Tablet Sales Will Surpass PCs in 2013, Continue Taking More Share, NPD Predicts

There are lots of ways to look at predictions of future PC, tablet and smart phone sales, but among the more important implications will happen in emerging markets, where network access historically has been a problem matched only by inability to afford a computing appliance.

“Low-cost tablets are reaching further into emerging regions where notebook PC penetration rates have remained low, resulting in cannibalization by tablet PCs.”” said Richard Shim, senior analyst with NPD DisplaySearch. 

Irrespective of what that means for suppliers of device, tablets will overcome the "cost of a PC" problem. 

Global Mobile PC Shipments, 2012-2017

Source: NPD DisplaySearch Quarterly Mobile PC Shipment and Forecast Report

Statistical Differences are Not Always Evidence of Market Failure

One has to be careful about interpreting Internet or broadband usage trends. Statistical “differences” are not always evidence of “market failure,” for example. Sometimes differences are the result of consumer choice.

Consider the choices people make about how they prefer to use the Internet. About 17 percent of mobile phone owners do most of their online browsing on their phone, rather than a computer or other device, the Pew Center Internet & American Life Project reports.

Young adults and non-whites are especially likely to use their mobile phones for the majority of their online activity, the researchers say. And that could affect demand for some products, such as fixed network broadband.

Nearly half of all 18 to 29 year olds (45 percent) who use the Internet on their mobile phones do most of their online browsing on their mobile device, the study found.

Half (51 percent) of African-American mobile Internet users do most of their online browsing on their phone, double the proportion for whites (24 percent). Two in five Latino cell internet users (42 percent) also fall into the “cell-mostly” category.

That isn’t to say user income is irrelevant. All other things being equal, higher-income households buy more fixed broadband than lower-income households.

Users with annual household income of less than $50,000 per year and those who have not graduated college are more likely than those with higher levels of income and education to use their phones for most of their online browsing, Pew researchers say.

The Pew data suggests mobile broadband has been particularly important to populations that in the past have “under-indexed” for use of fixed network broadband. The same argument can be made for Internet access in most emerging nations, where it is expected that mobile devices and networks will be the way most people get access to the Internet.

Aside from buyer preferences being at play, fixed network broadband purchases increasingly are not suitable measures of “broadband adoption.”

Cloud Computing, Mobility Will Change Distribution

Changes in computing architecture usually have implications for the communications business, and cloud computing should not prove to be different. In fact, says Carolyn April, CompTIA director of technology analysis, the impact on the business is illustrated by the fact that “mobility and cloud are almost the same.”

At a high level, mobile devices virtually require cloud services. Where “sideloading” is a reasonable operation on a PC, it is painful on a tablet or smart phone. The “best” way to deliver software to a tablet or smart phone is by the mobile network or some other untethered method.

That should reinforce the notion that communications service providers are right to see cloud computing as a natural opportunity.

But that also should raise a warning flag for distributors in the information technology business. The downside, says April, is that there is significant danger of disintermediation. In other words, when any app is just a download from an app store, and all data is stored and updated in the cloud, there is less need for third parties to load, configure and update those applications.

And even where cloud computing and mobile device use do not completely remove the need for information technology specialists, those trends will change revenue prospects, profit margins and sales effort and skills.

“After-sales work has been the difficult stuff,” says April. “Cloud and mobile simplify all that.”

Sooner or later, most channel partners will find they must spend more time and money on sales, even as the average value of a sale declines, says April. That trend also implies that more prospects will have to be cultivated, and more volume of sales made.

That might remind you of the basic task for sellers of long distance voice minutes. As prices have declined, service providers have had to boost sales volume to maintain the same level of revenues.

Channel partners might also find they need sales people with different skills (people used to selling recurring services) than the people who today are the mainstay of transactional sales (selling equipment and systems).

The same dynamics will hold for communications service providers entering the retail part of the cloud computing business. It will, over time, tend to be a volume business. On the other hand, communications service provider sales and marketing teams are quite used to that model.

Cloud computing and mobility, in other words, represents more than a technology change; it is a “delivery shift.” At least in principle, cloud computing and mobility could play to a communications service provider’s historic strengths.

"It Takes a Village" to Bring Internet Access to Everyone

Though it is not so popular in some quarters, many key communications supply problems, including availability of voice and data services of high quality to everyone, tend to be solved in ways that are not expected.

Younger observers might not know it, but global policy makers struggled for decades to figure out how to get plain old telephone service to billions of people who had never made a phone call. The same sorts of concerns have been raised more recently about access to the Internet.

In an astounding achievement, the global mobile industry managed to achieve, in about a decade, something nobody could figure out how to do, for much of the 20th century. In emerging markets, the inflection point was reached sometime early in the 2000s.

 source: unctad

As it turns out, wireless services are solving both voice and Internet access problems. In other words, the “divide” between people with phone service, like the “divide” between people with Internet access, is in the process of being solved by mobile services and device suppliers.

But it also is important to note that none of the progress would have been possible without regulators supporting liberalized licensing, support for market entry and spectrum allocation, while investors had to supply the capital.

That is a noteworthy achievement.

Phone Subsidies Have Upside, as Well as Downside, for Carriers and Device Suppliers

With T-Mobile USA and Verizon Wireless both promoting some form of installment plan purchases for devices, there is a move towards “transparency” in pricing, to a greater or lesser extent: greater in the case of T-Mobile USA, less in the case of Verizon Wireless.

In fact, the last time I looked, I did not find that monthly recurring service fees had been reduced by Verizon Wireless for customers who opt for the installment plans. Since the typical practice has been to recover the cost of device subsidies in the monthly recurring fees, one would expect a “transparent” model to feature lower recurring costs for customers who are not paying for a device subsidy.

That essentially boosts Verizon Wireless potential profit margins on service plans. One senses we are not yet done with the changes in device retailing. But as much as there are elements of device subsidies that service providers do not like (lower operating profit, for example), there also are advantages.

So much of the change will come as service providers and handset suppliers think about ways to retain the value of subsidy plans while minimizing the downside.

                                                                                                        source: Yankee Group and CNet

Auto Apps Might Blend M2M, Ad Revenue Models

Generally speaking, you can assume that Internet application providers are going to resist sharing their revenue with ISPs, even if ISPs want to create “two-sided” revenue models where some significant percentage of revenue is earned from business partners, not direct payments by end users.

But there are some scenarios where advertising, machine-to-machine apps and payments by app providers to ISPs will make sense. If you think about the way Amazon Kindle content is delivered by a mobile operator, with that usage paid for by Amazon, you get the idea.

How many more such logical examples of sponsored consumption might exist, is the issue. Automobile applications seem likely to emerge, sometime relatively soon, as a venue for such sponsored consumption.

What isn’t yet clear is which models will become most popular. Conceptually, one can imagine a Kindle content model where communications are “free to the end user” in the context of a transaction of some type. In other cases a service provider will bill the end user and the ISP will be paid by the service provider.

In other cases a specific merchant might subsidize communications cost in exchange for the right to deliver a message (the difference between “buying an ad” and “sharing revenue with an ISP” sometimes will be a fuzzy matter).

There are of course many consumer privacy and consent issues, but an automobile is among the best location-aware devices other than the mobile phone, if it is outfitted with Internet communications and GPS.

And some amount of transaction activity can be predicted, in some cases, as when a user programs driving directions from Washington, D.C. to New York, using I-95.

In the past, entrepreneurs have experimented, largely unsuccessfully, with subsidized communications that involve taking surveys or listening to ads in exchange for communications usage. Usage in exchange for referrals or sharing a connection are some of the other ways subsidies are possible.

As a rule, the cost of running such programs, compared with the perceived value to a sponsor or end user, are important. As always, the value of a particular completed action, at some volume, is weighed by the sponsor against the cost of campaigns to induce such actions.

Real Time Entertainment Nears 55% of Total Mobile Data Consumption

Between September 2011 and March 2012, real-time entertainment came to account for more than 50 percent of mobile traffic in the United States. 

And such traffic already represents more than 58 percent of total downstream traffic on fixed networks in North America, according to Sandvine.

And since large file downloads or peer-to-peer traffic sources are relatively rare apps for users on mobile networks, real-time entertainment video will be the dominant driver of bandwidth demand on mobile networks in the future as well.

But audio streaming also is becoming significant. Pandora, for example, accounted for about five percent of downstream mobile traffic in 2012.  

Real-time entertainment will cross the 60 percent threshold in late 2014 or early 2015 before leveling out at about 70 percent of total mobile traffic, Sandvine predicts.

So it would be reasonable to suggest that sometime in 2013, real-time entertainment traffic could grow to about 55 percent of total mobile data traffic.

With the exception of North America’s fixed access networks, where Netflix is dominant, YouTube is the largest single source of real-time entertainment traffic.

Still, the majority of mobile data in North America is streaming audio and video. YouTube accounts for 23.4 percent of daily traffic, while Pandora Radio represents 6.4 percent.

In North America, Netflix now represents 2.1 percent of mobile data.