A.L.,
re: Forecasting - EMC Cellular and others
<< Although it's always fun to believe some cheery market research report, I'll stick with the vendor forecasts, +/- 5%. Or, Eric, is there something EMC knows that Nokia doesn't? >>
Yes. Absolutely, for sure.
EMC is a credible research house, but in one category they are totally unique, and totally exceptional.
They have an automated subscriber database 2nd to none. They are generally regarded as being el numero uno in the industry. They started to build this capability well before they became the "official" statistician for GSMA.
EMC (and sister company ARC Group) are primary sources to Nokia (and virtually every other vendor in the business as well as many of the research houses who always correct back or close to back to EMC's sub counts.
Nokia will use a variety of other sources but the primary pipe to the carriers, reporting agencies, other vendors, I suspect is EMC, as it regards subscriber numbers.
If you look at others in the industry regarding forecasts, Cahners In-Stat is overly aggressive, Strategis overly conservative, and EMC kind of middle of the road but to the conservative side.
<< Nah, don't believe a nearly 7-year average in use life for a handset >>
Don't get thrown off by 2 quarters numbers.
Overall, wireless investors currently ascribe too much weight to replacement sales, and this is where we will be crushed this year.
Last year (using EMC & ARC numbers - which match up with Nokia's) there were 228 new subs and 177 million replacement (and churn) sales, so replacement sales accounted for 44% of sales. Given the amount of inventory left in channels (about 30 million above an anticipated 20 million) the actual number is more like 36% of total sales were replacement sales.
If you take 190 million handsets sold this year, and realize that 121 million have gone to new subs and add the year starting excess inventory of 30 million in you have 30 million plus 69 million = 99 million replacements = 52% of sales, not so far off year beginning estimates of handset sales being 50% of total units sold this year.
This year we have been hit by 4 factors:
* Excess inventory
* Lousy economy
* Stale product lineup across technologies
* Overoptimistic forecasting of replacement sales
Me ... I'm betting on total handsets closer to 450 million than 400 million, and perhaps > 450 million, although I'm not betting the ranch on that.
There has to be pent up demand out there.
Meantime I see Ed Snyder has our Q buddies riled up. Young Ed was right on the money last summer. He called every shot. I think 55 million is way low for CDMA handsets but Irwin's 80 million revised down from 90 million has got to come down.
Good article on forecasting here.
>> Optimistic Forecasts Fuel Wireless Hype
Critics say researchers pull mobile e-commerce numbers 'out of thin air'
Mitch Betts
IDG
April 30, 2001
There could be 1.3 billion subscribers to third-generation (3G) wireless networks in 2010. That's the optimistic case in one market research forecast.
Or there could be only 744 million 3G subscribers in 2010. That's the pessimistic view.
Or there could be far fewer than that. Third-generation networks haven't been built yet, there are zero subscribers now, and it isn't clear when the 3G market will take off, let alone what it will be like nine years hence.
In cases like this, "researchers are pulling their numbers out of thin air," said Paul Mulligan, who analyzes dozens of wireless IT forecasts at research aggregator eMarketer Inc. in New York.
It's one thing to extrapolate growth rates for a technology that has an installed base of users, Mulligan said. But "now we have researchers projecting things that don't even exist yet, like 3G services," he said. "They might as well be telling us how many people will drive wheelless cars in 2007."
The problem is that wishful forecasts can mislead business decision-makers. A CEO reading an airline magazine full of rosy predictions could put pressure on an IT executive to dive into the hyped technology. "That happens all the time, and the IT manager is put in an impossible situation," Mulligan said.
The IT field has always been full of hype, but Mulligan and others said it's reached new heights in the mobile e-commerce field because of highly speculative forecasts and press reports that parrot the figures uncritically.
It's true that wireless applications are catching on in business niches, such as airlines notifying customers about canceled flights or brokerages allowing customers to trade stocks on the run. But a mass consumer market for wireless data services - which are popular in Japan - seems a long way off in the U.S.
A survey of 3,189 wireless device owners by Chicago-based Accenture found that the reasons the vast majority aren't using the wireless Web are that they believe that it costs too much, that screens are too difficult to read and that the service is too slow. Phones that use Wireless Application Protocol (WAP) have been a major disappointment in the U.S., analysts agreed.
Just last week, Japan's leading wireless carrier announced a five-month delay in full-scale rollout of 3G services to work out the glitches. A spokesman for the Cellular Telecommunications & Internet Association in Washington said that the setback is "just a timing thing" and that 3G still has a bright future.
But some researchers are starting to release more conservative forecasts. Cahners In-Stat Group in Newton, Mass., recently announced slower growth for mobile e-commerce, citing "user apathy [and] slow build-out of next-generation wireless data services." The Strategis Group in Washington recently reported that "overly hyped m-commerce won't take off until 2004," but then it will reach $5.7 billion in revenue in the U.S. alone.
Yet just last year, the future of the wireless Internet looked even brighter, judging from various market research reports touting "exponential growth," and "a tidal wave of activity" in an "explosive market." Growth charts looked like hockey sticks or skateboard ramps. Analysts envisioned Americans shopping with WAP phones and getting location-based advertising and coupons from nearby stores as they walked down the street.
One of the most-quoted numbers last year was the Cahners In-Stat forecast of 1.3 billion wireless Internet users - or about 20% of the world's population - in 2004. It turns out that the number in the Sept. 12 press release was the sum of two services and involved a lot of double counting. The report actually said there would be 783 million wireless Web subscribers and 607 million Short Message Service subscribers - and many people would do both.
"Most of the forecasts for wireless voice have been too pessimistic, and most of the forecasts for wireless data have been too optimistic," said Alan Reiter, a consultant at Wireless Internet and Mobile Computing in Chevy Chase, Md.
Last year, IDC in Framingham, Mass., got a lot of play for its prediction that, worldwide, more people will access the Internet with wireless devices than with wired PCs by the end of 2002. But now "the optimistic forecasts are becoming somewhat of a joke, like there will be more people accessing the Internet with wireless devices than there are grains of sand," Reiter said.
Keith Waryas, manager of IDC's mobile e-business research, defended the general thrust of the prediction, noting that Japan is close to reaching that wireless/wired crossover point. He said that by 2005, there will be 688 million wired Internet users worldwide and 589 million wireless ones, so he sees the gap closing.
Critics say the research firms are biased, telling their customers in the industry what they want to hear. Waryas and other market researchers said there may be firms that pander to industry clients - other firms, not theirs - but they lose credibility quickly.
"Sure, I could say a market will triple next year and get a short-term bump [in sales of the report]. But when the market doesn't triple, I'd have trouble maintaining my client base . . . because my product was useless," Waryas said.
The researchers all maintained that their forecasts are based on solid ground, including a mix of economic models, adoption rates for related technologies and surveys. And like every forecast, they're also based on certain assumptions, such as the price sensitivity of customers, the emergence of interoperability and security standards, and the timing of commercial rollouts.
For example, Cynthia Hswe, a wireless analyst at Strategis, said her latest forecast is more conservative because it now assumes that the 3G market won't kick in until 2004. Waryas said IDC's view of the market is based in part on the assumption that vendors will provide "compelling content" for mobile Internet users.
But if the assumptions don't pan out, then even the conservative predictions could fail. Hswe acknowledged that forecasts for brand-new technologies are actually best-case scenarios that assume key "drivers" will fall into place.
Frank Colletti, director of e-business at Zurich North America, a $6 billion insurance firm in Schaumburg, Ill., said he's gotten used to hype with every new IT phase, from client/server computing to customer relationship management. Colletti's company tested wireless technology six months ago but "shelved it because the technology just wasn't ready." He said he'll try again later this year.
How does Colletti cut through the hype? "You have to try it yourself [with hands-on testing]," he said. "It's the only way you can get down to the truth."
Reality Check: Tips for Evaluating Forecasts (Frank Colletti)
* Find out the assumptions underlying the projection. They’re actually more important than the numbers.
* Triangulate by comparing several forecasts to find a consensus.
* Check with pioneer users, who sometimes speak at conferences.
* Ask trusted vendors when the technology will be commercially available. Test the technology on your premises. <<
More here:
>> 1.3 Billion, Says Who?
A closer look at the popular "1.3 billion wireless data subscribers" forecast
Jim Rendon
Mbizcentral
More than a billion people will use wireless technology worldwide by 2003. By 2004, 1.3 billion - or roughly 20 percent of the global population - will access wireless data services. Or will they?
These numbers - along with a slew of other predictions for adoption rates, market size, and revenue potential - have become gospel to startups, analysts, venture capitalists, and journalists. These are the numbers that justify the flood of investment, energy, and attention that have descended on the wireless market. They have become so commonplace that often they are no longer sourced, but merely stated on countless startups' Web pages as if they were fact.
But fact is the one thing they definitely are not, even according to those responsible for making the predictions. "The 1.3 billion figure is a little misleading," admits Dave Jackson, a former analyst with Cahners In-Stat Group and author the report that was the original source of that monumental figure for data services.
Just for the record, 1.3 billion subscribers would be roughly equivalent to 100 percent wireless data penetration throughout the entire United States, Canada, Japan, Western Europe and Scandinavia, and half of China.
So how did Jackson reach this figure? For starters, he says, the 1.3 billion figure for wireless data subscribers is not really meant to be taken on its own. It's a figure that combines his estimates for both Short Message Service (SMS) subscribers and wireless Internet subscribers.
In his report, Jackson breaks the two services out separately: 743 million wireless Internet subscribers and 607 million SMS subscribers. Many individual subscribers, he says, will likely use both services. But the report, he says, was written for the companies that provide these services, and each service, SMS and Internet, represents a separate revenue stream, whether it is one individual subscriber or two.
So, according to Jackson and Rebecca Diercks, the director of wireless research at Cahners who coauthored the report, there will not be 1.3 billion individuals using wireless data services in 2004. The number will undoubtedly be lower than that.
Still, even the smaller figure of 743 million wireless Internet subscribers may be greatly exaggerated, at least according to research and consulting firm Ovum. Ovum predicts only 322 million wireless Internet subscribers by 2004, differing from Jackson's figure by a number equivalent to the entire population of North America.
Forecasting Examined
Why the disparity? Predictions are just that, predictions; and therefore they are at best reasoned guesses. Jackson says that unexpected economic downturns, hitches in the rollout of new infrastructure such as third-generation (3G) technology, or even wars can put a crimp in even the best-laid "hockey stick curve," the common growth shape in analysts' forecast charts, which depicts slow growth followed by a huge spurt of growth.
"It's tough to predict operations on a global level," says Knox Bricken, an analyst with the Yankee Group, one of the more commonly quoted sources of big numbers. Bricken points out that analyst predictions for adoption rates in 2000 that were made as late as 1997 grossly underestimated consumer demand. While adoption rates in the United States topped 33 percent in 2000, the crystal-ball gazers of 1995 predicted a 25 percent penetration rate, she explains. Robin Hearn, a senior analyst with Ovum, says just about everyone was surprised by the boom in prepaid mobile services in Europe, which in some countries accounted for more than half of all new subscribers. Conversely, Bricken says, analyst forecasts were too bullish on fixed wireless, a technology that has yet to really get off the ground.
"With technology changing so fast, it's definitely unclear how certain these forecasts will be beyond 2005," says Bricken. For the record, the Yankee Group predicts that by 2005 there will be 1,260,925,777 worldwide mobile subscribers. And although Bricken and other analysts say that there's a lot of room for error when making predictions as far out as 2010, the Yankee Group has taken a stab at it anyway: 1,800,936,540. Ovum and Cahners both limit themselves to five-year forecasts, and analysts at both firms agree that it's hard to be accurate beyond five years.
Bricken says that the methodology for a 10-year forecast is just a further extension of the same process as for a five-year projection; they just run the curve and socioeconomic predictions and trend in consumer attitudes further into the future.
Despite a desire for accuracy, Bricken admits that there may be a bit of boosterism in the mix. "You can say we're unbiased, but we have some hope that this will be huge," she says.
"There is certainly some bias in our forecasts."
Nonetheless, these numbers are not based on tea-leaf readings. Forecasting is both a science and an art says Hearn, who does much of Ovum's wireless forecasting. Ovum regularly conducts research in 50 countries around the world. In compiling global figures, its analysts divide these countries into nine categories based on criteria such as economic development, sophistication of telecommunications infrastructure, gross domestic product, and pricing sensitivity. Analysts try to determine a maximum adoption rate for wireless services, usually somewhere around 80 or 85 percent. Then, Hearn says, he plugs in one of a few standard curves.
The Italian curve seems to apply to most countries, he says: Italy experienced tremendous wireless growth in a quick spurt, due in part to the introduction of prepaid services. The United States, he says, more closely resembles the steady growth of Sweden. Analysts then adjust those curves based on the individual conditions in each country and pull together the countries skipped over in the original work into a regional "super country." They then review the work and begin their calculations.
While Hearn believes that this method is fairly accurate (a margin of error of five points) in the short term, he says the more important thing is to find the trend. Investors, such as Nokia Ventures' Peter Buhl, don't seem concerned with the details of projections.
The most important thing, says Buhl, is to make sure you understand the timing of increases in adoption rates so you know when to invest in startups.
Where This Leaves You
So, where do these shaky numbers leave the investors and startups who purchase market studies and rely on analyst projections? Possibly with a more rosy view of the market than is healthy. But more probably, says Seth Goldstein, a principal with Flatiron Partners, a VC firm that has made numerous wireless investments, it leaves people with very little new insight at all.
Goldstein says he pays little attention to any of these figures. "There are so many numbers out there; everybody's number supports their own thesis." And, in the end, says Goldstein, "What I'm really interested in is when a company will generate revenues and profits."
And predicting that can certainly be tougher than predicting adoption rates. <<
- Eric - |
