Mobile Broadband Makes a Shambles of "Broadand Penetration" Statistics

At the end of 2009, Forrester expects mobile Internet penetration to reach 17 percent in Western Europe, the same adoption rate for the PC Internet a decade ago. If the growth rate remains the same, mobile broadband would hit something on the order of 60 percent to 70 percent penetration in 10 years.

That would make a shambles of efforts to quantify broadband penetration in Western Europe, as similar trends in the U.S. market likewise would make most current concerns about broadband penetration likewise irrelevant.

We have seen this sort of thing before in the global communications business. Policymakers used to wring their hands about voice penetration in developing countries. But monthly costs of $5 to $10 a month now are making mobility the way many people are getting access to voice. Increasingly, wireless handsets will be the way most people in developing regions get access to Internet communications and applications as well.

U.S. policymakers thought a major revamp of communications policy would spur competition in voice, almost precisely at the point that Internet applications were about to make those concerns, if not moot, then of much-lesser concern.

Forrester expects mobile Internet to grow to 39 percent penetration by the end of 2014. That's a lower end point than for the PC Internet in 2004, but the growth curve per se looks quite the same, Forrester Research says.

Netbook Growth Rate Twice That of Notebooks

If you have looked around the table at your last conference room meeting, you have noticed that netbooks already have grabbed significant user share. A new study by NPD Group confirms the traction. In the second quarter of 2009, the netbook segment grew 40 percent sequentially, while notebook sales grew 22 percent sequentially.

In some markets, such as China and Latin America, netbook sales already are greater than notebook penetration.

Still, the installed base of netbooks is about 22 percent of the portable computer market. Asus, the pioneer in mini-note PCs, has been steadily losing share because tier one brands like Acer, HP, Dell, Lenovo and Toshiba have become increasingly aggressive in the segment, NPD Group says.

In many regions, telecom providers have been offering subsidized mini-notes for several quarters, which helped propel growth. In Western European countries, a number of telecoms are subsidizing 100 percent of the price of the mini-notebook devices when the customer signs a two-year data plan contract.

Mini-notebooks have been a significant contributor to the growth in the portable PC market as their very attractive price points make owning a secondary computer viable for many consumers.

Suppliers generally seem to be differentiating notebooks from netbooks by screen size. At about 12 inch screen sizes, netbooks start to overlap with notebooks. Some suppliers likely want to increase average selling prices for netbooks, but price is probably the reason so many netbooks have been sold.

Hulu Cannibalizes Pay Per View, DVR

There's one take-away we ought to gain from looking at the number of subscribers to multi-channel video entertainment services or users of Hulu.

And the take-away is that Hulu cannibalizes pay per view or on-demand programming or digital video recorder income that otherwise might be gained by linear video providers.

On the other hand, we might also note that the revenue potential to be gained from time-shifted services is not all that great at the moment.

The issue is much the same as now experienced by content publishers in most other areas. Namely, that although online distribution costs are lower, revenues are much lower. There remains a revenue gap for online distribution compared to legacy distribution that is not yet fully understood, yet.

Some service providers think the answer might be "TV Everywhere," where a user paying for a linear video subscription can watch that content on mobiles or broadband-connected PCs. The business issue there is just about as challenging: the revenue comes from keeping a multi-channel video subscription. Most of the rest of the distribution is just cost.

The Difference Between Video and Music Business Models

The video business is different from the music business in one significant respect: where people routinely prefer to own their personal collections, they rarely want to "own" news, sports and most serial TV fare. That has some fairly signficant implications for business models. "Buy to own" makes logical sense for consumers of music. "Rent to view" makes more sense for most video and movie fare.

The historic example is the difference between adoption of cable TV and adoption of subscription music services. There are perhaps 20 million XM Sirius subscribers, compared to 63 million cable TV subscribers, plus three million telco video subs and 31 million satellite TV subscribers. In other words, there are 97 million video subscribers, compared to 20 million XM Sirius subscribers.

Most video watchers want to see news, sports and other events only once, movies once or twice. Most music listeners want to own and listen to some favorite songs over and over again. That suggests a stronger market opportunity for video subscriptions, compared to music subscriptions, and a larger market for on-demand video than on-demand music streaming.

iPhone to Go Multi-Network in 2011?

One likely would bet against Apple extending its exclusive U.S. distribution deal with AT&T past 2010, based on market share statistics gathered from around the world, including markets where Apple has an exclusive carrier partner as well as markets where Apple has a multi-partner distribution. Consider the Frech market, where Apple has multiple distributors.

"In France, the company now enjoys dramatically higher market share (in the 40 percent range vs. about 15 percent in ROW) than in countries with exclusive carrier agreements (such as AT&T in the U.S. where the iPhone has market share in the mid-teens).Gene Munster, Piper Jaffray senior research analyst.

Those market penetration figures should prove more compelling than the lower revenue per iPhone unit Apple gets in countries with multiple distributors, Munster argues.

Smart Phones, Broadband: Less and More, Respectively

One never should mistake media hype for end user reality. At the moment, perhaps 10 percent to 11 percent of U.S. adults actually use an iPhone, a BlackBerry or any other "smart phone." Most of the market has yet to adopt any smart phone.

Conversely, the mass media, and some within the specialized communications media, continue to insist that there is a major problem with broadband access. There are isolated issues, to be sure. But 70 percent of U.S. adults now use the Internet. Average household size is about 2.59 per home. About 74 percent are 18 or older. So adjust the household stats to 1.9 adults 18 or older per home.

Assume those 1.9 adults share a single fixed broadband connection at each location. In other words, a 70-percent "per capita" use of fixed broadband does not directly translate to "70 percent household penetration."

Conversely, 30 percent of U.S. adults do not use the Internet, according to Rubicon Consulting. Assuming those non-Internet-using households have the same average size as Internet-using homes, one might roughly assume that broadband penetration of U.S. adults is less than 70 percent, as studies suggest perhaps six to 10 percent of Internet users use dial-up connections.

Assume dial-up households also have the same size characteristics as Internet-using and no-Internet households. Then we might argue that between 60 percent and 64 percent of U.S. households now buy fixed broadband service. But those 60 percent to 64 percent of U.S. homes represent more than 90 percent of all Internet users.

In fact, if one adds users who use broadband at work, at libraries, using public Wi-Fi or mobile broadband, it is likely that more than 95 percent of all Internet users in the U.S. market already use broadband access the way they would prefer, given all their other buying choices.

The point is simply to keep in imind that what people talk about in the media is not necessarily fully reflective of reality.

Smart Phones Start to Differentiate, Because Users Do

Smart phone uses are starting to self sort themselves by lead application, it now appears. Though much could change as adoption becomes more mainstream, it now appears that Apple iPhone users value Web access while RIM BlackBerry users value email. To a lesser extent, Palm users favor calendar apps.

Patterns for users or Microsoft and Android operating system devices are less distinct. But that might be one reason new sales of Microsoft-OS devices are declining, relative to others. To the extent there is any distinction, Google G1 users put heavier emphasis on maps.

The clearest example that users are segmenting themselves by applications is that "the best-selling smartphones are the ones that most strongly associate with one or two particular features," says Michael Mace, Rubicon Consulting principal.

BlackBerry and iPhone each have one or two standout features that more than half their users rank as extremely important, he says. As you would expect, email access is unusually important for BlackBerry users.

BlackBerry users are also much more interested than average phone users in web browsing and calendar. Blackberry users are substantially less interested in price, size of the phone, and address book management.

The priorities of iPhone users are dramatically different from either typical mobile phone users or RIM users, says Mace. Browsing was the iPhone users’ top feature, followed closely by email.

But iPhone users were much more interested than RIM users in music, maps, 3G, and the ability to add new software.

The Windows Mobile user profile is similar to that of the BlackBerry, but less distinctive, says Mace.

The priorities of Windows Mobile users are similar to Blackberry users, with the exception that Windows Mobile users are a bit less focused on email and more interested in adding new software and using maps. But no single feature was noted by more than 40 percent of Windows Mobile users, indicating that it doesn’t have a very distinct feature identity in the market.

Palm users were also somewhat similar to RIM users, with the exception that they were quite a bit more focused on calendar functions, which was cited as the number one feature. But compared to Microsoft users, email and browsing were ranked less hihgly.

"It appears that RIM and Apple are siphoning off most of the people who care the most strongly about browsing and mail," says Mace.

"Calendar scored higher among Palm users than among any other platform, which probably fits with Palm’s roots as a PDA company," he notes.

But Palm application patterns do not have as distinct an identity as Blackberry and iPhone do.

Compared to all the other smartphones, the Google G1 “GPhone” has the least distinctive feature profile. It is cited for maps more than any other phone, but only 30 percentof users call that a top four feature. Relatively few G1 users said browsing is a high priority. Instead, browsing ranked far below iPhone, and on a par with RIM.

That may indicate that the marketplace has not yet decided what an Android device "is." BlackBerry is email, iPhone is Web browsing. Neither Palm, Microsoft nor Android seem yet to have grabbed a clear and distinct niche within the smart phone market.

These findings are important for very broad reasons. I have long argued that voice is, in fact, not a "commodity." The latest Rubicon findings suggest that mobile phones and smart phones likely are not true commodities either. At least in the case of the BlackBerry and iPhone, users have self selected themselves based on behavioral differences.

If that is true, it also should be true that service plans, application optimization and other ways of appealing to a distinct market niche are possible. The Rubicon findings also suggest it is important for Microsoft, Palm and Android to find and cultivate a distinct market niche. So far, none of them seems to have succeeded to the degree Apple and RIM have.

In other words, there is no such thing as the "best smart phone" for every user. That decision depends on what one wants to do most. Smart phones are becoming more like automobiles, in that sense, then has been the case in the past. Roadsters, vans, trucks, subcompacts, SUVs and full-size passenger vehicles have different "lead" applications. So, increasingly, do smart phones.

The key insight here is that communications products and services are less commoditized than most of us typically assume. It might be hard work to differentiate, but it can be done.

Perhaps the worst case scenario would be for most smart phones to ultimately be seen as general purpose mobile PCs. That would destroy the ability to differentiate.