User Experience

PayPal Does Distribution Deal with Discover for Massive Reach

PayPal today announced a deal with Discover Card that will potentially bring its mobile payments services to more business locations than any of its rivals, including Square. The potential reach is reportedly seven million merchants.

The new in-store payments capability should be live by Q2 of next year. Consumers will be able to pay by swiping a PayPal card, that in turn backs onto a credit card or checking account or PayPal account balance. In that instance PayPal is no different than using a conventional credit or debit card. However for some subset of merchants (but still perhaps millions) consumers will be able to enter a mobile phone number and a security PIN on the retailer POS terminal (as in the Home Depot implementation). 

That mobile + PIN scenario is potentially faster and more secure than a card swipe. Today there are roughly 16 major retailers that have implemented PayPal in stores. However number is expected to grow by the end of the year in advance of the Discover rollout. 

Yet PayPal/eBay will need to educate and aggressively market the service to consumers if it hopes to drive adoption. There will also need to be incentives and rewards to get consumers to try the system. Even though the mobile + PIN approach is more secure than a card swipe consumers often express security concerns about mobile payments. There's a perception they're less secure.  

The deal with Discover now vaults PayPal back to a leadership position in mobile payments. However mobile payments isn't a zero-sum game. There won't be a single winner. Several major competitors can operate and succeed. Beyond PayPal and Square the question is: who will be the other winners?

See related posts:  

PayPal in Mobile Ordering/Payments Test with McDonald's France

As reported by Reuters late last week PayPal is in a pilot with McDonald's France to test mobile ordering and payments:

McDonald's is testing a mobile payments service featuring PayPal at 30 of its restaurants in France. Earlier this year, McDonald's ran demonstrations of a broader PayPal mobile payments service at its franchisee conference in Orlando, Florida.

A McDonald's spokeswoman confirmed the France tests and said the PayPal demonstration at its conference was part of a booth that features "technology coming within the next 24 months or so."

The concept is that people would order on their mobile handsets and then pick-up that order in a McDonald's location via an express line. However the idea that this system might be coming "in the next 24 month or so" is problematic for PayPal. As the article points out the company is in a kind of land grab or race with other payments vendors but especially Square, which established a major beachhead with its recent Starbucks deal

In the past this probably would have been PayPal's deal. It now legitimizes Square as a viable alternative to PayPal for larger enterprises.

PayPal has existing in-store payment relationships with Home Depot and Office Depot. Several months ago I used the PayPal system at Home Depot and was unimpressed. There was no real benefit vs. a conventional card swipe. It also didn't expedite the transaction. 

However PayPal has international scale, which at the moment Square does not. It's also true that there won't be a single winner in the mobile payments segment. Multiple consumer-facing companies and apps will likely co-exist.

Unlike the Home Depot-PayPal arrangement, which offered no apparent benefit or time savings, the McDonald's trial does offer convenience and time savings to end users. 

Getting a payments relationship in place is only the first step. Once these payments systems are in place they become a source of data and a basis for marketing and CRM initiatives. 

The Right Approach to Mobile Can Boost In-Store Sales

Many retailers are wringing their hands over the so-called "showrooming" phenomenon, where consumers visit stores to investigate and try products but ultimately make purchases through Amazon and other e-commerce sites. There have been various articles written about how traditional retailers can combat this. Some emphasize loyalty programs while others focus on more "defensive" measures such as developing proprietary SKUs (e.g., Target) so consumers can't scan products in the store and obtain competitive pricing information.

Yet the use of smartphones in stores will only continue grow. It's important for retailers not to fight but to embrace the trend. 

While a recent Google survey found only 31% of smartphone owners used them in stores (among apparel shoppers), another survey of 1,557 US adults, conducted in March by Deloitte, found that 61% of respondents used their smartphones in stores.

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Source: Deloitte

In addition, data from multiple sources (i.e., InsightExpress, Google, Nielsen) published last year and earlier this year indicate much higher numbers: up to 80% or more use or have used their devices in stores while shopping. 

The flip side of "showrooming," the discussion of mobile consumer shopping continues to focus on "m-commerce." However mobile's biggest impact wil be on in-store sales (just as the PC Internet's biggest impact is on in-store sales and not e-commerce). The Deloitte study confirms or reinforces this notion.

The chart below mashes up data from several sources to project that mobile will influence almost $700 billion in offline shopping by 2016. 

 Screen Shot 2012-08-16 at 4.18.53 PM

Source: Deloitte

As with most forecasts these figures are likely to be wrong but it's directionally accurate to say the influence of mobile on traditiona retail will grow dramatically.  

What's interesting about the first chart above is how progressively more people use their smartphones as they approach "shopping day." This argues that retailers can provide mobile sites and apps that will support and address consumer needs along a spectrum of time and need: when they're planning to shop to when they're actually in the store.

Mobile apps can provide information that supports the sales and customer service function in stores. (Store and inventory maps could help customers find products; out of stock intems could be ordered for home delivery.) These things can be combined with loyalty incentives and even (eventually) mobile payments in stores. US retailer JCPenney, for example, is ditching its current POS and cash register systems for mobile payments and new payment kiosks. 

The larger point is that a great mobile retail app can improve and enhance the customer experience. Retailers don't have to fear mobile.

As Deloitte commented in its report, mobile can increase in-store sales: "Our survey shows that 85% of consumers surveyed who used a retailer’s native app or site during their most recent shopping trip actually made a purchase that day, compared to only 64 percent who didn’t use the retailer’s app or site."

Following Starbuck's Lead Dunkin Donuts Gets into Mobile Payments

Dunkin' Donuts has introduced iOS and Android apps that enable mobile payments. Ryan Kim at GigaOm used the app at one of the stores and said it worked very much like Starbuck's mobile payments app. Indeed, Starbucks is explcitly the model.  

Users don't load a credit card into the app, however, they add an existing Dunkin' Donuts refillable payment card or buy a Dunkin' Donuts payment card through the app.

Below are some screens from the iOS version of the app. It includes a store locator, menu and the ability to send a mobile gift card to others. Another feature that would be nice to see is online/mobile ordering for in-store pickup. 

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This is yet another example of what I've called "a point solution," which will help educate consumers and bring them into mobile payments in a broader way. They get a very direct experience of the benefits of mobile payments at a famiilar business. If the experience is positive and convenient (clerks scan a 2D barcode at the register) it will help them overcome any fears or uncertainty they may have about the idea of mobile payments more generally. 

Dunkin' Donuts has a global footprint with 2,600 stores in 30 countries. The company says it serves 3 million customers per day.

Survey: Most Consumers Using Tablets 1 to 4 Hours Daily

Last week Adobe released a report, based on US consumer survey data (n=1,200), about smartphones, tablets and user behavior. There are numerous findings in the document.

Some of the most interesting concern the specific features or functionality that would help consumers buy via mobile devices (chart below). There were also numerous complaints about the speed of mobile websites (load times) and poor site navigation as areas for improvement. 

I'm not going to dig deeply into design and functionality related findings, which amount to specific product recommendations for e-tailers and developers. Most of my focus here will be on tablet usage.

Most Adobe survey respondents reported using tablets "a few hours every week" or at least 1- 4 hours daily. The array of answers is very awkward and probably confused some of the respondents and results accordingly. Previously (October 2011) Pew found that 77% of survey respondents used their tablets daily. As a general matter people report very high levels of tablet engagement and daily usage (at least of the iPad). 

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Like many other surveys before it, the Adobe data also show that the majority of tablet owners use their devices at home. As I've argued in the past this may change somewhat as the 7-inch tablet category gains momentum. That remains to be seen however.

Screen Shot 2012-08-14 at 3.14.21 PM

The most common activities on tablets were email, games, shopping, reading and video viewing. This is generally consistent with other data, however the video viewing response rates in this survey are somewhat lower as is the amount of news consumption. Pew survey data indicate that 53% of tablet owners consume news on their iPads/tablets on a daily basis. 

Adobe neglected to ask about tablet substitution for PC usage. Several surveys make clear that people who own iPads are using their PCs somewhat less to a lot less than prior to owning a tablet.

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Adobe's survey showed that people are also conducting e-commerce on their devices. Nothing new there. Unfortunately the responses aren't broken out by tablet vs. smartphone. If so we'd probably see much more activity on tablets: smartphones are for research/shopping, tablets are for buying. 

The data in the following chart reflect the cumulative value of e-commerce spending over the past year, not average purchase value.

Screen Shot 2012-08-14 at 3.16.03 PM

Finally, 60% to 70% of Adobe's respondents said they'd never clicked on a mobile ad. Adobe sees the glass "half full" and says, "A high percentage of consumers surveyed report that they are clicking through mobile ads presented in both mobile websites and apps, with 42% clicking through ads on mobile websites, and 37% clicking through ads on mobile apps." 

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Here's some additional color from Adobe's analysis of the data about mobile ad response: 

Consumers are reporting that a majority of advertisers are providing mobile-optimized experiences when they click through ads on both mobile websites (73%) and mobile apps (77%), suggesting that optimization of mobile ad content appears to be prevalent. Men are more likely to click through on mobile ads presented within mobile apps than women (42% versus 32%). Prioritizing a testing roadmap to include campaigns that target men could yield a strong opportunity for conversion optimization.

My anecdotal observation is that still a large percentage of mobile-ad landing pages and sites are not optimized for mobile devices.

New Retail Payments Network Adds to Mobile Payments Confusion

This morning the Wall Street Journal reported that "more than a dozen big merchants are expected to announce Wednesday their plans to jointly develop a mobile-payments network." This new network now goes up against the carrier-led ISIS, Google Wallet, bank-card sponsored systems, PayPal, Square and a range of others. What a mess.

The retailers who've agreed to participate in the new company/system (to be called "MCX") include: Wal-Mart, Shell, Lowe's, Sears, CVS, Publix Super Markets and Best Buy among a few others. They will use customer data and purchase histories to target offers and promotions as part of the system. Those discounts and promotions will also presumably be the incentive to use it vs. others (who will also have offers).

Given that these retailers have more direct relationships with customers than wireless carriers -- ISIS is destined to fail -- they have a fighting chance, provided they can get it right. How easy will it be to configure and use?

Regardless, the addition of yet another payments provider and network into the mix is both confusing to the market and will likely delay consumer adoption of mobile payments. Too many choices causes many people to stick with what they know, which is the existing card-swipe system. 

I've argued that "point solutions" (e.g., Starbucks, parking) will drive consumer mobile payments adoption because people will clearly understand the benefits of paying for parking with an app or their Starbucks latte -- as opposed to a more "abstract" system like Google Wallet. 

Mobile payments will happen (and are happening in pockets) but all these competing systems are highly problematic for consumers. We're in a "land grab" period right now. Ultimately there's probably room for three or four major winners unless all payment systems are equally built on and can take advantage of the same infrastructure, which NFC-enabled phones and payment terminals can in fact provide. However the NFC-merchant infrastructure isn't yet fully in place. 

I won't condemn MCX before I've seen it. But when each week seems to bring a new payments initiative, I have to roll my eyes. 

Starbucks-Square and How "Point Solutions" Will Drive Mobile Payments

Yesterday Starbucks and Square made a big announcement. The deal is huge for Square and will make it the payments processor for US Starbucks locations. The coffee-lifestyle company also invested $25 million in Square at a $3.25 billion valuation. Starbucks CEO Howard Schultz joined the Square board as part of the deal.

Here are the basic terms: 

  • Customers will be able to use Pay with Square, Square’s payer application, from participating company operated U.S. Starbucks stores later this fall, and find nearby Starbucks locations within Square Directory
  • Square will process Starbucks U.S. credit and debit card transactions, which will significantly expand Square’s scale and accelerate the benefits to businesses on the Square platform, especially small businesses, while reducing Starbucks payment processing costs
  • Using Square Directory, Starbucks customers will be able to discover local Square businesses -- from specialty retailers to crafts businesses -- from within a variety of Starbucks digital platforms, including the Starbucks Digital Network and eventually the Starbucks mobile payment application
  • By accepting Pay with Square, Starbucks is giving millions of customers another way to enjoy a quick and seamless payment experience at approximately 7,000 Starbucks stores.

Why is this important and what's important about it? Clearly it's a massive win for Square, which becomes the undisputed "mobile payments" leader in the US with this deal. It brings, scale, prestige, brand recognition and revenue to Square. 

However there's nothing actually new here for Starbucks from a consumer experience standpoint. Starbucks has offered mobile payments through its smartphone apps for some time. That will continue.

Square's "Pay with Square" consumer app and local business directory will also become an accepted form of payment at Starbucks. This will give a significant boost to the app, which hasn't been widely adopted.

I've described Starbucks before as "The American Idol of mobile payments." That's because it's in a nearly unique position to educate consumers and introduce them to mobile payments in a specific context, where they can experience the efficiency and convenience of paying without using cash or physically swiping their credit cards. 

I've also recently written that it's this type of "point solution" experience that's going to be the driver of mobile payments rather than abstract, "horizontal" apps such as Google Wallet. Ultimately, however, Google Wallet and others may be the beneficiaries of the Starbucks-Square partnership and the "education" it brings to the market. 

The high profile nature of this deal may motivate similar deals or the acceleration of mobile payments at other fast-food and "fast causal" eating establishments. I wouldn't be surprised, for example, if McDonald's initiated a mobile payments pilot of some sort in the very near future. 

GoPago Courts Small Merchants with Free POS-Tablet Terminal

Being a payments startup is hard, even for one funded by megabank JP Morgan Chase. The Chase-backed GoPago, which launched a mobile app in late February this year, has struggled for awareness and consumer adoption in a crowded market where most people don't even recognize the need for mobile payments.

In addition to mobile payments the consumer-facing GoPago app also provides a range of additional services, including online ordering and a number of small-business marketing capabilities. Before launching the company developed a cloud-based POS system that interfaces with established POS systems. GoPago sought to create a kind of self-contained marketplace for local businesses and consumers not unlike PayPal's mobile marketing and payments strategy. 

Screen Shot 2012-08-07 at 3.53.06 PM

But that didn't work -- at least not yet. Now the company is using its cloud-based infrastructure to go after SMB merchants, who are also aggressively being courted by Square, PayPal, Intuit, Groupon and others.

GoPago this morning introduced a POS terminal called "GoPago Live," which goes much further than its competitors. Rather than being simply an iPad and software (it uses an Android tablet), GoPago Live offers a complete POS system, a cash box, receipt printer, card reader and 4G Internet access -- all for free. There's also 24 hour customer support.

In return GoPago takes 2.85% per transaction, which is competitive with PayPal and Square. Payment processing is provided by Chase Paymentech. Interestingly GoPago even shields merchants from Amex's higher transaction fees. It will allow merchants to accept Amex for the same 2.85% fee. 

Assuming it all works as advertised, I haven't seen a demo, this is a pretty compelling package for local merchants. GoPago told me that the company is targeting neighborhood businesses with revenues in the "low six-digit range."

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The challenge once again is rising above all the "noise" in the market. But the substantial cost savings available to merchants using GoPago Live (perhaps between roughly $5K and $15K per year) should help drive word of mouth and general SMB awareness. And while the Chase connection didn't help very much in getting consumers to adopt the mobile app, GoPago may have more success using Chase to drive awareness and adoption on the merchant side.

ShopKick Kick's eBay's Mobile Butt in Time Spent with App

Nielsen has identified the top mobile shopping apps for June in the US market. The list is as follows:

  1. eBay Mobile
  2. Amazon Mobile
  3. Groupon
  4. Shopkick
  5. LivingSocial
  6. Walgreens
  7. Target
  8. RedLaser (eBay)
  9. Out of Milk Shopping List
  10. SavingStar Grocery eCoupons

While eBay and Amazon have been on top of this list since its inception, ShopKick and Walgreens are a bit of surprise to me. However it's not clear precisely how Nielsen defines the "shopping" category. 

While eBay had a little over 1 million more users than Amazon (13.16 vs. 12.12 million) the time spent with the eBay app was much more than Amazon users (1:04 vs. 18 minutes). The discrepancy can likely be explained in the fact that Amazon users are probably much more directed, looking up prices, reviews and product availability while eBay users probably browse and look at many more pages. 

Beating both by a mile was ShopKick, with three hours, 19 minutes (3:19) on average June. That kind of engagement is truly impressive. 

Nuance's Nina: "My Password Is My Voice"

Last night Nuance Communications took the wraps off Nina, a virtual assistant for enterprise mobile customer service apps. The comparisons to Siri are immediate and obvious. However Nina doesn't directly compete with Siri; it's not a consumer app. Rather Nina extends Siri-like "conversational" interactions to enterprise mobile apps -- in the hope and expectation of delivering better customer care experiences. 

Dan Miller has written up the announcement and what it means for mobile customer service on the Opus Research blog. The first announced enterprise to take advantage of Nina is bank USAA (launching next year). Nuance is offering a developer SDK and APIs and is enabling customization, extending to the persona/voices. Consequently one enterprise's version of Nina can look and sound very different than other's. 

For purposes of this post, however, I want to focus more narrowly on one piece of the Nina experience: password voice authentication. This is unlikely to draw much coverage and will be overshadowed by the Siri comparisons and discussion. 

Password voice authentication for mobile devices is a technology that has existed for some time. But there's no mainstream implementation of this capability really until now. There's also beta product called Kivox, available for Android handsets but not through the Google Play or Amazon markets. It has to be downloaded directly in a convoluted process that will elude mainstream users.

It's very painful to enter passwords manually (password and username) on a smartphone. And it has to be done again and again. While Safari and Chrome offer to remember passwords that doesn't always work. By contrast voice biometrics for password entry is an elegant solution to the small screen problem. It could also eliminate the need to create conventional passwords entirely. There would be nothing or very little to remember or write down. You'd just speak your "passphrase." 

The voice authentication capability is actually part of a separate module that Nuance offers. It can be integrated into apps without the full Nina integration. I'm not an expert on voice biometrics -- Opus' Dan Miller is the leading expert on voice biometrics and chairs the VoiceBioCon event -- but this is the part of the Nina announcement that I was most excited about.

Assuming it works well, it relieves a major headache for me in dealing with passwords on mobile sites and smartphone apps. While Nina will undoubtedly be widely adopted and successful, voice authentication has the potential to be equally transformative of the user experience. So would voice-initiated payments and transactions, but that's entirely different post.

Below is a video showing a demo of Nina

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Point Solutions Like Parking Apps Will Drive Mobile Payments Adoption

Yesterday I spoke with yet another company in the mobile payments space. It faces challenges of awareness and adoption, like most competitors in this segment. Also yesterday Google Wallet upgraded to enable any credit or debit card to be used in conjunction with the app. The problem is there are only six phones in the US, operating on the Sprint network, that are compatible with Google Wallet. Verizon, AT&T and T-Mobile either don't have Google Wallet-enabled phones or aren't permitting its use right now (i.e., Verizon).

Today TechCrunch reports on new funding and a new CEO for QuickPay, a mobile parking app. In addition to QuickPay, I have two other parking apps on my iPhone: Parkmobile and PayByPhone. I love these apps because they enable me to pay for parking very efficiently, without relying on coins or even a credit card (which was a great innovation at parking meters until mobile apps came along). With these apps I can also extend time remotely, which means I don't physically have to go back to the meter. 

The superiority of the experience afforded by these apps vs. the old way of paying for parking is dramatic. This is the kind of scenario (point solutions with specific use cases) that will drive consumer adoption of "mobile payments," which won't be seen by consumers as "mobile payments" (with all the corresponding security fears) but simply as a great convenience instead.  

Once consumers have become accustomed to using mobile payments point solutions such as parking apps, they'll be much more comfortable with mobile payments generally and embrace mobile wallets such as Google Wallet -- provided there's merchant adoption and general availability. 

Mobile to Be 25% of E-Commerce in Five Years? Not So Fast

ABI Research is projecting that mobile devices will account for just under one quarter (24.4%) of all e-commerce by 2017. If "mobile" is defined to include tablets, then maybe. But if we're talking about smartphones largely or exclusively there's a long way to go before that happens.

Despite the fact that the data now show a majority of smartphone users have made purchases on their devices, most people don't routinely engage in e-commerce via smartphones. Security fears and the problem of entering credit card numbers are major barriers to so-called "m-commerce." Tablets by contrast are driving lots of purchase behavior. 

A majority of smartphone owners (80% to 90%) use their devices in stores to check prices and get reviews and product information. However most don't go on to buy -- unless it's through eBay or Amazon. 

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As a general matter, if people are going to buy "online," they later go to their PCs and make purchases. Nielsen data, compiled by eMarketer, show that a minority of users (5% of smartphone owners) are buying things directly through mobile devices -- in this case in response to a mobile ad. But these data are also reflective of the general fact that most people don't buy on smartphones. 

According to Nielsen the top mobile "shopping" apps are the following

  1. eBay Mobile
  2. Amazon Mobile
  3. Groupon
  4. ShopKick

Amazon and eBay in particular have invested hugely in mobile and it has paid off -- literally. Amazon in particular has your credit card on file and can enable a mobile transaction with a single click.

By contrast, most e-commerce sellers lag far behind these leaders. And to drive the kind of shopping volume that ABI is projecting the "credit card problem" needs to be solved. Large retailers with whom shoppers have direct relationships (e.g., Target, Macys, Wal-Mart) can store credit cards on file and remove friction accordingly. 

However "no-name" e-commerce sellers are not going to be able to participate in smartphone-based commerce unless they address the payments problem, which could be via PayPal or using a solution such as the one offered by Card.io. Indeed, it's far from clear that the ABI prediction will come to pass.

We're probably looking at a situation for the medium term foreseeable future where smartphones are aggressively used by consumers for research and price comparisons but generally not used for conventional e-commerce transactions except in select situations such as I've described. 

Microsoft's Metro UI an Opportunity and an Obstacle

Microsoft did a nice job in reinventing its mobile OS with the advent of Windows Phones. There are ways in which the "Metro UI" is beautiful and strikingly different than iOS and Android. However the UI also represents the greatest barrier to adoption of Windows Phones.

Until people have a chance to use and familiarize themselves with Windows Phones they won't buy them because of the perceived unfamiliarity. Agressive discounting in the US may convince some to do so however. But as long as there are relatively few Windows Phones "out in the world" the impulse to buy them will also be limited.

It's Microsoft and Nokia's version of the "chicken and egg problem." Targeting new smartphone owners is probably the best strategy to gain share for the companies in the near term. Once they have some users they can upsell them to more expensive and high-powered phones. 

Among developers however, Appcelerator has discovered that there's an increasing appreciation for the Metro UI. In a survey of more than 2,000 mobile developers, 44% of them characterized the metro UI as "different and beautiful" compared with iOS and Android. 

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That 44% hasn't yet translated into a belief that Windows Phones will succeed -- even in the enterprise, where Microsoft has had historical advantages over competitors. Developers in this survey do think that BlackBerry is essentially dead in the enterprise (which would mean death for the company overall) and thus by default that Windows will be the "third ecosystem." 

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Speaking purely for myself, the Windows Phone homescreen is a barrier to adoption. While the "live tiles" are supposed to facilitate quick access to content and enable us to "get back to our lives" I find them awkward and off-putting. I think the modifications of Windows Phone 8 make it worse.

The "inside" of Windows Phone is much better and more pleasing. Regardless, I think the outlook for Windows Phones (and by extension Nokia) remains very mixed at best. Unless or until Microsoft and Nokia can get these phones in people's hands they'll have trouble winning share.

EU Request for Google Mobile Changes May Go to Heart of Jelly Bean Innovations

One of the chief innovations Google is bringing to its "Jelly Bean" Android update involves local search and related functionality through Google Now. I've written fairly extensively already about these new features on my Screenwerk blog and Search Engine Land. In short, the new Android OS offers information "cards" (structured data) in response to a range of query types, especially local.

This is at once an evolution of the Google search experience for mobile devices and an effort to better compete with Apple's Siri. The information (search result) is more attractively presented and substitutes for the traditional page of search results, which still can be found by scrolling to the bottom. In addition to the image above right, below are a few example screenshots:

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This new presentation is more consistent with what mobile users want ("answers") and offers a better experience overall than a conventional page of "blue links." The potential problem for Google is that this approach goes much further in the direction of substituting "Google's own content" for third party information, which is at the center of Europe's antitrust dispute with Google.

The issue of of Google showing its "own content" at the top of search results or in a preferential position is one of four "concerns" raised by the EU in May along with an invitation to settle. Because it goes to the heart of Google's control over the search results page and the company's ability to experiment and innovate with new content presentations, it's one of the most potentially challenging issues for Google to negotiate with the EU. 

Google has been trying to avoid a formal antitrust action by European regulators. But just as it was negotiating to settle the case, EU Competition Commissioner Joaquin Almunia, last week, asked Google to make "broad changes" to its mobile services. While it's not clear specifically what he is asking for, the path adopted by Jelly Bean -- which completely marginalizes third party content in a range of cases -- exacerbates one of the EU's fundamental "concerns" about Google.

Google is not going to want to be locked into any specific search results page in mobile. It will demand the ability to change the look and feel of the page and to innovate around the way it presents content. But to the extent any such innovations don't involve equal exposure of third party information the Europeans will probably have strong objections.

The next couple of weeks should determine whether Google will be able to negotiate a settlement or whether the company will face a formal antitrust action (and potentially billions in fines) from the EU. 

Marketers and Publishers Better Quickly Get Used to 7-Inch Tablets

The early success of Google's Nexus 7 tablet sales, on the heels of Kindle Fire's success in Q4 last year, establishes that the 7-inch tablet category is here to stay. Before Kindle Fire there were no successful Android tablets of any size. Kindle Fire's combination of rock-bottom pricing ($199) and Amazon content helped drive several million in unit sales. Now Google's new device is off to a blazing start.

The company just released its first TV commercial for the tablet (a very Apple-like spot). 

As I previously discussed, the new Google tablet (starting at $199) is vastly superior to Kindle Fire. It now puts enormous pressure on Amazon to pull a rabbit out of the hat with its "2.0" release. Yet Amazon wants to release "five or six" new mobile devices (mostly tablets) of various sizes.

Apple is rumored to be releasing a smaller, lower cost tablet later this year. This is a defensive move for to prevent the iPad from being under-cut by lower-priced, almost-as-good products. A 7-inch iPad (or larger iPod Touch), combined with the Nexus 7, will likely dampen Amazon mobile device sales unless quality is dramatically improved. 

Regardless, the rise of the 7-inch tablet category now creates additional options for consumers and additional complexity for advertisers and to some degree publishers. I suppose it's an argument for "responsive web design."

With Kindle Fire 2, Nexus 7 and the coming Apple 7-inch tablet (and the accompanying low price of these devices) we should see 7-inch tablets sell millions of units. Many people will now have smartphones, small tablets for travel and "on the go," and 10-inch tablets for home. PCs will largely be used for "work" or become secondary devices for most consumers. 

Indeed, the device market is moving much faster than publishers and marketers. Publisher content and ads generally don't look particularly good on the 7-inch form factor. Tiny mobile banners are barely noticeable and landing pages look awkward filling only part of the screen. In addition, right now there are only a few apps optimized for 7-inch tablets. Smartphone apps look OK but often appear stretched or out-of-proportion.

All this will have to change -- and relatively quickly.

The PC market, where the attention of most publishers and marketers is still largely concentrated, is not going to grow. And by Q1 of 2013 there will be millions more tablets in people's hands. In fact, I believe that there will be 100 million tablets in the US market much more quickly than anyone is predicting: by the end of 2014.

With sales driven by competitive prices many of these will be 7-inchers, which don't play well with ads and content designed for smaller smartphones and which can't render apps, content or ads created for 10-inch tablets.

Nexus 7 Beats the Pants off Kindle Fire

I've been using the new Nexus 7 Google tablet since I obtained one at the Google developer conference late last week. I also own a Kindle Fire, which I use regularly for reading and watching movies. After just a short time it's clear that the Nexus 7 beats the Kindle Fire, the best-selling Android tablet to date, by a mile.

Outside of the Amazon content universe the Kindle Fire offers a generally sloppy and lackluster tablet experience. Whether you agree depends on your expectations and whether or not you own an iPad. Some people argue that Kindle Fire, as a basic Kindle upgrade is great for the price. But as an owner of two iPads, my view is that it offers a poor overall experience beyond the borders and boundaries of Amazon's media and shopping content.

Beyond this, I'm not a fan of Android tablets in general. I owned the Samsung Galaxy 10.1, which was a real clunker next to the iPad. That's partly because there were and still are so few tablet apps for Android. Indeed, none of the 10-inch competitors to the iPad have sold well. By contrast Kindle Fire sold because there’s no Apple entry in the 7-inch category. But its rock-bottom $199 price and the Amazon brand were the big drivers of sales, which have now slowed.

Yet the Kindle Fire tablet is an Android device in a technical sense only; it marginalizes Google. Accordingly Google felt compelled to act and the company has now taken direct aim at Kindle Fire with its new 7-inch tablet, built by Taiwan computer maker ASUS. It’s priced identically at $199 (although there's a $249 version with more memory). Google has also followed Amazon’s lead and made content from its "Google Play" store a major part of the Nexus 7 experience.

After a week of very heavy use, I'm very pleased with the performance of the Google device. If I think of it as a tablet it still falls short of the iPad by a considerable margin. However if I think of it as a larger smartphone it's great.

It fits easily in your hand and the larger (than a smartphone) screen makes almost everything better about the experience. There are still relatively few tablet apps, and the 7-inch size is awkward in certain respects. Steve Jobs referred to it as a “tweener." It doesn’t fit in your pocket like a smartphone but doesn’t offer the full-screen experience of the iPad. However smartphone-optimized apps and mobile websites don't look as awkward on a 7-inch screen as they do on a 10-inch Android screen.

Unless you're a loyal Amazon Prime customer and/or a very heavy Kindle user, in choosing between the Fire and the Nexus 7, there's no question about which device to buy: the Nexus 7.

It offers such a superior experience for virtually everything you'd do on a tablet -- and you can download the Kindle reader Android app. Indeed, the full range of Android apps are available from Google Play. On the Amazon tablet you get a subset of Android apps (no Google Maps for example).

Google should have a very successful product in the Nexus 7. The one major challenge is that right now there’s no retail distribution. Google is selling it directly through the Google Play store. And while there’s a huge installed base of Android users who are the primary market for this device, Google will need Best Buy and other retailers to offer the Nexus 7 before it can realize its full sales potential.

Pew: 45% of Younger Users Access the Internet Primarily via Mobile

The US Center for Disease Control tracks the number of mobile-only and mostly mobile households. Today 30% of US homes have no landline with an additional percentage making and receiving most of their calls via mobile. In that scenario the landline becomes a kind of "spamcatcher" reserved for telemarketers and fundraising calls.

The combined number of mobile-only and mostly mobile homes in the US is now above 45%. That's an amazing statistic if you think about it. 

An analogous, emerging statistic is the number of people who primarily access the Internet on their mobile phones. This morning the Pew Internet Project published survey data that show 17% of all mobile phone owners use their phones as their primary Internet access device. However, if the population is narrowed to all mobile phone owners who access the mobile Internet (55% of mobile phone owners according to Pew) the "primarily mobile" percentage jumps to 31%.

In other words, according to Pew, "31% of these current cell internet users say that they mostly go online using their cell phone, and not using some other device such as a desktop or laptop computer." Even more striking, 45% of 18-29 year olds who access the Internet on their phones are in this "primarily mobile" category.

We found previously (n=1,504) that 17.6% of Internet users went online primarily via a non-PC device (smartphone/tablet). Regardless, these numbers will will only grow larger over time. 

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Siri and Voice UIs Are Reshaping Consumer Expectations

Ever since Siri was released with the iPhone 4S last Fall -- although it seems much longer than that now -- it has been reshaping expectations both among consumers and to some degree in the enterprise. Few people are aware of all the work going on around virtual assistants and customer care in the enterprise. It's a very dynamic segment and Siri has become a reference point. 

In addition to Siri there are dozens of voice-based intelligent assistants for Android. There are also Siri competitors in the iTunes store, including Assitant (Speaktoit), Evi (TrueKnowledge) and Kngine. But there are probably about 12 - 15 more apps that present themselves as voice tools or intelligent assistants. 

Having a voice UI and/or intelligent assistant is now becoming a strategic capability for smartphones -- even "table stakes." Witness Samsung's new "S-Voice." However, while the Samsung GS III has received rave reviews, S-Voice has emerged as its weak link. LG is also introducing a voice capability for its handsets. It's not clear why they're doing this because Google's speech recognition and voice actions are baked into the Android OS.

Some of the smaller consumer-facing "assistant" companies and startups (e.g., Speaktoit) become near-term takeover targets as carriers and OEMs recognize the new importance of voice as a UI and, beyond voice, the need to offer an intelligent assistant capability to match Siri and fulfill the new expectations it's creating.

Google and Microsoft have yet to move beyond pure voice input and embrace the "personal assistant" metaphor, though Google has been working on something for some time -- often referred to as "Majel," after Star Trek creator Gene Roddenberry's wife. Nuance, which powers Siri, has Vlingo and Dragon Go!, which sit between what Google and Microsoft offer and Siri in terms of capabilities. 

Notwithstanding intelligent keyboards such as Swype (another Nuance product now) and Swiftkey, voice will emerge over the next year or two as the primary interface for most tasks on smartphones. Most iPhone users use only limited functionality on Siri and Apple has been trying to educate them about its full capabilities. By contrast, keyboards are likely to become secondary tools or used in very specific situations: entering numbers or correcting typos. 

As one colleague put it late last year, if speech is the "new mouse" then voice is the new touch.

Survey: 74 Million Tablets in Use in US Today

The Online Publishers Association followed up its 2011 tablet users survey with the release of an encore study (n=2,540 online adults). It contains a rich trove of data about US tablet usage among adults. According to the survey Android and the iPad have roughly equal shares of the US tablet market. This finding is contradicted by other data sources that show more than 90% of all US tablet traffic comes from the iPad. 

The survey found that 31% of the Internet audience (vs. all US adults) owned a tablet today -- or 74.1 million users. Here are a selection of other findings: 

  • 90% of tablet users are "very satisfied" or "satisfied" with their tablets
  • 60% of tablet owners use the device several times a day, 14 hrs per week on average
  • Home is the dominant use location; majority of usage comes between 5pm and 11pm
  • Top usage categories: accessing content/information, Internet and email
  • 85% of tablet owners are two-screen multitaskers; 66% are three-screen multitaskers.
  • 61% of tablet owners have purchased content

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Tablet owners have bought plenty of apps but they prefer ad-supported free apps if given the choice. Below is the list of paid-content categories, according to the survey: 

  • Magazines -- 10%
  • Entertainment -- 8%
  • Sports -- 6%
  • Weather -- 6%
  • Shopping -- 5%
  • Newspapers -- 5%
  • Fitness and Health -- 5%
  • News -- 4%
  • Business/professional -- 4%
  • Fashion/Beauty -- 4%
  • Travel -- 4%
  • Finance -- 4%
  • Lifestyle -- 3%
  • Reference -- 3%

The following were the top product-research categories on tablets:

  • Consumer Electronics -- 37%
  • Restaurants/Fast Food -- 36%
  • Media and Entertainment -- 35%
  • Retail and Apparel -- 35%
  • Food and Beverage -- 30%
  • Sports/Recreation/Hobbies -- 30%
  • Travel Service -- 30%
  • Personal Care and Beauty -- 28%
  • Automotive (incl. Parts) -- 25%
  • Health, Healthcare and Pharma -- 24%
  • Fin.Services, Insurance, Real Estate -- 23%
  • Telecom., B2B/B2C Services -- 22%
  • Home Furnishings -- 21%

Generally speaking attitudes and response to advertising are positive among tablet owners, with large numbers using the devices for research and buying. According to the survey, tablet owners spent an average of $359 buying products on tablets in the past year. 

There are also plenty of indications in the survey that people prefer their tablets to other devices for the various activities they're engaged in. 

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Tablet Market Exploding: How Is It Affecting PC Usage?

In January of this year the Pew Internet Project released survey data that showed 19% of US adults owning tablets (iPads). That was up from just 10% only a month before in December. Now comScore has released data showing that roughly 24% of smartphone owners also have tablets.

If we extrapolate these numbers, the Pew data suggest that there are roughly 42 million tablet owners in the US (as of January 2012). The comScore data argue the number is now 55 million. These figures seem entirely reasonable. Apple CEO Tim Cook reported 55 million iPads sold to date in February. 

Screen shot 2012-06-11 at 8.25.25 AM

People use the term "tablet" but the market remains largely about the iPad. The only other two models with any traction are the Kindle Fire and the Samsung Galaxy Tab. According to Gartner Apple's share of the tablet market will be 61.4% at the end of the year. IDC says Apple had a 68% share of the global tablet market in Q1 2012.

Both of these figures are incorrect and largely based on shipment estimates. Shipments don't equal sales to consumers. 

Perhaps I should say instead that people may be buying other devices but it still doesn't matter. According to ad network Chitika, based on an analysis of millions of impressions in the US, the iPad "accounted for 94.64% of all tablet based traffic." By contrast Chitika said that the nearest competitor, the Samsung Galaxy tablet, "boasts a lack luster market share of 1.22%."  

Late last week ad network InMobi released its own tablet data, showing gains by the Kindle Fire and total Android tablet ad-impression share of 28%. That argues the iPad controls a 72% share of the total tablet market. 

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We're likely to hear an update of tablet numbers this morning from Tim Cook during the Apple WWDC keynote. 

Back to the comScore tablet data: the company says that just over half of tablet owners are watching video on the device, while nearly 10% are doing so every day. 

Screen shot 2012-06-11 at 8.25.17 AM

A year ago in March AdMob found, based on a survey, that 77% of tablet owners were using their PCs less. In addition 28% of respondents said that the tablet had become their "primary computer." Clearly tablet ownership does cannibalize PC usage, while smartphone ownership may complement it. Roughly 80% to 90% of tablets are used mainly at home. 

Screen shot 2012-06-11 at 8.45.01 AM

Once Microsoft puts Office on the iPad it will become a true PC substitute.