Mobilize or DieOct 26, 2009 1:00 PM MDT
A Follow up Analysis of the Web 2.0 Summit
by Steve Smith
Last week, Morgan Stanley’s Mary Meeker gave what may prove to be a landmark presentation on the future of the Internet. If media companies weren’t already convinced in the last year that they had better have a comprehensive mobile strategy by now, then they might start getting nervous over Meeker’s conclusion. Mobile is not just an extension of the Internet—it is the next stage of the computing juggernaut. The mobile Web will be bigger than most people seem to think, and Apple’s leadership position in mobile content and business models will continue for one to two years.
The explosive use of mobile data that we have seen on the iPhone and iPhone Touch devices suggests that as smartphones generally creep past their current 20% penetration in the U.S. (by most estimates), mobile data access will accelerate at an unprecedented rate. Using the uptake of the previous desktop Internet as a comparison, Meeker finds that iPhone/Touch adoption is growing at eight times the speed the Internet was adopted. In other words, media companies do not have the luxury of “waiting and seeing.” The users will be here and consuming other people’s content in your category if you don’t have a compelling presence on mobile.
While many publishers continue to doubt the wisdom of focusing on the iPhone platform, even though it still has a fractional part of the mobile phone market, Apple is the market’s key driver for the next two years. Translation for content providers: Developing an iPhone app (or at least a smartphone-friendly Web site) is necessary training. And Meeker confirms what many of us suspected. When compared to other consumer hardware technologies, the iPhone/Touch ecosystem has grown faster than any consumer device in history, including the iPod itself.
Mobile is big. OK, we sort of suspected as much. But what is critical to Meeker’s assessment is that the Internet itself is now being driven to a new stage by two concurrent phenomena: social networking and mobile. “Facebook and Apple ecosystems are fundamentally changing ways people communicate with each other and ways developers, advertisers, vendors reach consumers,” Meeker said. She believes people will begin using their phones as a kind of remote control on real-time cloud computing services that empower them in new ways. In other words, consumers will be able to access databases of information and social data that help them make better decisions about products, situations and the services they need at the time and place of that need.
If the Japanese mobile environment is a precedent for what will happen here, then mobile content providers can expect an increasing share of traffic coming from mobile. In Q2 2006, 86% of page views at Japan’s most popular social network, Mixi, came from the desktop. Less than three years later, in Q1 2009, 65% of traffic was coming from mobile.
Social networking, of course, is a special case. The peer-to-peer activity of the platform maps especially well against phones. Nevertheless, even if a diluted version of this pattern occurs in select categories like sports, weather and financial content, the shift will have a profound impact on their basic business models. If Web traffic begins shifting to mobile and starts cannibalizing the larger, more lucrative Web presence, a publisher will need much smarter approaches to monetizing mobile. Right now, the overwhelming majority of ad inventory on mobile sites is being sold by ad networks, many of which actually helped their publishers get online in the first place. Mobile ad CPMs have been plummeting this year, most media buyers report, and all but the largest media brands on the platform are experienced enough to bring sales in-house and create premium inventory.
And with whom should you chart a business relationship in this mobile future? According to Meeker, don’t look to the major carriers for the best bet, because they are about to be disintermediated. The U.K. is a great example of what happens when walled gardens come down. In 2007, mobile carriers had a 57% share of all mobile Internet users. A year later, that share plummeted to 22%. Google, BBC, Nokia and Facebook were the leading destinations.
Finally, again using overseas examples as precedents, Meeker showed that Japan’s revenue mix for mobile saw mobile paid services grow from 10% of overall mobile spend to 21% in eight years. The news is less strong for advertising. Mobile marketing spend went from zero to 2% since 2000. Experience in the U.K. and Japan suggests that people will pay for advanced content services. The scale at which advertising will support content on mobile is still unknown.
Meeker’s overall argument is that the shift of eyeballs, mind share and investment to mobile will spell trouble and opportunity for a number of companies. In other words, media companies now need a genuine mobile strategy or they risk missing out on the next stage in digital history.