Editor’s Note: Welcome to our weekly Reality Check column. We’ve gathered a group of visionaries and veterans in the mobile industry to give their insights into the marketplace.
We are nearing the finish line on the year, and wishes for tidings of great joy abound. Retailers on the East Coast are trying to figure out how many hours they can remain open prior to Christmas Day to make up for this weekend’s storm, and movie theaters are celebrating what should be a very strong end of the year with blockbusters like The Blind Side and Avatar. The trend lines continue, however, and as part of the “Nine for 2009” series, we are covering the major trends for the communications industry. To recap last week’s three, they are:
1. Investor sentiment clearly shifted away this year from “networkers” to the “cloud.” The shift was seismic – over $300 billion (as of 12/18 = $310 billion). As a result, cloud “currency” has more value than any time since the beginning of the decade.
2. Bolstering this trend is the accumulation of cash among the “big 4” – more than $86 billion of cash on hand as of 9/30. More cash for acquisitions furthers their innovation advantage versus the network. More cash encourages smaller and more widespread venture capital risk. Broader, faster acceleration means more moisture for bigger clouds in more places.
3. The acceleration of wireless as the primary/ sole means of voice communication.* I made an erroneous conclusion in last week’s post that “Nearly half (and likely more than half in December 2009) of all households use their mobile phone as their primary means to communicate.” Call it a math error, but the number is really 35%, not 50% as of December 2008, and it’s likely that only 40% (using the 2008 trend) are wireless only + wireless mostly as of December 2009. My apologies to my LEC brethren on overestimating the size of your wireline headache. However, in a re-dig into the data, I found the following interesting nugget:
For people ages 18 to 24, 33.1% are wireless only; and 18.8% wireless mostly, for a wireless total of 51%.
For people ages 25 to 29, 41.5% are wireless only, and 18.3% are wireless mostly, for a wireless total of 59.8%.
For people ages 30 to 44, 21.6% are wireless only, and 19% are wireless mostly, for a wireless total of 40.6%.
For people ages 45 to 64, 11.6% are wireless only, and 15.4% are wireless mostly, for a wireless total of 27%.
So the number is above 50% (and well above it) if you’re below 30 (now 31), and is above 50% in aggregate for the 45 and under crowd. This makes sense as the mass market adoption of wireless devices and the proliferation of family plans didn’t begin until 1996-1998, which puts the “first mobile phone” in the hands of the 30-44 crowd when they were ~ 18-32. Clearly, this is only a matter of time.
With that correction aside, it’s time for the next three. They are (again, in no particular order):
4. The explosion of (nearly) free data-driving applications. When you are sitting around with your more technology-savvy friends over the holidays, try this for trivia: When did Apple pass 10,000 applications in the iTunes app store? Answer: early December 2008. How about their 2 billionth download (July 2009)? How about their 100,000th app (early November 2009)? New apps, like Live Cams (#1 paid app this week), Knocking Live (when it works) and Pandora are chewing up bandwidth at an unbelievable pace. Just listen to the latest comments from AT&T Mobility President Ralph de la Vega about “educating the public on their total usage.” He cited the fact that when they did this on the wireline side, that parents finally discovered what their kids were doing and “usage went down.” That’s the solution – pit kids against their parents?
AT&T’s observations reflect the pent-up demand for applications that consume many megabytes of data: Pandora, Flickr, iVideoCamera, KnockingLive, TomTom USA ($50 for GPS), CNN Mobile, CNBC (soon to be owned by Comcast), and many others. The rapid rise of data consumption continues, and will do so with a) better information on new applications, and b) more applications like Hulu’s iPhone application (when it comes to market) and Google Latitude, when approved for the iPhone. I like the idea of a “data guzzler tax” that is assessed on each application, although it would need to presume how much I would use the application over its lifetime. Either that, or charge the applications provider (Pandora, Google, etc.) a per-user tax each month (kind of like switched access for applications), and watch the applications market dry up – likely not acceptable to Apple.
The solution lies in a) storing some of the most frequently accessed information locally on the device, b) moving to more efficient 4G capabilities, which Clearwire/ Sprint have already started to do, Verizon will start in 2010, and AT&T will start to do in 2011, c) deploying picocells and/or 3G femtocells that include data (Wi-Fi is good, but an HSPA Femtocell would be better, and China Unicom’s deployment announcement last week should help drive worldwide scale) and d) moving the source content directly on to AT&T’s backbone, requiring connectivity to AT&T’s backbone network in as many points as possible to limit any backbone latency that exists today. On top of this, AT&T (wireless and wireline) could, with my permission, take the aggregated information about me and sell it to potential advertisers (aggregated and anonymous) to offset the increased costs of the backhaul. Call it a better Google, or, in the case of U-Verse, a better Nielsen.
5. The re-birth of reading and the Kindle standard. I actually tried not to insert a trend around e-readers because of my previous allegiences to Sprint and Amazon, but it’s unavoidable. Too much has happened this year to avoid a “Nine for 2009” mention. Here’s a small sample of the events shaping the e-reader market in 2009:
Feb 9: Kindle 2 is announced. Price = $359 (now $259).
March 4: Kindle iPhone app is announced. More application downloads by the end of April than actually own Kindles.
May 6: Kindle DX announced.
Aug: iRex confirms that it is launching a new e-reader later in 2009 and will feature the Barnes & Noble bookstore.
Aug 25: Sony announces three e-readers: the Pocket ($199), the Touch ($299) and the Daily Edition ($399). Sales start in December – reviews are mixed.
Oct 7: Kindle International edition announced.
Oct 17: Barnes & Noble sells first Nook in New York City. Many new releases sell for $9.99. Nook also features a “lending” function.
Oct 23: Kindle for PC announced.
Nov 14: Google, Authors and Publishers offer an amended Book Pact. Fairness hearing set for Feb 18, 2010
Nov 21: Barnes & Noble announces that the Nook is sold out until 2010.
Dec 4: Hearst Publications announces the Skiff, set to launch in 2010. Sprint, the 3G wireless provider, will sell the e-reader in its retail stores.
Dec 8: Simon & Schuster announces that they will delay e-book launches for four months after the hard-cover publishing date
Dec 8: Hachette (James Patterson and Stephanie Meyer) announce that they will also delay e-book editions by several weeks
Dec 10: HarperCollins follows Simon & Schuster, by announcing that they will also delay e-book releases from a “few weeks” to “six months.”
Dec 17:
Kindle iPhone app now available for customers in over 60 countries.
Dec: iRex Iliad line of Book readers is sold out; B&N sold out; Sony e-readers available and Pocket on sale; Kindle 2.0 and DX available for next day shipping.
We’ll definitely visit the publisher/ e-reader relationship at the beginning of 2010. Those tremors you are feeling are real. If there was one industry that was ripe for disintermediation, it’s publishing. If there is one company that can create awareness of new writers/ titles/ anything, it’s Amazon. The Kindle has been successful because it’s easy to use, and, unlike smartphones, doesn’t try to do more than provide an exceptional reading experience. As a result, it has good battery life and has experienced very few issues. Bottom line: Kindle has set the standard for devices, but no one has a business model design that will enable ubiquity. 2010 will be a contentious year. Take a deep breath, everyone, and focus on the reading public. The societal effects are far larger than an individual company’s objectives. Let the Bezos/ Murdoch cage match begin…
6. The shift from in-store to online (or hybrid) spending, especially for smartphones. When the fourth-quarter headlines are written, there will be two that will shape the future of wireless retailing. The first will be the continued strength of the iPhone and Blackberry despite inroads from Google’s Android sales and Verizon’s “map” and “misfit toys” ads (case in point: 10 million Blackberry devices shipped in the last quarter). The second will be the volume of sales that came from on-line retailers, particularly Wal-Mart and Amazon.com. Here’s an example of the disparity that exists between in-store and on-line pricing (all of these prices are as of 12/21, include 2-yr contract commitment and, unless noted, are for new customers only):
In the short run, aggressive selling through on-line channels results in more gross additions for the carriers. Over time, however, they render the company-owned stores into high-cost service centers. With phones and their underlying operating systems becoming more standard (the Curve, Tour/Bold, and Pearl are all good examples; iPhone another), buying a smartphone is starting to look more like buying a small computer. And there aren’t a lot of HP, Toshiba, Dell or Acer company-owned stores. Will this intense on-line competition finally convince the carriers that company-owned stores aren’t right for this part of the smartphone lifecycle? It would definitely be a money-saver.
Next week, we’ll round out the year with the last three trends and even take a look at the decade that was in telecom. Thanks as always for the continued comments – keep ‘em coming. Mobile Symmetry has also joined the Twitter wave and you can join in on daily updates @mobilesymmetry. Happy Holidays!
Jim Patterson is CEO & co-founder of Mobile Symmetry, a start-up created for carriers to solve the problems of an increasingly mobile-only society. He was most recently President – Wholesale Services for Sprint and has a career that spans over eighteen years in telecom and technology. He welcomes your comments at jim@mobilesymmetry.com.
