Data And Forecasts

Failure to Properly Value Mobile Clicks Leads to Google CPC Decline

Yesterday afternoon Google announced Q4 2012 earnings. In almost every respect it was a spectacular holiday quarter for the company. Consolidated revenues (which include Motorola) were $14.42 billion, an increase of 36% over 2011.

Google made $50.2 billion for the full year, crossing that revenue threshold for the first time. That compares with $37.9 billion the company made in 2011. 

Google revenues 2012 

However the average price that avertisers paid Google per click (CPCs) decreased 6 percent vs. Q4 2011. That was a smaller decline than in the past, which could be seen as a positive.

The CPC YoY drop is because more clicks are now coming from mobile devices and advertisers are paying less for those clicks. According to a report released yesterday from marketing firm The Search Agency, CPC prices for paid-search ads appearing on smartphones are well below comparable ads appearing on tablets and PCs (see graphic below).

In Q4 mobile search clicks were worth less than 50% of what marketers paid for PC search clicks according to the data. Why are marketers paying much less for mobile clicks when mobile consumers are often much better prospects and customers than PC users? 

There's less competition currently for mobile clicks than there is for PC search clicks. Because Google's ad system is an auction that necessarily affects pricing. But more than that many advertisers are unwilling to pay more for mobile clicks because they don't trust them and/or can't calculate a mobile ROI.  

CPCs - tablets, PCs, smartphones 

Source: The Search Agency 

Many search marketers, especially brands and large advertisers, rely on automated systems that calculate paid-search ROI based on some pre-defined conversion event. Those conversions can be a variety of things but frequently they're e-commerce transactions or, in some cases, phone calls. 

PC ROI calculations are generally flawed because they usually don't or can't capture online-influenced offline buying. Accordingly the system and the marketer only see online events but not the far larger collection of offline purchases and activities (e.g., store visits) that are driven by online and paid search advertising. The problem is even more pronouced for mobile, however. 

Because there are relatively few mobile commerce transactions -- though there are plenty of phone calls from mobile devices -- marketers simply don't see the "latent" conversions that happen in the real world or later on another screen, such as in the case where someone does research on a mobile device and later buys on a PC or tablet. 

As a result of this varied, multi-screen consumer behavior marketers aren't able to correctly perceive or attribute ROI and accordingly value mobile clicks. While this represents a "buying opportunity" for advertisers that know the true value of mobile the majority of advertisers are undervaluing mobile clicks. And that's reflected in the average CPC declines that Google has been reporting. 

Nokia Shows Momentum but Needs Android More than Ever

Yesterday Nokia announced "better than expected" Lumia sales. Overall the company said (in these preliminary results) that it sold just over 86 million mobile devices. Among them were 16 million smartphones, including 4.4 million Lumia handsets. The remainder were legacy Symbian devices and new lower-end Asha devices

Asha phones are somewhere between a feature phone and a true smartphone. They're designed to be low cost and intended for emerging markets such as India. They would see little or no success in developed markets like North America or Europe. Indeed, they're not directed toward those markets. 

In Q2 and Q3 2012 Nokia sold a combined total of 6.9 million Lumia handsets. The troubled-company's stock was up yesterday and this morning, having seemingly beaten a very grim Q4 forecast. And some financial analysts are hailing the results as the beginning of Nokia's long-hoped-for turnaround. 

Any celebrations are premature however. According to Kantar Worldpanel Comtech research demand for Windows Phones is uneven and limited. 

In the US Windows Phones continue to lose share and have failed to capture consumer interest. The story is somewhat different in Europe, however, in part because of the legacy of Nokia's strong brand. In the five major EU countries Windows saw aggregate growth of 1.7%. 

The markets where Windows Phone gains have been meaningful are Italy, Spain and the UK, according to the Kantar data. In Italy, for example, Windows Phones gained almost 8 points and now have an 11.7 percent share of the smartphone market.

While there may continue to be modest growth for Nokia with Windows Phones, it's fairly clear that they are unlikey to power a full recovery. What Nokia really needs to ignite growth is to add Android devices to its lineup.

Remarks earlier this week by Nokia CEO Stephen Elop suggested that the company could be open to using Android: 

In the current ecosystem wars we are using Windows Phone as our weapon. But we are always thinking about what's coming next, what will be the role of HTML 5, Android... HTML5 could make the platform itself -- being Android, Windows Phone or any other -- irrelevant in the future, but it's still too soon [to tell]. Today we are committed and satisfied with Microsoft, but anything is possible. 

Contractual agreements with Microsoft probably would make Android "diversification" unlikely in the near term unless Windows Phones sales fell below a certain threshold. Given the modest momentum around Microsoft's OS Nokia will probably stick with Windows. 

Yet if the company were to offer both Android and Windows devices it would see its fortunes improve more rapidly -- much more rapidly. 

Survey: A Majority Use Smartphone 'Personal Assistants' Daily

Nuance Communications, which provides speech recognition services for enterprises (and increasingly consumers, including the Swype keyboard) released a “mobile assistant” survey in connection with CES. The survey of roughly 1,000 US adults found that 75% of respondents had their mobile devices (presumably smartphones) “always on them” or “at hand.”

Among the 90% of survey respondents that reported they had some sort of assistant capability on their phones (not defined in the survey results), a majority (60%) said they used that assistant daily. The following were the most common use cases:

  • Driving directions: 84%
  • Weather: 72%
  • Restaurant lookups/recommendations: 61%

This survey implies satisfaction is relatively high with these assistants. More than 80% of respondents indicated if they could they’d want the “same mobile personal assistant” with them at all times, across all devices and use cases: phones, tablets, PCs, cars, TVs, apps and so on. Accordingly the survey was partly intended to support Nuances "cross-device persona project" called Wintermute, which the company is showcasing at CES.

Using your unique voice print, the system remembers who you are and "follows you from one device to the next, remembering what you like, what you’ve been doing, and where you’ve been." This is in a way a voice-version of what Google is trying to do in asking people to sign in to the Chrome browser so that it can monitor them across devices. In Google's case it's for the purpose of personalizing search results, serving better ads and collecting data on user behavior. Nuance seems to be focused more directly on improving the user experience. 

Interestingly the survey also found that respondents had emotional connections (to varying degrees) to their assistants:

More than half of all respondents cited a personal connection with their mobile personal assistant. Women actually name their mobile personal assistant more than men, with 71% compared to a close 66% of men . . . 73% of men feel comfortable asking their mobile personal assistant for directions but 79% of women ask for help more often.

The materials I received don’t provide detail on whether the assistants in question are Nuance products (i.e., DragonGo) or Apple’s Siri or Google Voice Search/Now. It's not clear how specifically the "personal assistant" idea was defined in the survey instrument. 

The concept of the personal virtual assistant has been around for quite a long time, using a range of technologies and approaches. Yet crystallized in the public mind with the advent of Siri. Nuance, which provides speech recognition for Siri, recently introduced Nina -- a white label Siri-like assistant for enterprise customer service applications. 

My colleague Dan Miller recently issued an expansive new report on personal virtual assistants and their adoption in the enterprise and on consumer devices.

Update: Nuance has reportedly acquired VirtuOZ, which is a provider of virtual-assistant enterprise customer care solutions with a PC focus. The VirtuOZ online assistant will be enhanced and improved by Nuance's speech recognition capabilities and Nuance's Nina offering will help expand its reach into online customer care. 

Tablets Predicted to Outship Laptops This Year

Mobile handsets already outnumber PCs across the globe. However, in terms of internet access (including apps) PCs could fall into third place after smartphones and tablets. That would represent a radical change from today, where PCs still represent the most common way that consumers in most developed countries access the internet. 

Hardware monitor NPD Group is predicting that this year tablet shipments globablly will exceed notebooks (laptops). Here's the projection:

 

NPD also takes a stab at forecasting penetration of tablets by screen size. However this is somewhat less important than the fact of tablet adoption. 

 

Rather than the cornucopia of screens displayed in the graphic above, we're likely to see standardization around three primary tablet screen sizes:

  • 5-6 inches (including the so-called "phablets" phone + tablet hybrids)
  • 7 inches (Apple iPad Mini, Nexus 7)
  • 9-10 inches (iPad, Nexus 10)  

The general publisher response to the rise of tablets is probably going to be responsive web design, which has limitations. However tablets will further reinforce app usage among consumers, though surveys and behavioral studies show more mobile web usage on tablets vs. smartphones. 

Tablet adoption also ends the reign of Microsoft as the most important company in the PC universe. Windows 8 and Surface adoption to date has been quite tepid. And the inevitable availability of Office for tablets removes yet another incentive to buy a PC.  

The "big takeaway" here is the simple fact of more tablets than new PCs. PCs will remain prominent in the workplace and among business users. However for consumers they will see less and less "face time." Tablets and smartphones will become primary internet access points in the home, with PCs being used for more limited and specific things. 

Consumers Change Screens Depending on the Task at Hand

One of the challenging things for marketers these days is to figure out how to efficiently reach consumers on the growing array of screens they interact with. The growing complexity of consumer behavior and the interplay among devices is dizzying.

Last year Google did some terrific research about the parallel and sequential usage of smartphones, tablets and conventional PCs along the path to purchase. The company found that 90% of US adults surveyed used multiple screens during the day. It's really challenging to track this behavior in real time let alone create coherent, integrated campaigns to address it. 

One of the central behaviors identified in the Google research was the multi-screen path to purchase. Consumers often start on one screen but complete transactions on another. The behavior wasn't random, however. Smartphones were found to be the most commonly used screen but people chose different screens depending on the context and nature of the task at hand. 

Harris Interactive has released similar research that reflects different user preferences and behaviors depending on the particular screen and use case. Harris found overlapping usage scenarios but also consumer preferences for one screen vs. another in several instances.

The survey sample consisted of 2,383 adults, about 42% of which owned a smartphone. However that's lower than the US mobile average of 50%+. The data were collected in November 2012. 

The question fielded was: "Thinking generally about your media and communication behavior on a smartphone versus on a computer, please indicate which of these actions you regularly perform on each." Multiple responses were permitted.

In some cases smartphones tended to be used more and in others PCs dominated. Unfortunately Harris didn't ask about tablets.

General activities (penetration/usage): 

  • Texting/messaging: 87% smartphone, 20% PC
  • Email: 90% PC, 72% smartphone (more people on smartphones read emails than compose them)
  • Researching product/services: 81% PC, 45% smartphone
  • Purchasing products: 78% PC, 23% smartphone
  • Maps/navigation: 73% smartphones, 56% PC

Social media usage (penetration/usage):  

  • Reading posts: 62% P, 56% smartphone
  • Sharing content: 51% PC, 44% smartphone
  • Composing posts/messages: 50% PC, 43% smartphone
  • Checking in: 43% smartphone, 28% PC

The presence of children in the home was correlated with increased smartphone activity across almost all categories of activity.

In looking at these data one can see that certain kinds of activities, better suited to smartphones (texting, map usage, checking in), are more often performed on mobile devices. However activities that require larger screens or where the mobile user experience is sub-optimal, favor the PC (e.g., product research, purchasing). 

Facebook's Q4 Mobile Ad Revenue Likely to Be around $260 Million

Independent analyst Ben Evans has teased out a range of Facebook mobile usage and user data, partly derived from the company's own public statements and partly from his own calculations. You can read what he says here. Below I use some of his data and one of his charts. 

Mobile users as of Q3 2012 (mostly public numbers): 

  • 1.07 billion total users globally
  • 604 million total mobile users globally 
  • 470 million users of mobile apps/smartphone apps
  • 134 million users impliedly accessing Facebook via mobile web and not apps 

Screen Shot 2013-01-07 at 12.39.14 PM

Accordingly, roughly 44% of Facebook's global user base doesn't access the site on mobile according to the company's own data. However that figure is likely to get smaller over the next 12 - 24 months and become a very small minority.

Evans estimates the following smartphone app usage for Facebook (based on Q3 data above):  

  • 140 million people globally using the iPhone app
  • 176 million using the Android app 

Below is a chart from Evans showing the relative growth of Facebook access on the various mobile platforms from September 2011 to September 2012: 

Screen Shot 2013-01-07 at 12.30.12 PM

Assuming these numbers are accurate you can see the reversal of positions of the iPhone and Android since last year, which makes sense. However the larger point is that a majority of Facebook users now access the site via mobile. 

Facebook has argued that mobile is ultimately a much larger revenue opportunity than the PC. The following verbatim Facebook remarks come from the Q3 earnings call transcript: 

  • Mobile will give us the opportunity to reach way more people than desktop . . .
  • Somebody who uses only our desktop product has only a 40% likelihood of using Facebook on a given day, but someone who uses mobile has a 70% likelihood of using Facebook on a given day . . .
  • After just six months of ramping up our mobile ad business, we’re already at a point where 14% of our ad revenue this quarter is from mobile. That’s about $150 million . . .

Social and paid-search ad platform Kenshoo came out with data today that argue the percentage of ad revenue coming from mobile is now up to 20.3%. 

Facebook is expected to generate roughly $1.5 billion in overall revenue in Q4. Not all of it is ad revenue, however. Roughly $260 or so million would be attributable to mobile if the 20.3% figure holds and the forecast is correct. 

Google sees lower CPC prices on mobile paid search ads but better performance on mobile devices vs. the PC. However Facebook is experiencing the opposite phenomenon, according to Kenshoo. It sees higher mobile prices but lower engagement vs. the desktop. 

 

Nielsen: Smartphones Now 56% in US, 32MM iPhone Maps Users

As part of a year-end release of data Nielsen indicated that 56% US mobile subscribers owned smartphones as of Q3. By contrast, comScore says smartphone penetration currently stands at 52%. And Pew said earlier this year that it was 53%. 

In the smartphone segment, the following are Nielsen's data regarding US mobile operating system share (again, end of Q3):

  • Android: 52%
  • iOS: 35%
  • RIM: 7% 
  • Windows Phone: 2%
  • Others: 5% 

Here are similar data from comScore's for comparison purposes (November, 2012):

  • Android: 53.6%
  • iOS: 34.3%
  • RIM: 7.8% 
  • Windows Phone: 3.2%
  • Others: 0.6%  

Below are Nielsen's lists of top apps for 2012 for both the iPhone and Android devices. While the lists are different there are several apps that appear on both: Faceobook, YouTube, Pandora, Twitter and "weather."  Screen Shot 2012-12-20 at 2.11.33 PM

Google's Gmail and search apps are at the top of the Android list but absent from the iPhone list.

Nielsen is also reporting that there are an average of 32 million Maps users on the iPhone each month. That's more usage than Facebook or YouTube, which both have huge mobile audiences in the US.

It's also a significant loss of traffic for Google. However because there were very few ads on the iOS 5 version of Maps it's not a revenue loss for Google.

Millennial Media's 2012 Highlights: Samdroid Reigns, Top Verticals by Spend

Millennial Media has released an infographic that offers year-in-review data. I've excerpted what I thought were the most interesting aspects. However you can see the entire infographic here

There were two data sets that I found most interesting. The first is verticals ranked by ad spend on the company's network. Automotive was the leading vertical and biggest gainer in 2012. This is mostly car makers doing broad, awareness-oriented brand advertising. 

Screen Shot 2012-12-20 at 6.44.21 AM

Below is an example of automotive general awareness advertising (though not necessarily from Millennial Media). The screens I've presented are just a few from the ad. The ad makes it possible to locate a dealer to do a test drive -- but that capability is buried a few clicks down and below the fold. 

Screen Shot 2012-12-20 at 6.54.19 AM

If you take a look at all the categories in the Millennial top verticals list, all are categories in which most of the transactions will be realized offline. However I would bet that few if any of the advertisers in these categories are doing anything like trying to drive consumers into local outlets or stores.

For example, the graphic below shows Millennial's most recent data on the distribution of "post click" objectives associated with the campaigns on its network. Only 19% of these ads contained a "store locator." And those are probably not prominently displayed. Most of these campaigns are simply branding campaigns. 

 Screen Shot 2012-12-20 at 7.02.55 AM

This is a significant missed opportunity. Only 5% of retail spending in the US happens online and an even smaller amount through mobile devices. The rest -- literially more than $4 trillion -- is offline. The ability to lead consumers to a store or point of sale is one of the great opportunities of mobile. However it's not really being utilized or exploited by advertisers.

The other interesting piece of data in the Millennial infographic shows the growth (and decline) of Android OEMs. Samsung is winning and HTC, Motorola (Google) and LG are losing when it comes to Android share.

As I've now argued numerous times Android is increasingly identified with Samsung. Partly this is because Samsung is making compelling devices -- although the LG Nexus 4 is the best Android handset on the market -- but it's equally because Samsung is spending so much money on marketing around the globe.  

Just as Android now controls more than 50% of the global smartphone market, Samsung will soon control more than 50% of the Android market.  

Screen Shot 2012-12-20 at 6.44.01 AM

IAB: Q3 Online Ad Revenue $9.3 Billion, Mobile Could Reach $3 Billion in 2012

This morning the IAB reported that Q3 US online ad revenue came in at $9.3 billion. First half digital revenues were $17 billion. It's quite possible that the second half will see $19 or $20 billion total, bringing FY 2012 to $36 or $37 billion in online ad revenue (including mobile). However the IAB didn't provide a detailed breakdown of Q3 revenues by segment. 

Two days ago eMarketer revised its mobile ad forecast upward for 2012 from $2.61 billion to just over $4 billion.

 

The IAB said that mobile advertising revenue was $1.2 billion for the first half. It also said that mobile represented 8% of Q2 2012 revenues, or $661 million. While mobile is the fastest growing digital ad segment it's still small relatively speaking. If mobile continued to represent 8% of digital ad revenue in Q3 that would translate into $744 million.

However if mobile grew as a percentage of overall digital revenue to, say, 10% that would represent $930 million in revenue. That's probably the range that's reasonable to assume: $744 to $930 million. Let's take the midpoint of that: $830 million. 

Because of the holiday shopping activity surrounding mobile devices we can assume that mobile ad revenue will grow further in Q4. Accordingly, it's possible that Q4 US mobile ad revenues might reach or slighly exceed $1 billion. 

We can probably expect mobile ad revenues to come in for the full year between $2.6 and $3 billion on the high end. It's very unlikely that they will reach $4 billion this year however. 

Despite Android Market Share Lead, iOS Devices Dominate InMobi Network

Global mobile ad network InMobi has released its latest "Insights Report" for the US market. Interestingly it finds Apple devices generating the majority of ad impressions despite their smaller overall hardware market share.

Apple's iOS devices have a 46% share of impressions on the InMobi network, compared with Android's collective 43.6% share. Here are the top five devices that InMobi sees on its network:

  • iPhone -- 27.5%
  • iPod -- 11.5%
  • iPad -- 7.0%
  • Amazon Kindle Fire --  2.8%
  • Motorola Razr -- 2.2%

While there is almost no Android presence in the top five (Kindle Fire is a quasi-Android device) the network says that Android growth is outpacing that of the iPhone. Compare InMobi's data to other ad networks, which show Android with a greater share of impressions. 

Jumptap (July, 2012): 

Screen Shot 2012-12-13 at 10.36.56 AM

Millennial Media (November, 2012): 

Screen Shot 2012-12-13 at 10.37.29 AM
The Millennial numbers above correspond almost exactly to comScore's market share data regarding handset penetration (October, 2012):

  • Google: 53.6%
  • Apple: 34.3%
  • RIM: 7.8%
  • Microsoft: 3.2%
  • Symbian: 0.6%

Google Taking Steps to Address the 'Fat Finger Problem'

There are a couple of studies that suggest a substantial percentage -- perhaps as much as 40% -- of mobile display ad clicks are unintended or "bad" in some way. Pontiflex and Trademob are the sources of these findings.

There are a number of ways to address this. One way is changing the billing or business model (moving from CTR to CPA); another is to ensure that clicks are truly intended. For example, mobile ad networks like YP and xAd ask users to confirm that they want to actually contact an advertiser or visit the advertiser's site/landing page.

Below is an example of that approach from the YP mobile ad network: 

Screen Shot 2012-12-13 at 9.19.07 AM

Now Google is taking steps in its banner ad creative to make sure that clicks are valid. The company said in a blog post that  

[M]ost accidental clicks on in-app image ads happen at the outer edge of the ad unit, likely when you’re trying to click or scroll to nearby content. Now if you click on the outer border of the ad, we’ll prompt you to verify that you actually meant to click on the ad to learn more.

Below are screens from the Google post. The company will require users to now click on a specific area of the banner ("visit site"). The entire banner won't be "clickable." 

Screen Shot 2012-12-13 at 9.10.49 AM

Screen Shot 2012-12-13 at 9.11.11 AM

This is smart and together with other, similar efforts it should ensure that clicks and other consumer actions in response to mobile ads are intended and that advertisers are only charged for "valid" clicks and not fat-finger accidents.  

In one sense this is a solution to a practical problem but in another it's a symbolic, confidence-building measure for mobile display advertising. 

Nearly 40% of Smartphone Owners See Mobile Payments in Less Than Five Years

Last week eBay reported that it will realize "more than $10 billion in mobile volume for the year from its mobile apps and PayPal expects to transact more than $10 billion in mobile payment volume." Those are big numbers. If we visit some of the mobile payments forecasts the numbers get much bigger. 

Yet consumer surveys in the US and elsewhere reveal consumer ambivalence and even indifference to mobile payments. It does vary by age however, with younger users indicating greater interest than older people.

A survey we fielded in August (n=926 US adults) found that roughly 29% of respondents had varying degrees of interest, whereas 71% were "not at all interested" in mobile payments.

"How interested are you in using your mobile phone to pay for things as a replacement for cash or your credit cards?" 

  • I'm not at all interested: 71.3%
  • I have limited interest: 14.8%
  • I'm fairly interested: 7.2%
  • I'm extremely interested: 6.8%

In our survey people under 45 years of age were considerably more interested than people who were older. A new survey from Harris Interactive is more bullish on the outlook for mobile payments however, with smartphone owners reflecting much greater interest in mobile payments: 

“How interested are you in being able to use your smartphone to process in-person payments via tapping a special receiver, rather than using cash or payment cards? 

  • Very interested in using my smartphone instead of cash or cards: 8%
  • Somewhat interested in using my smartphone instead of cash or cards: 19%
  • Not very interested in using my smartphone instead of cash or cards: 12%
  • Not at all interested in using my smartphone instead of cash or cards: 43% 

In other words 27% were "Very" or "Somewhat Interested" while 57% were "Not Very" or "Not at All Interested." This was the full sample population. The following were the smartphone-only responses: 

  • Very interested in using my smartphone instead of cash or cards: 16%
  • Somewhat interested in using my smartphone instead of cash or cards: 28%
  • Not very interested in using my smartphone instead of cash or cards: 16%
  • Not at all interested in using my smartphone instead of cash or cards: 30% 

Thus "Very" or "Somewhat Interested" came out to be 44%, while "Not Very" or "Not at All Interested" was 47%. Quite a bit more interest accordingly. 

Smartphone owners in the 18-47 age range were most interested in mobile payments according to the Harris survey. In addition, 38% of smartphone owners saw mobile payments replacing card-based transactions "for a majority of purchases" within five years.  

Despite Better Performance, Mobile Ads Considered Just a Notch Above Spam

Mobile advertising is typically quite a bit more effective than comparable ads on the PC. Indeed, the data show that mobile search and display consistently outperform their PC counterparts. Yet mobile ads (especially display and SMS) are viewed with skepticism and distrust and rank near the bottom of all ad categories in consumer surveys.

This is something of a paradox to say the least. For example, Marin Software's Q3 aggregated client data report indicates the following about the relative performance (CTRs) of paid search ads on the PC, smartphones and tablets:

  • PCs: 2.35%
  • Tablets: 3.22%
  • Smartphones: 5.07% 

You might be quick to respond that smartphone click-through rates could be attributable to the so-called "fat finger" problem thus distorting their true performance. This problem -- and we can debate the extent of its reality -- doesn't really exist in a paid-search context.

These clicks are from intent-based queries and thus more inclined be "real" and reflective of a buying intent. In a display context an unintended click may be somewhat more likely. However mobile display outperforms PC display advertising across the board and consistently across studies. 

Screen Shot 2012-12-12 at 12.01.43 PM

According to 2011 Nielsen US consumer advertising-trust survey data (above), personal recommendations and traditional media ads are near the top and mobile ads are the least trusted of all the major ad categories. 

A more recent Millward Brown consumer survey (Q3 2012) found much the same thing. Mobile ads were at the bottom of favorability rankings among all ad types. The list below just shows digital categories: 

Screen Shot 2012-12-12 at 11.48.11 AM

There's no easy way to explain the apparent contradiction between negative consumer attitudes toward mobile ads and their otherwise superior performance to categories more trusted or ranked more highly.  

Mobile Devices Will Outnumber PCs Very Soon

If you're inclined to believe financial analysts then mobile device ownership (smartphones + tablets) will trump PC ownership on a global basis some time next year. At some point in the next 3 to 5 years we may have as many or more tablets than PCs. These are radical changes in the marketplace that are still slow to sink in with publishers and advertisers unfortunatley.  

The essential thing to understand is that tablets are PC replacement devices in most usage scenarios. Smartphones are used both at home and on the go. They tend to complement PC or laptop usage generally speaking. To accomodate these users and usage scenarios much in advertising, mobile site design and e-commerce has to change. 

The following chart from Pew lays out US device ownership and trends over the past six years.  

Screen Shot 2012-12-11 at 9.18.20 AM

PC ownership (including laptops) has really peaked in the US at about 61% according to the Pew survey data. Mobile phone penetration is 85% (smartphones at 50%+) and tablets at 25% (after the holidays it will be greater). 

So what does this all mean in terms of real numbers? It means that if there are roughly 250 million US adults then there are:

  • 152 million laptop owners (+ some additional number of desktop PC owners) 
  • 212 million mobile phone owners (and about 108 million adult smartphone owners)
  • 62 million tablet owners 

If teens are included there are more than 120 million mobile internet users today in the US. That's just over half the total PC internet population.

A new forecast from Informa Telecoms argues that the mobile phone market will be dominated on a global basis by sub-$150 devices by 2017. Regardless of the accuracy of that prediction, prices are indeed coming down. That means more smartphone penetration and more mobile internet access.

What it also means is that PC-centric publishing, e-commerce and advertising will need to give way to a multi-platform approach and a more nuanced and sophisticated understanding of consumer behavior -- amid an even more challenging attribution environment. 

Examination of Apps Shows Small Minority Share Location

The US Federal Trade Commission (FTC) today released a study of privacy and mobile apps for kids. The report was a follow up to an earlier study issued in January. Both reports were highly critical of app developers and app stores. Both found that parents weren't given enough information to assess privacy policies and whether or how their kids' information was being used. 

The FTC looked at 400 apps (randomly selected) that were directed toward kids. The agency compared privacy policies and actual practices. It found: 

[The] industry appears to have made little or no progress in improving its disclosures since the first kids’ app survey was conducted . . . most apps failed to provide basic information about what data would be collected from kids, how it would be used, and with whom it would be shared.

In a few cases privacy policies were directy contradicted by actual practices and the FTC called these apps deceptive and potentially illegal.  

The report's findings are interesting and potentially important for the debate over mobile privacy. However the specific finding I want to focus on here has to do with the number of apps that transmitted location information to ad networks. 

Mobile apps (for kids) that share information with developers and ad networks 

 

Source: FTC 

Only 3% of apps that transmitted information back to developers and ad networks shared location data. The iPhone makes that process more explicit than does Android. But when location isn't shared there can't be any location-based ads.

Apps for kids aren't ncessarily representative of the entire universe of apps. Indeed, location may be much less of a factor in apps for kids. But the data may be directionally consistent with the market as a whole, inducating how relatively few apps today offer opportunities to display location-based ad inventory. 

Is This the 'Breakthrough Quarter' for Windows Phones?

You can't turn on the TV, Internet or open a publication without encountering an ad for Windows Phones. And there are conflicting data about whether it's working and the corresponding strength of Windows Phone sales.

Several data sources continue to indicate tepid demand in North America but there is also some evidence that Windows Phone sales may be going reasonably well in certain parts of the world. The blog WMPoweruser identifies growth in the usage of Facebook apps for Windows Phones and extrapolates an increased sales trend on that basis: 

Using the number of Monthly Active Facebook users as a guide, we can see around 627,000 MAU of the built-in Facebook app has been added since the 1st October 2012, the start of the quarter.

Last year over the same period less than 150,000 was added by the 15th December, possibly hinting at the source of Steve Ballmer’s statement that “Windows Phones are so far selling at four times the rate of the same time last year” Last year according to Gartner, who claims to measure units actually sold to end users rather than shipments, said 2.759 million Windows Phones were sold in Q4 2011.

The data suggests already 7 million Windows Phones were sold so far this quarter, and we may finally be heading to a + 10 million Windows Phone quarter.

If in fact Windows Phones were to sell 10 million units to end users it would indeed be a breakthrough for the beleaguered platform. However there's other data to suggest that Windows Phones are not doing as well as that. For example, the most recent comScore US mobile market share data show that Windows continues to lose overall share to iOS and Android:

 

There are also recent sales data from Kantar Worldpanel that show Windows Phones losing share in accordance with the comScore data above:

However in Europe Windows Phones are making some inroads, probably as a result of Nokia's promotional efforts and legacy brand strength. While the EU5 shows a 4.7 percent market share (growth of 1.7% vs. a year ago) individual countries vary widely.

In Italy, Spain and the UK Windows Phones have performed better than in Germany and France. In Italy in particular Windows Phones have gained almost 8 points and now stand at an 11.7 percent share of recent sales according to Kantar. Again, this is probably on the strength of the Nokia brand in Europe.

Elsewhere around the world Windows Phone sales appear to be modest. However in "urban China" Kantar says Windows Phones contstitute 4.2% of all recent smartphone sales.  

It is possible that all these sales combined represent several million units around the world. But while there does seem to be momentum in certain countries it doesn't yet appear that this is a 10 million unit "breakthrough quarter" for the operating system. 

Mobile Apps Challenge TV for Temporal Supremacy

Flurry Analytics has been chronicling the rise of the app ecosystem and the growth of app usage by consumers for several years. In January of this year the company released data arguing that daily time spent with mobile apps had surpassed the PC internet: 94 minutes vs. 72 minutes per day. And earlier today Flurry released an analysis of US consumer time spent with mobile apps vs. television.

Ad network InMobile asserted earlier this year that consumers are now spending more time on a daily basis with mobile media than they do with TV:

[M]obile ranks first in media consumption among Americans with 2.4 hours of the 9 hours spent consuming media on mobile devices—this is more than a quarter of time spent on mobile, outpacing TV (2.35 hours), PCs (1.6 hours) and any other channel.

However according to the data compiled by Flurry, consumers are spending 127 minutes per day with mobile apps compared to 168 minutes per day with TV.  TV time is basically flat, or slighly down according to Nielsen, while app-time is gaining according to Flurry. 

Flurry US Web vs App TV Consumption resized 600 

Nielsen itself says that people in the US spend roughly 4 hours and 18 minutes per day on average with conventional TV (vs. 168 minutes [2.8 hours] in the Flurry graph). That would be about 2X of the time spent with mobile apps, using the Flurry figures.

The question of whether time spent with mobile already exceeds TV time or closing in on it is largely symbolic. The larger point is that consumers are highly engaged with mobile devices and the mobile internet. That trend will only continue to grow and gain in the next several years. Mobile ad spending, however, is nowhere near commensurate with the kind of time and attention that consumers are spending with mobile media. The chart below (also courtsey of Flurry) illustrates the huge disparity between the two.

Screen Shot 2012-12-05 at 9.26.28 PM

Mary Meeker has argued that, based in part on this familiar time-spent formula, mobile advertising is basically a $20 billion opportunity in the US. That may be the case eventually -- though advertisers and their agencies aren't totally "rational." But in the near term are many barriers to the free flow of ad dollars into mobile right now: organizational politics and culture, lack of advertiser education, lack of budget and perhaps most of all lack of "clear ROI." 

It took a very long time for online advertising to attract the kind of ad dollars that were more or less consistent with consumer time spent online. It won't take quite as long for mobile to ramp. But it could still be a number of years before mobile marketing and advertising are significant budget items for the majority of advertisers.

For their part consumers are mostly indifferent to whether or how soon companies embrace mobile marketing and advertising. While they prefer mobile friendly sites and user-experiences they don't particularly care if marketers are fully exploiting mobile ad opportunities.

However, if marketers do not as the Thanksgiving holiday weekend has already proven, it will be their missed opportunity. 

The Most Interesting Mary Meeker Slides about Mobile

Former Morgan Stanley financial analyst, now KPCB partner, Mary Meeker did one of her patented blizzard of stats/data dump presentations at Stanford University the other evening. The slides (available here) are essentially an updated version of a presentation given earlier this year. 

You know most of the material by now. However, below are the most interesting slides I culled from a much longer set. They go to device adoption and mobile ad revenue projections. 

Screen Shot 2012-12-04 at 11.57.33 AM

The noteworthy thing about the above chart is that it argues there are 172 million smartphone subscribers in the US. If that's true it would mean a smartphone share of something like 68% or 73% depending on the base used. This is undoubtedly high. But it's not unreasonable to argue that there may be 60% smartphone penetration by the end of Q4 in the US (or early Q1). 

From the chart below: there may not in fact be 5 billion individual mobile phone users around the world. There are "only" 7 billion people on the planet. It's probably more accurate to assert there are something like 5 billion subscriptions/SIM cards (there are some dual subscriptions). Still the global smartphone growth opportunity is massive. 

Screen Shot 2012-12-04 at 11.58.14 AM

The following chart is based on Pew survey data, showing that 29% (as of earlier this year) of US adults owned a tablet or eReader. Tablets are going to be the number one electronics gift item this year. We could be looking at 80 million total tablets in the US in Q1 2013. 

Screen Shot 2012-12-04 at 11.58.37 AM

What's most interesting about the slide below is that it projects tablet ownership to pass PC ownership by the end of next year; in other words: more tablets than PCs. This may be a aggressive forecast but it's not out of the question. 

Screen Shot 2012-12-04 at 12.00.05 PM

The final slide is about mobile advertising and app revenue. There are many sources behind this projection. It envisions a $20 billion global market by the end of the year, with mobile advertising around $6 or so billion. 

Screen Shot 2012-12-04 at 11.59.17 AM

US mobile advertising was worth roughly $1.2 in the first half and is on track to be somewhere between $2.6 and $2.8 billion for the full year 2012. Globally mobile ad revenues will probably reach between $5.5 and $6 billion by the end of Q4 this year.

Nielsen: 79% of Mobile Consumer Time Spent with Apps

Social networks and social-mobile apps are undeniably mainstream at this point. Indeed, mobile is where much of the growth is happening for social media. A new report, compiled from Q2 data and issued by Nielsen, illustrates this and compares time spent and access by media device.

What the data show is that the amount of time people are spending with mobile devices (vs. PC) is growing and that mobile apps continue to be where mobile time is concentrated. Along with smartphone and tablet penetration, mobile time overall has grown vs. 2011 but growth has been concentrated in mobile apps. They see roughly 79% of consumer time with mobile media and the mobile internet. 

Mobile media time overall is now roughly 43% of the time spent on PCs as of Q2 2012. 

Screen Shot 2012-12-03 at 9.20.17 AM

Mobile use of social networks tends to show slightly higher levels of engagement than on the PC. In mobile, as on the PC, women tend to be more engaged than men. But the most engaged groups are slightly different in each category.

The most engaged group of mobile social media users is the 25 - 34 age range, whereas on the PC it's the 18 - 24 year old cohort.

Screen Shot 2012-12-03 at 9.21.20 AM

The following chart illustrates that among the major social sites, Facebook dramatically leads in terms of time spent (although Instagram isn't present on this list). In addition, time is roughly divided 85% mobile apps vs. 15% mobile web. And while the ratios are slightly different for each social media publishers the directional trend is the same -- toward mobile apps.

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Nielsen also looked at the major ways in which consumers connect to the Internet generally. It found that the PC was still the dominant way but that PC penetration was down slightly since a year ago. By contrast, as you might expect, mobile access to the Internet has grown significantly on smartphones and especially on tablets.
Screen Shot 2012-12-03 at 9.23.09 AM
Marketers who continue to ignore or only nominally address smartphone and tablet users -- especially app users -- are losing access to an increasingly large user base and may be doing their brands and reputations harm in the process.

Shipments vs. Traffic: Market Share Data that Really Matter

Numbers are everywhere as we head into the final month of 2012 -- an undisputed "year of mobile" -- and many sources have released loads of market share and device penetration figures over the past week. Some of those numbers are meaningful and some are not.

Among them ad network Millennial Media put out some monthly device figures this morning, based on ad impression share on its network. I'll take a quick look at those numbers and then discuss some of the other recent device data in the market, with an emphasis on tablets.

The iPhone is the single most prevalent device (and has been so for several years) on the Millennial Network. It generated 16% of all the ad impressions in Q3, while iOS devices in total generated 31% of all Millennial's ad impressions. Collectively Samsung devices (phones, tablets) were responsible for 24% of impressions; the second most prevalent device OEM.

RIM devices were responsible for 7% of ad impressions, which is now basically on par ith the company's overall market share in the US. There are no Windows Phones in the top 20 on Millennial's network. Windows Phones (Lumia in particular) has sold reasonably well in select countries in Europe (i.e., Spain, UK, Italy). However they have not sold well in the US. 

Screen Shot 2012-11-29 at 6.45.57 AM

While Apple is the leading manufacturer and has the leading device on the Millennial network, Android devices dominate collectively -- with 52% of all impressions, compared with 34% for iOS. This share breakdown is almost identical to comScore's September US smartphone market share data.  

Finally Millennial ranks the top tablets on its network (see graphic above). The iPad leads, followed by the Samsung GalaxyTab, Kindle Fire and others. Tablets will clearly be one of the most popular holiday gifts and the top electronics item sold in Q4. 

It's curious to see the Acer and Motorola tablets on Millennial's list. From a sales and traffic standpoint there are now effectively three tablets in the market: the iPad (and Mini), Google's Nexus tablets (mainly the Nexus 7) and Kindle Fire devices. While the Nook and Galaxy Tab have some market presence they're essentially "also-rans" at this point. The Galaxy Tab has had greater success in Europe.

A new report from ABI Research claims that the iPad's share (of shipments) fell to 55%, down 14 points in Q3. Lower-priced tablets from Google-ASUS and Amazon are driving a lot of sales to be sure. Indeed, Amazon made the claim earlier this week that Kindle device sales more than doubled over last year. 

But collectively we need to get rid of "shipments" as a market-share metric. It's widely used because it's easier for analyst firms to track than actual sales. However it's not meaningful in any sense. As an industry we need to shift to actual device sales or even other metrics such as web traffic/transactions. This past weekend's data have shown this.

What do sales matter if devices aren't widely used or are used for very limited purposes. For example Kindle Fire devices, though they're selling well, are essentially used to consume Amazon content. They don't show up very often on internet traffic reports. And while the impact of Nexus devices has yet to be fully felt, the broader notion (promoted by the ABI report) that Android tablets now constitute nearly half the devices in the market is misleading.

As widely discussed earlier this week, the iPad is the only tablet right now that appears to matter in a "real world" sense. According to this weekend's e-commerce data from IBM, the iPad generated 88% of tablet traffic on Black Friday and more than 90% on Cyber Monday. 

In Q2 ad network Chitika found that the iPad was responsible for almost 95% of the tablet traffic on its network. Other publishers and e-commerce sellers report similar results: so far the iPad is the only tablet that matters.

E-commerce site Fab.com has said that 95% of its mobile sales come from iOS devices. And tablet content platform Onswipe has said that the iPad is responsible for a remarkable 98% of all tablet-based traffic to the company's publisher partner network. Based on global web traffic data from Q2 this is what actual usage market share looks like:

tablet OS faceoff

Despite Android's dominance in terms of device penetration the majority of mobile web traffic in the US (not to mention transactions) is coming from iOS devices. And when it comes to tablet traffic alone, there is no Android surge. 

There may be a lot of Android tablets out there but engagement and usage levels are far below the iPad.