December 27, 2011
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Amidst the cacophony of pundit cries that seem to fill the air this time of year, I’m not going to take to the airwave perched proudly atop an ivory tower to predict the promise of 2012. Instead I thought I’d do something a bit different. I’d like to dissect some of the many “predictions for 2012″ put forth by the tech media to discern which have merit based on what we know today. So I won’t be making new predictions of my own, that’s already a cottage industry, instead, I’ll spend some time applying Occam’s Razor to the 2012 predictions that keep coming up on my year-end radar.
Major themes for 2012:
- A power shift will continue to shift carriers’ revenue mix: It’s becoming common practice to state that carriers are being cut out of the equation on mobile due to the increasing influence of the hardware and software markets. Interesting, but not necessarily a prediction I can get behind. This is one that I’ve seen cited a lot. the forms it takes range from “carriers will have less say in dictating what we buy” which is a old news if we can remember all the way back to AT&T c. June, 2007 with the introduction of the iPhone. More recent examples of how smartphones are changing the business, upstart Republic Wireless coming on scene in the US offering an unlimited (recently announced as actually unlimited in response to market pressure) data plan for its customized Android handset for $19 per month. Yes, nineteen. So much for carrier overage charges if models like this catch on. The prediction also takes the shape of “smartphone inventory commitments/subsidies will eat into carriers’ bottom line.” We’ve seen “it phone” commitments from carriers equal hefty sums on a per-handset basis – over $400 by some estimates - and subsidies even affect carriers’ stock price, but the overall addition of wanted handsets is a win for carriers. We’re approaching 50% of US mobile users owning smartphones which equates to 50% – at a minimum ,and rapidly growing – of carrier customers signing on not only for voice and text but for data as well. For new smartphone customers, coming onboard or upgrading to the costly “it phone” this is net new revenue for carriers. All as the era of unlimited data comes to a close in 2012. New and upgraded customers’ plan commitments will certainly offset any subsidy pressure. As for the devices themselves, and their potential to disinter mediate the carriers with apps and other technology that replicates or improves on carrier services, a favorite example that many cite is the death of the SMS cash cow. This is likely true – SMS will comprise a smaller and smaller portion of carrier revenue, similar to the shifts we’ve seen away from long distance, digital calling features and all manner of old telephony technology disappear from the balance sheet. Is this a bold prediction? I don’t think so. It’s happening now and, despite recent data that over 75% of mobile phone users take advantage of carrier SMS services, the introduction of things like iMessage and What’sApp that take SMS traffic outside of carrier control onto wifi on smartphones or shift the behavior completely to non-phone devices like the iPod touch. So is the carrier revenue mix going to change? Absolutely, but they’re not going to get besieged by subsidy/inventory fees nor will the mighty fall from the decline in SMS, this is a natural part of the maturation of any technology business, and we see it all the time in telephony. Next prediction?
- Tablets win hearts, wifi wins the day: So, since we’re talking network traffic shift, I’d like to make a call on the traffic I’ve been hearing about tablets being the great savior for carriers. I say not so fast. Why? They’re mostly going to depend on WiFi. I’m not the only one making this call, in all fairness. Based on some data that I’ve come across (see slide 11) we’re looking at a near 24% compounded annual growth rate in tablet adoption in the US through Q2 of 2011. Add to that the massive numbers being snapped up and activated at the holidays, the last week showing a 353% spike in iOS and Android device activations through Christmas day according to Flurry Analytics. Sure, some of these were carrier-connected devices – a good majority were likely smartphones – but many more of these devices are tablets and other devices that connect via wifi only. Why? Acquisition cost, for one. Nielsen reports that 44% of children requested iPads for Christmas this year. Surely all of them did not wake up to an iBox under the tree on Christmas morning and, for those who did, it’s highly likely the present buyers opted to forego the 26% price hike Apple demands for 3G on its lowest-end iPad, and even the 18% premium it demands on the high end, all before taxes and monthly fees. Tablet users overwhelmingly prefer connections via Wifi to cellular or even a mix. If smartphone early adopters taught us only one thing, it’s that the experience of rich-media-centric, connected apps is far smoother over WiFi connections especially as device numbers swell. Add to that the fact that tablets are beginning to show up in more shapes and sizes and being marketed for more uses and behaviors than the traditional 9- and 10-inch tablets that started this craze. These secondary or even tertiary devices remain appealing, accessible and increasingly affordable when decoupled from expensive, often underperforming cellular networks. Users will focus on buying the devices designed for the best network experience they can create and while we’ve seen a lot of hype around the rollout of 4G – that choice will remain WiFi. Advice to connected device buyers, take the extra cash left over from your WiFi tablet purchase and upgrade your WiFi router and backhaul. That, or you can save your cash for the additional, smaller tablets you’ll add to the mix next year. WiFi still rules, but of course a guy who tweets as 802dotchris would say that, right?
- Tablets go mainstream, from a demographics standpoint. I have heard a lot of noise in 2011 about the average purchase size of tablet users vs. other device users. I’ve seen marketing and mobile strategies built upon this. When asking an exec at a major agency whether we could chalk this up to the simple demographics of someone that could drop $499on a second or third screen was “I don’t care what it’s due to, the group spends more and they get more of my marketing spend as a result.” Fair enough, but that type of thinking won’t be a “lock” in 2012. “No kidding,” you say, “tablets are flying off the shelves and getting activated” – to the tune of over 6M per day this holiday, according to the aforementioned Flurry data. The great equalizer in tablet buyers? The shift toward cheaper Android devices like Amazon’s Kindle Fire. According to data released by RichRelevance, the Average Order Value (AOV) for iOS users purchasing through mobile devices is $123, while for Android users it’s $101. Let’s think about that, devices like the Kindle Fire are the tablet you buy for someone/someone buys who doesn’t necessarily know they want a tablet. It’s also the tablet that – due to it’s marginally higher cost over it’s brand co-star, the Kindle – makes it a purchase destined for a lot of would-be ereader users. For the neophyte users dipping their toe into tablets it’s a novelty and not likely to replace their laptop or replicate that computing experience. On the side of the ereader would-bes, the usage patters are immersive and focused on consumption, shopping is not likely to be a major activity, at least not early on for either group. Fact is, as more of these devices hit the market at lower price points, the sub $20 AOV delta between iOS device owners and Android device owners will go away. Banking on tablet users as a well-heeled, tech savvy group of super spenders will be inaccurate and will risk alienating a growing percentage of core customers. It’s going to be harder for retailers to get content and apps that play well to an increasingly diverse audience but they will need to. Regardless of whether it’s the Android or iOS AOV number that retailers and marketers are fixated on, there’s only one number that pales in comparison, the $87 AOV of desktop users. Tablets are an immersive experience and once users get shopping, the potential to capitalize on that immersion with a novel, immersive shopping experience tailored to touch will drive AOV skyward, no matter what tablet OS shoppers are using.
I’m interested to see how these prediction calls hold up, and I will be following up on them. I’m interested to know what some of the predictions are you’d like to see taken to task, which ones you think are just wrong and which ones you’re surprised aren’t listed here. Start the debate in the comments.
Post image source: flickr, hans s
December 7, 2011
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For those of you able to attend today’s keynote session at the GSMI Mobile Marketing Strategies Summit, thank you for making this an insightful and interesting event. As mentioned at the conclusion of my keynote, slides from the talk are available for download below.
The material presented during the keynote relies heavily on my upcoming research around the use of mobile technology this holiday season. I’ll be publishing a report this month on the topic that includes overviews of major brands’ strategies in mobile, an assessment of steps to achieve mobile success and a scorecard to understand the impact of your mobile application strategy. The report will be available here and on the Altimeter Group Research Reports page in the coming weeks, for free download and distribution.
December 5, 2011
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I spent the end of last week making a very quick trip out to the West Coast where we convened the entire Altimeter team to re-cap our year, talk about how we can work better together (we’re 23 people and spreading out geographically very fast) and also about values.
As with any exercise where a growing company works to better define its culture there were champions and detractors, wingers and cheerleaders and we all played one or the other at different times within the dialogue. The thing that strikes me, however, is that for a company that’s looking forward into its third year, we’ve attained a level of maturity I don’t see at many older, and some larger companies. The capacity for sel-awareness, the need for culture (especially when it comes to a highly distributed workforce) are things that make the difference between a company flaming out or burning bright.
Looking forward into 2012, I think that Altimeter’s future is quite bright, holds a lot of promise for our ever growing team to tackle more and deeper disruptive technology challenges and better serve a more diverse set of clients. I was thrilled to be part of the team that all worked together to articulate the Altimeter values; they’re something that are and will continue to be a very public part of what we do and how we work
What’s your pain that the research market isn’t meeting and how can we help? Also, what are the values that matter to you as an individual or as a company? Drop a note in the comments or an email/Twitter message to me, I’d love the feedback as I know the rest of the firm would as well.