For as long as the idea of the 'mobile internet' has been around, we've thought of it as a cut-down subset of the 'real' Internet. It's time to invert that - to think about mobile as the real internet and the desktop as the limited, cut-down version.Read More
The computing industry has always sold to segments. Mainframes to large companies, minicomputers to medium-sized companies, PCs first to companies and then middle-class households, and so on. Today, there are around 1.5-1.6bn PCs on earth, of which perhaps half are owned by consumers, yet there are 7.1bn people on earth and 5.25bn adults. PC buyers are still a segment, and a pretty small one, and so, by extension, was the internet.
Mobile is different. It started, like PCs, as a toy for rich people, but in the last 20 years it has spread such that 85% of the earth's population is under cellular coverage - more than mains electricity (80%) and close to the same as access to improved water (90%). 3G networks cover around 60% and will grow to 90% by 2019. Somewhere between 3.5bn and 4bn people now have a phone, depending on your assumptions (there are several billion more SIMs but much duplication). This continues to grow fast, pushing into some very low income groups: the average monthly spend in India is $3-4. In the last decade we've discovered that the value of a phone actually increases as income falls - in the developed markets they sit at the top of Maslow's Hierarchy of needs, but for a poor farmer in rural Africa or an Indian fisherman they solve problems much further down the scale.
Mobile was always somehow separate from the mainstream consumer technology industry - there was always a wall between the two. But since 2007 smartphones have broken that wall down, and the mobile industry is going through a massive category conversion. Of 1.7bn phones sold last year just under 1bn were smartphones, and there are now around 2bn on earth. This will grow much further. The real question will be more about affordable data, and battery life when there is no mains electricity nearby.
For the first time, then, the consumer technology industry is selling to everyone that it is possible to sell to. There are still people who are unable to participate in the economy, but everyone else - everyone able to buy things - will probably be a customer.
This changes lots of other things. Most obviously, as I've written before, it makes the internet opportunity not just two or three times bigger but closer to ten times bigger.
It also challenges conceptions of market size or ecosystem. Since Apple only sells phones at $400 and up (for now) most of this growth in users will go to Android, which now starts at $50 or less. So the Android ecosystem will encompass everything from Instacart customers in San Francisco to ROM hackers in Kiev to rice farmers in rural Myanmar. This makes the concept of a 'customer' on the internet look much more like, say Unilever's: there are people buying soap by the gallon and people buying it in sachets.
Some time in the next six months, the number of smartphones on earth will pass the number of PCs.
This shouldn't really surprise anyone: the mobile business is much bigger than the computer industry, and there have been more mobile phones than PCs since at least the late 1990s. There are now perhaps 3.5bn to 4bn* mobile phones, replaced every two years, versus 1.7-1.8bn PCs replaced every 5 years.
But there was always a wall between the two industries - neither really saw or paid attention to or sold to the other, or if they did (like Microsoft) they didn’t get anywhere. Smartphones broke down that wall - suddenly tech companies could sell to an industry with $1.2 trillion annual revenue, and suddenly mobile operators are faced with people who think about product cycles in weeks rather than years.
Both sides are slightly shell-shocked, and I often feel that neither has quite internalised the scale of the change. Mobile operators still try to make messaging services, and tech people still get surprised that you can sell more phones in a quarter than the PC industry sells in a year.
The driving dynamic is that smartphones are not actually a new industry - rather they are a category change sweeping through a huge industry that was already there, hiding in plain sight. The great majority of those mobile users are converting to mobile phones running Unix, and mobile phones (on average) are replaced every two years, meaning this is a very rapid cycle.
So we will end up with somewhere over 3bn smartphones in use on earth, almost double the number of PCs. (In fact, the more meaningful question is how many people will have a data plan: when you go to low income levels in emerging markets you find people who are happy to buy a $50 Android phone but operators who cannot afford to give that person a gig of data a month for a dollar.)
In truth, none of us have really internalised what change this means. The fact that Apple makes more money than Microsoft or that smartphones outsell PCs isn’t really the point. Rather, the entire internet is being changed fundamentally - both the size and the character of the internet are going to look quite different from what we have been used to.
First, scale. There are perhaps 900m consumer PCs on earth, and maybe 800m corporate PCs. The consumer PCs are mostly shared and the corporate PCs locked down, and neither are really mobile - at best you can take them from table to table. Those 3bn smartphones will all be personal, and all mobile. So the internet goes from a shared device at home to a screen in everyone’s pocket. And that’s without considering several hundred million tablets, which blur all of these boundaries.
This means that the internet gets several times bigger. One could talk about time, or engagement, or use, or value, and all of these metrics are problematic, but it is clear that mobile devices will become the dominant part of the internet - we will stop talking about ‘mobile internet’ in much the same way that no-one talks about ‘new media’ anymore.
Just as importantly, the character of that internet changes too, and not just because of mobility and screen size. On the desktop, ‘internet' has really meant ‘web’, with a few exceptions such as Spotify or Skype. Everything happened inside that browser window, and that didn’t really change at all for 15 years. On mobile, clearly, that is not the case - we have a much richer array of routes to market and models for interaction, and this complexity and innovation is growing all the time. The web is no longer the only option and Google & Facebook are no longer the only option. Some of these changes in dynamics were obvious from the start - others have taken time to appear. A good example is the way that smartphones remove the winner-takes-all benefits of a leading social network, and so obliterate Facebook’s monopoly on social. There are more changes coming - mobile is changing all the time in a way that the desktop internet did not.
In a sense, then, one could suggest that smartphones liberate the internet from the browser in the same way that the browser liberated it from the command line.
All of this means that the operating environment looks very different, and a lot of our assumptions need to change. A lot more is up for grabs, and the scale of success looks different. When a dozen guys in a garage with a hot service get struck by lightning, that means 50m or 100m users, not 1m, and in time it might mean 1bn. A great many industries that came unscathed through the first wave of the internet - the desktop wave - are now facing disruption. Lots of things that look like the right idea are going to turn out to be blind alleys, like Yahoo, but at the same time even irrelevance can mean a big business - Facebook has lost its monopoly but the mobile opportunity may be big enough that that doesn't matter. Web search is no longer the only discovery channel but Google is doing better than anyone else at finding what comes next.
It's now the season that people are supposed to write sets of predictions of what will happen next year. For me, the prediction that comes out of this is confusion, change and opportunity. I really don't know what will be the most important thing that will happen in 2014, but that's kind of the point - everything is on the table.
*There are around 6.5bn mobile connections, but a great many people have more than one SIM
Playing with a new chart format. This shows quarterly handset unit revenue at the 8 'branded' handset OEMs, over the past three years. It includes all phones, not just smart.
The polarisation of the industry is pretty clear. Not shown: the 'other category - Chinese OEMs making up increasingly large volumes for which this sort of data simply isn't available.