Five on Friday: Cisco, Software and Subscription Strategies

Featuring eMarketer, Microsoft, Digiday, Cisco and Nieman Lab

Five on Friday: Cisco

Source: Bigstock Photo

It’s hard to believe this is the last full weekend of August. Where did the summer go? Before you reach for the sunscreen and your flamingo floatie, we’ve got some great subscription articles for your weekend reading pleasure. eMarketer shares some startling statistics about cord cutters and the growth of the streaming over-the-top TV market, KTAR and Motley Fool ponder whether or not Microsoft will turn Windows 10 into a subscription product, Digiday explores why Spotify and other streaming services have an ad blocking problem, Cisco sees success with the subscription business model, and Nieman Lab looks at the impact GDPR is having on European news outlets.

 

Nearly One-Third of Americans Are Cord-Cutters

 Software and Subscription Strategies

Source: Bigstock Photo

According to recent figures from eMarketer, the number of cord-cutters will grow to 32.8 percent this year, or 33.0 million TV viewers who cancel their cable or satellite TV service or continue to live without it. The number of Americans who subscribe to over-the-top streaming services like Netflix, Hulu and Amazon Prime will grow to 170.1 million, or 51.7 percent of the U.S. population.

“Most of the major traditional TV providers [Charter, Comcast, Dish, etc.] now have some way to integrate with Netflix,” said Christopher Bendtsen, eMarketer senior forecasting analyst. “These partnerships are still in the early stages, so we don’t foresee them having a significant impact reducing churn this year. With more pay TV and OTT partnerships expected in the future, combined with other strategies, providers could eventually slow-but not stop-the losses.”

While satellite and cable TV companies are losing subscribers, streaming services like Netflix, Hulu, YouTube and Amazon Prime are growing, with many households subscribing to multiple services. Why are we flocking to these over-the-top TV services? eMarketer’s Paul Verna said the main factor fueling grow is the original content produced by these services.

In addition, services like Hulu and Sling are also offering live TV packages, so cord cutters get the best of both worlds – access to the broadcast channels they want as well as streaming programming. Learn more about eMarketer’s predictions for the OTT market online: “Cord-Cutting Accelerates as OTT Video Keeps Growing” and “Exodus from Pay TV Accelerates Despite OTT Partnerships.”

Will Microsoft Charge a Monthly Fee for Windows 10? 

Five on Friday: Cisco

Source: Microsoft

When Microsoft first launched Windows 10, it did not charge users to upgrade to the latest operating system, but it was anticipated that Microsoft would, at some point, monetize Windows 10. Some speculated that Microsoft would go the subscription route, in keeping with Office 365 and its other subscription products. To date, that has happened, but will it? The Motley Fool says “no!” and it offers five reasons why it won’t happen:

  1. Turning Windows 10 into a paid subscription service would benefit Microsoft’s biggest rival – Apple – whose macOS platform has offered free upgrades for close to five years.
  2. Customers who use older versions of Windows may choose not to upgrade to avoid paying for another Microsoft subscription.
  3. It doesn’t need to. Companies and consumers both have to pay when upgrading to Windows 1-. Companies can purchase multi-year licenses while consumers pay anywhere from $140 to $200 to upgrade.
  4. Microsoft earns revenue from OEMs which have Windows 10 pre-installed on the machines.
  5. Microsoft has other ways to monetize the Windows 10 operating system.

KTAR doesn’t think Microsoft will go the subscription route for Windows 10 either. For example, KTAR explains that Windows 10 is a gateway to serve up more ads and to sell apps and other subscription services, so losing subscribers by forcing them to subscribe to Windows 10 would be counterproductive.

At this point, this is all speculation. No one – except Microsoft – really knows if the company will change its pricing model for Windows 10. In the meantime, many industry experts will be watching.

Ad-Supported Streaming Services Have an Ad-Blocking Problem 

For Spotify and other streaming services that utilize an ad-supported subscription tier, ad blocking is a problem. In fact, according to Digiday, prior to its IPO this spring, Spotify estimated that about 2 million people were blocking ads. This represents approximately 1 percent of total monthly active users and 2 percent of ad-supported monthly active users.

 Software and Subscription Strategies

Source: Spotify

Spotify is taking the issue seriously, detecting and measuring ad-blocking activity and emailing listeners who use ad blockers. Listeners are notified there is “abnormal activity” on their Spotify app and asking them to disable it by uninstalling the modified or unauthorized version of Spotify and installing a “clean” app from the Google Play Store.

Spotify is also testing another solution called Active Media in Australia – allowing listeners to skip any ads they want as much as they want, reports Ad Age. Spotify users can listen to or watch ads they like, or don’t mind, and skip those they don’t want to see at all. Advertisers only have to pay for ads that are heard or viewed, not those that are skipped.

“Our hypothesis is if we can use this to fuel our streaming intelligence, and deliver a more personalized experience and a more engaging audience to our advertisers, it will improve the outcomes that we can deliver for brands,” said Danielle Lee, global head of partner solutions at Spotify, in an interview with Ad Age. “Just as we create these personalized experiences like Discover Weekly, and the magic that brings to our consumers, we want to inject that concept into the advertising experience.”

If the program is successful, Spotify could roll Active Media out globally, reports Ad Age.

Cisco’s Transition to a Subscription SaaS Is Working 

Five on Friday: Cisco

Source: Cisco

As Cisco continues its transition to a subscription SaaS, customers seem to be adapting to the new model. In fact, in the final quarter of the company’s fiscal year 2018 ended July 28, 2018, the company reported deferred revenue of $19.7 billion, a 6 percent increase, with deferred product revenue 15 percent, driven largely by subscription-based and software offers.

Other highlights from the quarter include:

  • Recurring revenue represented 32 percent of total revenue
  • Total gross margin was 61.7 percent.
  • Q4 net income was $3.8 billion, or earnings per share of $0.81 (GAAP).
  • Full year revenue of $49.3 billion, a 3 percent increase year-over-year
  • Full year earnings per share of $0.02 (GAAP

“We had a very strong finish to a great year and generated our highest quarterly revenue of $12.8 billion,” said Chuck Robbins, Chairman and CEO of Cisco, in a news release. “Our results demonstrate a combination of strong customer adoption of our latest innovations, the ongoing value customers see in our software and subscription offerings, and excellent execution across our customer segments and geographies. Our strategy is working, and we believe that are well-positioned to capture growth across our portfolio with our pipeline of innovation.”

“Q4 was another quarter of broad-based strength across our portfolio reflecting our strong execution and momentum. We delivered record quarterly revenue, up 6%, and non-GAAP EPS, up 15%,” added Kelly Kramer, CFO. “We are seeing solid demand for our products and solutions while continuing to make progress in transforming our business model and driving long-term shareholder value.”

The company offered the following guidance for fiscal year 2019: revenue between 5 percent to 7 percent and earnings per share of $0.69 to $0.74 (GAAP).

Are EU News Outlets Reducing Cookies Because of GDPR? Looks Like It. 

 Software and Subscription Strategies

Source: Bigstock Photo

It’s been three months since the General Data Protection Regulation went into effect in the European Union, and Nieman Lab reports that the new data privacy law is forcing news organizations to make changes. Among those is reducing the number of third-party cookies and content that loads on the news sites before readers have the opportunity to give their explicit consent.

According to a report from RISJ, before GDPR went into effect, news sites averaged 40 different third-party domains per page and 81 third-party cookies compared to non-news websites. Cookies used for design optimization declined 27 percent, and cookies related to advertising and marketing dropped 14 percent, the study showed. For more information, and an analysis of results, read “Has the GDPR law actually gotten European news outlets to cut down on rampant third-party cookies and content on their sites? It seems so” on Nieman Lab.

 

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