US Mobile Market Update Q4 2014 and 2014 February 23, 2015Posted by chetan in : 4G,4th Wave,5G,AORTA,ARPU,Chetan Sharma Consulting,Connected Devices,Connected Intelligence Era,Devices,European Wireless Market,Fourth Wave,Internet of Things,IoE,IoT,LTE,Mobile Applications,Mobile Cloud Computing,Mobile Devices,Mobile Future Forward,Technology Cycles,The Golden Age of Mobile,US Wireless Market,Wi-Fi,Wireless Value Chain,Worldwide Wireless Market , add a comment
US Mobile Market Update Q4 2014 and 2014
The US mobile market continues to be the biggest market by revenue and 2014 was a key transition year for the industry. The overall market grew 21% to almost $400B. Voice revenues declined by 15%, messaging by 16%, and tablets by 4%. The biggest winners were the 4th wave/OTT services which grew by 92%. Access revenues increased by 32%, handsets by 11%, and wearables by 150%. Verizon, AT&T, and Apple were the top 3 players by revenue (from the US market).
Last Jan, we had estimated $108 Billion in mobile data revenues for the market and the revenues ended spot on at $108B making US the first market to surpass the $100B mark. We are forecasting that the mobile data service revenues will increase by 22% to $132 Billion in 2015. Verizon will become the first operator to generate more than $50B from data services in 2015.
Verizon became the second operator after China Mobile to cross the milestone of 100 Million postpaid subs. After acquiring lusacell and Nextel Mexico (still pending), AT&T became the biggest North American operator with over 131 million subs. In 2014, US also crossed the 350 million subscription mark.
The average mobile data consumption (cellular) crossed 2GB/mo in 2014. In the US, it took roughly 20 years to reach the 1GB/user/mo mark. However, the second GB mark has been reached in less than 4 quarters. An entire yearâ€™s worth of mobile data traffic in 2007 is now reached in less than 100 hours.
From 2010 to 2013, the data pricing declined by only single digits YoY. However, in 2014, the data pricing has plummeted by 77%. It is having an impact on the industry financials which might help clear the way to further M&A in the US market.
The intense competition amongst the operators meant a whopping 20% rise in OPEX QoQ and a 1% decline in CAPEX YoY. The income stayed flat while EBITDA grew modestly at 3%.
In our 4th series of papers, we had postulated for years that the 4th wave revenues will become bigger than any of the previous curves. This finally happened in 2014 in the US market with the revenues from the 4th wave applications and services built on top of the IP access layer surpassed both voice and data revenues. The operator share of the US mobile industry revenues fell below 50% for the first time since the birth of the industry.
Smartphone penetration increased to 75% and roughly 95% of the devices sold now are smartphones.
The Android OEM ecosystem suffered its first major profit decline in 2014 – the profits dropped precipitously by 44%. iOS revenues increased by 31%. The difference in profits between the two major ecosystems is now $33 Billion â€“ the highest it has ever been.
Apple broke more records in a single quarter than most athletes break in their lifetime. The amount of revenues and profits generated by a rectangular screen sent everyone in a tizzy. To get a sense of the scale, consider this â€“ Appleâ€™s iPhone generated more revenue than revenues generated by entire portfolio of products from Microsoft, Google, Facebook, and Twitter combined. Add in Macs and Tablets and you can mix a dozen more companies in the mix. The laser focus on quality and the benefit of the brand loyalty and aspiration catapulted into the business stratosphere that few can even dream of reaching.
Apple also introduced two new products late last year â€“ Watch and Apple Pay. While it is too early to figure out the overall impact of Apple Watch (it clearly will put some Swiss Watchmakers out of business), Apple Pay appears to be more disruptive. Appleâ€™s classic approach of embracing the ecosystem and thinking end-to-end might finally disrupt the otherwise staid financial sector. Apple Pay is already seeing significant traction and the financial industry is nervously promoting the service. Rumors of Apple Car will keep media on its toes for the next few years.
4th wave services continue to grow at a very past face around the globe. At least 37 companies generated a billion dollar or more from 4th wave services in 2014 â€“ a 311% jump from 2012.
The difference between Sprint and T-Mobile number of subs is less than a million now â€“ the narrowest it has ever been. Like we suggested mid-last year, T-Mobile is likely to become the number three operator in a matter of weeks now. This is more or less just a symbolic event with the transfer of bragging rights.
T-Mobile accounted for over 40% of the overall net-adds for the year with Verizon coming in second at 30%. After having a lack-luster year in 2013, the operators doubled the net-adds in 2014 with connected devices driving most of the growth.
Race To The Bottom?
The mobile data traffic has been doubling YoY in the US. The consumption is clearly growing with the introduction of new devices, network upgrades, and application enhancements. Operators are seeing tremendous pressure on data pricing due to the competitive environment. EBITDA declined for the second straight quarter.
From 2010 to 2013, the data pricing declined by only single digits YoY. However, in the first 9 months of 2014, the data pricing has plummeted by 77%. It is having an impact on the industry financials which might help clear the way to further M&A in the US market.
Is Android in trouble?
Samsung suffered one of the biggest mobile revenue and profit declines in its history. As the dominant leader of the Android ecosystem, it is caught in the middle of two major trends that ironically enough Samsung had influenced. The bigger screen phone segment that Samsung seeded has become the fastest growing segment in smartphones. Apple following Samsung into the segment meant that it took away the single biggest differentiating factor and as such a serious impact on its high-end line. The lower end which yields higher volumes but much smaller ASP has attracted hordes of local developers in China, India, and Russia who have better logistics and operational advantage. Many of these players are becoming successful. To damage Samsung, they all donâ€™t need to be successful, just enough to be in the market to sway the market. As such, Samsung has seen its share dwindle in the two biggest emerging markets.
Much of the current situation has been predictable for some time. While Samsung has ridden the smartphone wave masterfully, it hasnâ€™t been able to build a platform moat, something that helps fundamentally differentiate its products in the sea of Android devices around the planet. They are not in a Blackberry or Nokia panic situation yet as some in the media have surmised. But, they need to figure a way out of the middle band. Unlike Nokia or Blackberry who were blinded by their success and ignorance, Samsung has shown it is a more nimble competitor. Samsungâ€™s R&D and marketing is also second to none. Its diversified portfolio also helps in cushioning the drop in the phone segment. Historically, OEMs with such sharp revenue declines havenâ€™t been able to arrest the decline. Can Samsung do it? Samsung is launching Galaxy 6 at MWC this weekend.
Given that Samsung controls most of Android ecosystem profits, the Android ecosystem suffered a 44% decline in profits. The woes of OEMs such as Sony, Motorola, and others also contributed to the decline. We can expect some of the Android OEMs leaving the device business altogether.
In his classic book, â€œCompetition in Telecommunications,â€ Nobel Laureate Jean Tirole wrote, â€œWith digital technology, telecommunications, cable TV, broadcasting, and computers have become a single industry, which will be a critical element of our economiesâ€™ backbone. With the impending opening of competition, industrial restructuring is progressing at a fast pace.â€ The book was written almost 15 years ago. As I have written before, the computing and communications industries are merging into one and that collision is generating ripple effects some of which we are starting to understand (more on the Connected Intelligence Era trends here)
One of the implications of the 4th wave evolution is that there will be fewer mobile operators in the world. As we have argued in the papers, many of the smaller players just wonâ€™t be able to keep up and compete. AT&T acquired Mexican operator Iusacell (it also made the bid for Nextel Mexico) which made AT&T a clear leader in North America with almost 131 Million subscriptions. As we mentioned in our 4th wave series of papers, the number of operators will continue to shrink with fewer global operators who will seek to combine wireless and wireline assets to strengthen their moat. It is quite likely that US Cellular will be acquired in 2015.
After a blockbuster spectrum auction, FCC is looking to put its stamp on the future of the Internet by proposing net-neutrality rules later this week. President Obama decisively tilted FCCâ€™s position on the subject. However, this is not a done deal yet. The legal and political apparatus is likely to react quite strongly to the ruling and we are in for a tough fight on this one. Other governments and regulators are also keenly watching the debate and the final ruling. Dish ended up acquiring a bulk of the spectrum wares. Is this a precursor of their wireless moves or was this just old-fashioned asset hoarding?
4th Wave Revenues
For the first time, US operators revealed some of their 4th wave (digital) services metrics publicly. Verizon reported $585 million in 2014 up 45% from a year ago. At the current run-rate, this will be a billion dollar business by 2016. AT&T reported 2.8M connected car connections and 140K home security connections. The connected car segment is clearly on its way to becoming a billion+ dollar business for AT&T. Connected cars accounted for 62% of the connected devices for AT&T.
Globally, 37 companies generated a billion dollar or more from 4th wave services in 2014 â€“ a 311% jump from 2012.
The Upcoming 5G wars?
I started my career when 1G was all the rage. My first 4G project was back in 2002. By some measures, we are already behind on the 5G discussions. In general, it takes 7-10 years before the standards are finalized and then the network technology lasts for approximately 20 years before a market moves onto the next generation of technology. US led in the growth of 1G (AMPS, TACS) followed by Europe on 2G (GSM, CDMA). Japan took the leadership role with 3G (WCDMA, EVDO) and US wrestled it back on 4G (LTE). Japan and EU are determined to lead on 5G and have been making very public statements and R&D investments about their ambitions on 5G. Japan of course has a very clear goal of having 5G by Tokyo Olympics in 2020. Am sure some operator(s) somewhere will jump the gun and start calling LTE-A+ as 5G around 2017-18 or sooner. You can expect a lot of activities both in public and private on 5G as companies and governments try to figure out a way to claim the 5G leadership mantle.
We have a 5G paper coming out in March. You can read the summary here â€“ 5G: The history of the future.
Mobile Payments has long infatuated mankind. Many players with deep pockets have invested in the segment but in truth, the market was waiting for Apple to show up and show up it did with the launch of Apple Pay. In an ambitious orchestration of the financial supply chain, Apple introduced a simple payment proposition. The basic strategy is for commerce to flow through iOS. The institutions are even paying a share of the transaction to Apple which previous payment explorers are watching in utter disbelief. Ladies and Gentlemen, get ready for iTunes 2.0.
What to expect in the coming months?
2014 was a tremendous year for the mobile as it becomes omnipresence in every industry. We saw some massive moves, astounding acquisitions, and interesting strategic endeavors. 2015 promises to be an exciting year for the industry as well.
As usual, we will be keeping a very close eye on the micro- and macro-trends and reporting on the market on a regular basis in various private and public settings.
Against this backdrop, the analysis of the Q4 2014 and 2014 US wireless data market is:
Overall Industry Revenues
Â· The overall market grew 21% to almost $400B.
Â· Voice revenues declined by 15%, messaging by 16%, and tablets by 4%.
Â· The biggest winners were the 4th wave/OTT services which grew by 92%.
Â· Access revenues increased by 32%, handsets by 11%, and wearables by 150%.
Â· The US mobile data services revenues in Q4 2014 increased 3% and crossed the $25B market for the first time.
Â· The mobile data services revenue crossed the $100B mark in mobile data services revenue to become the first country to generate $100B from mobile data services.
Â· Verizon and AT&T dominated the quarter accounting for 70% of the mobile data services revenue and had 68% of the subscription base.
Â· Verizon and AT&T are at #2 & #3 global mobile data revenue ranking respectively in Q4 2014. Sprint and T-Mobile also maintained their rankings in the top 10 global mobile data operators.
Â· The Overall ARPU fell by 2.57%.
Â· Data contribution to the overall revenues is now at 60%.
Â· The postpaid ARPU continues to decline for all operators with AT&T and T-Mobile experiencing double digit losses for the year.
Â· The US market had the best net-add year in the last 7 years.
Â· The US operators added 20M new subscriptions with T-Mobile leading the pack at 40%.
Â· Verizonâ€™s tablet net-adds accounted for almost 50% of the overall tablets that were added in Q4. Verizon has caught up with AT&T on the tablet front.
Â· T-Mobileâ€™s postpaid continued to see the positive growth for the seventh straight quarter. It has recovered all its losses that began in Q3 2009 and is now growing in the positive territory.
Shared Data Plans
Â· Shared data plans launched by Verizon and AT&T have been quite successful. The attachment rates have increased tremendously over the course of 2013-14 with more consumers opting for cellular tablets and connected devices. 61% of postpaid accounts at Verizon are now on shared plans. For AT&T, the number is even higher at 70%.
Â· Some more granular data plans for tablets have also spurred interest as the cellular broadband is becoming available on demand vs. expensive on premise Wi-Fi solutions.
Â· 52% of AT&Tâ€™s postpaid accounts are on 10GB+ plans.
4th Wave Progress
Â· The number of players making $250M/quarter on mobile continues to increase rapidly and these arenâ€™t your traditional wireless players. For example, Mobile is now contributing 69% (up from 30% in Q1 2013) to Facebookâ€™s quarterly revenues. Latest addition to the club is Twitter which is now doing 88% in mobile (of the total advertising revenue) up from 60% in 2013. Even traditional players like Hertz, Sears, and Starbucks are generating meaningful revenues from mobile. There are now dozens of such players and the list is just growing. (for more discussion on the topic please see: â€œMobile 4th Wave: Evolution of the Next Trillion Dollarsâ€)
Â· In 2014, we are also seeing continued investments from the operators especially AT&T, Verizon, and Sprint in non-traditional segments like home security, healthcare, insurance, automotive, enterprise mobility, advertising, and security, and others. Collectively, this is already a multi-billion dollar business in the US.
Â· The cloud and security segments have also gained significant traction with incumbents as well as startups launching new initiatives and technologies.
Â· Verizon reported $585 million in 2014 up 45% from a year ago. At the current run-rate, this will be a billion dollar business by 2016.
Â· AT&T reported 2.8M connected car connections and 140K home security connections. The connected car segment is clearly on its way to becoming a billion+ dollar business for AT&T. Connected cars accounted for 62% of the connected devices for AT&T.
Â· Connected devices (non-phones) accounted for almost 52% of the net-adds in Q4 2014. This means that while there is a healthy smartphone sales pipeline, it is for the existing subs and as such net-adds for the phone business is tapering off and we can expect that new net-adds will continue to be dominated by the connected devices segment.
Â· For AT&T, Connected cars started to form a significant base of the connected devices segment with 62% of the new connections in the segment coming from cars.
Â· Smartphones continued to be sold at a brisk pace accounting almost 95% of the devices sold in Q4 2014. Within the next two years, the feature phone category will practically be extinct in the US market.
Â· The smartphone penetration in the US is now at 75%.
Â· After ceding the lead to Android for the last three straight quarters, iOS roared back to reclaim the lead with 54% share of the smartphones sold. For the year though, Android edged out iOS.
Â· Verizon continues to sell more LTE smartphones as its LTE sub tally rose to 67M making it the leading LTE operator in the world (this year China Mobile will overtake Verizon to become the number 1 LTE operator by subscriptions). Other three operators are also deep into their LTE deployments. Verizon reported that 84% of its total data traffic is on the LTE network now, clearly the fastest technology transitions we have seen in the US wireless industry.
Your feedback is always welcome.
We will be keeping a close eye on the trends in the wireless data sector in our blog, twitter feeds, future research reports, articles, and our annual thought-leadership summit â€“ Mobile Future Forward. The next US Wireless Data Market update will be released in May 2015.
Disclaimer: Some of the companies mentioned in this update are our clients.3G,4G,AORTA,Applications,ARPU,Connected Devices,European Wireless Market,Mobile Advertising,Mobile Applications,Mobile Breakfast Series,Mobile Cloud Computing,Mobile Commerce,Mobile Content,Mobile Devices,Mobile Ecosystem,Mobile Future Forward,US Wireless Market,Wireless Value Chain,Worldwide Wireless Market , 2 comments
We started doing Mobile Breakfast Series in Seattle back in 2009 and after hosting10 straight events, it was time to expand the wings and explore other cities. The first stop in this journey was Atlanta and we worked closely with our partners at â€œWireless Technology Forumâ€ to make it a successful event last friday. I also had the good fortune of participating in WTFâ€™s event the night before. Both events focused on Connected Devices and their impact on the consumer, the ecosystem and the value-chains thus making it a â€œconnected weekâ€ in Atlanta.
As I mentioned, the night before the event, I had the opportunity to present and moderate a panel on Connected Devices with Glenn Lurie, President of Emerging Enterprises at AT&T and Jeff Smith, CTO at Numerex. Both are movers and shakers in the space and it was such a pleasure meeting with many WTF members and interacting with the top-notch panelists. The event was recorded and is available on WTFâ€™s Youtube Channel.
We hosted the Atlanta Mobile Breakfast Series Event in Atlanta at the Commerce Club of Atlanta which has beautiful views of the Atlanta area.
There is an old Chinese saying, â€œWhen the wind of change blows, some build walls others build windmills.â€ Our industry is going through tremendous change; it wonâ€™t be an exaggeration if I say that the tectonic plates are moving and moving fast. The motion is being forced both by the economic conditions but also the technology and business progress. I have been around the industry long enough but it still amazes me â€“ the stuff thatâ€™s in the pipeline and how quickly consumers absorb it.
The topic of our discussion was Connected Devices, the Cloud, and the Consumer. With connected devices, I am referring to the broad availability of devices that are connected to data networks â€“ so they include smartphones, tablets, connected auto but also wellness devices like fitbit, energy meters, dog collars, medical devices, etc. as of last year, the subscription penetration was at 6B, next year, we will have more connections than people on this planet. In another 5-7 years, we might touch 20 Billion sensors on the planet. So you can see the growth is going to be astronomical.
Another phenomenon is that of cloud. If a startup mentions Cloud in their presentation to a VC, the valuation doubles, you say mobile, and it quadruples. I donâ€™t know how many of you are a fan of Mark Weisier, the Xerox Parc researcher who pioneered what became â€œalways on, always connectedâ€ tagline of pervasive computing. It was more than 20 years ago, we finally are seeing that with the help of broadband networks, amazing devices, and open business models, information is truly available at the fingertips.
The third leg of our discussion was the consumer â€“ their appetite for new and the latest is creating this tremendous opportunity that is shaping their behavior and expectations.
We had an awesome panel to discuss things in detail. First I discussed the topic with David Christopher, Chief Marketing Officer at AT&T Mobility. As most of you might be aware, AT&T is leading not only the US but the globe in their efforts to bring connected solutions to the market. I work around the world with top operators, and I can tell you there is no exciting place in mobile right now than right here in the US of A. US is leading in innovation, technology, and business model. We had lost touch after 1G and US truly teaching rest of the world how to do 4G right. David has a terrific background â€“ a product and operationally driven CMO at one of the worldâ€™s biggest mobile operator and it was a delight to have him on the panel.
I have known both Biju Nair and Louis Gump for sometime â€“ several decades of mobile expertise. Louis is with CNN, has been running their mobile efforts which are top-notch. He is a recognized leader in the mobile advertising space and given that CNNâ€™s properties span across multiple screens, he has really great insights as to how consumers behave across n-screens.
Biju is a hard core technologist, has been working at solutions that make Louisâ€™ stuff work across networks and devices. Many of you might not know but Synchronoss where Biju is the Chief Strategy Officer and Products EVP, powers online activation at AT&T. If you bought the iPhone over the last few years at AT&T, there is a good chance your order was processed by Synchronoss.
Highlights from the discussion below:
- Many in the industry expected AT&T to take a hit after the iPhone exclusivity ended but AT&T continued to perform better than Verizon and others with devices. David has been the person leading the charge to ensure AT&T maintains its competitiveness. AT&T did that by a) conveying the overall value proposition of an iPhone on the AT&T network b) build out the Android portfolio and c) conveying crisply the benefits of being an iPhone on the AT&T network (talk and text at the same time, etc.)
- Consumers understand that 4G is faster than 3G but necessarily understand (beyond the techie crowd) the benefits of LTE.
- AT&T is a big supporter of Windows ecosystem. It is good to have more choice for the consumers. While the initial version of Surface is WiFi only, the hope are high for Windows 8. Having a viable third ecosystem for mobile is important for the mobile industry.
- Microsoft has done a good job with the design of the OS but have been poor on the opening up of the API front. Developers find the closed ecosystem to be stifling. Unless Microsoft remedies that, interest in the platform might be limited.
- It is RIMâ€™s battle to lose. They have good software, loyal users, security framework, email is the best but have been asleep on the wheel for a while. They can turn things around though the probability of that happening are fairly low at this point.
- AT&T is studying data share plans and how consumers might react to them. It is a new paradigm in the evolution of mobile data plans and services.
- CNN has been doing mobile for a long time but was surprised by the pick up of the tablets. The reach is highest on the browser for them but the engagement is much higher on apps.
- Cloud is essentially Client-Server from the years past but applied to new use cases that brings together user experience new and different ways. The trifecta of devices, broadband networks, and content is enabling new services.
- Privacy and Security of cloud services is of paramount importance. There is a view that the industry needs to self-regulate and come up with some better solutions quickly.
- HTML5 is an important step for the industry but it is clearly not a panacea. It will have a role in the ecosystem but wonâ€™t obliterate the need for apps. The holy wars to continue.
- There is some conflict between the cloud data usage and data tier plans but WiFi (US consumers have access to WiFi 80% of the time) and smarter configuration to manage data have helped.
- Mobile advertising only 1% of the overall mix but mobile has 10% usage so a tremendous growth opportunity (yep, we said that back in 2007).
- APIs are open but monetization is still challenging. The first task is to get developers understand the benefits and find ways to enhance the user experience.
- Toll free data plans is not a new concept. Remember Sugar Mama from Virgin Mobile from years ago? Still experimental. Content providers like CNN are willing to engage if there is some value exchange that yields to revenue which can be shared. Some interesting opportunities with prepaid.
- To some extent there is more ARPU innovation in the developing countries like India which are borne out of necessity â€“ like the Kissan program in India.
- In terms of whatâ€™s next, virtually every industry is going to be disrupted. Tremendous change on the horizon however a lot will depend on the battery innovation in the coming days and months.
The team at Chetan Sharma Consulting really enjoyed taking the Breakfast Series to Atlanta. My thanks to the terrific team at WTF for their support and to the Atlanta Mobile Community for making the event so successful. Finally, the event wouldnâ€™t have been possible without the support of our series partner â€“ Synchronoss.
As you might be aware, our fall mobile executive summit â€“ Mobile Future Forward is going to be on Sept 10th. Registration is open. We are likely to sell out so grab your tickets early.
Next Stop â€“ London for our first venture across the pond. On June 29th, we host the discussion on Operator/OTT â€“ The way forward with Telefonica, Orange, Rebtel, and Horizons Ventures. Read Frank Meehanâ€™s pre-event interview about the topic here.
Operators and OTT – The Way Forward – London
Operator traditional revenue streams are under threat esp. voice and messaging. Access margins will continue to stay under pressure. OTT players are coming in fast and furious and it is not just the big ones like Google but also players like Whatsapp, Voxer, Viber and others. How do operators play in the new landscape â€“ lessen the decline of their traditional revenues while investing in new areas that improve their overall margins and revenues. Do they play the role of an enabler, a utility player, or become the OTT player themselves? In a software-driven world, how do they stay nimble? On the flip side, what are some things that operators can provide to the OTT players that make them successful, take them to the market quickly and maintain a long-term healthy and mutually-beneficial partnership? Operators still generate 70% of the global mobile industry revenues, so they are an important part of the chain but how do they ensure they have an equally relevant share in the profits. The panel will discuss how operators and OTT players think about the challenges and the opportunities, the competition and the coopetition.AORTA,Frank Meehan,Mobile Devices,Strategy,US Wireless Market,Wireless Value Chain,Worldwide Wireless Market , add a comment
As regular readers and participants of our annual mobile thought-leadership summit â€“ Mobile Future Forward, know that we publish a book that contains essays from thought-leaders on the future of mobile from around the world. For the 2011 edition, we had the good fortune of getting a contribution from Frank Meehan who was then the CEO of INQMobile.
Frank has been behind some of the initial disruptions in the mobile space such as tight integration of Skype when he was with 3 UK much before than it became fashionable to do so. Similarly, his team launched the first Facebook Phone, the first Twitter Phone and proved that a tight integration of the OTT apps makes all the difference. So, I was delighted for him to pen down a piece on â€œBuying a Mobile Device in 2014â€ for he has the insights, the experience and the sincerity to tell it as he sees it. I am excited to make this piece available to our readers.
Frank is now with venture capital firm Horizons Ventures (owned by Hong Kong business magnate Li Ka-shing, whose Hutchison Whampoa is the parent company of INQ), Frank continues to be actively involved in some of the most innovative companies that are disrupting the status quo of telecoms.
Thank You Frank.
Buying a Mobile Device in 2014 by Frank Meehan
From its inception the mobile handset has been an unusual consumer device. It became an extremely coveted product that nonetheless was always way behind the fixed world in terms of its capabilities. Hardware was often very design driven, with vendors playing around with cameras and form factor more than the technical capabilities of the handsets. But it was incredibly convenient and desired by all, so the mobile industry coasted along on a relatively closed model that worked for all concerned.
Of course, in 2007 Steve Jobs looked as this cosy situation between handset manufacturers and operators, which in effect did not deliver anything of earth shattering innovation to the customer, decided this status quo was ripe for disruption, and then proceeded to rip up and reshape the industry in a very effective and efficient manner.
So now in 2011, the landscape has altered dramatically, in a way that has left the big vendors of the 2000’s fighting to stay relevant. Over the next couple of years, the hardware "arms race" will accelerate to the point where only a few can really stand the pace at the top – with Apple and Samsung leading the way and everyone else back in second place. Businesses that were set up around specific mobile models and software suddenly have found that mobile really is becoming blended into fixed and that the traditional ways of differentiation are rapidly disappearing.
Mobile devices really are becoming just like "PC’s" in that the customer is becoming more savvy about hardware specifications, and less "brand loyal" with the exception of Apple. In fact looking forward 2-3 years, there will be little to differentiate mobile versus the traditional definition of fixed.
Everything essentially becomes a screen. Whether it is a desktop, laptop, tablet or handset.
These screens will be incredibly high powered. In 2012 we already have quad core chipsets coming. That is an incredible amount of computing power, yet the user interface on mobiles does not take advantage of it. Software is behind hardware now, except for 3D games, there is little on a handset that takes advantage of the processors.
So the focus now will be developing software to match this rapid processor jump. Already with Windows 8 weâ€™re starting to see the first natural user interfaces that were first envisioned back in the film Minority. This is the start of the next big jump in a user experience, where the consumer naturally just shifts content around and will only get faster, more visually striking and more useful.
When asked to think about any future vision or experience, I try to articulate the answer in terms of how a customer will actually be driven to purchase that product at the point in time, which in this article is set at 2014.
The mobile device buying experience for a customer in 2014
A customer considering buying a mobile device, in 2014 will have an incredibly wide range of choices about where to buy and what to buy, with four main areas of choice:
1. The ecosystem. In 2014 there will still be 3 major OS ecosystems to buy into, which help connect all their devices, from home to car to work. Those will be from Google, Apple and Microsoft. Everything else will have too small a market share to be significant.
The ecosystems are not mutually exclusive, since the key companies have long developed cross platform versions of their products, and HTML5 has largely replaced vendor controlled application stores. But each customer will have the majority of their devices on a certain ecosystem. The mobile device market will be quite similar to the PC market today. Apple will command a premium; everyone else will fight over tight margins, which are likely supplemented with software and advertising revenues by the smart vendors. The customer will be quite aware of where their media is stored, which system delivers it best and how easy it is to use. In that respect, Apple will still be the clear leader.
2. The hardware. The customer buys primarily on specifications, just like they do with a PC, laptop or TV in 2011. By 2014 the average customer is very tech savvy at the tech inside, such as screen capabilities, processors, memory, etc. They have little loyalty, but if their current vendor has a new device which is great on price, spec and design than they will naturally like to stay with that vendor. However, if someone else has better technology at the right price, then they will switch.
Buying mobile devices in 2014 is like the PC or TV buying experience of today. By 2014, the high margins enjoyed by non Apple handset vendors will disappear as the tech spec wars drive customers to buy only the latest and best specifications, which commoditizes the devices . Since everyone else will be running either Android/Chrome or Windows, the device itself is just a spec, with some nice design being the main differentiation between devices of similar specification. Of course, there will always be one vendor who brings out a technical marvel, be that wraparound screens, flexible screen etc, but within 6-12 months everyone has caught up and it’s back on spec again. Just like the TV business.
Devices have become commoditized, and the inevitable point in the industry where a device is just more or less a screen has been reached. Whether it is TV, Laptop, tablet or handset, everything is about the screen, and due to their superior technology in this area, the leader in 2014 is likely Samsung. Naturally matched by Apple with it’s superior user experience, design and hardware.
Also, Apple and Samsung are the only two companies in 2014 who can bring out truly ground breaking technology fast enough, sexy enough and most importantly to the widest distribution. Together they control around 40-50% of all devices, with low cost vendors taking up most of the rest – similar to the TV market today. There are some expensive niche players, but the volume is via Samsung and Apple. However, disruptors are at play, more of that later.
Essentially handset vendors have found themselves having to be extremely efficient distribution machines with high hardware R&D costs. Devices last no more than 6 months before being replaced in retail, and customers differentiate very strongly between hardware and software brands.
The customer will be buying far more mobile devices online than they do today, driving overall cost of ownership down. As devices have become more commoditized, people buy devices online just like they buy laptops, TVs and tablets. Although they will go to a major outlet to see, use and browse the handset, their buying choices are much greater.
The new world has also thrown up big new mobile brands, which are built around a strong online presence, wrapping up software and hardware in low cost devices sold directly to consumers. These brands have a completely new connection with the consumer, who sees them as delivering considerable value, plus some will be able to stand out with great software as well. By 2014, the web has really revolutionized mobile retail as well.
4. Subscriptions and payments
By 2014, consolidation around operators in cable, fixed and mobile, means that the biggest just got bigger and are now dominating home, mobile and office access. Which has led to devices being less subsidized as operators look to bring cash flows forward. Also the key ecosystem players are spending considerable amounts to subsidize subscriptions and devices which have also improved operator cash flows. Operators in most countries have also decided that their considerable retail estates were not an efficient use of cash and have consolidated their shops, concentrating instead on internet sales, especially as devices have become much easier to sell online.
Operators have diverted cash into developing applications, services and online payment mechanisms which deliver greater margins combined with access subscriptions than previous times.
This means that consumers likely get a free hub from their operator which delivers access, services and media to multiple devices. But the devices themselves are mostly paid for by the subscriber, even handsets. Consumers also have multiple devices leading to less desire from operators to subsidize, instead their cash has been diverted to subsidizing the big media players such as Spotify, Netflix, YouTube, Xbox Live and Hulu to entice subscribers, which will make the device prices far more transparent to consumers.
In short, handheld devices may be technological marvels, but by 2014, they will also have become just like any other consumer device and the "mobile industry" has become part of a much broader device industry.