Charlie and his brother’s finger. Baby Charlie gives viewers a
blockbuster, heart-string-tugging moment that they can connect with for free
and without a single pitch meeting, power lunch, or development deal. Upping
the ante on what’s in TV shows that are produced and distributed in the same
system without addressing escalating costs for big-name talent, limitations on
studios’ ability to cut production costs and threatened revenue sources doesn’t
address the core problem. Too often, the answer has been about shoving new
technologies and new ideas into the old system, instead of changing the system.
Continuing his discussion of entertainment business models broken by their

own complexity, Clay Shirky writes:
When ecosystems change and inflexible institutions

collapse, their members disperse, abandoning old
beliefs, trying new things, making their living in different
ways than they used to. It’s easy to see the ways in
which collapse to simplicity wrecks the glories of old.
But there is one compensating advantage for the people
who escape the old system: when the ecosystem stops
rewarding complexity, it is the people who figure out
how to work simply in the present, rather than the
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people who mastered the complexities of the past, who

get to say what happens in the future.89
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.
TV: The New App Storefront

By 2015, 60% of TVs will be shipped with Internet connections and 70% shipped
with embedded applications.90 This is in addition to the Internet-connected set-top
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, as of April 2010, Yahoo! Widgets is the most widely deployed embedded
apps platform. Available widgets include social media apps from Facebook,
Twitter, and Flickr and streaming widgets from Amazon, Blockbuster, and
CinemaNow. One 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.91 The Netflix service, and others like it,
combine the convenience of online viewing with the preferred experience of TV
viewing. Another advantage for Netflix is being able to reduce the $600 million
the company spends annually in postage by delivering media electronically.92

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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.
In addition to embedded applications, there are browser-based platforms, such

as Boxee and Kylo, designed to provide the same online video content access
by connecting a PC to the TV. The advantage of browser-based platforms is
that they can take advantage of the capabilities of the PC’s CPU and operating
system, providing greater functionality than what’s available from within an
embedded app. The problem with both Boxee and Kylo is the resistance from
content owners and service providers who are worried that its “very facility for
delivering streaming video to the TV will encourage cord-cutting among pay-TV
subscribers. Those concerns have kept many popular streaming applications off
the Boxee platform, notably Hulu.”93 Of course, Hulu is owned by a triumvirate
of broadcast networks.
Google TV
In May 2010, Google announced the “Google TV™” platform, which will be
offered in the fall of 2010, via a partnership with Intel and Sony. Consumers
will get Google TV either in the form of a Logitech set-top box or embedded
in Internet-enabled Sony TVs. Google TV will combine 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.”94
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.
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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.
One Hollywood industry watcher promoting the promise of Google TV and

updates to the Apple TV platform asked:
What happens when TV [ad] inventory is no longer

a gamble? What happens when we no longer need
to guess on the audience for new shows—when the
platforms will tell us what the actual audience is, and
we’ll be able to deliver a targeted TV message, in close
to a real-time model? What happens when marketers
demand the same accountability in TV that they do from
digital, and TV truly morphs into a digital platform?”95
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 2011.96
Apple TV
Announced by Apple CEO Steve Jobs in fall 2006, Apple TV hasn’t met with
nearly the same success as other recent Apple innovations. As of June 2010,
Apple TV offers iTunes access for the television, including purchased and rented
content, plus YouTube, Flickr, photo streaming, and connection to home audio
systems. Apple hasn’t released sales numbers for Apple TV, other than to say that
December 2009 sales for the product were up 35% year over year.97
Watching Google’s announcement in May, it’s hard to believe Jobs’ declaration

a few days later that Apple TV is just a “hobby” or COO Tim Cook’s statement
in February, “We have no interest in being in the TV market.” Apple also once
proclaimed it had no interest in the mobile phone business. Speculation is
rampant that an announcement on the next iteration of Apple TV is imminent.

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Ideas about what it will be range from a small, $100 device like “an iPhone
without a screen” that connects to the TV and offers media storage in the
cloud to an actual HDTV with an Internet connection and access to Apple’s
App Store.98 A smaller device, especially one that offers such media portability
at a consumer-friendly price point, seems more consistent with Apple’s mobile
strategy, but only time will tell.
One clue comes from Steve 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.”99 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 GigaOmPro.com reports, “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.’”100 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.
One consistent note among the prognosticators is: “The glaring opportunity
is for Apple to bring the App Store to TV. With access to millions of
applications—including games—on a big screen, the television would finally
become engaging.”101 Gaming is a highly lucrative market where neither Apple
nor Google have a traditional play with a gaming console for the living room.
Sweeting details recent moves by Apple, including a couple of patent filings,

which point to the second consistent theme in the speculation—cloud storage.
In a separate report, Sweeting explains why some sort of move toward a cloud-
based media service makes sense:
Its goal is likely to be to provide seamless, cloud-based

access to content—both your existing libraries and what
you acquire—across the TV, the iPad, the iPhone and
any other device it might come up with. In addition,
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the iTunes App Store will eventually serve as Apple’s

platform for delivering cloud-based subscription and on-
demand content aggregation services—including video
content—across multiple Apple devices—in effect, an all-
Apple TV Everywhere service.102
The Shift Toward Consumer-Centric Video

All signs point to a shift in the video entertainment business that will sustain
video delivery across platforms because that is where consumers see value.
Somehow, the various players will organize around that fact despite the tenuous
relationships between talent, production companies, broadcast networks, cable
networks, local affiliates, TV service providers, and on and on. Those who don’t
won’t survive, but the video content industry will continue without them.
As we covered in our chapter on advertising, wherever the consumer’s eyes go,

ad dollars will follow. So advertising will continue to be part of the revenue
mix and will require audience measurement. That revenue will be in the mix
with subscription and per-use fees for access to a blend of media services and
applications across platforms.
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
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

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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.

However you slice it, the foundational business models supporting video
delivery since the introduction of television are on shaky ground. Indeed, this is
about content, not devices, and about personalization, not television schedules.
As such, timeshifting is a given and placeshifting has become commonplace.
Not only are video business models under pressure, but video demands highly
capacious networks. Video is bandwidth-hungry. Accordingly, service providers
looking to monetize the exponential bits and bytes traversing their networks are
wise to examine the new breed of video enthusiasts:
> Despite having significantly lower willingness to pay than other
respondents (including gamers and connected parents), video enthusiasts
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.
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> 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
chapter 9
networking
monetizing billions
of conversations
social networking: monetizing billions of conversations | 149

the shift
Seven percent of the world’s time spent online is

spent on Facebook and two out of every three
global web users visited a social networking site in
December 2009.
Social networking is here to stay because it

suits the “socializer” behavior patterns of the
next generations and provides connection and
community in this high-tech world. As pervasive as
sites like Facebook may be, social networking is an
activity and mode of communication, not a website.
Monetizing social networking isn’t just about putting

display ads on social networking sites like Facebook.
It’s about leveraging the role social networking as an
activity plays in the lives of consumers in numerous
ways to build trusted, interactive relationships that
generate more revenue.
Social networking sites are becoming a resource for

consumers seeking personal recommendations and
buying information, making it a potential threat to paid
search advertising. Social networks offer the means for
behavioral targeting and increased brand-consumer
engagement, which (as mentioned in the advertising
chapter) increases the value of ad inventory.
Privacy, privacy, privacy is key—all requests and uses

of consumer data must be opt-in and transparent,
and policy changes must be clearly communicated
in plain language, in advance.
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> The buzz around social networking and media is

fascinating from a sociological and cultural perspective. In the press, social
networking has become a bellwether for the health (or ill health) of society
at large as older generations bemoan how younger generations are too open
online and don’t seem to care about propriety or privacy. Whether this is true
is debatable, but it certainly makes attractive headlines since people throughout
time have loved to complain about “these youth today.”
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.

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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!.103 And while
the reach of the search and portal sites may be higher, Facebook and YouTube
draw much more of users’ time. Two out of every three global web users visited a
social networking site in December 2009.
The Threat to Paid Search

As we mentioned in our chapter on advertising, paid search is the big dog on
the block of Internet ad revenue, comprising nearly half of online ad dollars
spent. The presumption is that when users are searching for information to
make purchasing decisions, what comes up during a web search is a dominating
factor in their decision making. That dominance, however, may be changing.
Today, search is being augmented more and more with other Internet navigation
options. Jon Gibs, a media analyst for Nielsen Research, conducted a study of
how Internet users discover content and made a significant discovery.
There is a segment of the online population that uses

social media as a core navigation and information
discovery tool; roughly 18% of users see it as core to
finding new information. While still a smaller percentage
than those who use search engines or portals like Yahoo!
or MSN, it is a significant figure.104
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.
Socializers trust what their friends have to say and social

media acts as an information filtration tool. This is key
because Socializers gravitate toward and believe what is
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shared with friends and family. If your friend creates or

links to the content, then you are more likely to believe it
and like it. And this thought plays out in the data.105
The idea that social media will overtake search, if not make it obsolete, is echoed
by the GigaOm report, “Why Google Should Fear the Social Web,” which states:
In our modern, highly networked lives it is getting

increasingly difficult to find relevant information on the
web, quickly. The 10 blue links paradigm, popularized by
Google, appears to be reaching its limits.
While this seek-search-and-consume methodology has

become part of our basic Internet behavior and turned
Google into a gazillion dollar company, it may be time
for us to look for alternatives.106
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. Gibs
doesn’t provide a demographic breakdown of socializers, portalists, and searchers,
but some evidence suggests younger generations are more likely to be socializers.
Think about the shifting generational view of information. In our chapter

on the Millennials, we discussed that generation’s shift away from one-way
communication delivered from an authoritative source (a newspaper, a college
lecturer) and toward more interactive communication where the recipient is
an active participant in creating, challenging, and shaping the information that
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:

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90% said recommendations from people they know

70% said consumer opinions posted online
70% also said brand websites
69% said editorial content, like newspaper articles
Traditional media advertising rated just behind
objective recommendations: 62% trusted TV ads,
61% for newspapers, 59% for magazines, 55% for
radio and billboards
New media advertising rated low by comparison:
41% trusted search engine ads, 37% online video
ads, 33% online banner ads, and 24% mobile text
ads—except for opted-in emails, which scored 54%
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
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.
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Question Type Percent Example
Recommendation 29% Building a new playlist – any

ideas for good running songs?
Opinion 22% I am wondering if I should buy

the Kitchen-Aid ice cream
maker?
Factual knowledge 17% Anyone know a way to put Excel

charts into LaTeX?
Rhetorical 14% Is there anything in life you’re

afraid you won’t achieve?
Invitation 9% Who wants to go to Navya

Lounge this evening?
Favor 4% Needing a baby sitter in a big

way tonight... anyone??
Social connection 3% I am hiring in my team. Do you

know anyone who would be
interested?
Offer 2% Could any of my friends use

boys size 4 jeans?
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
significant time pressures and craves simplicity as a result. Baby Boomer
participants in an AARP focus group discussed looking for new ways to navigate
the online world.
“Do I need more information? The problem becomes

filtering and sorting—you have all this information
coming at you, what does it mean and how do you shut
out the part that doesn’t matter to you. And then how do

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you make sense of it?” Said another: “It’s getting harder

and harder to sift—there’s far more information out there
than one person can absorb.” … [M]any thought that,
once again, technology itself will help with the issues of
control and too much information: “ I love things like the
Amazon suggestions, and Netflix preferences. There are
so many choices we have everywhere, so for someone to
narrow it down for you, that appeals to me.”107
Personal recommendations—even from mostly strangers—are a welcome way

for these older users to focus their searches, get feedback, and narrow purchasing
decisions. Truly personal recommendations, one can assume, would be even more
welcome. Search engines can only get so personal before privacy groups start
screaming. And while there are certainly privacy concerns with social networks,
in the end, users decide what information they want to share with their friends.
Those interests and preferences are available to their social networks in addition
to data gleaned from face-to-face communication and personal relationships,
which cannot be mined by a machine.
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.”108
Behavioral Targeting: Boon or Bane?

Earlier, we mentioned the application of web crawling and data mining tools
to social media to provide brands with an enhanced view of consumer behavior
and 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.
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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.109
Opening up profiles for indexing on search engines keeps information around

for much longer. Getting rid of it on the social networking site, doesn’t mean
getting rid of it on the Internet, even if that’s where the content originated.
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
that younger generations are more comfortable sharing information online,
no one yet knows if this is generational or maturational. Today, according to
a recent Pew Research study, one in three Millennials shares at least five pieces
of information online for others to see, compared to 17% of Gen Xers, 20%
of younger Baby Boomers, and 15% of older Baby Boomers. Will they age
out of their open attitudes? At the same time, statistics show that younger

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demographic groups actually filter what information is available about them

online more actively than older groups. This same Pew study offers some key
statistics about web users aged 18–29:
> 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 50–64110
Of course, it is possible that younger demographics are doing more embarrassing

things that must be edited out of their increased presence online, but regardless,
they are paying more attention.
More conflicting statistics are available concerning targeted online advertising.

Sixty-four percent of respondents to a March 2009 TRUSTe-sponsored survey
said they would choose to see only online ads from online stores and brands that
they know and trust, and 53% said they would take an anonymous survey about
their preferences in order to limit ads to those that are relevant to them. Yet, half
of respondents are uncomfortable with advertisers using their browsing history
to serve relevant ads, which did trend down 6% year over year.111
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
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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.’”112, 113
Our research across 2,000 US Web 2.0 consumers reveals a similar story.
> About 40% of consumers were “very comfortable” sharing their

availability information with trusted service providers (Internet, TV, and
mobile), application developers, and people they know.
> Thirty-two percent of respondents were “very comfortable” sharing
location information and information about online activities.
> When told they would have also have control over who saw their
information or when others saw their information, take rates for being
“very comfortable” sharing information went up to nearly 50% across the
three categories (availability, location, online activities) overall.
> Having control over who saw their information was more important than
having control over when others had access for all demographics, except for
with location information for consumers aged 30–44 (42% vs. 55%) and for
urban consumers (44% vs. 53%). Both 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

the shift
connect with others; providers and application developers can monetize those
preferences if they provide access control to mitigate privacy concerns.
Social Networking Plus…

These discussions reinforce the importance of seeing social networking as
an activity, a conversation, a mode of communication that extends a person’s
natural inclination to connect, not a website or a widget. As an activity, it has
intrinsic value to consumers. The key to monetizing social networking through
media is to maintain that value for the consumer so when you combine it with
other applications and activities, your offerings aren’t just of value to marketers.
Consumers also have to be interested in the resulting applications and are, in
some cases, willing to pay for them directly.
… 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 your house. Tie that together with Facebook or Twitter, and now your
network, regardless of whether they use Foursquare, 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.
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… 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.” 114 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.
For developers, social networks opening up their applications is creating

opportunities for new mashups that capitalize on the “socializer” trend,
monetizing the consumer’s desire for controlled connectedness. Adding the
capabilities of the service provider magnifies that value even further. Not only
can service providers open up the network for blending all a user’s services with
a socializing component, but they are a trusted partner in a position to ease
consumer’s privacy concerns. Together, developers and providers can turn the
social networking trend into a wealth of market opportunity.
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.

the shift

Social networking is here to stay. The challenge for those in the ecosystem is
in attempting to monetize what is now a Web 2.0 behemoth, especially when
consumers are accustomed to free service and sensitive to privacy considerations.
To do so, one must offer these users incremental value. As a start:
> 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
over their application developer with sensitive preference data about
themselves. Combine this with an audience that is also highly tolerant of
advertising in their service definition and an operator has the potential
to succeed where so many before have failed—monetizing the profile of
these users by brokering the relationship between them and advertisers.
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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
chapter 10
not a spectator
sport
gaming: not a spectator sport | 165

the shift
The stereotype that the average gamer is a socially

isolated teen-aged boy is inaccurate. Gamers are 57%
male and 43% female, and the advent of social media
gaming has greatly diversified the gaming audience.
Gaming is a nearly $20 billion market.
Social gaming is rising in popularity as the lines

between gaming and social networking become
increasingly blurred.
Hard-core gamers have a high willingness to pay for

API bundles that support their gaming experience
and competitiveness. Casual gaming provides
significant marketing and advertising opportunities
for brands, including the ability to accrue points
through play as currency in online promotions.
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> Today, one out of every four entertainment dollars

is spent on games.115 Rabid, hardcore gamers bring big dollars. The movie Avatar
grossed $232 million its opening weekend. The game Call of Duty: Modern
Warfare 2 grossed $401 million the first day.
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:

the shift
Gamers skew slightly male: 57% male to 43% female

One-third of players are parents, and 81% of them have
children who are also gamers
Ages range across demographic groups, but are mainly
18–44
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.116 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%.117
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
the survey, also found that online gamers’ purchasing habits remained steady
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throughout the economic downturn. Mobile gaming is also taking hold,

according to analyst Anita Frazier:
Mobile gaming, for instance, has advanced to play a

bigger role and the iPhone, in particular, is attracting a
lot of attention given the dizzying array of game apps
available for this device. Social media networks have
emerged as the hot venue for online gaming, due to the
huge number of subscribers these are attracting. But
still, it’s unclear which business models are working in
this space.118
New Competitors, New Platforms

As the gaming market moves forward, the balance of revenue between hardware
and software is bound to shift. The iPhone- and Android-based devices are
attracting developers, and as the number of mobile gaming applications and the
sophistication of smartphones grow, the market for portable devices—let alone
home consoles—faces serious threats. Apple has been direct in its attack. At an
event in September 2009, Apple SVP, Phil Schiller, talked about how other portable
players compare to the iPhone and iPod Touch, putting up a slide that read:
“No multi-touch user interface

Games are expensive
No app store
No iPod”119
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

the shift
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.120
iPhone iPod Touch Android
Average Age 37 23 35
% under 17 25 65 24
App downloads/month 8.8 12.1 8.7
Paid app downloads/

1.8 1.6 1.1
month
Min/day using apps 79 100 80
Source: AdMob Mobile Metrics, January 2010
In our chapter on video, we mentioned the speculation that the next version of
Apple TV will be a small device like an “iPhone without a screen” that offers
access to media content stored in the cloud as well as to the App Store in a
consumer’s living room via the television.121 An essential reason for speculation
that this device made more sense, as opposed to, say, a TV set with embedded
apps, was Apple’s overall mobile strategy. With the iPod Touch, iPhone, and
iPad, they have scaled down the form factor and allowed users more access to
content stored within their network or online via third-party apps from any
of the many i-fill-in-the-blank devices Apple might launch. One analyst wrote
about the “glaring opportunity” offered in such a scenario by gaming. This new
TV device, if it became real, could basically serve as a gaming console as well as
an access device 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.
At a video gaming conference in Tokyo last year, Hirokazu Hanmura, president

of the Japanese research firm Enterbrain, said software is the future of gaming.
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the shift
“We are going to move away from a market where it’s the hardware that fights
against each other. …We are going to be moving to an era when different software
stores fight against each other.”122
New Customers
The casual 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.
What the App Store games—and Facebook—have taught gaming companies is

that there’s a large untapped market for games that may not command the same
$40 price, but they also require less money and effort to develop. At the Game
Developers Conference (GDC) in March 2010, the evolving emphasis was clear.
For the first time, there was a separate event just for the iPhone—the iPhone
Games Summit. One GDC participant, Simon Jeffrey of iPhone gamemaker
Ngmoco, said, “The sexy emergent part of gaming...is next-gen mobile, led by
the iPhone. The focus is on $250,000 games, rather than $25 million.”123 Jeffrey
may be biased since his company’s bread and butter is the iPhone, but the figures
he notes are telling. He went on to give a nod to the competition, noting that
Android should “emerge as a serious gaming platform” and Windows Mobile 7
“has wind in its sails.”
Game Developer Research reports that the economic downturn led to layoffs in
the gaming industry, resulting in an uptick of independent gaming developers

the shift
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. 124
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:
Consumers that want to carry a PSP are primarily

gamers and I think there’s a big difference in the types
of games you can play on a PSP versus an iPhone.
The iPhone games and apps are largely diversionary,
whereas we’re a gaming company and we make games
for people who want to carry a gaming device and play
a game that offers a satisfying 20+ hours of gameplay.
So it’s really coming at the market with different
perspectives... a phone vs. a gaming machine.
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
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the shift
Store.”125 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 3.126
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
group respondents, profiling pertains to divulging one’s personal preferences
and online habits in exchange for better targeting of advertisements and offers.
But, for gamers, profiling takes on a whole new meaning. For them, preferences
are about their avatars, not themselves. And, the next phase of social networking
for these gamers involves developing virtual relationships between their avatar
and others. You see, our gamer respondents represented the collision of physical

the shift
and virtual worlds, making it almost impossible to disassociate one from his
virtual self.
This speaks to the popularity associated with social gaming—particularly via

Facebook. Social networking in gaming isn’t anything new. Ever since Internet
access was added to gaming consoles, gamers could play with and/or against
their friends and make new friends in the gaming world. This social gameplay
was obviously extended to PC gaming, culminating in massively multiplayer
online (MMO) games like the well-known World of Warcraft. World of Warcraft
has over 12 million active players and is the most popular MMO in the West.
There are games with more subscribers out of Asia that are not translated for the
Western market.127
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 period, social networking grew by 56%.
Facebook has now become as important to gaming as
other casual gaming sites. Between 3rd and 4th quarter
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of 2009, Facebook surpassed Yahoo! as the number one

casual gaming website among casual gamers.128
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.129
> 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.130
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
merchandise. Interestingly, the second most popular application combined
gaming with social networking, allowing gamers to represent themselves as their
avatars when connecting with others outside of the game experience. Indeed,

the shift
these two worlds are converging, as social gaming users spread their time across
different gaming media fairly evenly, opening up the opportunity to allow
them seamless integration of their activities, scores, etc. across platforms, and
enhancing their connection with their social network.
Virtual Crops, Virtual Enemies,

Virtual $5 Billion Market Cap
A winner in the social gaming explosion is Zynga—maker of FarmVille, Mafia
Wars, and the new FrontierVille games famously available via Facebook. Users
can also play the games via MySpace, Yahoo! and other sites, and Farmville
launched in the App Store at the end of June. Zynga has over 235 million users,
and financial analysts say the private company may haul in $500 million in sales
in 2010 and estimated its market cap at $5 billion in April.131 By comparison,
publicly traded Entertainment Arts (EA)—maker of monster successes like
Madden NFL, The Sims and Rock Band—had an actual market cap of $4.9
billion as of June 2010.
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:
I want indie developers to know that this is a good

space to make games and get visibility. If you develop
a great game, people will find it and play it. You don’t
have to wait years and years to make it happen. People
loved FarmVille and were playing it before we spent any
money on advertising.132
High Dollar, Not High Maintenance

Still, there are the hardcore gamers who show a strong willingness to pay for new
services to enhance their gaming experience and gain a competitive advantage.
Our own research showed that gaming is one of the most lucrative opportunities
in the 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
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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.
Compared to our other tested groups—parents, social networkers, and online

video enthusiasts—gamers had the highest take rate for new services and
delivered the highest average revenue per potential customer by several orders
of magnitude. The data isn’t surprising, considering other audiences are not
accustomed to paying for online video or social networks. Whatever new
services they’ll pay for, it’s starting from a baseline service that they expect to
get for free. Hardcore gamers, on the other hand, are quite used to investing
significant money for their pastime, from the one-time cost of a console game to
the ongoing monthly subscription fee for an online game.
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

the shift
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.
Putting it All Together

If you are a provider or developer and are not in the game of servicing gamers,
you may want to rethink your strategy. Gamers:
> 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.
> Are surprisingly tolerant of service definitions with a high frequency of
advertising impressions. Gamers, like the other audiences tested, were
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equally likely to take a service with up to three times the number of

advertising impressions. Providers should not take this one too far. First,
the advertising must be unobtrusive to the gaming experience. And,
second, we are not suggesting that tolerance for advertising translates
to purchase intent. However, given gamers are a high-dollar segment
who are also at least tolerant to heavy ad rotation bodes well for those
servicing them.
> Are more likely to trust their service provider over an application
developer when sharing sensitive contextual information about
themselves, including preferences, presence, and location
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
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small
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The American dream
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Small businesses represent the growth engine of our

economy. Yet, they find themselves in an unenviable
position—sandwiched between the behemoth
markets of large enterprises and consumers. As
such, providers attempting to address this market
have found its fragmentation challenging.
Given the recessionary times, multiple secondary

sources point to this segment’s need to deliver
revenue growth. Accordingly, applications that
address this challenge will find a receptive market.
Simplicity is key for this audience. Providers should

avoid over-engineering services with complex
functionality and billing options or face sub-optimal
revenues as a result.
Small businesses crave security, placing network-

based security options on par with more expensive,
comprehensive support alternatives.
This market is surprisingly receptive to advertising,

offering an opportunity for advertising-subsidized
business models.
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> Entrepreneurship is the heartbeat of the American

dream. Perhaps that helps explain why Americans are in love with small business.
Don’t believe us? Consider the following: A February Gallup Poll found that
“small business” received the most favorable reaction from respondents when
compared with six other terms, including “capitalism,” “socialism,” and “the
federal government.” In fact, 95% of Americans polled indicated a positive
image associated with the term (interestingly, “entrepreneurs” also fared well,
with 84% of respondents reporting a positive reaction).133
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.134
Finally, a recent survey released by WebVisible, an online marketing services

provider that works primarily with small and medium-sized companies, found
that 80% of respondents regularly patronize small businesses over larger chains.
Respondents cited their top three motivations as community support, travel

the shift
convenience, and personalized attention. In contrast, only 17% of those surveyed

stated they do not choose small business over larger chains.135 This final study
would corroborate that respondents’ positive beliefs about small businesses are
translating to increased patronage of these establishments.
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 May alone, small businesses generated
approximately 25,000 new jobs.136
And, lest you believe their impact is relegated exclusively within the confines of
the US border, the US Commercial Service, which helps US companies expand
internationally, recently 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 2008.137 In fact, confidence in small
businesses is even stronger overseas, with 66% of European CEOs saying small
businesses 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 businesses than
from the government, public companies, or new ventures in their countries.138
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 2012.139 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
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needs to be treated with the same one-size-fits-all packaging and media options,
typically more common in mass consumer markets.
Given their unique buying behaviors, sophisticated communications needs and

significant growth potential, small businesses are perhaps the most lucrative
segment of the user market where application enablement makes the most
sense. With hundreds of thousands—if not millions—of developers creating
new products and services for these entrepreneurs, service providers challenged
by the fragmentation of this market have an alternative to the more onerous
do-it-yourself service creation options. And, since research demonstrates that
commercial developers have an appetite and willingness to pay for network
capabilities, the question now turns to one of attraction among these small
business entrepreneurs. Do small businesses perceive value in network-based
intelligence when said capabilities are inserted into new or existing services?
Alcatel-Lucent sought to answer this question by canvassing over 800 small and
medium-sized businesses in the United States—all with 100 employees or less.
It’s the Economy, Stupid

It’s ironic that such a politically incorrect battle cry actually originated in
politics itself. Yet, when the Clinton Administration popularized this slogan
in its campaign defeat against George H. W. Bush, few could have imagined
this politically incorrect statement would have seemingly timeless relevance. As
recessionary times once again abound, the economy itself weighs heaviest on
small and medium-sized business owners, making this mantra most appropriate
for this segment. Confidence among US small businesses rose in May to the
highest levels in 8 months according to the National Federation of Independent
Business, signaling a more upbeat attitude about the economy 6 months from
now. Despite this uptick, small businesses still lag larger companies in their
optimism for the future. The study found that 30% of respondents cited “poor
sales” as their top business concern, up a point from April.140
In yet another study, Travelers polled 101 small business owners in May 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,

the shift
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.141 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.
Keep it Simple, Stupid

Another popular, if not politically incorrect, saying that was first coined by a
lead engineer at Lockheed, pertains to designing for simplicity. While it can be
tempting to over-engineer a product or service, doing so creates consequences in
customer acquisition and service. Look no further than the decision makers in
our study for evidence to support this credo.
Up until now, we have largely praised the concept of bundling as it pertains to

creating new functionality in services. As a reminder:
> Consumers were willing to spend approximately 25%–35% more for a

service with three capabilities operating simultaneously when compared
against a service using any one capability on its own.
> Commercial developers were willing to spend up to twice as much for
bundles of APIs when compared with the revenue potential of each API
sold independently.
> Enterprise IT developers were willing to spend up to three times as much
for bundles of APIs when compared with the revenue potential of each
API sold separately.
For small and medium-sized businesses, the bundling opportunity takes a

different twist. Not only is this audience less attracted to bundling when
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compared with the others listed above, for these entrepreneurs, the inclusion of
additional network capabilities increases willingness to pay—but only up to a
point in which revenue is maximized. Let’s take each finding in turn.
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.”
Size Does Matter

Small and medium-sized businesses are as unique as their owners. It comes as
no surprise that differences abound in this highly fragmented market, even
when comparing a basic firm characteristic—the number of employees. For this
critical parameter, two findings in particular are worth mention.
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 enterprises were

the shift
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.
Second, when it comes to how these organizations perceive sensitive profiling

information about employees, size matters once again. When asked if their
organization currently has policies capable of monitoring employee behavior,
including content and media consumption, bandwidth consumed, and time
spent on the network, 32% of medium-sized organizations (those with 20–
99 employees) responded affirmatively. In contrast, only 10% of very small
(those with 1–5 employees) and 20% of small (those with 6–19 employees)
organizations indicated the same. For a service provider looking to incorporate
some of the more sensitive contextual APIs into their service definitions—
especially presence-based capabilities, which scored particularly well—it must
first address this employee policy gap. A provider may well find itself in a
position where small enterprises gravitate toward APIs without the employee
policies in place to authorize said functionality. This gap must be recognized, if
not outright addressed, in a provider’s go-to-market approach.
Security Rivals Support

In matters where differences between these enterprises were less pronounced,
our old friend security once again sits in a prominent position at this table.
Symantec recently released its Security Threat Report volume XV, which
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highlighted trends in cybercrime in 2009. Among them was an increase in

the number of targeted threats focused on enterprises. The report found that
attackers were using information made available on social networking sites to
launch direct attacks at particular firms or company individuals.142 Intersect this
cybercrime trend with the rise of social media in the small enterprise sector, and
the opportunities are fraught with disaster.
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:
> 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.

the shift
> 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 evidence suggests that advertising is an area of interest among these

respondents—one that will also result in incremental revenues for providers.
This audience does not suffer fools gladly. They are willing to sacrifice their
attention in exchange for a compelling discount. And, given the economic
growth this audience is expected to stimulate over the next few years, advertisers
would be wise to take notice.

Small and medium-sized businesses are not without their challenges. They are
too many in number to be treated with customization. They are too complex
in their needs to be handled with a one-size-fits-all approach. They are savvy
entrepreneurs looking for ways to grow their topline despite a recession. And, if
consumer and CEO confidence levels are any indication, our economy directly
depends on their success.
The tenets for providers and developers looking to tap into this space are
straightforward:
> These entrepreneurs see value in network-based capabilities when

inserted in service definitions. Willingness to pay and stay both exist
and are positively correlated to the size of the firm, which is a good news
story for providers and developers alike.
> Keep it Simple, Stupid. Yes, this is a very direct mantra but it speaks
loudly for this audience. Providers and developers should avoid over-
engineering services or face sub-optimized revenues as a result. Likewise,
they should keep billing options simple to preclude any surprises. When
we tested various billing options among this audience, monthly billing
far exceeded any per-use alternatives in maximizing a provider’s revenue
potential. Simplicity is key when dealing with this audience.
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> Providers and developers should recognize the limitations of contextual

APIs as they pertain to company policies that allow or prohibit their use.
The presence of employee policies to authorize such services is low across
the board among these firms, but particularly deficient among very small
enterprises (those with five or fewer employees). The challenge is that
this segment is equally attracted to these capabilities, particularly those
in the presence category, as their larger counterparts. Service providers
must acknowledge if not outright address this gap in their go-to-market
attempts. Otherwise, the pent-up demand for such services will be
thwarted by insufficient privacy policies inherent in these organizations.
> Security is a must. It alone rivaled the most comprehensive (and
expensive) support option. The confluence of cybercrime trends,
social media adoption among this audience, and its lack of dedicated
IT support when compared to its large enterprise brethren makes this
segment ripe for attack. Service providers who understand this threat
and offer network-based security as a table stake stand to gain.
> Advertising should not be ignored. What this segment lacks in technical
prowess is more than made up for in business savvy. They are open to
new advertising models—so much so, that service providers can make
up any discounted revenues with incremental volume. This doesn’t even
cover the upside associated with the advertising itself.
These arguments point to an interesting and practical course for service providers.
A market where fragmentation was once its most significant challenge can now
be its 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-
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high stakes
higher rewards
healthcare: higher stakes, higher rewards | 195

the shift
The recent healthcare reform movement represents

significant opportunity for ICT providers in this
market.
Meaningful use requirements associated with

electronic health records place unprecedented
demands upon secure and reliable networks.
Geographically challenged facilities are turning to

remote healthcare alternatives, such as eICUs, to
attract talent and optimize patient care.
Remote healthcare monitoring solutions place the

patient at the center of his care and allow providers
and developers an emerging growth opportunity.
Given these trends, healthcare decision makers are

the most enthusiastic of all vertical segments tested
as it pertains to their interest in network-enabled
applications.
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> Browse any major news publication these days and

you’re bound to find ample content surrounding the current healthcare debate.
The stakes are major: Healthcare reform to cover nearly all legal American
citizens at a cost of roughly $1 trillion over the next 10 years. And, while this bill
will be funded through multiple cost-reduction or revenue-generating options,
the impact of IT and communications on this critical sector has never been more
significant. That’s because ICT stands to revolutionize the way patient care is
administered, the methods used to access medical expertise, and the means by
which chronic disease is prevented and managed.
While we can wax poetic about the opportunities afforded through

such transformation, perhaps the argument would be more credible
coming from those within the healthcare industry. According to a recent
PricewaterhouseCoopers (PwC) study, 90% of US healthcare leaders and 84%
of global healthcare leaders indicated that information technology will be a
“key factor” for transforming healthcare today and in the decade to come.143
The survey, conducted in April, 2010, polled 590 leaders of health plans,
providers, employers, government, physician groups, and pharmaceutical and
life science firms in 20 countries.

the shift
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.
Funding—A Whole New “Meaning”

Nearly three-quarters of respondents to the 21st Annual Healthcare Information and
Management Systems Society (HIMSS) Leadership Survey reported they expect
their IT operating budgets to increase in 2010—that’s up from 55% of respondents
last year. Nearly half who predicted their budgets would increase cited meaningful
use as a driver. Further, when asked to identify their single IT priority over the next
2 years, 42% of respondents reported meeting meaningful use criteria.144
“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 use”
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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.145 Digitizing patient
information and making it accessible across clinician and hospital boundaries
addresses this challenge and optimizes patient care.
To be fair, moving to an EHR approach is not without its challenges, notably

the onerous transition required to repopulate paper-based notations into an
electronic record and the user intervention necessary to do so. However, for early
adopters of EHR systems, initial results are promising. Long before meaningful
use was ever in the headlines, leaders at Sentara Health System envisioned a
brave new world of electronic patient records. As one of the earliest adopters
of an EHR system, results across six hospitals in 2009 were nothing short of
extraordinary, as Sentara:
> 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 shift
> Increased the number of outpatient procedures at a dollar benefit of $4.4

million—essentially by improving efficiencies and doing more with less
> Avoided more than 88,000 medication errors
The bottom line? Sentara exceeded its projected $17 million return on investment
by $12 million in 2009.146 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.147
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 recent study by Harris Interactive found
that over 70% of consumers have “significant” concerns about the security
of electronic health records.148 Similarly, another study by the California
HealthCare Foundation found that two out of three Americans are concerned
about the privacy of their health information.149
The concerns are warranted. Take the following:
> According to the 2010 HIMSS Analytics Report: Security of Patient

Data, critical gaps were found in data security, with hospitals dedicating
more time to breach response than to breach prevention. The number
of healthcare organizations that reported a breach increased to 19%
of respondents—up from 13% the previous year. These organizations
tend to underestimate the financial burden of such breaches, despite
regulatory penalties that can reach up to $1.5 million alone.150
> Per the HIMSS Leadership Survey, 34% of respondents indicated an
internal breach of security was their top concern and nearly one-quarter
said their organization had a security breach in the past year.151
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> SecureWorks, an information security service which protects over eighty

healthcare companies in the United States, reported that attacks against
these clients doubled in the fourth quarter of 2009.152
Despite these security concerns, current reform investment initiatives will

support the adoption of electronic health records within the next few years.
Opportunistic service providers will see this revolution as the next step-
function in growth for this critical sector. And, network functionality, such as
security, quality of service and contextual capabilities may prove instrumental in
accelerating this change.
Caregiver—Bridging the Digital Divide

As the healthcare landscape becomes even more fiercely competitive, access
to talent is a key weapon in the battle. Patients select doctors. Doctors select
facilities. In this circle of life, those able to attract the best clinicians can use these
experts as the proverbial Pied Pipers in the equation. And, technology is fast
becoming an attractor, if not equalizer, in this race for the best.
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.153
And, if digitization of patient content serves to attract a new breed of

technologically advanced practitioner, the underlying networks transporting
these bits and bytes are the great equalizer for geographically disadvantaged
facilities. Among the latest trends for rural hospitals is the rise of the eICU.
Unfortunately, you have likely been affected by an ICU incident—either
directly or indirectly—and therefore may be all too familiar with typical ICU
care. The traditional approach of caring for an ICU patient involves doctors
making rounds at prescribed intervals with caregivers monitoring patient

the shift
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.154 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%.155
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.156
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Patient—From Passivist to Partner

It’s hard to imagine life before the Internet. At one time not so far in the distant
past, patients lacked the wealth of information now readily available through a
few mouse clicks on virtually any identifiable condition. Information empowers.
And, the Web has done wonders in creating a new breed of educated and
empowered patients.
While the Web’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 Web 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 Web 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.157 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,

the shift
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.158 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.
Application Enablement in the Healthcare

Environment
The expected transformation to our healthcare environment will make history
in the next few years. But, how does Application Enablement fit into this story,
if at all? Alcatel-Lucent canvassed 300 healthcare decision makers to determine
how capabilities within the network, such as quality of service, security, and
contextual functionalities, may serve to accelerate this transformation. Among
the findings:
> 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.
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Interestingly, in a separate module of our research aimed at

connected parents, respondents also placed a remote health
monitoring solution among their top favorites of next-generation
services. Not surprising when you consider the emerging health
challenges facing Baby Boomers as discussed in that chapter.
> 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.
> In terms of security, respondents indicated higher take rates for

services noted as traversing secure networks. With the earlier examples
surrounding security breaches and mounting concern among both
patients and practitioners, this point is validated through our study.
> 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.

the shift

The healthcare sector is poised to make history. ICT can be foundational to
this transformation, but providers seeking to insert value in this ecosystem must
heed the following:
> 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.
The iPad has already demonstrated the power of a platform in attracting

developers that can design applications tailored to this market. And, research
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supports that leveraging the network as a platform offers this potential to

providers looking for their place in this value chain. With regulatory reform
providing incentives to this market, providers are primed to support this
transformation for a technologically fragmented segment. Once technology
begins to work for practitioners, rather than vice versa, patients benefit. And,
isn’t that what healthcare is all about in the first place?
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.

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govern-
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protector,
employer,
and servant
government: protector, employer, and servant | 209

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Governments are in an interesting predicament.

On one hand, they must respond to an increasingly
collaborative constituent base and embrace
transparency in communications. On the other,
they must protect information central to our nation’s
and their citizens’ security. Technology has a role to
play in addressing this dichotomy.
Given this challenge, governments place security

as a higher priority—and value—than the most
comprehensive customer support package.
Governments have a penchant for contextually

based services—those that enable employees to find
one another quickly based on presence information,
as an example. At the same time, they are more likely
than their vertical counterparts to have employee
policies in place that enable such services to be
introduced within their organizations.
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> How many employees are in your company? A few

hundred? Several thousand? Tens of thousands? Process this factoid: US federal,
state and local governments employ roughly 20 million people. This staggering
number gives the government the unquestionable moniker as the nation’s largest
employer, dwarfing the largest single private employer, Walmart, which comes in
at slightly more than a million US employees by comparison.
Imagine attempting to collaborate with 20 million co-workers. Critics in the

audience are calling “Foul!” right about now. Not all 20 million government
employees must work together. It’s a complex labyrinth of federal, state, and local
agencies. You would be right. But, consider this counter-argument. The smallest
state in the Union, Rhode Island, collects more revenues than many Fortune
1000 companies today and alone employs close to 20,000 people, proving that
even the humblest of these government entities can rival the size and scope of
our nation’s largest enterprises. And, to further the point, the very complexity
of multiple federal, state, and local agencies exacerbates an already challenging
problem in attempting to connect so many individuals in the first place. In 2006,
the Justice Research and Statistics Association identified over 250 information-
sharing systems supporting just 35 states and Canada—over seven systems, on
average, per state!159

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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.
Transparency Builds Trust (and Risk)

Government should be transparent, participatory and collaborative. That’s not
our opinion. It’s the direction as laid out by President Barack Obama—both in
his former life as a candidate on the campaign trail and as outlined in a memo
he penned upon taking office. The vision is not surprising from a candidate who
revolutionized campaign fundraising using social media weaponry. In February
of 2008, challenging Republican candidate John McCain managed to raise
$11 million for his presidential bid. That same month, then Candidate Obama
raised $55 million using social media and the Web.160 And, the same open
philosophy and social connectedness he so successfully fostered while on the
stump prevail in his current administration.
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
it 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.161 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. On the
other, transparency in communications and information-sharing creates risk in
the system. Let’s examine each end of this dilemma.
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First, citizens have become acculturated to a hyper-connected society. Not

only do they prefer to interact with 21st century tools, they become more
participatory when they do. Consider the following:
> The previously mentioned ACSI study also shows that citizens’
perception of e-government services has gone up for a second
consecutive quarter and is now at the highest level since measuring
for the index commenced in 2003. In contrast, satisfaction for
offline government services has been dropping.162 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.163
> 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.164
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. As 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”.165
> According to Google, Los Angeles saved more than $1 million per year
after outsourcing the hosting and management of its email system. In the

the shift
same study, over 70% of voters want their state and local government to
consider the same solution.166
> In addition to e-town hall meetings generating significantly more traffic,
costs are up to 66% less than the traditional face-to-face alternatives.167
Citizens’ enthusiasm for a more open government is met in measure by a tempered

reaction from public officials who respect the sanctity of sacred information.
If the ACSI study proved transparency builds trust among constituents,
multiple other studies corroborate it also imposes risk for those serving them.
Government officials are the former architects of a “need to know” worldview.
Not surprisingly, concerns over security pour cold water on this otherwise hot
trend. Notably:
> 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).168
> 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.169
> 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.170
Despite these 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 to further engage citizens.171 And,
in the spirit of transparency, one-third of government IT professionals expect
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to execute a social networking initiative within the next year, with or without
stimulus funding, according to a recent study of over 500 decision makers released
by the Computing Technology Industry Association (CompTIA).172
So, how does a government aspiring to have a more transparent, participatory,

and collaborative working relationship with its constituents and already
leveraging popular 2.0 development platforms to do so evaluate network-based
capabilities that could accelerate the same? Alcatel-Lucent canvassed 300 state
and local government decision makers to find out.
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:
> Send automatically formatted text, email or IM messages to co-workers

or constituents based on the device currently in use (as a reminder, this
API also took top honors among developers)
> Automatically have a call redirected to a person based on the most
accessible device

the shift
> Determine the status of a person, including current device in use and
available bandwidth
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.
Security is Not an Option

As we did with other customer segments, we asked these decision makers to
evaluate multiple value-added options as part of a bundle. Among these: live
24x7 help desks, dedicated and localized account support, moderated email
forums, and deployment training classes for new services. While a comprehensive
support package encompassing all of these elements performed well enough
to influence interest and willingness to pay, it couldn’t rival the demand for a
secure network underlying the services. That is, respondents evaluated any
service traversing a secure, end-to-end network as being more valuable than one
surrounded by the most comprehensive of support packages. Security by itself is
more important than responsive support.
Privacy is Not a Barrier

Interestingly, this segment is the most likely to have policies in place that mitigate
employee privacy concerns with contextual APIs. That’s an encouraging indicator,
especially for a market enamored with presence-based APIs that can determine
the availability or status of an employee. Specifically, 69% of respondents
indicated their organization has policies capable of profiling or monitoring an
employee’s behavior, including content and bandwidth consumption or time
spent on the network. Further, when considering new services that deal with
location, presence, or profiling of employees, 60% indicate existing policies are
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sufficient to protect employee privacy concerns with an additional 24% in the

process of implementing such guidelines. Only 15% report that existing policies
are insufficient and would first need to be defined and agreed to before such
services could be introduced in their organization. The bottom line: The majority
of state and local governments are well positioned to introduce contextual-
based services without violating employee privacy policies and exhibit healthy
willingness to pay. These factors create the perfect storm of opportunity for
providers tapping into this communication-challenged market.

If you think communicating in a private enterprise has its challenges, imagine
the complexity of doing so within a government. Governments are more likely
to have natural silos associated with unique agencies and jurisdictions. They
are more likely to trail the private sector in adopting newer technologies. They
must be more vigilant in safeguarding information to protect their citizens.
Governments are of the people, for the people, and by the people. And, it is
connecting the people—both internally and externally—that sustains the
lifeblood of a functional and transparent government.
For providers addressing this estimated $100 billion ICT market173:
> Recognize that governments are juxtaposed between two opposite

extremes: the escalating expectation of Government 2.0 services from an
increasingly tech-savvy constituency balanced against the imperative to
safeguard sensitive information. This puts these decision makers in a bit
of a schizophrenic stance—one that must balance open communications
within a protective framework. Indeed, this new paradigm challenges
the core of government thinking and opens the door to speak about
innovation in a much broader sense than merely technology to these
decision makers. To this point, IBM recently released a global study of
government CIOs (over half of whom were in the United States) and
found that 50% of state and local governments identify business model
changes as one of their greatest challenges. This places these leaders in
a comparable category to their private sector counterparts, with 54%

the shift
of the latter indicating the same. Application Enablement offers new

business models for all within the ecosystem and is one potential remedy
to an ambiguous and escalating challenge for these public CIOs.
> Exploit presence-based capabilities that intuitively find individuals
connected to the network. Not only are these highest in demand, but
governments are more likely than any other vertical segment tested to have
policies that address associated employee privacy concerns.
> Prioritize security over support. Both are critical to governments but, when
betting with their wallets, these decision makers place a higher value on
network security over even the most comprehensive of support options.
> Simplify the functionality. Similar to their counterparts in other
large organizations, these decision makers are more likely to exercise
judgment when evaluating more complex service definitions. That
is, the more sophisticated a service, the more discriminating this
audience is in estimating the number of potential prospects within
their organization. The result is that more robust services are associated
with fewer employees being offered access. And, with a per-employee,
per-month business model overwhelmingly favored by this audience,
fewer employees translate to lower revenues for the service provider.
This is a case where the incremental price associated with a richer service
definition is more than offset by decreased estimates of employee usage.
Keep in mind that this is not a function of demand decreasing with
a bundle. That is, these decision makers are interested in purchasing
sophisticated services. However, they are also inclined to curtail
expectations of how many employees would have a need for such
advanced technology.
In summary, the question is not if governments are interested in Application

Enablement. As of this writing, local jurisdictions are experimenting with text-
based 911 capabilities, citizens are becoming documentarians using mobile devices
to share real-time footage from the latest oil spill disaster, and governments are
rewarding entrepreneurial developers for innovative applications that serve the
public’s interest. Government leaders are increasingly aware of the opportunities
and challenges before them in a 2.0 world. The more germane questions are how
and when service providers will insert themselves in this dynamic value chain.
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We’ve explored the “how” in this chapter. The question now becomes “when”
such opportunities will materialize. And, for many reading this book, that
answer is now up to you.

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220 | chapter 13
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edu-
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cation
the global
achievement race
education: the global achievement race | 221

the shift
The United States is increasingly being challenged

in the global academic race. Many view education
as the harbinger of our economy’s health. Some
countries outperforming the United States in critical
achievement objectives spend more on classroom
technology on a per-student basis.
Several trends point to the increasing role of

development and technology in this space:
• The digitization of content, similar to what was
witnessed in the music industry, is primed to
revolutionize the classroom environment as
devices become more capable and affordable.
• The virtual classroom, born and popularized on
college campuses, is now making its mark in the
K–12 space.
• The technology adoption of a generation
defined by its collaboration habits will serve as a
strong gravitational pull for educators seeking to
attract and retain the attention of Millennials.
For educators, the student remains at the center of

the debate. Educators must balance the desire for
academic freedom with the requirement to protect
academic integrity. As such, services seen to enrich
the learning experience while affording academic
control will find a primed market.
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> As the United States stares down the barrel of a

double-digit unemployment rate, it’s almost inconceivable to imagine our
country facing a labor shortage anytime in the near future. Yet, that is precisely
what a recent report by the Georgetown University Center on Education and
the Workforce predicts. Specifically, companies seeking college-degree holders
may soon find themselves in a quandary. The estimated shortage averages to
an annual deficit of 300,000 college graduates between 2008 and 2018. While
unemployment will remain a factor for job seekers for some time, it appears our
country is lacking in developing candidates for a new “college economy”—one
represented by a shift in degree-holding positions from 28% in 1973 to 42% in
2007. Much of this change can be attributed to the rise in technology in the
workplace and its associated cannibalization of blue-collar jobs.174
Make no mistake: The United States’ position as a superpower is increasingly

correlated to its ability to keep pace in a global academic race. As such, education
is taking center stage as the harbinger of our economy’s health. And, the current
landscape is sobering:
> According to the 2006 Program for International Student Assessment

(PISA), an index that measures 15-year-olds’ performance in reading,

the shift
mathematics and science literacy every 3 years across 57 countries, the

United States ranked behind 28 countries in the latter category (including
Estonia, Croatia, and Latvia, to name a few). In fact, the United
States scored below the average of the 30 countries included from the
Organization for Economic Cooperation and Development (OECD)
for this index. Sadly, the same is true for the mathematics measure of
the Assessment, where the United States again scored below the OECD
average, with 31 countries performing better on this attribute.175
> The percentage of American students earning a high school diploma
has dropped for the second consecutive year, according to Education
Week and the Editorial Projects in Education (EPE) Research Center.
The percentage of students earning a diploma in 4 years decreased from
69.2% in 2006 to 68.8% in 2007, translating to 11,000 fewer graduates
in 2007. At its peak in 1969, the national graduation rate was 77%.176
> When the national nonprofit group Project Tomorrow gauged high
school students’ interest in pursuing a career in Science, Technology,
Engineering or Math (STEM), only one in five students in grades 9–12
said they were definitely interested.177 This lack of interest, coupled with
the United States’ lagging global literacy in these areas per the PISA
results, foreshadows an ongoing shortage of US candidates for these
positions and a resulting need to offshore these valuable jobs.
Some point to the lack of technology investment in US education as a key

contributor to deteriorating performance. A recent report by the Consortium
for School Networking (CoSN) found that countries like Scotland and the
Netherlands significantly outspend the United States in ICT capabilities in
the classroom. Specifically, in comparable terms, the United States spends
approximately $5.44 on ICT per student at the federal level, compared with
$10.80 in the Netherlands and $20.10 in the UK.178 Interestingly, both of these
countries outperform the United States in both math and science literacy, per
the PISA results.
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
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States performed as well as the average student in the best-performing nation,

the US GDP in 2008 would have been $1.3 trillion to $2.3 trillion higher.179 In
another study by the Alliance for Excellent Education, analysts estimated that if
dropouts were reduced by 50% in America’s 50 largest cities, the graduates’ extra
earnings would have amounted to approximately $4.1 billion per year, increasing
state and local tax revenue by as much as $536 million.180
Education is the catalyst to a healthy long-term economy. And, ICT is at the

center of sweeping transformation for this sector. Hot topics surrounding the
digitization of content in our schools, the virtualization of the classroom, and
enhanced learning techniques have long-term impact as to how this space will
evolve over the next several years and even greater implications to our country’s
long-term global standings in this intensively competitive academic race.
Never Judge a Book by Its Device

If you want to see an industry transformed by the digitization of content, look no
further than your pocket for the revelation. If you are like half of the population,
in it you will find your iPod or other MP3 device. Digital content and its
portable devices swept the music industry by storm, leaving many executives
and recording labels ill-prepared to address the change to their business model.
PricewaterhouseCoopers recently predicted that digital music sales in the
United States will exceed physical by next year—just 10 years following the
debut of the iPod.181 Billboard reported that Apple is now responsible for 26.7%
of music sales, leaving retail giant Walmart in a distant second place of 12.5%.182
Ten years. One industry. Complete transformation.
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% last year 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 2012.183 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.

the shift
However, the road ahead is paved with challenges. Among them:
> Digital Rights Management (DRM) challenges currently limit the

exchange between many e-readers. DRM is an answer to a content
provider’s concern over piracy of his creation. When content becomes
digitized and non-protected, replicating it illegally becomes a pastime for
those with idle hands and nefarious intentions. This concern dates back
to software itself and, if current estimates are accurate, its merit is more
relevant today than ever before. According to the Business Software
Alliance (BSA), the value of illegally downloaded software worldwide
exceeds the GDP of 100 countries, reaching a staggering $51.4 billion
in 2009 alone.184 Publishers and authors clearly want to avoid this pitfall
and, as such, different protection standards exist for various e-readers.
Want to buy a book for the Kindle and then read it on your Nook? No
can do (at least, not today). And, this point raises a challenge to schools
attempting to standardize the student experience while simultaneously
leaving all doors open to acquire the greatest breadth of content.
> Device limitations remain. E-readers are a giant step forward in many
ways—slim and lightweight packaging, long battery life, and intuitive
interfaces to name a few. But, with the convergence of e-reader
functionality into new tablet devices, like the iPad, many schools are
left pondering when to pull the trigger. Does one wait for the all-in-
one device or purchase a more affordable, though limited, e-reader
today? If the latter option is taken, popular e-readers are not designed
for textbook use today, given their smaller screens and black-and-white
output. And, if the former option is pursued, current limitations with
the iPad must be addressed to accelerate adoption within schools.
Specifically, the device currently lacks any remote monitoring capability,
which prevents a teacher from viewing what a particular student or
group of students is doing on the device—a critical function for a
learning environment.185
> Student acceptance is questionable. According to a recent study by
the National Association of College Stores (NACS), 74% of students
preferred printed textbooks for their college courses. Corroborating this
finding, the University of Virginia’s Darden School of Business found that
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eight in ten students engaged in a Kindle pilot would not recommend the
device to an incoming business school student. Finally, a study released by
the Student Public Interest Research Groups (PIRGs) showed that seven
in ten college students prefer printed textbooks “if cost is not a factor.”186
These studies demonstrate the need to overcome practical usability hurdles
if e-readers or tablets are to be widely accepted by students. Among the
complaints: students missed the ability to highlight text directly, take
notes, and flip back and forth between textbook pages easily.
Despite these hurdles, the current momentum is one suggesting a question of

when, not if, e-books will reach critical mass on college and K–12 campuses.
Among the frontrunners: Clearwater High School has announced plans to replace
textbooks with e-readers next year, Stanford University is moving to create its first
“bookless library,” and the Illinois Institute of Technology will provide a free iPad
to all incoming freshmen at the start of the next fall semester. As e-readers gain
popularity for academic use and more content becomes digitized and stored in
the cloud, the network has a critical part to play in safeguarding these assets and
optimizing the user experience, regardless of form factor.
The World is My Classroom

Welcome to Greenfield, Massachusetts. Population: 18,000. The quintessential
picture of Small Town, America. And, the future home to Massachusetts Virtual
Academy at Greenfield, open to students across the state from kindergarten
through Grade 8.
This forward-leaning school district is taking advantage of an obscure provision

in the state’s sweeping education reform law signed in January. Specifically,
schools are encouraged to pursue innovation in equipping children with 21st
century skills (those enabled by a technology age). And, Greenfield will be
among the first to create a public school that exists almost entirely in cyberspace.
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

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numbers, jumping by 22% in American community colleges during the 2008-

2009 academic year.187 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 2002.188
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 last year.189 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.
As this groundswell continues, the need for real-time collaboration tools

intensifies. Nonprofit group Project Tomorrow found 67% of district
administrators and 51% of principals agreeing their ideal “school of the future”
would include the use of collaborative tools. Among students, the organization
found 51% in grades 6–8 relying upon collaboration tools to communicate
with peers and 28% to interact with teachers in completing schoolwork. The
results are more pronounced as the student ages. More than 60% of high school
students use collaborative tools to engage with peers and more than 40% to
communicate with teachers in the same way.190
Out of the Habits of Babes

Those of you who are parents of a teen or tween are all too familiar with how
today’s youth use technology as an extension of their lives. For those who aren’t,
consider the following:
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> According to a recent study by San Diego State University, more than
90% of college students use Facebook or MySpace regularly.191
> 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.192
> 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.193
> 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.194
Anyone who has struggled to capture and keep the attention of a
Millennial can certainly identify.
> According to a recent 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.195
With all of these distractions competing for a student’s attention, what’s a

school administrator to do? Several are jumping on the technology bandwagon
to incorporate higher-tech, higher-sensory learning experiences into their
classrooms. And, the results are not merely self-serving, as some studies report
benefits to the learning process. A study administered by PBS and funded
by the Department of Education found iPhone apps can increase a child’s
vocabulary acquisition by as much as 31% within 2 weeks.196 Researchers at
the University of Rochester found that first-person shooter games can improve
vision, attention, and cognition (though critics point to the violence in these
games as significant deterrents to any instructional gains acquired).197 Further,

the shift
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.198
The challenges associated with educating a hyper-connected, multitasking and

device-wielding generation should not be underestimated. Teachers are a critical
piece to this puzzle and data from Project Tomorrow suggests we have a long
way to go in building confidence among these skeptics. For example, while 58%
of principals included a mobile device for every student as part of their vision
for the ideal school of the future, 76% of teachers were worried such mobile
devices would be a distraction in their classrooms. While 46% of teachers admit
to using software-based tools to facilitate learning in reading, writing, and
math, less than 25% are inclined to using game-based learning environments,
podcasts, video, or real-time data in their instructional techniques.199
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.
First, protecting our children becomes increasingly challenging in a virtual

world. Up to 35% of young people have been the victims of cyberbullying, per
a 2008 Centers for Disease Control report200, leading some 44 states to enact
laws prohibiting the bullying of students in school and online. Fueled by the
proliferation of social networking sites and the anonymity afforded through
popular teen applications like Formspring—where peer insults previously
plastered on the proverbial bathroom wall are now posted on the Web—this
area will be one of consternation for educators for the foreseeable future.
Next, protecting academic integrity becomes increasingly important. Instructors

need tools that facilitate collaboration among students without compromising
the learning process. As examples, some educators are turning to the popularity
of wikis and other 2.0 tools to have students collaborate with one another on
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the shift
in-class group assignments. Researching Thomas Edison now becomes a group

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.
Finally, protecting the network itself becomes challenging in a world where

device adoption exceeds the norm. The problem becomes more significant in
higher education. Here, students expect networks to equip any device brought
on campus—from the netbook to the e-reader to the mobile device to anything
in between. And, these campuses tend to be ideal breeding grounds for the next
hacker with lots of time on his hands and technology proficiency in spades.
Perhaps that explains why college CIOs from the latest EDUCAUSE study
ranked security in their top three IT issues for 2010.201
It’s About the Student

Now that we have covered the landscape of opportunities and potential pitfalls in
an area directly linked to our GDP, let’s explore how administrators and educators
evaluated Application Enablement as a means to address the issues ahead.
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.

the shift
Next, when examining the role of specific network capabilities in influencing

willingness to pay for new services, again, the importance of network
functionality as dictated by a hyper-connected student population rises to the
top. The capabilities included:
> QoS capabilities that automatically format content and optimize it

for delivery over any device (remember the e-reader DRM challenges
mentioned earlier as a current challenge?), troubleshoot network
performance and connectivity issues across any device, and maintain a
seamless session as the user moves from one device to another reigned
supreme. This is a clear example of a highly fragmented device
population most evident at these schools and on these campuses, as
educators were unique in their penchant for QoS attributes.
> Presence capabilities that allowed for automatic and intelligent
connection to one or more parties, based on the device most accessible
to each, and seamless messaging functionality to any device were also
popular.
> Finally, secure network storage options were also instrumental in
influencing willingness to pay. With our earlier commentary on the
digitization of media in this space, it should come as no surprise that
the New Media Consortium recently identified cloud computing as
one of the emerging trends to hit K–12 schools in the next few years.
And, our analysis reveals secure storage accessible from any device as
a key determinant among these decision makers when evaluating new
technology services.
> Like their state and local government counterparts, security was seen as
more important than the most comprehensive support package surrounding
a service. That is, a service described as traversing a secure network was more
influential in moving a respondent’s interest and willingness to pay than
one supported by a live IT help desk, localized account support, moderated
forums, and training classes. To this latter point, while training classes were
among the lowest value-added support options for other vertical segments,
educators responded fairly well to this idea, reinforcing the earlier point that
educators must first be comfortable with the technology before widespread
adoption in the classroom will be optimized.
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Educators are a segment primed for technology. The investment in ICT in
the classroom made by other countries has many questioning whether this
commitment is contributing to global student achievement rankings that leave
the United States significantly behind. And, while EDUCAUSE predicts that
higher education technology budgets will remain flat (if not decrease) for the
foreseeable future, our research suggests significant opportunity for new services
tailored for this market. Specifically, educators were the least price-sensitive
when compared with their counterparts in the other verticals tested (including
government, healthcare and finance), with a willingness to pay that was two to
three times larger on a per-employee, per-application basis than that of their
peers. To tap into this growth, providers and developers should:
> Recognize that this sector is most influenced by a hyper-connected

student population. This brings a unique complexity to this world.
Students are more likely to adopt technologies faster than mature
segments, further exacerbating the problem. More devices breed the
opportunity for more problems. And, lest you believe that these student
technophiles are less reliant on IT for their needs, a study by Eduventures
and Cengage Learning found only four in ten college students saying they
receive adequate support for education technology tools on campus.202
As such, network capabilities that enhance performance, troubleshoot
problems, provide secure storage, and allow for seamless messaging and
communications across any device reign supreme for this segment.
> Offer security as a table stake. Security outranks the most comprehensive
of support packages in influencing willingness to pay. Educators must
simultaneously preserve academic freedom while protecting academic
integrity. Security within the network is critical to both. And, with
current device limitations associated with remote monitoring and the
need to provide administrative rights based on the classroom exercise at
hand, the role of a secure network will continue to grow in relevance.
> Keep it simple—at least initially. Like their large-enterprise and vertical
counterparts, the more sophisticated a service, the fewer revenues
are likely to be collected, in aggregate, by a provider. This is due to
the restriction these decision makers are likely to impose upon those

the shift
within their organization who have access to such robust functionality.

As ICT becomes more integrated in the classroom environment,
more sophisticated services are likely to find a welcoming home as
these educators attempt to keep pace with the next generation of
technologically fluent students.
> Understand that technology acceptance stops with the instructor. If
teachers are not comfortable integrating ICT tools in their curriculum,
full momentum will never be realized. Providers offering these educators
the option of training classes with any new technology deployment will
discover an audience willing to pay for such instruction. Remember,
educators value education. Successful providers will incorporate this
commonsense approach within their offerings.
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.
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chapter 15
IT in the
large
enterprise
In search of
relevance
IT in the large enterprise: in search of relevance | 235

the shift
The role of the CIO is experiencing significant

transformation. Increasingly, these individuals
are being seen as change agents within their
organizations and must balance IT requirements
with CEO agendas.
Appetite for services depends on the segment in

question. Financial enterprises prefer services that
enrich relationships with their customers. General
enterprises gravitate toward services that optimize
internal communications. Providers attempting to
address this fragmentation should expose multiple
capabilities to a developer market capable of
building applications for each niche.
Security is central to the CIO agenda and is even

capturing greater mindshare among CEOs.
While bundling is a case for increased revenue

potential among enterprise IT developers, it is
the opposite for enterprise decision makers.
The latter are more likely to curtail estimates of
employee usage (and hence, revenue opportunity
for providers) when a service becomes more
complex. Providers must equip IT developers with
diagnostic tools about their customers (in this case,
the employees and decision makers within their
enterprise) to tune service offerings.
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> To channel the famous last words of late comedian

Rodney Dangerfield, Chief Information Officers (CIOs) “don’t get no respect.”
Certainly, one reading the tea leaves from market examples and research data could
form that conclusion. According to the State of the CIO report, nearly half of CIOs
report that Information Technology (IT) is still considered a cost center. Even
worse, over half of these CIOs believe they are responsible for setting technology
investment priorities despite being relegated to a cost center function; less than
one-third of business leaders in the enterprise agree. And, over 60% of CIOs have
canceled or postponed projects over the past year due to economic pressures.203
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.204
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

the shift
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.205
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.
As trends surrounding cloud computing, emerging security threats, increasing

cost pressures, and escalating customer demands abound, how do decision makers
in the large enterprise view the attractiveness of network-based capabilities as a
potential salve to these issues? Alcatel-Lucent canvassed 600 decision makers—
the majority in IT, executive, operations. and finance roles—in general and
financial enterprises with 100 or more employees to find out.
The Customer (or Employee) Comes First

Asking the question of which is more important, the customer or the employee,
is a bit like asking which came first, the chicken or the egg? Southwest Airlines
famously created a culture where the employee comes first. Treat your employees
well and they will respond in kind to your customer, or so the philosophy goes.
Many companies espouse the opposite, living by the adage, “the customer is
always right.” It seems this is a question with an answer that is easily debatable
on either side. And, in the case of our research, a business leader’s perspective on
which of these two stakeholders is more important depends to a large extent on
the industry of choice.
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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:
> A service that displays personalized customer information (such as

account history and previous contact information) on incoming calls
> An application that provides the decision maker with a view of the
customer’s preferences and browsing history across any device to support
more targeted advertising efforts (both of these services would be subject
to the customer opting in to having such information shared)
> A product that stores client financial records in a secure server accessible
by any employee on any device to optimize customer interactions
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.
In contrast, those decision makers represented by a general mix of industries

(mostly from manufacturing) preferred services grounded in employee
productivity benefits, including:
> An application that optimizes employee productivity in meetings

through advanced voice, video, and collaboration capabilities
> A service that allows employees to dynamically boost network
bandwidth during times of need
> A product that detects and troubleshoots potential IT problems across
the network and supports forecasting of IT consumption needs
> A service that allows employees to dynamically and seamlessly shift from
multiple modes of communication (including instant messaging, email,
text, phone call, and video conferencing) with the click of a button

the shift
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.
Security or Support? Yes, Please.

We won’t continue to beat the security horse (since we have already mentioned
it significantly in other chapters). Suffice it to say, enterprises across the board
place a value on services traversing a secure network. Here is what is more
interesting. To our earlier commentary on the role of the CIO evolving, there
is secondary evidence to support that these leaders are beginning to think more
like their CEO, and vice versa—especially as it pertains to the security hot
button. PricewaterhouseCoopers surveyed 7,200 C-levels in 130 countries to
assess how the recent recession is affecting investments in information security,
if at all. Among the more fascinating findings, when asked to select from a list
of seventeen possible strategies for meeting security objectives in the context
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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.206 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.
The Case Against (and for) Bundling

One of the leading factors driving the elasticity of demand between general
enterprises and their vertical counterparts involves bundling. Consistent across
all segments is a tendency for decision makers to restrict the number of users—
and hence demand—for a service that is a composite of several capabilities. The
more sophisticated the “bundle” (or service) becomes, the more likely these
decision makers are to restrict its use to a more limited number of employees.
In a case where a provider earns revenues through a monthly fee per user
(overwhelmingly the favored business model as selected by these respondents),
this behavioral tendency among decision makers to contain access to a select
group of “power users” results in lower total revenue potential.
Recall that we saw the exact opposite effect among enterprise IT developers.
For these individuals, bundles of APIs translate to a simpler, faster development

the shift
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 enhance-
ments, the over-engineering of a service can have the exact opposite effect.
More complicated functionality creates a mindset for a more limited employee
population.
Are IT developers simply out of touch? Are they so completely infatuated

with new technology that they grossly overestimate its value to the customers
within their companies? There may be some truth to this argument. However,
we would also submit that this is a case where IT developers, very familiar and
encumbered with cost pressures today, understand the value of being able to
develop more quickly in a time-compressed world. Since we didn’t beat the dead
horse on security, indulge us on this nag: The developer’s currency is time and it
is perhaps nowhere more clearly reflected than in his perceived value of a bundle
compared with that of his end users.
The Case for (and Against) Advertising

Ask an individual outright if they “like” advertising, and you’re likely to be
rebuked. However, we are each subjected to thousands of advertising impressions
per day and more than tolerate their presence in exchange for services (think
of television advertising where one “pays” with attention in exchange for “free”
programming as the classic and still prominent example). Even though the
respondents in our survey are senior decision makers of large enterprises, each is
also a consumer at the end of the day. It should come as no surprise that, when
asked if they would subject their employees to advertisements in exchange for up
to a 20% discount off a service, they responded favorably—so favorably, in fact,
that a provider stands to earn more revenues with the 20% discount than with
no advertising subsidization at all. That is, demand for a service subsidized by
advertising increases more than the value of the discount. This is a case of classic
price elasticity. The lower price is more than offset by incremental demand. And,
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the shift
we have not even calculated the upside revenue potential from the advertising
itself in the equation.
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.

Large enterprises are no more complex than any other stakeholder examined
in this ecosystem. But, like every other audience analyzed, they have a unique
perspective that drives interesting peculiarities:
> The economic downturn may be a blessing in disguise. CIOs are

expected—and understand the need—to align IT resources with
business priorities. As they begin to think more like their CEOs, these
individuals are earning a seat at the executive table and are increasingly
being looked to as change agents within their organizations.
> Complexity abounds for the CIO. Not only do their employees
(in this case, IT developers) overestimate the value of sophisticated
services when compared with decision makers in the enterprise, the
perception of the latter shifts depending upon the business need. As
examples, financial leaders are more likely to value services that optimize
customer engagement. General enterprise leaders are more attracted
to applications that streamline internal communications. Providers, in
turn, face a complex paradigm. Exposing multiple network capabilities
simultaneously and in a bundled fashion addresses the IT developer’s
scarce resource of time. However, providers must enable these IT
employees, and in particular, the CIO, to better understand how said
functionality can be incorporated in practical—rather than over-
engineered—services more likely to be adopted by a greater population
of users within the enterprise. Arming CIOs with this analysis not only
gives them deeper insight into their customers’ needs (thus making them

the shift
more relevant within their organization), it also optimizes the revenue

potential for the provider.
> A service subsidized by advertising is attractive to these decision
makers. But, the case for incremental revenue potential is confined to an
indefinite discount period. Providers are advised to go all the way with
advertising, or not to go at all.
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.”207 We couldn’t have said it better ourselves.
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epilogue
The evolved
value chain in a
2.0
world
epilogue | 245
the shift
246 | epilogue
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> Now that we have explored multiple aspects of the

evolving Web 2.0 value chain, let’s take a moment to recap the key findings based
on thousands of surveys administered across this complex ecosystem:
> 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 | 247
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248 | epilogue
the shift
results in even greater revenue potential for a provider. Finally, these

developers do not conflate reach with discoverability. They are in need of
marketing support, including diagnostic tools and marketability of their
applications, and are willing to pay for such.
> All consumer groups—including gamers, social networkers, online
video enthusiasts and connected parents—see a value in network-
based capabilities. They are willing to pay more for services when such
network ingredients are incorporated. Further, like developers (though
not nearly to such a great extent), they are willing to pay more for a
service with a bundle of network capabilities included. However, there
is not a one-size-fits-all billing approach for these users—with video
enthusiasts preferring monthly subscription fees, social networkers
having a penchant for pay-per-use charges and gamers possessing an
aversion to one-time fees. Service providers that aggregate consumer
profile data and provide such intelligence to developers address the
natural fragmentation in this market and maximize revenues. Combine
this aggregated profiling data with the ability to allow a developer to
charge micropayments directly to the end user’s communications bill
and you have another win-win-win in the market: developers receive
seamless billing, users leverage the secure billing relationship already in
place with their providers and operators insert themselves into a new
value chain.
> Enterprise users are more complex in their assessment of capabilities.
Some segments view a few APIs so negatively, their inclusion in a bundle
can actually serve to decrease willingness to pay. While bundling is a clear
winner among developers and consumers, it is less of a sure thing among
enterprise users. Depending on the configuration and segment, bundling
can serve to either increase or decrease revenue potential.
> Advertisers face an increasingly fragmented market as well. They crave
simplicity and performance metrics. Providers offering up profiling data
for end users can find themselves in an interesting position to monetize
this information. However, providers must first earn and then keep the
trust of users in an attempt to do so. Users must remain in control of
their profiling data—including over who has access to such information
and when it is made available to them. Consumers are more likely to
epilogue | 249
the shift
trust their service provider over their application developer with this
sensitive data. Further, both enterprises and consumers are highly
tolerant to high-frequency ad models as part of their service definitions.
It seems service providers are in the catbird seat with regards to
monetizing the profiles of a trusting and advertising-tolerant user base—
among both enterprises and consumers.
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.
> Regulators will intervene. This one remains to be seen. Certainly,
there are heated debates underway pertaining to Net Neutrality and
the reclassification of broadband services. Regulators will always have
a significant role to play in this market. However, depending on how
capabilities are exposed and to what extent broadband innovation is
supported, the regulatory impacts are uncertain.
250 | epilogue
the shift
> Consumer watchdog groups will question privacy concerns. True. This is
precisely why we submit that consumers must remain in control of their
privacy settings at all times. This is not a case for an opt-out approach.
Consumers must directly and transparently opt in whenever they choose
to share information about themselves (and, more importantly, when
they choose not to).
While it might be dangerous to estimate the market potential of such a vibrant

value chain, we’re not sheepish to do so, given our research and analysis.
Assuming network providers were to open up these capabilities, we estimate a
$100 billion market opportunity in the United States alone. Now, to be clear,
network providers will be competing against Web and device alternatives that
will continue to innovate in emulating comparable capabilities.
The race has started. While many service providers watch from the sidelines,
this game continues to evolve. 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.
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 | 251
the shift
252 | epilogue
the shift
references
references | 253
the shift
254 | references
the shift
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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
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9 Ibid.
10 “When I’m 64: How Boomers Will Change Health Care,” American Hospital
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11 Sandra Block, “Elder Care Shifting Away from Nursing Homes,” USA Today, June
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12 “Boomers and Technology: An Extended Conversation,” sponsored by AARP and
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13 “When I’m 64,” American Hospital Association.
14 Amanda Lenhart and others, “Social Media & Mobile Internet Use Among Teens
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references | 255
the shift
15 iStrategy Labs, http://www.istrategylabs.com/2010/01/facebook-demographics-

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16 Robert Strohmeyer, “Are Baby Boomers Killing Facebook and Twitter?”
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18 “Living: Proceeding with Caution,” Time, July 16, 1990,
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20 Neate, Patrick. “Generation X: The slackers who changed the world,”
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21 Howe and Strauss, “The Next 20 Years”.
22 Ibid.
23 Sydney Jones and Susannah Fox, “Generations Online in 2009,” Pew Internet &
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24 Ibid.
25 Rainie, “Baby Boomers,” 6.
26 “The New Consumer Behavior Paradigm,” PricewaterhouseCoopers,
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27 Tom Rosentiel, “Millennials, Media and Information,” panel discussion transcript,
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28 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 (accessed April 26, 2010).
29 Paul Taylor and Scott Keeter, eds., “Millennials: Confident. Connected. Open to
Change,” Pew Research Center, February 24, 2010, 28, http://pewsocialtrends.org/
assets/pdf/millennials-confident-connected-open-to-change.pdf (accessed May 4,
2010).
256 | references
the shift
30 Danah Boyd, “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).
31 Amanda Lenhart, “Millennials, Media and Information,” panel discussion
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pubs/1516/millennials-panel-two-millennials-media-information (accessed April
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32 Celia Berenguer, June Delano, and Karin Stawarky, “Catalyst for Change: The
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33 Boyd, “Millennials, Media and Information.”
34 Chris Dede, “A Seismic Shift in Epistemology,” EDUCAUSE Review 43, no. 3
(May/June 2008): 80–81, http://www.educause.edu/EDUCAUSE+Review/
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35 Nicolas Carr, “Is Google Making Us Stupid?” Atlantic. July/August 2008,
http://www.theatlantic.com/magazine/archive/2008/07/is-google-making-us-
stupid/6868/.
36 Don Tapscott, “The Impending Demise of the University,” Edge, June 4, 2009, http://
www.edge.org/3rd_culture/tapscott09/tapscott09_index.html.
37 Rosenstiel, “Millennials, Media and Information.”
38 “Global Developer Population and Demographics,” Evans Data Corporation, 2009.
39 Ibid.
40 Dan Frommer, “Apple on Track for $1 Billion of iPad Revenue in its First Quarter,”
Business Insider, May 3, 2010.
441 “The iPad Will Eat Your Time, Your PC and Every Other Device,” The Online
Reporter, May 14, 2010.
42 Neil Hughes, “Developer Says iPad Downloads Are 5% of iPhone Share on App
Store,” AppleInsider, April 30, 2010.
43 “Here’s How Much Apple REALLY Makes on the App Store,” Business Insider,
June 23, 2010.
44 Farhad Manjoo, “Do You Think Bandwidth Grows on Trees?” Slate.com,
April 14, 2009.
45 In the Crossfire: Critical Infrastructure in the Age of Cyber War, McAfee, 2009.
references | 257
the shift
46 “Survey Findings Reveal ‘Viruses,’ ‘Intrusions’ Top List of Security Threats

Network Administrators See From Employee Use of Social Media via the
Company Network,” News Blaze, May 11, 2010.
47 Alison Diana, “Most Social Networkers Post Private Data,” InformationWeek,
May 5, 2010.
48 Christopher Vollmer, “Digital Darwinism,” Booz & Company, 2009,
http://www.iab.net/media/file/Digital_DarwinismMME2010FinalReport.pdf .
49 “Data Passport: First Half 2010,” comScore, February 26, 2010, http://comscore.
com/Press_Events/Presentations_Whitepapers/2010/The_comScore_Data_
Passport_-_First_Half_2010/%28language%29/eng-US.
50 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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51 “Profiting from Friendship,” Economist, January 28, 2010.
52 Gibs, “Advertising Effectiveness.”
53 “Profiting from Friendship.”
54 “Study Finds Behaviorally-Targeted Ads More Than Twice as Valuable, Twice
as Effective as Non-Targeted Online Ads,” press release, Network Advertising
Initiative, March 24, 2010, http://www.networkadvertising.org/pdfs/NAI_
Beales_Release.pdf .
55 Tomi Ahonen, “How to Do Clever Mobile Advertising in 2010? Don’t Copy
Web!” Communities Dominate Brands blog, http://communities-dominate.blogs.
com/brands/2010/03/how-to-do-clever-mobile-advertising-in-2010-dont-copy-
web.html.
56 Tomi Ahonen, “Everything You Ever Wanted to Know About Mobile but Were
Afraid to Ask,” Communities Dominate Brands blog, http://communities-
dominate.blogs.com/brands/2010/05/everything-you-ever-wanted-to-know-
about-mobile-but-were-afraid-to-ask.html.
57 Tomi Ahonen, “Deeper Insights,” Communities Dominate Brands blog,
http://communities-dominate.blogs.com/brands/2008/05/deeper-insights.html.
58 “We’ve officially acquired AdMob!” The Official Google Blog, May 27, 2010,
http://googleblog.blogspot.com/2010/05/weve-officially-acquired-admob.html.
59 “MobiThinking Guide to Mobile Advertising Networks (2010),” MobiThinking.com,
http://mobithinking.com/mobile-ad-network-guide.
258 | references
the shift
60 Joseph Menn, “Apple Likely to Avoid Antitrust Battles,” Financial Times, June 10, 2010,
http://www.ft.com/cms/s/2/b27c0bc2-74da-11df-aed7-00144feabdc0.html.
61 IAB Internet Advertising Revenue Report: 2009 Full Year Results, Interactive
Advertising Bureau, April 2010, http://www.iab.net/media/file/IAB-Ad-Revenue-
Full-Year-2009.pdf.
62 Colin Gibbs, “There’s an Ad for That: The In-App Advertising Landscape,”
GigaOmPro.com, June 28, 2010, http://pro.gigaom.com/2010/06/report-the-in-
app-advertising-landscape/.
63 Colin Gibbs, “Why 2010 Still Won’t Be the Year of Mobile Advertising,”
GigaOmPro.com, December 19, 2009, http://pro.gigaom.com/2009/12/why-
2010-still-wont-be-the-year-of-mobile-advertising.
64 Platform Status Report: An Interactive Television Advertising Overview, Interactive
Advertising Bureau (IAB), February 2010, http://www.iab.net/media/file/ITV_
Platform_Status_Report.pdf.
65 Michael Learmonth, “Hulu’s a Towering Success—Just Not Financially,”
Advertising Age, March 29, 2010. http://adage.com/print?article_id=143011.
66 Ibid.
67 Interactive Advertising Bureau, February 2010.
68 Cynthia Littleton, “Biz Sees Decade of Tumult,” Variety, December 18, 2009,
http://www.variety.com/index.asp?layout=print_story&articleid=VR111801298
4&categoryid=-1.
69 Paul Farhi, “Click, Change,” The Washington Post, May 17, 2009,
http://www.washingtonpost.com/wp-dyn/content/article/2009/05/14/
AR2009051404522_pf.html.
70 “The Battle for the North American (US/Canada) Couch Potato: New Challenges and
Opportunities in the Content Market,” Convergence Consulting Group, April 2010,
http://www.convergenceonline.com/downloads/NAMNewContent2010.pdf
71 “Television, Internet and Mobile Usage in the U.S.,” Nielsen, December 18, 2009,
http://blog.nielsen.com/nielsenwire/wp-content/uploads/2009/09/
ThreeScreenReport_US_2Q09REV.pdf.
72 James McQuivey, “Google TV Is A Bigger Deal Than You Think,” Forrester
Research Blog, June 10, 2010, http://blogs.forrester.com/james_mcquivey/10-06-
10-google_tv_bigger_deal_you_think.
73 Battle for the North American Couch Potato,” Convergence Consulting Group, 2010.
references | 259
the shift
74 Stuart Elliott, “Marketers Welcome Television’s Shift to a 52-Week Season,”

New York Times, May 12, 2008, http://www.nytimes.com/2008/05/12/business/
media/12adcol.html.
75 Farhi, ”Click, Change.”
76 Ibid.
77 Ronald Gover, Tom Lowry, and Cliff Edwards, “Revenge of the Cable Guys,”
Business Week, March 22–29, 2010.
78 Lynette Rice, “‘In the Motherhood’: Thanks, But No Thanks, for Your Ideas, Mommies!”
Hollywood Insider, March 25, 2009, http://hollywoodinsider.ew.com/2009/03/25/
in-the-mother-1/ .
79 Clay Shirky, “The Collapse of Complex Business Models,” April 2010,
http://www.shirky.com/weblog/2010/04/the-collapse-of-complex-business-models/.
80 Michael Greeson, “Profiling Online Video Viewers,” GigaOmPro.com, April 5, 2010,
http://pro.gigaom.com/2010/04/survey-who-are-those-masked-online-video-
viewers/.
81 Littleton, “Biz Sees Decade of Tumult.”
82 Nellie Andreeva, “Development Wheels Coming Off,” Hollywood Reporter,
December 17, 2007, http://www.hollywoodreporter.com/hr/content_display/
television/news/e3i5c17ffd0184ef92eccad3b95a265f471.
83 Andreeva, 2007.
84 Bill Carter, “Weighty Dramas Flourish on Cable,” The New York Times, April 4, 2010,
http://www.nytimes.com/2010/04/05/business/media/05cable.html.
85 Wayne Friedman, “NBC: Revs Up, Profits Down, Cable Nets Money Spinners,”
Media Daily News, April 19, 2010, http://www.mediapost.com/publications/?art_
aid=126319&fa=Articles.showArticle.
86 Ryan Nakishima, “Despite Declining Share of Profits, TV Networks Bet More on
Programs,” Washington Examiner, June 2, 2010, http://www.washingtonexaminer.com/
economy/despite-declining-share-of-profits-and-threats-from-cable-tv-networks-
bet-more-on-programs-95424299.html#ixzz0rQBYWptn.
87 Nellie Andreeva, “More Retrans Disputes on Horizon,” Hollywood Reporter,
January 3, 2010, http://www.hollywoodreporter.com/hr/content_display/
television/news/e3ic3390a5158a31029e64ce7d7b4027997?pn=2.
88 Nakishima, “Despite Declining Share of Profits.”
89 Shirky, “The Collapse of Complex Business Models.”
260 | references
the shift
90 Paul Sweeting, “TV Apps: Evolution from Novelty to Mainstream,” GigaOmPro.

com, May 17, 201, http://pro.gigaom.com/2010/05/tv-apps-evolution-from-
novelty-to-mainstream/.
91 Ibid.
92 “Connected Consumer Market Overview, Q1 2010,” GigaOmPro.com,
http://pro.gigaom.com/2010/04/connected-consumer-market-overview-q1-2010/.
93 Ibid.
94 Brad Stone, “Calling on Sony and Others, Google Makes a TV Move,”
New York Times, May 20, 2010, http://www.nytimes.com/2010/05/21/
technology/21google.html.
95 Cory Treffiletti, “Upfronts? We’re Talking About Upfronts?” Online Spin,
June 9, 2010, http://www.mediapost.com/publications/index.cfm?fa=Articles.
showArticle&art_aid=129787&passFuseAction=PublicationsSearch.
showSearchReslts&art_searched=tv%20upfronts&page_number=0.
96 Paul Sweeting, “Google TV: Overview and Strategic Analysis,” GigaOmPro.com,
May 27, 2010, http://pro.gigaom.com/2010/05/google-tv-strategic-analysis/
97 Dan Frommer, “Apple COO Tim Cook: ‘We Have No Interest in Being in the
TV Market,’” Business Insider, February 23, 2010, http://www.businessinsider.
com/live-apple-coo-tim-cook-at-the-goldman-tech-conference-2010-
2#ixzz0rWdmpzXa.
98 Joshua Topolsky, “The next Apple TV revealed,” Engadget.com, May 28, 2010.
http://www.engadget.com/2010/05/28/the-next-apple-tv-revealed-cloud-storage-
and-iphone-os-on-tap/.
99 Paul Sweeting, “Apple’s Path to the Living Room,” GigaOmPro.com, July 15, 2010.
http://pro.gigaom.com/2010/07/apples-path-to-the-living-room/.
100 Ibid.
101 Pete Cashmore, “Why It’s Prime Time for Apple TV,” CNN.com, June 4, 2010,
http://www.cnn.com/2010/TECH/social.media/06/03/apple.tv.cashmore/index.html
102 Ibid.
103 “Data Passport: First Half 2010.”
104 Jon Gibs, “Social Media: The Next Great Wave for Content Discovery,”
NielsenWire, October 5, 2009, http://blog.nielsen.com/nielsenwire/online_
mobile/social-media-the-next-great-gatewayfor-content-discovery/.
105 Ibid.
references | 261
the shift
106 Om Malik, “Why Google Should Fear the Social Web,” GigaOmPro.com,
October 29, 2009, http://pro.gigaom.com/2009/10/why-google-should-fear-the-
social-web/.
107 “Boomers and Technology,” AARP and Microsoft.
108 John Goalby, “Twitter Destined to Replace Google Search,” Twitip.com,
http://www.twitip.com/twitter-destined-to-replace-google-search/.
109 Jason Kincaid, “The Facebook Privacy Fiasco Begins,” TechCrunch,
December 9, 2009, http://techcrunch.com/2009/12/09/facebook-privacy/.
110 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).
111 “2009 Study: Consumer Attitudes about Behavioral Targeting,” TRUST
e-sponsored survey conducted by TNS, March 4, 2009.
112 Diaspora home page, June 14, 2010, http://www.joindiaspora.com/.
113 Jim Nichols, “Social Media: The next generation,” imediaconnection.com, June 10,
2010, http://www.imediaconnection.com/printpage/printpage.aspx?id=26912.
114 2010 PopCap Social Gaming Research, Information Solutions Group, January 2010,
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Results.pdf.
115 Elizabeth Harz, Electronic Arts Keynote, Mobile Marketing Forum,
New York, June 9, 2010.
116 “A Brief History of Game Console Warfare,” Business Week, October 16, 2006.
117 The NPD Group, Inc., press release, January 14, 2010, http://www.npd.com/press/
releases/press_100114.html.
118 Ibid.
119 Dybwad, “Portable Gaming: Can Apple Take Down Nintendo and Sony?”
Mashable.com, September 9, 2009, http://mashable.com/2009/09/09/apple-
portable-gaming/.
120 Mobile Metrics Report, AdMob, January 2010.
121 Topolsky, “The Next Apple TV Revealed.”
122 Hiroko Tabuchi, “Apple’s Shadow Hangs over Game Console Makers,”
New York Times, September 26, 2009.
262 | references
the shift
123 Daniel Terdiman, “At GDC, iPhone Game Development Breaks Out,” CNET.com,
March 8, 2010, http://news.cnet.com/8301-13772_3-10465246-52.html.
124 “State Of Game Development Survey Reveals iPhone Support Surge, Wii Lull,”
Gamasutra.com, February 5, 2010, http://www.gamasutra.com/view/news/26846/
State_Of_Game_Development_Survey_Reveals_iPhone_Support_Surge_Wii_
Lull.php.
125 Jared Newman, “Yes, Sony, You Are Competing With the iPhone,” Technologizer.
com, August 19, 2009, http://technologizer.com/2009/08/19/yes-sony-you-are-
competing-with-the-iphone/.
126 Wanda Meloni, “The Next Frontier: Female Gaming Demographics,”
Gamasutra.com, March 30, 2010, http://www.gamasutra.com/blogs/
WandaMeloni/20100330/4812/The_Next_Frontier__Female_Gaming_
Demographics.php?awesm=otf.me_u.
127 Wagner James Au, “Virtual Worlds: Trends and Opportunities,” GigaOmPro.com,
July 13, 2009, http://pro.gigaom.com/2009/07/virtual-worlds-trends-and-
opportunities/.
128 Michael Dowling, “Social Gaming—the Missing Link,” SkipLogik.com,
May 13, 2010, http://skiplogik.com/?p=248.
129 2010 PopCap Social Gaming Research, Information Solutions Group.
130 Mathew Ingram, “Average Social Gamer Is a 43-Year-Old Woman,” GigaOm.com,
February 17, 2010, http://gigaom.com/2010/02/17/average-social-gamer-is-a-43-
year-old-woman/.
131 Lou Kerner, “Zynga $5 Billion Valuation: BUY—Early Leader in Social Gaming Is
Printing Money,” Second Shares.com, April 6, 2010, http://www.secondshares.com/
2010/04/06/zynga-5-billion-valuation-buy-%E2%80%93-early-leader-in-social-
gaming-is-printing-money/#ixzz0ropJX8XB.
132 “FarmVille Nabs Inaugural Social Games Award at GDC,” Zynga Blog,
April 12, 2010, http://zyngablog.typepad.com/zyngacom/2010/04/farmville-
nabs-inaugural-social-games-award-at-gdc.html.
133 Karen E. Klein, “America’s Love Affair with Small Business,” Bloomberg
Businessweek, June 11, 2010.
134 Ibid.
135 Ibid.
136 “Small Businesses Added 25,000 New Jobs in May,” MarketWatch, May 27, 2010.
references | 263
the shift
137 Emily Maltby, “Three Best Ways to Expand Overseas,” Wall Street Journal,
May 28, 2010.
138 “Quicker Employment Recovery Expected Outside Europe and the U.S., NYSE
Euronext Back to Business CEO Survey Reveals,” Yahoo! Canada Finance,
June 10, 2010.
139 Angus Loten, “Study: Business IT Spending to Grow,” Inc. August 11, 2008.
140 Bob Willis, “Small-Business Confidence in US Increased in May (Update 1),”
Bloomberg Businessweek, June 8, 2010.
141 Matthew Sturdevant, “Travelers Study Reveals Small-Business Owners’ Priorities,”
Courant.com blog, June 8, 2010.
142 Symantec, Symantec Global Internet Security Threat Report, Volume XV,
April 2010.
143 Diana Manos, “IT to Play Key Role in Healthcare Change, Leaders Say,” Healthcare
IT News, May 6, 2010.
144 Bernie Monegain, “CIOs Expect Boost in IT Budgets, Staff,” Healthcare IT News,
March 29, 2010.
145 Bernie Monegain, “Nurses Bogged Down in Paperwork,” Healthcare IT News,
March 29, 2010.
146 John Morrissey, “Before They Were Famous,” ModernHealthcare.com,
June 14, 2010.
147 Besta Shaniker, “Five Ways to Reduce $3.6 Trillion Healthcare Waste in the US,”
International Business Times, June 14, 2010.
148 “Survey: Consumer Support for EHRs Low,” Health Data Management,
June 14, 2010.
149 Patty Enrado, “Survey Points to Growing Appeal of PHRs,” Healthcare IT News,
May 6, 2010.
150 Mike Miliard, “Healthcare Data at Risk,” Healthcare IT News, May 6, 2010.
151 Monegain, “CIOs Expect Boost.”
152 Mike Miliard, “Healthcare Top Target for Hackers,” Healthcare IT News,
February 24, 2010.
153 Molly Merrill, “Younger Docs EMR Ready,” Healthcare IT News,
December 31, 2009.
154 Kyle Hardy, “Telehealth Boosts ICU for Rural Hospitals,” Healthcare IT News,
June 2, 2010.
264 | references
the shift
155 “The Doctor is (Plugged) In,” Bloomberg Businessweek, June 26, 2006.
156 Molly Merrill, “iPad Can Accelerate New Era of Care,” Healthcare IT News,
June 2, 2010.
157 “Digital Monitoring Helps Patients Manage Blood Pressure, Study Says,”
iHealthBeat, May 25, 2010.
158 Enrado, “Survey Points.”
159 “Law Enforcement Needs a Standards-Based Communications Infrastructure,”
Government Technology, May 28, 2010.
160 Shifthappens.wikispaces.com.
161 Russell Nichols, “E-Government Score Remains at All-Time High,” Government
Technology, January 26, 2010.
162 Ibid.
163 Karen Wilkinson, “National Crowdsourcing Effort Proves the Value of Sending a
Clear Message,” Government Technology, May 20, 2010.
164 Russell Nichols, “Town Hall Meetings Find New Home, Broader Audience
Online,” Government Technology, April 20, 2010.
165 Russell Nichols, “Survey: Voters See Technology as Cost-Saving Solution for
Governments,” Government Technology, May 26, 2010.
166 Ibid.
167 Nichols, “Town Hall Meetings.”
168 Russell Nichols, “Paper Remains King in the Electronic Age, Study Says,”
Government Technology, June 8, 2010.
169 “Cyber-Security Survey Shows Distrust Between Public and Private Sectors,”
Government Technology, May 3, 2010.
170 “Survey Highlights Federal Government’s Confusion, Distrust in Cloud
Computing,” Government Technology, April 21, 2010.
171 John Tozzi, “Gov 2.0: The Next Internet Boom,” Bloomberg Businessweek,
May 27, 2010.
172 “Study: Despite Economic Challenges, IT Spending Still a Key Priority for
Governments,” Government Technology, February 12, 2010.
173 Ibid.
174 Emmeline Zhao, “Demand for Educated Workers May Outstrip Supply by 2018,”
Wall Street Journal, June 15, 2010.
references | 265
the shift
175 OECD Program for International Student Assessment (PISA) 2006 Results.
176 Stacy Teicher Khadaroo, “Graduation Rate for US High-Schoolers Falls for Second
Straight Year,” Christian Science Monitor, June 10, 2010.
177 Meris Stansbury, “Every Child Needs to Boost Economy,” eSchool News,
April 27, 2010.
178 Laura Devaney, “Report Highlights Ed-Tech Lessons from Abroad,” eSchool News,
May 13, 2010.
179 Stansbury, “Every Child.”
180 Teicher Khadaroo, “Graduation Rate.”
181 Andrea Paine, “U.S. Digital Sales ‘to Overtake Physical in 2011,’” Billboard.biz,
June 15, 2010.
182 Dan Moren, “DOJ Looking into iTunes Antitrust Allegations,” Network World,
May 26, 2010.
183 Geoffrey A. Fowler and Jeffrey A. Trachtenberg, “‘Vanity’ Press Goes Digital,”
Wall Street Journal, June 3, 2010.
184 Lauren Padia and Alex Baumgardner, “Don’t Steal This Video: Internet Piracy
Grows,” Medill Reports: Chicago, June 3, 2010.
185 Tom Kaneshige, “Will the iPad Fail in School?,” Bloomberg Businessweek,
June 15, 2010.
186 Dennis Carter, “Not Everyone Ready for the Digital Textbook Revolution,”
eCampus News, June 2, 2010.
187 Dennis Carter, “Community Colleges Turn to Online Classes as Enrollments Spike,”
eCampus News, April 16, 2010.
188 Ibid.
189 James Vaznis, “Virtual Schools Soon Reality in Mass.,” The Boston Globe,
May 5, 2010.
190 Dennis Pierce, “Survey Reveals Gaps in School Technology Perceptions,”
eSchool News, May 5, 2010.
191 Sharon Jayson, “Are Social Networks Making Students More Narcissistic?”
USA Today, August 25, 2009.
192 Donald Bell, “Can Apps Make Kids Smarter?” cnet.com, June 3, 2010.
193 “Study: Too Few Schools Are Teaching Cyber Safety,” eSchool News,
February 26, 2010.
266 | references
the shift
194 Randolph E. Schmid, “Study: Multitaskers Do It Badly,” USNews.com,

August 24, 2009.
195 Teddy Wayne, “Teenagers Text More Than They Call,” New York Times,
May 23, 2010.
196 Bell, “Can Apps Make Kids Smarter?”
197 Matt Richtel, “Hooked on Gadgets, and Paying a Mental Price,” New York Times,
June 6, 2010.
198 “Researchers: Even Violent Video Games Can Be Learning Tools,” eSchool News,
May 28, 2010.
199 Pierce, “Survey Reveals Gaps.”
200 Laura Devaney, “Online Safety Report Discourages Scare Tactics,” eSchool News,
June 7, 2010.
201 EDUCAUSE Current Issues Survey, 2009.
202 Dennis Carter, “Survey: ‘Digital Natives’ Need More IT Support,” eSchool News,
April 22, 2010.
203 “State of the CIO Survey,” CIO magazine, 2009-2010.
204 Bob Evans, “ConocoPhillips And Harrah’s Put CIO Positions on Ice,”
Information Week, April 1, 2009.
205 “State of the CIO Survey.”
206 PricewaterhouseCoopers, “Trial by Fire,” 2009.
207 Bob Evans, “Global CIO: IBM’s New CIO Sheds Light on Priorities and Plans,”
Information Week, November 4, 2009.
references | 267
the shift
268 | 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

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The

Allison Cerra & Christina James

Developers find themselves in an equally daunting

As the Web has transformed the way we interact

Allison Cerra & Christina James

Prologue The End of the World Wide Web as We Know It . . . . . . . . . . . . . 13

Part 1: The Generational Impact

Chapter 1 Baby Boomers: The Eternally Young . . . . . . . . . . . . . . . . . . . . . . . . 29

Chapter 2 Generation X: America’s Middle Children . . . . . . . . . . . . . . . . . . . . 41

Chapter 3 Millennials: The Digital Natives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Part 2: The 2.0 Ecosystem Stakeholders

Chapter 4 The Developer Market:

Chapter 5 Through the Looking Glass of the Commercial Developer . . . . .77

Chapter 6 Through the Looking Glass of the Enterprise IT Developer . . . . 95

Chapter 7 Advertising: The Eyes Have It . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

Part 3: The Consumer 2.0 Influence

Chapter 8 Video: The Next Unstable Business Model . . . . . . . . . . . . . . . . . . 129

Chapter 9 Social Networking: Monetizing Billions of Conversations . . . . . 149

Chapter 10 Gaming: Not a Spectator Sport . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165

Part 4: The Enterprise 2.0 Imperative

Chapter 11 Small Business: The American Dream . . . . . . . . . . . . . . . . . . . . . . 183

Chapter 12 Healthcare: High Stakes, Higher Rewards . . . . . . . . . . . . . . . . . . . 195

Chapter 13 Government: Protector, Employer, and Servant . . . . . . . . . . . . . 209

Chapter 14 Education: The Global Achievement Race . . . . . . . . . . . . . . . . . . 221

Chapter 15 IT in the Large Enterprise: In Search of Relevance . . . . . . . . . . . 235

Epilogue The Evolved Value Chain in a 2.0 World . . . . . . . . . . . . . . . . . . . . 245

> The internet has brought us to a remarkable point

And yet the pipes are “dumb.”

What if telecommunications service providers instrumented their data flow?

This, serving the opportunities termed “application enablement” in this book, is

there is, companies that make a substantial contribution to conversations of

So that’s a picture of the upsides of this kind of application enablement on the

> In 1999 I (Allison) was employed by one of the largest

Fast-forward to another historic date in broadband history: June 29, 2007.

The Exaflood Cometh?

was not grounded in profitability as an end pursuit; rather, it contemplated the

While capacity planning is certainly important, a more fundamental question

1 How does a service provider begin re-educating a consumer base on how

If we begin to look at the broadband network and ecosystem fundamentally

The Shift: 1.0 to 2.0 Differences

Text-laden web environment Video-rich web environment

Broadband for fixed networks Broadband across any network

Flat-rate broadband pricing Metered broadband pricing

Providers aspire to develop the Ecosystem of developers leveraged

The Need for a New Model

For example, if consumers want to watch video they’ve purchased on different

What’s phenomenal is that despite the complexity of stringing together these

While they may be loyal to a particular device, such as their iPhone or

> Presence, or availability status, of an end user across any device or

when a consumer needs it (for example, when temporarily downloading

In short, this worldview is about exposing capabilities in the network in a managed

ProgrammableWeb and through devices like the iPhone and Android™

Since much of technology adoption is shaped by generational attitudes, we’ll

Now, let’s get started.

baby boomers: the eternally young | 29

Key Chapter Highlights

At nearly 80 million strong, Baby Boomers spend

Baby Boomers are interested in and competent

Baby Boomers are redefining retirement and aging—

In 2006, caring for aging parents took an average of

> When surveying news coverage about the evolution

“The widely accepted practice of primarily targeting younger consumers is just

baby boomers: the eternally young | 31