Amazon Web Services Senior Vice President Andy Jassy said that CEO and Founder Jeff Bezos believes AWS could be the company’s largest business. That revenues from selling cloud computing infrastructure could be bigger than Amazon’s original e-commerce business is a startling notion.
If Amazon has total revenue in the $61 billion range, that gives you some idea of the potential revenue magnitude Amazon CEO Jeff Bezos believes is possible.
While a ringing endorsement of industry potential, that belief also indicates how tough it might be for other suppliers of cloud computing infrastructure to compete with Amazon.
According to the Yankee Group, cloud computing services might not be a $5 billion U.S. business, at the moment. assuming AWS mostly sells infrastructure as a service.
Forecasts by Forrester Research are comparable.
If Amazon is proven correct, and its share of cloud computing services is as large as $61 billion, that also validates the huge interest fixed network service providers are showing in cloud computing infrastructure and services.
If Amazon has 40 percent market share, at $61 billion, then the total market would be worth $153 billion, a market big enough to be attractive to many tier one service providers.
One indicator of the problem is that, despite robust mobile service revenue growth, telecom retail revenue in developed Asia–Pacific markets might still decline at a compound annual growth rate of –0.4 percent during the next five years, according to Analysys Mason.
Overall revenue is expected to fall from US$217 billion in 2012 to US$213 billion in 2017, even as gross domestic product grows three percent during this period.
As you might guess, the revenue decline will be driven by a fall in fixed revenue from US$86 billion in 2012 to US$74 billion in 2017, even as mobile segment revenue grows from US$131 billion in 2012 to US$139 billion in 2017.
But Asia-Pacific fixed voice connections will decline by five percent between 2012 and 2017, from 138 million at the end of 2012 to 132 million at the end of 2017.
Mobile service providers face challenges as well. With some exceptions, subscription growth will not drive incremental revenues in the mobile business globally. Those exceptions are Africa and the Asia Pacific region. For the most part, mobile penetration is well advanced globally.
So revenue growth will have to come from the sale of additional features, services and consumption by existing users.
That means mobile service providers even in developing parts of Asia will relatively quickly have to confront the same revenue challenges as suppliers in developed regions, namely the maturation of the voice product and the need to fuel growth of data access and application revenues.
Machine-to-machine services, the Internet of Things, connected car services, mobile payments and mobile entertainment video are some of the areas where mobile service providers are testing services.
But there is a fascinating possible exception to the notion that services other than voice, messaging or Internet access will drive the next wave of revenue, or even the notion that revenue growth will be lead by mobile services.
Some might argue that fixed networks are poised for a period where investments in that segment have less risk, and faster revenue growth, than the mobile segment.
That might not necessarily mean that fixed networks grow faster than mobile, but that fixed network revenues decline less than mobile revenues, in many markets.
At least some service providers might now believe building and operating gigabit networks represents a revenue growth opportunity, beyond Google Fiber and the handful of municipal or other gigabit networks in operations or trying to get off the ground in the United States.
In some Western European markets, there might also be some new thinking that faster revenue growth is possible in the fixed network high speed access market, than in the mobile segment.
Researchers at Analysys Mason argue that, at the very least, fixed network revenue will hold up better than mobile revenue, and also that the share of total revenue generated by fixed networks will grow over the coming five years.
According to Analysys Mason analysts, mobile revenue in most Western European countries has decoupled from changes in gross domestic product, and is now performing significantly worse than the economy is, as a whole. That, one might suggest, also indicates that, in some instances, mobility has less value to end users than Internet access.
Also, fixed networks also are less dependent on voice revenue than are mobile networks, exposing the mobile segment to greater potential losses.
Service revenue from services other than IP data accounted for 76 percent of the total for mobile in 2012 in Western Europe.
Fixed operators’ exposure to voice is substantially lower. About 67 percent of fixed operator revenue (excluding content) in Western Europe comes from data services in 2012.
Also, mobile voice appears to be the most discounted service in quadruple-play packages, leading to “a swift erosion of the value of mobile voice in the market as a whole,” Analysys Mason says.
The wild card is untethered access. As most mobile devices are equipped for Wi-Fi access, and as those devices become content consumption platforms, with most usage at indoor or at least stationary locations, it is more feasible for Wi-Fi access to provide the Internet access.
And that potentially means fixed-only networks could disrupt much of the “mobile” Internet access value proposition.
That could cause a rethink of where near-term revenue drivers might lie, refocusing attention on fixed networks and basic Internet access again, even as efforts to jumpstart new revenue sources continue as long-term initiatives.
by Gary Kim