Mobile Advertising, Commerce to Explode with Strong Smartphone Growth

Research and Markets forecasts that U.S. mobile Internet users will rise to 158 million in 2015, while smartphone owners will rise to 194 million in the same year. That is fairly significant growth, given the current estimate of about 46 million U.S. smartphones in use, suggesting more than a tripling and nearly a quadrupling of the user base in the next five years.

As a result, the firm believes revenues from mobile advertising will grow about 37 percent at a compound annual growth rate, while mobile commerce grows at 65 percent compound rate between now and 2015.

Smartphones Have Outsize Impact on Mobility Business

Despite the fact that smartphones have only about 19 percent share of the U.S. handset market, they have outsize importance simply because smartphone use is growing so fast, implies growth of mobile broadband revenue and is key to the hopes new suppliers have for cracking the handset market.

Browsers were used by 29.4 percent of U.S. mobile subscribers (up 2.4 percentage points), while subscribers who used downloaded applications made up 27.5 percent (up 1.8 percentage points).

Some 18 percent used social networking sites or blogs, up 2.9 percentage points to 18 percent of mobile subscribers. About 13 percent report they listened to music on a mobile device. About 22 percent say they played games on their mobiles., up about half a percentage point.

Some 234 million Americans age 13 and older were mobile subscribers, while 45.4 million people owned smartphones in an average month during the December to February period, up 21 percent from the three months ending November 2009.

In an average month during the December through February 2010 time period, 64 percent of U.S. mobile subscribers used text messaging on their mobile device, up 1.9 percentage points from November 2009 levels, says comScore.

Those differences also are reflected in market share of feature and smartphones. In the broader feature phone market, Motorola has 22 percent share, LG 22 percent, Samsung 21 percent, Nokia nine percent and Research in Motion eight percent.

In the smartphone market RIM has 42 percent share, Apple 25 percent, Microsoft 15 percent, Google nine percent and Palm five percent. Google grew the most over the quarter ending in February, gaining five share points. Apple's share was flat and Microsoft lost five points.

Apple iPad Ignites War Over Market That Might Not Exist

With rumors that Google, Nokia, Hewlett-Packard, HTC, Acer, Dell, Lenovo all are working on tablet devices in the same class as the Apple iPad, I suppose it has to be said that those companies do not want to take a chance on Apple having discovered a new mobile device category, and not moving early enough to participate in the segment's growth.

It's just that nobody has yet proven what the market is, or how big it might be. But nobody seems to want to take a chance that a market exists, and that Apple will stake out leadership before anybody else can mount a challenge.

That is not to discount Microsoft's historic interest in the tablet segment of the market, but simply to point out that, up to this point, the segment has not gotten much traction, perhaps because "different interfaces to the same functions" has not resonated. Microsoft's approach has been to envision a PC with a tablet design.

Apple's approach is more similar to that of the Kindle and iPad "touch," though, more a media reader and entertainment-driven Web appliance than a 'notebook with a different interface.'

The range of rumored interface, operating system and featured applications illustrates what happens when suppliers try to position a new device mid-way between smartphones and netbooks and notebooks.

Hewlett-Packard is said to be debutting a slate computer that it will offer by midyear. H.P.'s slate will have a camera and ports for add-on devices, like a mouse.  Apple's iPad appears to dispense with those options.

Under the hood, the iPad is powered by what might be called a "smartphone" processor, while others likely will try to use "netbook" processors.

Google might try to power its slate using Android software, which was originally designed for mobile phones.  Those hardware and software choices show some of the issues involved when trying to create a new class of devices mid-way between netbooks and smartphones.

Then there is the matter of "niche" to pursue. Apparently the first the idea was to create a device for designers and architects, but lately the company is thinking of a broader market of consumers and so would include e-books, magazines and other media content on the device.

Nokia is said to be designing an e-reader. The point is that there is so far no clear consensus about what the category is, how people will use the devices, or whether there is only one large, or multiple more specialized categories, to be satisfied. That accounts for the diverse choices about featured applications, processors and operating systems, among other choices.

All for a market that nobody knows exists, for sure.

Social Networking Eclipsing Email?

Many observers have noted that one of the big changes in technology adoption over the past half decade is the preponderance of "consumer" technology compared to "enterprise" technology tools. Not only are consumer tools reshaping enterprise applications but most of the innovation now occurs on the consumer side as well.

Internet analyst Mary Meeker of Morgan Stanley says that social network use is bigger than email in terms of both aggregate numbers of users and time spent, and is still growing rapidly.

Meeker attributes social networking’s success to the fact that it’s a “unified communications plus multimedia creation tool in your pocket.” The intriguing notion there is that tools not originally envisioned as part of the unified comnmunications feature set are now in some cases supplanting those features.

In fact, consumer tools in this case seem to be displacing at some of the utility enterprise unified communications services and applications were envisioned as supplying.

Social networking passed email in terms of time spent in 2007, hitting about 100 billion minutes a month globally and now is twice that.

Social networking passed email in terms of raw user numbers in July of 2009, with more than 800 million users. Given the rate at which Facebook has been growing, that number is probably now closer to a billion users, she says.

In many ways, social networking is to unified communications as consumer VoIP was to enterprise IP telephony: all the attention was the latter, not the former, but most of the growth has occurred in the former, not the latter.

Twitter Gets into Advertising

Twitter has introduced its "Promoted Tweets" advertising program with a handful of advertising partners including Best Buy, Bravo, Red Bull, Sony Pictures, Starbucks, and Virgin America.

Promoted Tweets are ordinary Tweets that businesses and organizations want to highlight to a wider group of users, initially only when a user has conducted a Twitter search function.

Users will start to see Tweets promoted by our partner advertisers called out at the top of some Twitter.com search results pages. Twitter says it will attempt to measure whether the Tweets resonate with users and stop showing Promoted Tweets that don't resonate.

Promoted Tweets will be clearly labeled as “promoted" when an advertiser is paying, but in every other respect they will first exist as regular Tweets and will be organically sent to the timelines of those who follow a brand. Promoted Tweets will also retain all the functionality of a regular Tweet including replying, Retweeting, and favoriting. Only one Promoted Tweet will be displayed on the search results page.

Twitter says it wants to get a better understanding of the resonance of Promoted Tweets beyond Twitter search, including displaying relevant Promoted Tweets in user timelines in a way that is useful. That means the program will get a slow introduction and will be user tested in a variety of ways.

Twitter argues that all promoted tweets are organic Tweets, which makes them different from traditional search advertising and social advertising. Promoted tweets will also be timely, Twitter says.  "Like any other Tweet, the connection between you and a Promoted Tweet in real-time provides a powerful means of delivering information relevant to you at the moment," Twitter says on its blog.

There is one big difference between a Promoted Tweet and a regular Tweet, the company says. Promoted tweets must resonate with users. That means if users don't interact with a Promoted Tweet to allow us to know that the promoted tweet is resonating with them, such as replying to it, favoriting it, or Rretweeting it, the promoted tweet will disappear.

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Competitive Pressure Remained the Story in 4Q 2009, Says Fitch Ratings

Competitive pressures remained strong throughout the industry in the fourth quarter of 2009, say analysts at Fitch Ratings, especially among local exchange carriers and cable companies, as those firms increasingly compete in identical spaces, with similar products.

The fourth quarter revealed especially aggressive marketing and competitive pricing and discounting strategies, Fitch says. This trend is expected to affect the competitive landscape going forward, especially putting pressure on average revenue per user and profit margins on discrete products.

The big problem for telco contestants is fixed voice line losses. Although high unemployment continues to affect sales of business lines, and the effect of wireless substitution continues, affecting residential lines, total access-line losses began to decelerate toward the end of 2009 as service bundling, including network-based video services offered by operators such as AT&T and Verizon continued to gain scale.

Cable operators had an arguably easier time, gaining high-speed data subscriber market share growth during the fourth quarter of 2009 despite a decrease in overall broadband additions caused by the persistently weak economy and maturation of the broadband market.

The wireless segment of the business arguably faced the fewest problems. Total wireless net additions were strong, says Fitch.

The industry’s capital spending grew by approximately 20 percent from the third to the fourth quarter of 2009 but remained below fourth-quarter 2008 levels. It is Fitch’s opinion that all communication service providers must invest in their respective networks in 2010 in order to maintain or improve their competitive positions.

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Orange UK Study: Women Send More Pictures; Men Watch More Video

Women send more multimedia messaging service (pictures) messages than men, as much as 48 percent more than men in some age groups, says Orange UK.

But 71 percent of all mobile TV clips have been purchased by men, Orange UK says.  Likewise,
75 percent of all mobile videos have been purchased by men.

Also, some 64 percent of customers using Orange social networking sites were men and 36 percent were women.

On average, iPhone customers use 165 megabytes of data per month. This compares to an average of 115 megabytes of data for other smartphone customers, says Orange UK.

Of these data points, the one which strikes me as being most important is the statistic about data consumption. Where a fixed broadband connection might represent scores of gigabytes worth of usage each month, a mobile broadband connection might represent perhaps a gigabyte or two.

The fact that iPhone users average about 165 megabytes is interesting in that it suggests smartphone devices, though far more numerous than PC dongles, represent an order of magnitude less bandwidth demand on the mobile networks than PC devices.

That could have implications for the marketing of mobile connections to replace landline connections, given that some fixed connections represent an order of magnitude greater load on a network than a mobile PC connection.

On the other hand, the spatial distribution of PC devices, compared to mobile phones, during peak hours of use, likely is quite different. It might also be the case that mobile PC connections get used much the same way as fixed connections, with peaks in the evening.

Since most mobile networks have spare capacity in the evenings, and since evening use is likely to be distributed over a much-wider area than rush-hour traffic, mobile dongle services might mesh relatively well with smartphone usage, in the same way that business use and consumer use of broadband tends to complement, rather than compete.

Social Networking Changing Collaboration at Work

Social networking is starting to change the nature of worker collaboration within companies, new poll conducted by Harris Research suggests. Of workers who use social networking at work, 59 percent say that their usage of social networking has increased over the past year. But only about 17 percent of the 1,000 workers surveyed report using social networking.

The study found the most frequently used application for collaborating with others is email (91 percent), but that what people want from their email is changing. In addition to email, the Harris poll found that other applications being used by respondents to collaborate with others in the workplace include shared spaces (66 percent), voice calls and teleconferencing (66 percent), web conferencing (55 percent), video conferencing (35 percent), instant messaging (34 percent), and social networking (17 percent).

Respondents like the fact that email provides an easily-accessible record of communication and the ability to communicate with many people at once. Users also rank email prominently among various collaboration tools because there is a high level of comfort in using the application to easily communicate with others inside and outside their organizations. However, the poll showed there are many pain points associated with the way most email solutions function today.

While email remains the preferred method of collaboration, many respondents complained they receive too much irrelevant email (40 percent) and that they lack the ability to collaborate in real time (32 percent). End users also dislike the fact that they have very limited storage (25 percent) and that large volumes of email come into their inbox with no organizational structure (21 percent).

Half of those using social networking for work by-pass company restrictions to do so. The study participants who prefer to use social networks indicated they would like to have control over who sees their content as well as be able to share with groups of users using different tools. The respondents also indicated the desire to collaborate in real time without having to open up an additional application.

Video Substitution Still A Marginal Activity

In 2009 an estimated 800,000 U.S. households stop subscribing to a cable, satellite or telco video service, say researchers at the Convergence Consulting Group. By the end of 2011, that number is forecast to double to 1.6 million, the group predicts.

Cord cutters don’t yet represent a serious threat to the $84 billion cable/satellite/telco TV access industry, which counts an estimated 101 million subscribers, the analysts suggest. But they might be a leading indicator of the shift to TV viewing on the Web.

So far, Web video viewing clearly is ancillary to other linear TV modes. The cord-cutters make up less than three percent of all full-episode viewing on the Web. The rest comes from people who are only beginning to watch occasionally online. An estimated 17 percent of the total weekly viewing audience watch at least one or two episodes of a full-length TV show online. Last year, that percentage was 12 percent, and next year it is forecast to grow to 21 percent, Convergence Consulting says.

Nor will major programmers be compelled to speed up their online distribution efforts, as the amount of incremental advertising remains quite small.

U.S. online TV advertising made up 2.5 percent of major-network ad revenues of $62 billion in 2009. Convergence Consulting estimates the incremental revenue at $1.56 billion.
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Will LTE Bend the Cost Curve?

Mobile service providers hope Long Term Evolution will "bend the cost curve." They also hope it will provide the foundation for new services, but many of us would guess the primary advantage lies in bending the cost curve.

Google CEO Lauds Professional News Organizations, Steps in a Mess?

A smart chief executive officer knows how to tailor his or her remarks to an important ecosystem partner. The trick is to do so without alienating another important part of the same ecosystem. I'm not completely sure Eric Schmidt, Google CEO, completely succeeds on that score.

He makes the point that the importance of "journalism" is its quality, compared to much content produced by bloggers. At some level, that's simply a reflection of reality. Blog content is uneven. And Schmidt is right in catering to the professional content producers whose help could be invaluable in creating more-powerful advertising models for Google.

Still, there are relatively more artful, and less artful, ways of phrasing things. Perhaps another approach would have made the same point without risking some amount of potential blogger ire.

What's the ROI from Telepresence?

Unfortunately, "usage" is not the same thing as "return on investment" If those two metrics were in fact directly related, nobody would ever have a problem figuring out the return on investment from deploying any unified communications solution.

Generally speaking, one has to assess "success" using soft measures, though some will point to offset travel costs. The problem is that it is difficult to quantify "better quality communications" or "faster development time" or "reduced friction," though those are the sorts of benefits one would expect to see.

The trouble is that most of what one can quantify is "usage."

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Verizon CEO Says Market Can Sort Out Tough Issues

Ivan Seidenberg, Verizon CEO, said at a Council on Foreign Relations meeting that there was a danger of government regulatory overreach of several types in the current environment.

" I always worry about unintended consequences of government reaching into our business," Seidenberg said. "But I believe the players in the industry--like Google, like Microsoft, like the Silicon Valley players, as well as AT&T, and us and the rest of the industry--we're creating a better dialogue."

Seidenberg also thinks the industry has to do a better job of self-policing, though, more on the model of the advertising industry. That would lessen the need for very-detailed rules crafted "in advance" of a particular problem occurring, rather than a focus on fixing such problems as actually do arise.

"In the telecom business we need industry to do a better job at policing behavior, because, in the final analysis, government could never possibly regulate every condition, in every single circumstance that could ever happen, and do it efficiently," Seidenberg said.

Seidenberg thinks one of the key problems with proposed "network neutrality" rules that would prohibit virtually any sort of packet prioritization is that it makes very hard the task of providing different types of service to customers who may want it, at the lowest-possible prices.

 "Most people think a carrier wants to charge for every minute on a linear basis in perpetuity, infinity," he said. But "we don't really want to do that."

"What we want to do is give you a chance to buy a bundle, a session of 10 megabits or a session of 30 megabits," he says. "The problem we have is five percent or 10 percent of the people are the abusers that are chewing up all the bandwidth."

"So what we will do is put in reasonable data plans, but when we now go after the very, very high users, the ones who camp on the network all day long every day... we will throttle and we will find them and we will charge them something else," he says.

"We don't want to have a linear pricing scale," he said. "We do want to find a way to give the majority of people value for bundles, but we have to make sure we find a pricing plan that takes care of that 10 percent that's abusing the system. And it's that simple."

"And therefore you have to have rules, give us discretion to run our business," Seidenberg said. "Net neutrality could negate the discretion to run your business."

"Anytime government, whether it's the FCC or any agency-decides it knows what the market wants and makes that a static requirement, you always lose," he said.  Seidenberg noted that although access speeds might be higher in Korea or France, household penetration in the U.S. market is higher than in any country in Europe, he said.

"Japan may have faster speeds, but we have higher utilization of people using the Internet," said Seidenberg.  "So our view is, whenever you look at these issues, you have to be very careful to look at what the market wants, not what government says is the most important issue."

"If you look at minutes of use, the average American uses their cell phone four times as much as the average European," Seidenberg says. But what about penetration rates?

"If you look at Europe, they publish penetration rates of 150 (percent), 160 (percent), 170 percent meaning that people have more than one phone, two phones, three phones," he notes. Seidenberg suggests the high roaming rates are the explanation.

"My guess is you probably have two or three different phones to carry to use in different countries because your roaming rates are so high," he adds. "So my point is it's a fallacy to allow a regulatory authority to sit there and decide what's right for the marketplace when it's not even close."

In fact, Seidenberg argues that the U.S. market is more advanced in ways that count.

"Verizon has put more fiber in from Boston to Washington than all the Western European countries combined," he notes. Also, "if you look at smart phones, they have exploded this market in the U.S. market."

"Ask any European if they're not somewhat envious of the advancements of smart-phone technology in the United States," he says.

The FCC is "overreaching in regulations," he says. "It's a real problem to have well-intentioned people in Washington regulating the business as they understood it to be in 1995. Bad idea."

"I don't think there is no role for government," he says. "I just worry about, when you allocate capital and you look at consumer behavior, that is not a strength of, I think, everyday transactional activity of government agencies, particularly federal government agencies."

On the technology front, Seidenberg pointed out that the opportunities for distributed, remote or cloud-based applications is growing very fast.

"But here's the thing about the iPad that's very interesting," Seidenberg said. "We look at it as a fourth screen."

"Now, the interesting thing about the iPad, from how Verizon looks at it, from a network person, first of all, it has no hard drive, right?" he said. That means lots of need to get applications from the network, sort of reversing the trend of the client-server era to put more processing and storage at the edge of the network. That has postive implications for a firm such as Verizon.

Seidenberg also does not think the FCC should attempt to take spectrum away from broadcasters and reallocate it for mobile use, Seidenberg says, although Verizon has said it generally supports FCC plans to reallocate spectrum for mobile use. "I think the market's going to settle this," he said.

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Another Reason Why Handset Suppliers Have Gained Value in the Mobile Ecosystem

The mobile user experience keeps getting more complex as mobile operators add spectrum bands, even though most users do not directly encounter any of the particular issues. The reason is that it is harder to maintain connections moving from cell to cell and network to network as new frequencies must be added.

Voice and Internet connectivity issues also become marginally harder as hanset antennae have to accomodate more signals at different frequencies. Also, mobile Internet handsets have to conduct all sorts of signaling operations to support social networking, email and other applications. And then there is the simple matter of different air interfaces.

New fourth-generation Long Term Evolution networks will make the problem worse, especially for "world phones" that are supposed to work in many regions of the world.

When GSM, the first "digital" air interface was firs used in Europe, there was only a single frequency band at 900 MHz band. Than an 1800 MHz band was added, then 2100 MHz.

In the United States, the 850 and 1900 MHz, 1700 and 2100 MHz bands are used. That has lead to "quad band" and "tri-band" devices. And now LTE frequencies will have to be added.

In Europe LTE will likely start on 2600 MHz and potentially also be used on 1800 MHz and 2100 MHz bands, with some use at 800 MHz.

In Japan, LTE will be used on 2100 MHz with an additional band likely to follow. In the United States, the situation is even more divergent. Verizon uses a 10 MHz block in the 700 MHz range.

Some other operators might launch LTE in the 1700 and 2100 MHz bands. Finally, there are rumors of Clearwire jumping from WiMAX to LTE in the 2600 MHz band but with TD-LTE.

So global roaming capabilities of devices will be challenging. So how does this all work out on the consumer end user front? First, cost becomes an issue. Battery life is affected. In some cases, there are form factor issues and reception issues, as the physical placement of the antenna makes a difference.

The potential band and technology combinations for GSM, CDMA, UMTS and LTE are huge, as air interfaces also are different between operators in the U.S. market. All of that means there also are volume manufacturing issues, as devices have to be customized to a certain extent, by operator and by intended region of operation.

All of that means some devices will work better, quite apart from the obvious user interface issues, because of hidden requirements such as the networks each device is intended to work with, signaling operations and even the physical placement of elements within each device.

More-efficient producers will have an advantage as well, as the complexity of these decisions will mean there is an advantage for manufacturers and designers that can leverage the customizing process.

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A Decade After the Bubble, Another Round of Spectrum Auctions

It has been roughly a decade since European mobile operators placed big spectrum bets on "third generation" mobile broadband, and then largely watched as killer apps failed to emerge, customer use of the new networks remained sluggish, and executives ruefully noted they had overpaid for spectrum.

Now European mobile operaters are about to embark on a new round of broadband spectrum investments for fourth-generation mobile networks. You can expect them to try to be more-prudent investors this time around. In the 2000 round the German government, for example, raised 50 billion euros, or about $67 billion, on 3G licenses. Some anticipate the government will raise five billion to 10 billion euros this time around.

We'll see. The difference between the 2000 auctions and the current 2010 round is that Internet access has emerged as the "killer app" for mobile broadband, and the difference between 3G and 4G is that 4G looks to be a potential replacement for fixed-line broadband.

"With LTE, mobile phone networks will become a real alternative to cable or DSL (broadband telephone connections)," says Herbert Merz, head of the German hightech association Bitkom.

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