| Random Bits Volume 4, June 2011  Download PDF |
Mobile Wave in a Sea of Digital Change
The mobile market is experiencing a number of key milestones in 2011 with far-reaching implications.
First, the penetration of smartphones in the U.S. will exceed 50% of the handset market, probably in the fourth quarter. While last year was the year of the iPad, 2011 qualifies as the year of the tablet with unit sales expected to approach 70 mm globally up from approximately 20 mm in 2010. In fact, in 2011 unit sales of smartphones and tablets will exceed those of PCs, laptops and netbooks for the first time. At the same time, the U.S. carriers have introduced 4G networks enabling internet access at much faster speeds with greater bandwidth. Rich media content, applications and advertising are becoming web-enabled with the increasingly more widespread adoption of HTML5. Lastly, the foundation for an even more robust mobile commerce ecosystem is finally underway with a number of important announcements on consumer cloud services and NFC transaction technologies for mobile purchases.
This confluence of important developments positions 2011 as a pivotal year in the continued un-tethering of the American consumer where access to content is no longer tied to a specific, generally stationary device. Further, we are now many steps closer to the emergence of a mobile life replete with rich-media content, advertising and offers reflecting local context and the convenience of information and ecommerce anytime, anywhere through cloud services, QR codes and mobile payments.
More and More Data
There are currently approximately 5.3 billion mobile subscriptions globally (77% of the world's population), up from 4.9 billion at the end of 2009, an 8.2% increase, with 73% of those in developing countries. Global subscriber statistics are as follows:
| Global | Developed Nations | Developing Nations | The Americas | |
| Mobile cellular subscriptions (millions) | 5,282 | 1,436 | 3,846 | 880 |
| Per 100 people | 76.2% | 116.1% | 67.6% | 94.1% |
| Fixed telephone lines (millions) | 1,197 | 506 | 691 | 262 |
| Per 100 people | 17.3% | 40.9% | 12.1% | 28.1% |
As subscriber penetration in the U.S. approaches 100% (in most developed countries penetration already exceeds 100%) and voice usage continues to decline, mobile carriers increasingly benefit from promoting data and internet usage particularly as a mitigating and growing source of revenue. Of course, the introduction of new mobile devices, operating systems, and applications by Apple, Google and others opened the floodgates to innovation which contributes immensely to the growth of data and the health of the mobile ecosystem.
Global mobile data traffic in 2010 grew 2.6 times over 2009, nearly tripling for the third consecutive year. In fact, in 2010 mobile data traffic was three times the size of the entire global internet in 2000. This rapid growth is attributable to the continued adoption of smartphones and an increasing shift to those devices that have the highest usage profile.
As noted in the chart following, in 2010 the typical smartphone generated 24 times more data traffic than the typical feature phone. Further, iOS, and Android devices generated 4 times more usage than the typical smartphone and they represent a growing share of the smartphone market. In fact, the two operating systems comprised a 38% share of the smartphone market in 2010 growing to an estimated 55% share in 2011.
| Device | Millions in Use 2009 |
Millions in Use 2010 |
Usage Multiplier Relative to Nonsmartphone | Usage Multiplier Relative to Smartphone |
| Smartphones | 1,129 | 1,494 | 24 Nonsmartphones | 1 Smartphone |
| iOS and Android phones | 128 | 349 | 96 Nonsmartphones | 4 Smartphones |
| Mobile-connected tablets | 0.3 | 3.0 | 122 Nonsmartphones | 5 Smartphones |
| Mobile-connected laptops | 58 | 94 | 515 Nonsmartphones | 22 Smartphones |
Further, as mobile connected tablets and laptops become more prevalent data usage will increase substantially. A February 2011 report from Cisco (Global Mobile Data Traffic Forecast Update, 2010 - 2015) predicts that global mobile data traffic will increase 26 times between 2010 and 2015.
Video is Killer App in Mobile
In 2010, mobile video traffic accounted for just under 50% of all mobile data and will likely account for approximately 53% of all mobile data traffic in 2011. In 2010 approximately 25 mm Americans watched video on their mobile devices, up 40% from 2009, while time spent watching has increased by 43 minutes per month to 4 hours and 20 minutes:
| Q4 2009 | Q4 2010 | % Diff Year to Year |
|
| Mobile Subscribers Watching Video on a Mobile Phone | 17,583 | 24,708 | 40.52% |
| Q4 2009 | Q4 2010 | % Diff Year to Year |
Hrs:Mins Diff Year to Year |
|
| Monthly Time Spent in Hours:Mins Per User 13+ | 3:37 | 4:20 | 19.8% | 0:43 |
Netflix is the largest single source of fixed internet traffic in North America today, accounting for 30% of traffic during prime time and 22% of daily internet traffic. It is also worth noting that Skype, the video and audio internet communication services company being acquired by Microsoft for $8.5 billion, is used by 170 mm people around the globe, while approximately 30 mm of them are mobile and 42% of those engage in video calls. Finally, YouTube is currently uploading 48 hours of new video every minute.
Because mobile video content has much higher bit rates than other mobile content types, mobile video will generate much of the mobile traffic growth through 2015. Of the 6.3 exabytes per month crossing the mobile network by 2015, 4.2 exabytes will be due to video.
The mobile market and mobile video, in particular, appears to be in virtuous cycle of increasing demand satisfied through adoption of new engaging connected devices, the creation of new content and the emergence of new distribution outlets.
Spectrum as Potential Bottleneck
As data traffic increases, particularly bandwidth consumptive video and media apps like Netflix, You Tube and others, so does the utilization of spectrum licensed to the carriers for their service requirements. Further, as consumers grow accustomed to HD video at home they will increasingly expect HD video on their phone which requires even more bandwidth (ultimately dedicated spectrum). The open question is whether the wireless carriers already own sufficient spectrum (including anticipated efficiencies from the implementation of new technology) or will need more to keep up with demand. That is the crux of the increasingly vociferous debate raging in Washington, D.C., and in the boardrooms of the wireless carriers and TV broadcasters today.
The National Broadband Plan (the "Plan"), first released by the FCC in March 2010, set forth a number of initiatives to optimize broadband availability to US consumers and enterprises, including making more spectrum available for the carriers and potential new entrants to satisfy a spectrum "crunch" projected to occur by 2015. The FCC proposes to obtain some of the spectrum (120 mhz of the estimated 500 mhz needed) from existing TV stations within the top 30 markets, to be achieved through a voluntary incentive auction process.
In order for the FCC to move forward with their proposal for reallocating spectrum legislation must be passed by Congress. Several bills have already been introduced in the Senate while little action thus far has occurred in the House. If and when legislation is passed the FCC will commence a rulemaking proceeding which will take a year or longer, suggesting that incentive auctions will not likely take place, if at all, until late 2013 or 2014. In the meantime, there are already several new entities formed to acquire underperforming TV stations in the top markets with the idea of selling all or some of their spectrum when/if the auctions take place.
Re-allocating spectrum from existing users is novel and controversial and both the justification (spectrum shortage by 2015 due to growth in wireless data traffic) and the mechanism (incentive auctions) are the subject of competing studies and rhetoric. For those interested and with enough free time to wade through the narrative and data coming from interested parties, the Plan, submissions of reports from the CTIA and the NAB and Cisco's Mobile Data Forecast all make for interesting reading.
HTML5 – Mobile Internet Savior or Alphabet Soup?
HTML (hypertext markup language) is the "language" underlying every webpage on the internet and converts the web to traditional or offline engagement formats. HTML is basically a set of instructions that a website delivers to a browser which the browser then reads and converts to what we see, hear and experience on the internet.
The last major HTML standard, version 4.01, was published in 1999 and HTML5 is the next revision being adopted currently. This revision is significant and introduces a number of new attributes that update the functioning of the worldwide web so that fewer software plug-ins and APIs are required. The impact is a more efficient and richer internet experience. John Herrman, contributing to gizmodo.com, writes "HTML5 is a standard with an optimistic view of the future: you launch your browser and, whatever website you visit, whatever media you chose to play, your browser just magically supports it, without the frustration, confusion and added instability of a plug-in."
HTML5 is particularly significant for mobile users as it makes webpages, including images, video and audio, portable across devices, platforms or operating systems and form factors. Broadly, four main areas are receiving significant upgrades – canvas, video, geolocation and offline web applications – and all enhance the mobile experience particularly.
While developers and marketers have focused on apps these last several years, resulting in 10 billion downloaded to date, most estimate that by 2013, as HTML5 is broadly implemented, substantially all of the important differentiating attributes native to a particular device will be accessible through HTML5 web applications. This will reduce the cost and complexity of creating and updating unique applications for individual handsets and platforms resulting in greater consistency of brand presentation and a substantially more engaging internet experience.
As traditional web content discovery is transformed by mobile consumers, publishers are confronted with the need to optimize both online and mobile websites. In fact, the more successful a publisher is in implementing their social and search strategies the more likely their content will be discovered from a mobile device. For example, Twitter has approximately 125 mm mobile users and 40% of all tweets are mobile originated while Facebook has 250 mm mobile users. One source has estimated that over 40 billion links are discovered monthly via mobile devices and many of these web pages are not as yet optimized for mobile browsers.
Mobile Commerce
A "mega-scale" opportunity, mobile commerce has received a lot of attention recently with important announcements from Google (in conjunction with Mastercard) and Visa. Both parties revealed competing and separate initiatives around the "digital wallet" and more, utilizing NFC technologies. Both expect to test their systems and roll-out in select markets in the fall.
Apple just announced its free iCloud service and is widely rumored to be close to announcing a mobile payment solution. In Apple's case more than 200 mm consumers have already registered their credit card details with Apple through the iTunes store positioning Apple as the company with the most credit card-backed accounts on the internet.
Amazon is also rumored to be testing a NFC platform and earlier this year launched Appstore for Android and Cloud Drive. Amazon already enables a patented one-click purchase online and is recognized for its skills in merchandizing and personal recommendations. Amazon also offers 15+ mm songs in its MP3 store, 850,000+ ebooks and is estimated to have sold approximately 8 mm Kindles in 2010. Further, it is estimated that Amazon has more than 100 mm credit cards on file.
In addition, eBay, through PayPal, already offers a mobile payments solution where mobile transaction volume has grown from $140 mm in 2009, $750 mm in 2010 to an anticipated $2.0 billion in 2011. Further, eBay has stated publicly that they expect $4.0 billion of mobile gross merchandise volume in 2011, a doubling from 2010.
It is Google's intention to enable all devices running the Android OS to be capable of transmitting payments, obtaining loyalty information and receiving relevant and engaging location-based advertisements and coupons. Further, Google predicts that by 2014 more than 50% of all smartphones will include NFC technology. It is worth noting that approximately 5% of paid search spending in the U.S. is now in mobile with substantially all of that accruing to Google. In addition, Google has stated publicly that approximately 15% of all searches are mobile and that 33% - 40% of all mobile searches are local.
All of these initiatives to facilitate commerce in the mobile market bring retailers, publishers, marketers and the consumer one step closer to mobile's ultimate promise: delivering the right message to the right person at the right time with the right incentive to influence a transaction at a specific location and tracking this data, including the purchase, so as to calculate ROI.
Looking Ahead
Mobile connected devices are rapidly and profoundly changing the way that we consume content and conduct commerce. Further, the data generated by our consumptive behavior while utilizing these devices increasingly affords media companies, advertisers and marketers opportunities to effectively target content, ads and offers to specific individuals at specific times, locations and even after certain behavior.
Given the ubiquity of wireless, increasing functionality and speed of connected devices and networks, ramping of mobile commerce through cloud services and mobile payments, and continued innovation in adtech for mobile, growth in the consumption of media, content and products on mobile will continue to ramp with advertising spend migrating in hot pursuit.
2011 is proving to be a pivotal year in mobile. The foundation is secure and many of the key building blocks for future success are now being laid. The consumer trends towards the un-tethered consumption of information and entertainment are profound and persistent. These continued shifts in consumer behavior combined with steady technological innovations in content, connected devices, commerce and tools will result in even more dramatic growth in the mobile marketplace and make the next several years in mobile both challenging and rewarding.
Sincerely,
Colin Knudsen
(212) 901-2620
colin@coadydiemar.com
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