Phablet Sales Surprise: Will Apple Embrace Phablets?

Things change. Sometimes they even change fast. Phablets provide an example.

In February 2013, Flurry said the phablet was “an insignificant player in the mobile ecosystem”

and was not having a meaningful impact.”

Things have changed. After Flurry surveyed owners of a sample of 59,214 devices worldwide, Flurry found phablet adoption (market share) almost almost quadrupled in a year’s time.

“Our data affirms what Samsung and other Android manufacturers have known for some time: consumers are hungry for bigger screens,” said Flurry. A shift in end user behavior drives the change: mobile devices are becoming major platforms for content consumption.

Over the course of a year, the installed base for phablets doubled.

Today, six percent  of all mobile users routinely use phablets, compared to three percent a year ago.

The other noteworthy trend is the shift in tablet form factors, from full-size to small screens.

Small tablets grew from five percent of active users to seven percent over a year, up five percent.

Full-size tablet users also grew from 13 percent  to 15 percent, growth of two percent.

As you would expect, a growing installed base of phablets translates into higher app usage and web browsing from those devices.

While they account for only six percent of active users, phablet users account for 11 percent of all app sessions, up from only three percent of sessions in 2013.

Though Apple’s iPhone 6 announcement might bring Apple into the phablet segment for the first time, Android devices own the phablet market.

Today, phablets account for 18 percent of all active Android devices compared to seven percent in 2013. Over the same time period, demand for medium-sized phones decreased nine percent, year over year.

Demand for small phones shrank four percent, year over year.

The point is that--despite some significant skepticism--phablets are showing stronger demand than many had forecast.

That might have implications for Apple, which traditionally has eschewed the phablet form factor, as well as for all suppliers of tablets.

Though Flurry finds there is not one “killer app” for phablet users.  As do users of tablets and smaller smartphones, users are big on gaming, social and entertainment app categories.

There is one exception, though. “Reading books” is the category in which phablet user behavior is most noticeably different from smaller-screen smartphones. Though accounting for about six percent of the installed base, about 10 percent of “reading” time on all devices happens on phablets.

In early 2013, it might have been easier to dismission phablet demand in most developed markets, though there has been growing evidence of stronger demand in some developing markets.

To be sure, skeptics doubt phablets will get big traction in the U.S. market, even if demand internationally is expected to be significant. In fact, phablet sales are cannibalizing tablets, International Data Corp. has said.

Something similar might be noted about Wi-Fi offload, which some might characterize as complementing, and in some cases cannibalizing, use of mobile Internet access networks.

Some have suggested that the introduction of Long Term Evolution access decreases consumer usage of Wi-Fi hotspots. But most of the studies suggest that reliance on Wi-Fi remains constant, even when consumers have access to mobile networks offering much better experience than 3G networks.

Wi-Fi access constitutes between 70 percent and 80 percent of total mobile device usage, some Informa studies have found. At least so far, some studies have found that LTE users rely on the mobile network a bit more than users of devices connected to 3G networks.

That is about what one would expect if consumers have been relying on Wi-Fi hotspots because of the better experience (speed). If 4G LTE offers a satisfactory mobile experience, people sometimes will use the mobile network where they might in the past have used Wi-Fi.

An Informa survey suggests users on both 3G and 4G networks in 2013 increased their use of Wi-Fi over the course of the year.

The point is that change can happen fast in the mobile business: phablet adoption provides one example. Suddenly decelerating tablet sales provides another example.

On the other hand, reliance on Wi-Fi for smartphone access really has not shown all that much change in end user behavior as 4G LTE networks have become operational in many more markets.

Apple could ratify the change today, in announcing the iPhone 6. Update: Yes, Apple is getting into the phablet segment.

"Mobile Payments A Failure"

Mobile wallet adoption in the retail payments space was always going to be a lengthy process in developed markets, for a couple of logical reasons. 



For mobile payments to succeed, there has to be "something broken" about the business model or experience, for customers, retailers or bankers and processing networks. 



It's hard to make the argument that paying using a debit card or credit card is flawed in some significant way, causing customer or retailer pain.



“It’s my opinion that the swipe isn’t especially broken,” said Josh Silverman American Express consumer products president. Silverman likely was being generous. 



“On wallets generally, we have had wallets in the market for quite some time, and there has been fairly limited adoption of those wallets," he said. 



"I think ‘fairly limited’ is generous" as a way to describe market success for many mobile wallet efforts, Silverman said.



And that is a problem Apple will confront if and when it launches its own mobile wallet effort. To be sure, up to this point, Apple seemingly has focused more on redesigning the retail experience by redesigning the payments process. 



The way people can buy products in Apple stores illustrates the "no-register" approach to the retail experience. 



To be sure, one can make many arguments about the other ways mobile payments and mobile wallets might affect retailing. Those angles range from personalization to promotions and marketing, loyalty, logistics and inventory implications. 



These days, less seems to be claimed about how mobile payments speeds up checkout processes or lowers retailer costs. 



And that is the issue Apple will confront, as have all others. The retail payments system fundamentally is not broken. And it is hard to sell a solution to a non-problem. 

"Internet for Everyone?" Android One Helps

Skeptics often argue that service providers globally are too narrow minded and too greedy to provide high-quality communication services to customers. But that is why markets work. Where there is reasonable competition, there tends to be reasonable innovation.

And there is little question traditional service providers have lots more competition. Not only have virtually all former monopoly markets been liberalized, creating more competitive conditions, but mobile services now challenges fixed services.

With the rise of the Internet, the ability to manage and control prices, terms and conditions of services, device evolution or application creativity have lessened dramatically.

That is why service providers now engage in a relentless and deadly-serious effort to create big new revenue drivers. They must replace legacy revenue streams of huge scale.

On the other hand, the broader industry has achieved some formerly formidable successes many reasonably would have thought would take decades longer. In the 1980s, policymakers were worried about how to make voice services available to everyone. That is a task, but no longer a challenge.

The present challenge is how to provide the benefits of the Internet to everyone as well. And there the ecosystem--now much larger--is getting lots of help. Consider the question of devices. For decades, some had worked to create computing devices suitable for people in developing regions.  

We are on the verge of solving that problem.

Android One is Google’s reference design intended to make up-to-date versions of Android easily available to smartphone users in developing regions, at prices around $100.

The other angle is to help ensure that users in those markets have access to Google services and the most-recent versions of Android. That will help ensure consistency of experience under conditions where hardware platforms might be less robust.

Android One should also help Google maintain a more-consistent look and feel across the whole supply of Android devices sold in a market, since some suppliers will add custom software, and might not include native support for Google apps.

Google apparently is announcing Android One on September 15, 3014 in India.

Android One was unveiled in June 2014 as a way for Google to provide a consistent, high-quality Android experience on entry-level devices.

The premise is that OEMs will build inexpensive hardware that costs between Rs 7,000 ($115) and Rs 10,000 ($165), but the updates will be taken care of by Google.

The growing availability of low-cost smartphones in developing regions is an important trend.

Some of us can remember great "hand wringing" an concern in international policy circles about how to bring telephone service to two billion people who never had made a phone call.

You don't hear such concern anymore, since we rapidly are solving that problem with mobile communications, a solution not envisioned in the 1970s and 1980s.

Two decades ago the question largely had shifted to the problem of how to develop low-cost laptops for developing nations, at retail prices an order of magnitude less costly than devices generally sold in developed nations.

There was some work around the notion of special devices optimized for rural villagers that would be low cost, perhaps $150 or so.

For many at the time, likely most knowledgeable observers, the prevailing thinking was that it couldn't really be done. And that remained true even as recently as the middle of the 2000 decade.

But as we stumbled upon a solution to the problem of getting communications to people at prices they could afford, we are about to solve the problem of getting computers to people, also at prices they can afford.

People will use smartphones with larger screens or tablets as their “computer.” Problem solved.

The notion, for some time, has been that in many parts of the world, the smartphone would be "the computer" most people used. That might turn out to be largely correct, for at least a time.

But it also now is possible that we know how to create and sell computers to people that cost no more than $150. Consider that the prototype "One Laptop Per Child" device had a screen of 7.5 inches diagonal and flash memory, with no keyboard.and used Wi-Fi for Internet connectivity.

The point is that formerly-formidable challenges have been successfully met. There is at this point little reason to believe that the new challenge--Internet for everyone--will not also be met.

Global Mobile Service Revenue Will Begin Declining in 2019

If you want clear evidence of how tough revenue growth has gotten in the global communications business, consider this forecast by Strategy Analytics: though global mobile service revenue growth will accelerate in 2014, it is going to go flat in 2015.

By 2019, mobile service revenue actually will begin to decline.

The good news is that global mobile service revenue will surpass the $1 trillion level in 2015. The bad news is sharply-declining revenue growth rates thereafter, also affected by declining revenues for 2G and 3G services.

European markets remain a trouble spot.  In 2014, European mobile revenue growth will be 17 percent below its 2008 peak. In fact, an apparent jump in global growth rates in 2014 is largely down to the slowing rate of decline in Europe.

Will Apple Drive Inflection Point for Proximity Payments Business?

The rebranding of the AT&T, Verizon and T-Mobile US mobile payments app to SoftCard pretty much tells you what market SoftCard is chasing: retail payments made by mobile phones that displace payment by a credit card or debit card at a retail terminal.

That occurs just as the Apple iPhone 6 launch, among other things, means Apple also is getting into the mobile payment business for the first time.

Some of us have argued that Apple was the one company that could really make a breakthrough in mobile payments in developed markets.

The emerging issue now is whether, in fact, Apple’s presence can transform a market that has been slow to develop, even if there have been some successes, including the branded Starbucks app and credit card readers such as Square.

Among the long-standing issues is the matter of value--whether ability to swipe a phone is sufficiently more valuable than swiping a credit or debit card at a retail terminal.

There is an argument to be made that, in fact, the incremental value is relatively small. Some might point to the high use of the Starbucks card from mobiles as an example of how much value might be added.

Others might simply counter that the value is not the swipe, it is the free coffee one earns by swiping the Starbucks app from a phone, instead of paying by cash or card.

In that sense, the value for end users is not so much the “pay by phone” capability as the upside of free coffee. For Starbucks, the value is the data about its customers, as well as enhanced loyalty. And in 2012, Starbucks mobile wallet purchases accounted for perhaps half of all U.S. mobile wallet payments.  

There arguably also is some incremental lift in spending per customer, as often has been noted for credit card or debit card purchases, compared to cash payments.

Proximity payments, where a smartphone replaces a physical credit card, remains the big immediate opportunity in developed markets, many expect, even if money transfers have been the bigger development in developing markets.

That will likely be the case for Apple, SoftCard and others in the U.S. market as well.

Longer term, the bigger opportunity in developed markets might be banking or commerce in a broader sense. Still, the immediate measure will be the growth of merchandise sales in retail outlets where payment is made by a phone, linked to one or more credit or debit accounts.

U.S. mobile proximity payments are about to explode. Mobile proximity payments are payments for goods and services transacted via mobile device in bricks-and-mortar stores.

BI Intelligence, for example, estimates that mobile proximity payment volume will grow at a compound annual growth rate of 153 percent from $1.8 billion in 2013 to $190 billion in 2018, with an inflection point in 2016.

Mobile payments doubled in 2013 and will continue to grow at 43 percent annually through 2018, Forrester Research predicts.

All that noted, it remains unclear whether Apple will be able to make a breakthrough with its mobile wallet. At least so far, nothing about its approach is structurally different from what others have tried to achieve.

At its heart, Apple’s mobile wallet appears to be one more way to link credit and debit cards to phones, allowing them to act as the payment mechanism at a store.

Granted, Apple is Apple. Its market presence might be the tipping point, causing a critical mass of merchants to adopt new terminals and systems to support taking mobile payments.

But we likely are still a few years away from knowing. The iPhone ecosystem will need some time to replace older devices with devices capable of using the mobile wallet, and retailers still will have to make investments to support such payments.

The point is that Apple’s entry might help. But just how much, remains to be seen.

Internet was a Communications Network; Now it Mostly is a Distribution Network

Is the Internet a communications or content distribution network?



That's a rhetorical question, but an important question, nevertheless, since governments often regulate "communications" networks differently than they do "content delivery networks" (the generic function, not the business of CDNs). 



Even traditional language "any to any" speaks more to the original communications function than the ways most of the Internet actually is used as a content acquisition medium these days. 



The Named Data Networking project hopes to evolve the Internet's fundamental protocols in ways that acknowledge the key change by adding more security. But there is an equally-important change: the shift in Internet purposes from communication to content delivery.



"Recent growth in e-commerce, digital media, social networking, and smartphone applications has resulted in the Internet primarily being used as a distribution network for content," the NDN project says. 



Aside from the matter of security and protocols, that shift to content delivery could have important business and regulatory implications. 



One often hears it said that regulators should not allow the "Internet to become cable TV," That typically occurs in the context of discussions about network neutrality.



The notion is that the Internet should not become a media business.



The problem is that the Internet has become the enabler for precisely those developments. 



Many current and future battles will occur, around that change. The Internet originally was a narrowband communications network. Now it is a broadband media consumption network. 

By 2018, 1/2 of All Internet Users Will Live in Asia

By 2018, according to eMarketer, nearly half of the planet's Internet users will live in the Asia-Pacific region. At present, about 45 percent of Internet users live in Asia, according to Internet World Stats.

But China and India represent the majority of those users. For example, of perhaps about a billion Internet users in Asia, China represents 591 million, while India represents 213 million, about 80 percent of the total, according to Statista.

Japan represents about 10 percent, Indonesia about seven percent, South Korea about four percent, as does the Philippines. Bangladesh and Vietnam are closing on about four percent.