The Blog-Health-o-Meter™ reads This blog is doing awesome!.

Crunchy numbers

A Boeing 747-400 passenger jet can hold 416 passengers. This blog was viewed about 2,900 times in 2010. That’s about 7 full 747s.

In 2010, there were 20 new posts, growing the total archive of this blog to 45 posts. There were 20 pictures uploaded, taking up a total of 2mb. That’s about 2 pictures per month.

The busiest day of the year was May 13th with 49 views. The most popular post that day was US Advertising Market 2009.

Where did they come from?

The top referring sites in 2010 were linkedin.com, twitter.com, techcrunch.com, lmodules.com, and facebook.com.

Some visitors came searching, mostly for google mit puzzle, consumer software market, google mit, google job puzzle, and global it market 2010.

Attractions in 2010

These are the posts and pages that got the most views in 2010.

US Advertising Market 2009 May 2010
2 comments

Google’s MIT Puzzle – the bigger question! September 2009
3 comments

Consumer Software Spending 2010 May 2010
2 comments

About August 2009
2 comments

Facebook, Twitter et al.: Have they crossed the chasm? June 2010
1 comment and 1 Like on WordPress.com,

I strongly believe that the B2B web is the future – if you have read my earlier posts, you should know by now. The growth of cloud based applications in the last few years have been incredible but we have just touched the tip of the iceberg. The next decade will see lot of  disruptive technologies changing the landscape of business applications. In the first wave of web 2.0 we have seen B2C disruptions like Facebook, Twitter, Foursquare, Mint et al. The next wave will be around B2B.

And I am glad that I will be a part of that…

There are some very interesting discussions going on here:
http://techcrunch.com/2010/10/02/facebook-bigger-google/

Somehow my comments didn’t show up. So here is my argument against Facebook taking over Google in 5 years:

Advertising Revenue:

1> If you look at the US Internet Advertising Revenue Share http://rajsarkar.wordpress.com/2010/05/07/us-advertising-market-2010/ It actually shrunk in 2009. It is approximately a $23B market with search constituting $10.7B and display advertising constituting $8B. Search grew at 1% and display grew at 4%. Facebook’s advertising revenue growth has primarily come from grasping market share from other websites when it comes to display advertisement (not growth of the TAM). My argument is that facebook’s growth will top off in the near future. I don’t foresee Display growing at the same rate as Search. Facebook is not creating a new advertisement category here like Google did.

2> As a Fortune 500 company you see more returns from your search advertisement than display because search is fulfilling demand while display is generating demand. I bet you will see more and more advertising revenues shifting towards search in the near future. For eyeballs, the big companies will still prefer the traditional mediums like TV, Radio and Newspaper. Just look at the total advertising market in the US which is a staggering $159B.

3> Real time search is the space which will grow dramatically. I already here my friends searching about products on Twitter and what consumers are talking about it. Facebook is limited by the privacy controls and I don’t see Facebook grabbing a huge share in this space. Whereas Google is ideally positioned here with twitter streams already showing up on Google search.

Consumer Spending:

1> Consumers are spending averse when it comes to software or applications on the web. On average a consumer spent around $100 in 2007, which makes this a US $1.6B market primarily controlled by Microsoft and Adobe. (http://rajsarkar.wordpress.com/2010/05/12/consumer-software-spending-2010/) Though the article says that Facebook will use credits etc. to generate revenue I don’t foresee this to become a huge market in the near future. Facebook may grow the TAM a little bit but it would be hard to change consumer behavior.

Business Spending:

1> This is where Google has a huge head start. Already 3 million businesses and 30 million users are using Google Apps. If we look at the total software as a service market in the US: it is a humongous $45B market. (http://rajsarkar.wordpress.com/2010/07/26/cloud-90b-us-market/). I believe that Google Apps can become the next billion dollar business for Google. Businesses will spend online, consumers won’t. Facebook has no foothold in this market and I don’t foresee Facebook being a huge player in this space.

You have to look at this from a numbers standpoint, not a fluff subjective analysis. Unless Facebook changes it business model dramatically in the next few years there is no way Facebook can catch Google.

Some critics might say it is applicable to software, but we see more and more trends in hardware products as well. Look at Apple – yes they spend a zillion dollars in advertisement but customers buy their product because they love it – not because some salesperson makes a cold call, drop in a 10% discount and voila: closes the deal. The same trend is somewhat applicable even to products sold in the enterprise sphere – most of the tech nerds in the enterprise companies go “ga ga” (yes you guessed it right, that’s how Lady Gaga got her name) over a switch or a storage product or an on-demand software and the product takes off.

I am not diminishing the other 3 Ps. (Though, I am kind of in a denial mode being a tech marketer myself). In some regions and some areas it might be still important.For example, retail or emerging markets.

But, Technology Marketing profs need to rewrite some of the marketing text books in this new era. The first “P” is becoming more and more important.
Marketing = Product

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Let’s begin with certain definitions (Source: Forrester):

For simplicity let’s ignore information and process for now and let’s assume they are part of the applications pie.

Next thing is to break down the US market size for each of the three categories (look here):

Infrastructure: Communications Equipments($108B) + Network Outsourcing ($6B) + Servers ($20B) + Storage ($9B) + Mainframe Outsourcing($14B) + Desktop Outsourcing($14B) = $171B
Middleware/Platform: Middleware ($52B) + OS($11B) + Distributed Environment Outsourcing($27B) = $90B
Applications: Applications($88B) + Custom built Applications ($43B) + Application Outsourcing($14B) = $145B

Now let’s look at the adoption of cloud among North America Enterprises/SMBs:

And voila, we have the cloud numbers (with the assumption that the numbers responding correlates to the market size):

Infrastructure as a Service: 19% of $171B = $32.5B
Platform as a Service: 12% of $90B = $11B
Software as a Service: 32% of $145B = $46.5B

That comes to a $90B cloud market. Given the total IT market in the US is $741B, it is 12% of the total market with analyst predictions of growing 40% Y/Y. Now you know what to say if anyone asks you, “How big is the cloud?”. Your answer: “Maybe Stratus, not Cumulonimbus for sure”.

I thought it might be interesting to do an analysis on where the social networking sites are on the technology adoption cycle. Has Myspace crossed the chasm? Is Facebook in early majority or late majority? Where are Twitter and LinkedIn? And how do they compare to other modern consumer technologies like Smartphones?

The first thing I did was look at the number of total Internet users in the US. Then, I looked at the data of registered users for each of the social networking sites. After running the numbers, this is what I got:

Interesting thing to observe is that Twitter and LinkedIn are still in the early market phase. They haven’t yet crossed the chasm. Mostly technology enthusiasts and visionaries are using the product in the US. The customers at this point recognize that the technology is new and unproven and has the potential for a breakthrough.

It seems to me that Myspace was unable to cross the chasm. They died just before entering the bowling alley. Most companies fail to cross the chasm because pragmatists do not see a complete solution to their problem and there is no group of reference that have formed that they trust. We all remember the privacy concerns on Myspace.

Smartphones are a perfect example of how a technology moves from a bowling alley to the tornado phase. In the tornado phase, a mass market emerges where the product is swept into a tornado of demand. After this phase is over, a market leader will evolve. Interesting to see who wins – Apple, RIM or Google? One key to success in the Tornado phase is to expand the sales channel as fast as possible in order to capture market share at the expense of the competition. That means Apple has to partner with Verizon or RIM & Google will win the battle in the end.

And then comes Facebook in Main Street. In this phase the technology go a price decline. How is this applicable to Facebook since it was FREE from the very beginning? Does it mean declining perceived value? Most importantly, the market leader gets challenged in Main Street either with new technology or price competitive products. It will be interesting to see if Facebook can reach the Total Assimilation phase; it should be an easy ride.

It is anybody’s guess about the technologies in “Total Assimilation” Phase. Here are some examples:

My first post was on US Business IT Market which is a $749B market. My second post was on Online Advertisement Spending which is approximately a $22B market. Now, did you ever wonder how much US consumers spend on software? i.e. PC software and Mobile applications combined. Take a Guess!

It’s a meager $5.7B market in 2010. My best estimate for the PC software market is $4.1B. Add the Yankee mobile application spending estimate of $1.6B to that.

How did I come to the PC software market estimate?

According to this forrester study, an US online adult with a PC at home spent on average $101 in 2007. I don’t expect this has changed significantly in the last few years. Add to that, this study which says there is 82% penetration of PCs among US households. Now, multiplying 82%x50Mx$101 = $4.1B market. The forrester study also says that US online adults buys software twice a year and most of the software packages have long shelf lives. Majority of this market is dominated by Microsoft, Apple and Adobe.

Now, according to Yankee, US mobile application market in 2010 is $1.6B. There will be 6 billion app downloads (I presume around 75% of the downloads will be primarily in US) globally  with majority of the downloads attributed to Apple:

While total downloads will grow, revenues will decline by 2012, the effect of market forces continuing to drive prices lower. In addition to falling costs, ABI predicts that more “must have” apps will be available in free or ad-supported versions, as well as provided in handset bundles.

With 4 billion app downloads in US and a $1.6B market, the per app download revenue comes to around 40 cents. Think 65,000 applications all fighting for this small market, it will be be extremely cut-throat.

So now you see my argument, which I have propounded many many times on this blog: Building a business model around consumer paying for services online or offline is not prudent since it is a small and competitive market. And building a model on advertisement revenues, after taking out Google’s share, is just a $11B market. All the big sharks are fighting for its share – Where’s the attractiveness?

Now if you look at the breakdown of the internet advertising dollars:

• Search is a whopping 47% of the market. It grew 1% from $10.5B in 2008 to $10.7B in 2009. One thing to note: the internet advertising spending shrunk from $23.4B in 2008 to $22.7B in 2009.
• Display related advertising is 35% of the market (add display ads+digital video+sponsorship+rich media). It grew 4% from $7.6B in 2008 to $8B in 2009.
• Email Revenues went down significantly to $292M in 2009 from $405M in 2008. We all know how effective email marketing is
• If you do the math, Google’s 2009 advertising revenue was $22.8B of which almost 50% was US; so Google holds almost 50% of the US Internet advertising market of which predominantly is search.
• Top 10 ad selling companies accounted for 72% of the market – wow!!

Source: IAB-Ad-Revenue-Full-Year-2009

• PC is a $39B market vs Applications which is a $88B market. Now you know why everyone wants to get into software
• Enterprise and SMBs spend significantly more ($74B) on communications equipment vs Telcos ($35B). This is a major turf for battle between Cisco and Juniper.
• Systems Integration Project work is $52B market. Now you know why IBM just wants to focus on IT services.
• This wheel should tell you why all major Fortune 500 tech companies want to go into software and services

Another interesting thing to observe is how the hardware component is a shrinking component of the entire pie. It was 38.5% of the entire IT market in 2004 whereas in 2010, it is only 35%, whereas the market grew 22% from 2004 to 2010. It seems like the computers and peripheral market is going to do a comeback in 2010 growing at almost 11% (good news for HP & Dell). The IT outsourcing market was unaffected by the recession in 2009:

Interestingly enough, US and Canada will lead the growth of IT product and services in 2010. All those huge growth numbers from the emerging markets in the previous years – we will not see that in 2010, but I expect it to bounce back probably in 2011 or 2012. So, we will see a lot of Fortune 500s redirecting their investments from developing to developed countries in 2010. US is still going to be a huge spender – almost 1/3 rd of the global market.

Overall, a good news for the US economy. 2010, I am excited

Source: Forrester Research

Now comes the pain of setting up a network and a working IT. You probably go hunting for that trusted IT provider who will help you setup everything.  You need to think about your Internet connection, your phone systems, the servers, the laptops, IT security – the list is endless.

What if?

You go to a retail store and you pick up a few laptops and handsets. The handset could be plugged to your laptop through an Ethernet connection or the USB.

Then you go to a website. You setup a small business account. You setup a network – it can be as easy as identifying all laptops as part of the same network. You get a login and password for every single employee, which identifies the laptop. At the same time you also assign extensions to your already existing business phone number.

Then the employee goes to the retail space, plugs in the laptop to the already existing Ethernet ports, enters the login and password, connects the handset to the laptop and voila! You have your network up and running.

Think this to be a network in the cloud. You share folders. You buy applications that are running in the cloud. You pay a monthly fee for the Internet connection, the phone usage and the applications that run on your laptop. It doesn’t matter whether you log-in from home, hotel or the retail space – you are always connected to your network. And most importantly, you don’t need to think about backup and security. You just buy the things you need on the fly and it is the providers’ headache to figure out the details.

No doubt this is the future.