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Within 24 to 36 Months Mobile Internet Penetration Will Overtake the PC

The T-Mobile-MetroPCS merger is now complete. The newly combined company, which is majority (74%) owned by Germany's Deutsche Telekom, debuted on the New York Stock Exchange today under the ticker symbol TMUS. The stock was up about 6% in early trading.

Post-merger, here are the most recent subscriber counts for the four major US wireless carriers: 

  • AT&T -- 105 million
  • Verizon -- 99 million
  • Sprint -- 54 million
  • T-Mobile -- 43 million

That makes a total of 301 million accounts, not including smaller regional carriers.

There are approximately 312 million people in the US. Some percentage of the 301 million are obviously second accounts. Measurement firm comScore counts the total US wireless population at 235 million, whereas CTIA says that, as of Q2 2012, there are 321.7 million "wireless subscriber connections."

The "right" number is probably about 250 million. Smartphone penetration is 57% according to comScore and roughly 60% according to Nielsen. Accordingly the US market is closing in on 150 million smartphones. Total US internet penetration stands at 221 million according to comScore. 

Within three years (perhaps 24 months) there will be more "mobile devices" and wireless internet penetration than PC internet users. Just under 40% of total media time is now spent on mobile devices (including tablets). However current mobile ad spending is only 9% of the US digital total according to the IAB. 

Not Just 'Haters': Facebook Home Getting Mostly Negative Reviews

Facebook's "launcher" Home isn't available for any of the smartphones I own: HTC 8X, Nexus 4 and iPhone. Thus I haven't been able to "live with it."

But when I saw it unveiled several weeks ago at the Facebook Home press event I was impressed by the design. I found it very imaginative and creative. I thought also that it might represent a new way forward for some developers and publishers with smartphone software. I even suggested that Yahoo might want to emulate it.

Apparently most people who've actually used Facebook Home for any length of time don't share my enthusiasm. The app is overwhelmingly negatively reviewed on Google Play. Out of more than 14,000 ratings and reviews it gets an average score of 2.2 -- with the single largest group (7,576 users) giving it 1 star. 

 Screen Shot 2013-04-29 at 10.13.25 AM

This isn't merely the work of "haters" as some of the favorable reviews and comments suggest. There are significant flaws in the user experience.

While many people praised Home as a good initial release, others complained about poor performance and a negative impact on battery life. Still others complained that it made other Android apps and widgets difficult to access. And some wanted more capabilities and functionality than what Facebook is currently delivering. 

There's lots of highly specific feedback for Facebook in the comments offered. If Home is to avoid a quick death and survive the company should look closely and adopt some of the suggestions. 

Google Brings Virtual Assistant to iOS 'Now'

Whether we call Google Now "predictive search," "anticipatory search" or a "virtual assistant," the capability is highly useful and improving regularly. Previously exclusive to Android devices with OS 4.1 or higher ("Jelly Bean") Google Now is now available for the iPhone and iPad.

You'll need to download the latest version of the Google Search app to get it.

Google Now is partly Google's answer to Siri (and Passbook) and partly a wholly independent development that takes your search history, your Gmail entries, your calendar, your location and other "context" to deliver a range of personalized information without having to actively search for it.

Google Now for iOS operates in essentially the same way as it does on Android devices: users swipe up from the bottom of the screen to receive customized information cards. The cards feature weather, traffic, stock quotes, recent sports scores, local places of interest, movie showtimes and so on. Below is a complete list of the content/data available through Google Now. 

Google Now comparison iOS vs. Android

Source: Google

The cards on the chart above "missing" from iOS are newer cards that will soon come to iOS. Google confirmed this. 

Those who download and use the service will likely find themselves using it regularly (as I do). While it can sometimes be flawed or inaccurate -- if you travel a lot it will often give you information about the city you just left rather than where you are -- it offers a growing corpus of useful information. As mentioned, it continues to expand and improve. 

Google requires users to sign in to get access to Google Now, so the company will gain mobile usage data it wouldn't otherwise have in the process. It's a very effective way for Google to get iOS users re-engaged with search on their iPhones and iPads. 

A survey we conducted in June of last year (n=503 US iPhone 4S owners 18 and older) found that most people who searched Google on their iPhones didn't use the Google Search app: 

Which of the following do you use MOST OFTEN to search the web on your phone?

  • I visit Google.­com to search: 44.9 percent
  • I use search in the Safari toobar: 26.4 percent
  • I use the Google mobile app: 19.3 percent
  • I use Siri to search the web: 11.1 percent
  • I use Bing and/or Yahoo: 6.6 percent

If this survey were done today we might see slighly different percentages but directionally the results would be similar. It will be interesting to see whether and how the numbers change several months from now -- and whether the introduction of Google Now for iOS has had a meaningful impact on user behavior. 

Is Apple's Resistance to Larger Screens 'Making the Perfect the Enemy of the Good'?

The iPhone 5 introduced a 4-inch (diagonal) screen that in my view distorted the proportions of the handset. (I wanted it to be slightly wider as well.) That was an upgrade from what was essentially a 3.5-inch screen on the 4S. Yet at the time of launch the 5's new larger screen already appeared small next to some competitive devices.

Samsung's Galaxy S3 and others were at 4.8-inches or beyond. The newly released Galaxy S4 has a 5-inch screen and the Galaxy Note 2 offers a 5.5-inch screen. Samsung has also made an 8-inch tablet that works as a phone. 

Earlier this week during Apple's earnings call CEO Tim Cook was asked about a potentially larger iPhone screen, which several surveys indicate iPhone buyers want. Here's the exchange:

Analyst: [D]o you think there is a long-term case for a larger screen size or at least the larger variety of screen sizes for iPhones and for the smartphone category in general?

Tim Cook: The iPhone 5 offers as you know a new 4-inch Retina display, which is the most advanced display in the industry and no one comes close to matching the level of quality as the Retina display. It also provides a larger screen size for iPhone customers without sacrificing the one handed ease-of-use that our customers love. So, we put a lot of thinking into screen size and believe we’ve picked the right one.

Tim Cook acknowledged that “some customers” value screen size. He explained that larger displays require trade-offs (technically speaking). He added that the company won’t ship a larger iPhone display “while these trade-offs exist.” That implies the company has larger screen iPhones on its roadmap somewhere in the future.  

However Apple is indeed putting itself at a disadvantage by not offering a larger-screen iPhone. Perhaps not everyone wants it but lots of people (including me) do. An ideal device would marry the LG Nexus 4 (4.7-inch screen) form factor with iOS as its operating system. 

Apple and Tim Cook seem to be nearly alone in their belief that the iPhone's screen is vastly superior to competitor-device screens. Third party analysis shows that this is not the case. However it does come out on top in some areas. Yet the public may not be noticing these relatively subtle differences. And Samsung's display has been found to have superior resolution and better blacks. 

What consumers probably notice more is that the iPhone's screen looks small and by some measures inadequate vs. other devices. One-handed operation of the iPhone is great in a few instances but not entirely necessary. Indeed, it may not be an important feature for most people (though that's an "empirical question").

It does seem to me that screen size is one case of Apple (if it's to be taken at face value so to speak) "making the perfect the enemy of the good." And I think a "5S" without a larger screen option will be a significant disappointment to many.  

What Retail Can Learn from the Hotel Industry about Using Technology

The challenge of "showrooming" has been met by traditional retailers with either indifference and inaction or its opposite: aggressive price matching. Best Buy and Target are examples of the latter approach. They decided in February to match any price on Amazon year round.

However this strategy lacks "depth."

Price matching alone will not successfully address showrooming; it will in fact encourage it as more smartphone shoppers check Amazon and other sources to see if in-store prices are the best they can do -- and to demand a lower price in store if they find one online. 

Signs like the one below invite someone to go to Amazon (if they weren't thinking about it already) and compare prices. 

Screen Shot 2013-04-24 at 2.31.12 PM

It may be necessary to price match in selected categories such as electronics. But price matching is not a panacea. Instead the retail industry can take a lesson from the hotel industry, which is doing some very creative things with technology. 

The New York Times ran a story today about how hotels are using technology to improve the customer experience (including personalization) and lower costs in many instances: 

Hotels around the world are using technology in new ways, with the goal of speeding up or personalizing more services for guests.

David-Michel Davies, president of the Webby Media Group, said he visited Internet companies around the world each year for the Webby Awards, which honor excellence on the Internet. He said he had found that hotels were using technology as a substitute for human hospitality.

Instead of the staff at the front desk offering advice on where to go for dinner, guests may be lent an iPad loaded with maps and suggestions for local restaurants and sightseeing. A hand-held device in the room might control the television, blinds and temperature, replacing the role of the bellman who would describe how the features in the room work when he dropped off a guest’s luggage. “Hotels are transforming service into a digital concept,” Mr. Davies said.

There are an enormous number of ways that technology, and mobile technology (apps) in particular, could improve the in-store retail experience. Personalization, notifications, offers, product information and reviews, loyalty, payments and other use cases, if creatively implemented, could make the in-store experience richer, more fun and more rewarding for shoppers.

This creative, "diversified" approach to mobile and the in-store experience holds great promise against showrooming. Retailer size and resources would affect the scope of what might be pursued -- but every brick and mortar retailer could do something more interesting and creative than simple price matching. And the hospitality industry points the way. 

Apple Sells More iPhones, iPads than Wall Street Expected

Apple has just released earnings. The company reported quarterly revenues of $43.6 billion. Second quarter revenues in 2012 were $39.2 billion. Total 1H 2013 revenues were $98 billion. 

There were better-than-expected iPhone and iPad sales in the quarter. Gross margins came in at 37.5%. This compared to 47.4% last year.

Now the device numbers:

  • iPhone: 37.4 million (vs. 35.1 million a year ago)
  • iPad: 19.5 million (vs. 11.8 million a year ago)
  • Macs: "Just under 4 million" sold last year (vs. 4 million a year ago)
  • iPods: (5.6 million; iPod Touch represents 50%+ of sales)
  • iTunes: $4 billion (new sales record) 

On cheaper devices: There were lots of questions during the earnings call about Apple's competitive position and ability to compete in markets around the world. CEO Tim Cook repeated several times that an aggressively priced iPhone 4 is the crux of Apple's strategy to attract first time smartphone buyers in developing markets. 

This is a product, however, that's two generations old. While Apple says it won't make "cheap products" it's very likely that Apple will develop a less expensive iPhone to compete in those markets where "first time buyers" can't afford the state-of-the-art iPhone. 

On mobile payments: Tim Cook was asked about getting into mobile payments. Cook responded that the market was in its infancy, implying that Apple would be waiting to enter it in earnest (if at all). 

On the prospect of a larger iPhone screen: One of the financial analysts asked about a larger iPhone display. Cook respondend, " The iPhone 5 has the absolute best display in the industry." However he acknowledges that "some customers" value screen size. He explained that larger displays require trade-offs in quality. He then said that the company won't ship a larger iPhone display "while these trade-offs exist." That in turn implies that a larger display may be on the iPhone 6 or a later model. 

Report: Samsung Sees Almost 70% of Android Ad Impressions

Samsung is the undisputed ruler of the Android roost. On a global basis it's the dominant handset OEM and there's no real challenge in sight -- other than the iPhone. Samsung continues to eclipse fellow Android manufacturers LG, HTC and Google's own Motorola in terms of sales and market share. 

In that context one might expect Samsung to dominate Android-based advertising. Indeed it does. Mobile ad platform Velti has released data that show that Samsung mobile devices see nearly 70% of all Android ad impressions in the US market. This refers to display advertising but it probably extends to search impressions as well.

Screen Shot 2013-04-23 at 1.04.26 PM

However on the tablet side, Samsung is second behind Amazon in the US market. There Samsung has had much less success and has yet to product a breakthrough device -- although its Note "phablet" has done well.

The following chart shows Android market share by ad impressions. 

Screen Shot 2013-04-23 at 1.04.39 PM

Yet when it comes to ad impressions on tablets the iPad and iPad Mini control more than 95% of the market according to Velti's network data. Chitika, another mobile ad network, puts the iPad's traffic share at about 82%, significantly lower though still dominant.

Screen Shot 2013-04-23 at 1.05.14 PM

There has been some "cannibalization" of the iPad by its younger and smaller sibling. The Mini is less expensive and has lower margins than the iPad. Indications that the larger iPad's sales have declined in favor of the Mini have, to some degree, contributed to investor anxiety about today's Apple earnings (coming up shortly) .

Mobile Payments Growing but Still More Hype than Reality

Mobile payments -- as in buying things in a retail store with a mobile device -- still appear to be years away. Two weeks ago the IAB and InMobi released survey data that showed a range of payment and financial-related activities in mobile.

The survey, conducted in Q1 this year with roughly 1,200 US adult respondents, showed that there were pockets of mobile-financial activity: people capturing coupons, buying digital content and paying selected bills via smartphones. But the road to in-store mobile payments adoption is much longer (say 3 years or more).

In contrast to other types of "mobile payments" and financial services, mobile banking has taken off more rapidly than financial institutions anticipated. However mobile banking is really a case of people accessing information via tablets and smartphones that they already get from a PC. There's essentially no new behavior here, with the exception of mobile deposits (not yet widely performed). 

Are you aware of any mobile financial services features from your bank?

Screen Shot 2013-04-22 at 1.53.18 PM

Source: IAB, InMobi (n=1,242 US adults)

Capturing and redeeming mobile coupons was the most popular financial-related activity among this pool of respondents (57%). There's no surprise in that finding; mobile coupons are hugely popular.

There's also a significant amount of mobile bill paying (probably credit-card bill paying) according to the survey (46%). Mobile phone bill payment is also popular (42%). 

In terms of in-store/offline mobile payments, 34% of these respondents said they had conducted such a transaction. This number is probably higher than the "real" number if we were able to look at a nationally representative sample of mobile users. I suspect the number is much closer to 10% or 15% perhaps (unless everyone is talking about a loyalty app such as Starbucks).  

Have you ever used your mobile phone to make a payment? Screen Shot 2013-04-22 at 2.02.33 PM

Source: IAB, InMobi (n=1,242 US adults)

It would also be useful to get some additional insight into what "Paid a business for real-world goods/services by mobile" actually means. Unfortunately the survey doesn't further unpack the finding. For example, is it PayPal usage; is it use of a credit being accepted or read by a Square dongle? Is it a loyalty app, as I suggest above? 

Among financial-related apps, PayPal is easily the leader. (The company is now rolling out its in-store payments system through the Discover network.) In the chart below 37% of survey respondents said they had PayPal on their phones. The survey asks about "downloads" rather than active usage. Thus we don't know how often or whether people actually use these apps. 

Downloads without more insight into active usage is an almost meaningless statistic.  

Have you downloaded any of the following apps to help you make payments or keep track of your finances?
Screen Shot 2013-04-22 at 2.02.44 PM

Source: IAB, InMobi (n=1,242 US adults)

Square, which is probably the only other mobile payments brand known by consumers, stands at 8% penetration. This of course is not Square the credit-car-reading smartphone dongle, but the "Pay with Square" app that permits a "contactless" payment where both sides have a Square account. (The "Paid a business for real-world goods/services by mobile" answer probably includes use of the Square dongle.) 

Google Wallet seems completely stalled at 7%. The widespread availability of NFC in Android and Windows Phones is unlikely by itself to jump-start NFC payments in North America. However that could change if the iPhone 5S were to include the capability.

The data above present a picture of increasing, incremental usage of mobile financial services and "payments" by the US smartphone population. That will continue as more services adapt to mobile and consumers become increasingly comfortable with using their mobile phones for a range of transaction types.

However the much-anticipated day when everyone is carrying a digital wallet and using it to buy goods and services in the real-world is still much more hype than reality. 

Yahoo Quickly Puts Summly Buy to Use with Updated iOS App

Late last month Yahoo acquired news app Summly for the underlying technology, developed by SRI. It was just the latest in a series of mobile startup acquisitions (mostly for talent) Yahoo has been making.

Today the company rolled out the fruits of the Summly acquisition: a new iOS (iPod Touch, iPhone) flagship app. This follows last week's release of Yahoo Mail for the iPad and a new Yahoo weather app. 

The Yahoo blog, in a post by CEO Marissa Mayer, announced the new app this morning:

The new Yahoo! mobile app is also smarter, using Summly’s natural-language algorithms and machine learning to deliver quick story summaries. We acquired Summly less than a month ago, and we’re thrilled to introduce this game-changing technology in our first mobile application. And, with the immersive imagery of our virtually endless newsfeed, the new Yahoo! app has both great technology and beautiful design front and center. Because searching for great content is also core to the Yahoo! experience, we’ve also improved the search experience with better video and image search.

The app offers essentially two views of stories, a kind of list view with thumbnail images (top left) and a more immersive (Summly like) visual view of stories (top row right and below left):

Screen Shot 2013-04-22 at 9.23.31 AM

Yahoo enables personalization of news content in the app. If you're signed in each story allows users to select "more" or "less" news about the topic (lower right images). That personalization will also be reflected in the stories presented on the Yahoo PC site. However personalization is far from obvious in the new app and its not clear how many people will notice let alone use it. 

The "visual" dimension of the experience is not as engaging or successful as Yahoo's new weather app (images below). However it's quite a bit more challenging to duplicate the experience of the weather app with news content, whose stories and images are constantly changing. In addition the list view of news is kind of flat and uninteresting. 

Screen Shot 2013-04-22 at 9.29.22 AM

Yahoo is making good progress in updating and mobilizing its user experience under Marissa Mayer. Things are definitely on the right track. However with the new Yahoo flagship/news app it will probably take a few more "iterations" to get things right.

Nokia Q1: Lumia Sales Up though Brand Dead in US Market

Nokia released Q1 earnings this morning. They were mixed. The company said that it sold 5.6 million Lumia handsets, which is up from 4.4 million in Q4 2012. Overall shipments of Nokia handsets were down more than 20% however. Sales also fell 20% YoY, to 5.9 billion EUR ($7.7 billion). As a consequence Nokia shares were down 12% this morning.

The roughly 25% improvement in Lumia sales was encouraging but far from a turnaround. Nokia's lower-end device sales were down, offsetting the Lumia gains and depressing overall sales figures. 

Since turning to Windows Phone in 2011, Nokia has sold 19.9 million total units. While this isn't outright failure -- and there's growth projected -- Windows isn't going to save Nokia or make it competitive with Android and iOS (enough time has passed to draw that conclusion). Nokia will have to turn to Android to diversify in the near term.

Nokia reported Lumia sales increases in all geographic regions except the US/North America. That's largely because Nokia's brand remains relatively strong in Europe and other places. However its brand is effectively dead in the North American market. Qarterly shipments of Lumia devices were down 33% vs. Q4 (400K vs. 700K) in North America. 

This not only reflects the weakness of the Nokia brand but equally the indifference of much of the US public to Windows Phones. Not only will Nokia have to aggressively discount it will need to develop new devices for the US market and may still fail (absent an Android strategy). 

During its Q1 earnings call Nokia was dismissive of Android. However if the company hopes to compete again in North America and indeed globally in the top tier of OEMs it will have to develop Android handsets beside Windows. In the US Windows Phones are driving less than 2% of mobile internet traffic; their US market share is roughly 3%. 

IAB: US Mobile Ad Revs $3.4 Billion in 2012

Consistent with what could be projected from the 1H numbers the IAB released, the trade group reported this morning that mobile ad revenues in the US for 2012 were just under $3.4 billion. This number is below what many other firms had projected but still represented more than 100% growth.

Overall, mobile ad revenue constituted 9% of total internet ad revenues for the year, which were $36.6 billion. Retail and financial services are the top two ad categories. And over time more of that digital retail ad spend should migrate to mobile. Within a few years, we should probably expect that about 20% to 25% of the overal digital spend should go to mobile. That will still lag consumer behavior but be more in line with it. 

The following are the breakdowns by category and format for US online advertising as a whole: 

Screen Shot 2013-04-16 at 8.04.50 AM

There was no sub-category breakdown provided by the IAB for mobile. However search dominates, followed by mobile display. The full report, which isn't yet out, may provide further insight into the division of revenues. 

Low Awareness, Lack of Interest Plague BlackBerry, Nokia

It turns out that despite lots of media coverage and celebrity personality Alicia Keys as "creative director" most North Americans don't know about the launch of BB10. That's according to a survey commissioned by MKM Partners. The poll of 1,500 adult consumers (conducted during the past three weeks) asked about device adoption and future purchase intentions. It found, consistent with other data, much higher recognition and interest in Apple and Samsung. Others generally fared poorly.

The survey found that 51% of respondents owned smartphones, with 39% saying they bought their in the last six months.

Ownership breakdown by handset OEM: 

  1. 33% Apple
  2. 28.3% Samsung
  3. 9.9% LG
  4. 9.3% HTC
  5. 9.3% Motorola
  6. 4.4% other
  7. 3.4% BlackBerry
  8. 1.6% Nokia 

Current mobile OS:

  1. 55.1% Android
  2. 31.3% iOS
  3. 6.4% Windows Phone (higher than other surveys)
  4. 3.4% not sure
  5. 3.1% BlackBerry

Future purchase intentions:

  1. 44.5% “not sure” of next phone
  2. 19.6% said Samsung (Android)
  3. 17.7% iPhone
  4. 5.9% BlackBerry
  5. 4.4% Motorola
  6. 3.7% HTC
  7. 3.1% LG
  8. 0.7% Nokia

Asked about BlackBerry 10, 83% of respondents indicated they weren't aware of the launch. Asked about Windows Phones, 61% lacked awareness of the OS. When asked about interest in BB10/BlackBerry or Windows Phones the majority of respondents indicated indifference.

Not interested:

  • 68% not interested in BlackBerry
  • 63.9% not interested in Windows Phone

Separately investment firm Piper Jaffray conducted another wave of its research among US teens about device ownership and future intentions.

piper_jaffray_teen_survey_apr13

Notable findings include the following: 

  • 51% of surveyed teens owned a tablet
  • 50% owned smartphones

In both cases iOS was dominant. However Android has made slight gains in both smartphone and tablet categories since the previous survey was conducted last fall. And aggressive pricing, especially in the tablet category, may drive Android penetration up vs. iOS among younger users.

Mobile Display Ad Estimates: Social Sites Beat the Networks?

A week ahead of the actual mobile ad numbers from the IAB IDC has released its estimates of 2012 US mobile advertising, as well as projections for 2013. The company says that mobile ad revenues were $4.5 billion in 2012 and will reach $7 billion this year. Our view is that the actual 2012 number will come in just under $4 billion. 

According to IDC, search advertising represented 61% of mobile ad revenues in 2012 or $2.8 billion, while display brought in $1.7 billion or 39%. Directionally those numbers are right though the precise proportions may be off. For example, IDC's estimates of Google's share of search advertising is 79%, which is too low. It's more like 94%. 

The most interesting part of IDC's figures and analysis is its juxtaposition between social networks (publishers) and mobile ad networks. Here are IDC's 2012 mobile ad revenue estimates for the major social networks/publishers (Pandora isn't a social network obviously):

  1. Facebook: $234 million
  2. Pandora: $229 million
  3. Twitter: $117 million

And here are the IDC-estimated mobile display ad-network revenues:

  1. Google: $243 million
  2. Millennial Media: $151 million
  3. Apple: $125 million
  4. Jumptap: $90 million

The argument is that publishers/social networks have beaten the mobile ad networks. Online publishers essentially lost out over time to the ad networks on the PC internet because of traffic fragmentation and limited reach of most publisher sites vs. networks. The question is: will this happen again as real-time bidding and mobile exchanges become established? Or will major sites/publishers retain their ability to capture and control significant mobile ad dollars? 

One point to be made here is that sites like Facebook and Twitter offer a multiplatform solution (and so does Google) that enables marketers to reach users on the PC and mobile simultaneously and usually with a single buy and single ad creative. That represents an efficiency advantage over most ad networks. 

Will It or Won't It? Microsoft's iOS-Office Dilemma

Microsoft is in a tough spot: Windows Phones aren't selling well outside of a couple of EU markets and data indicate that neither is Windows 8. Windows RT and Surface tablets have so far been a major disappointment as well. While it's way to early to "count Microsoft out," clearly the company is in trouble as mobile internet access and mobile computing accelerate at the expense of the PC. 

There have been persistent rumors that Microsoft was bringing a version of Office to iOS and specifically the iPad. You can use Microsoft's Office 365 cloud-based product on the iPhone or iPad. (I have not.) But the experience will not be as rich as with a native app. 

There are two theories about why Office has not come to iOS as a native app: Microsoft won't pay the 30% "tax" to be in the iTunes App Store and, perhaps more significantly, if Office came to the iPad (or Android tablets) it would undermine the sales outlook for Microsoft's own Surface tablets -- currently the only tablet that offers Office. 

Microsoft's compromise may be to offer Office 365 through the browser to iPad users. However by not offering a native app it risks ceding the centrality of  Office to a range of apps. Offering a native-app Office would potentially cloud the future of its own tablet devices, which may not be so bright anyway.  

Assessing Dueling Mobile Ad Forecasts: $27B vs. $16.8B

Two mobile ad forecasts were released last week almost on top of one another: one from eMarketer and another from BIA/Kelsey (BIA). (IDC is slated to come out with theirs very soon.) The figures they project for mobile advertising in four years are $10 billion apart. 

In one way or another most forecasts turn out to be wrong. Forecasts typically either fail to anticipate technology shifts or they have the opposite problem. They are often aggressive in assuming how quickly technology adoption will happen or change the market. Think about past predictions regarding the rise of digial advertising and the erosion of traditional media. It's happening but years after many thought it would.

I've certainly been guilty of incorrect predictions and aggressive forecasts in the past. So I now generally prefer the IAB's methodology, which reports on actual revenues after the fact.

Mobile ad spending emarketer

Let's take a look at and compare the eMarketer and BIA mobile forecasts, which are strikingly different. BIA says that US mobile advertising in 2013 will be worth $5.4 billion and $16.8 billion by 2017. By comparison eMarketer is much more bullish, saying that US mobile advertising will be $7.3 billion this year and $27 billion by 2017. The 2017 number is almost certainly way too aggressive.

New York-based eMarketer pegged 2012 mobile ad revenues at $4.1 billion. However my view is that when the IAB numbers come out we'll see something closer to $3.5 - $3.8 billion. However it's possible that eMarketer has it right. Google told financial analysts several months ago that the company's mobile "run rate" was $8 billion globally (including non-ad revenue). 

Local vs National mobile ad spend BAI Kelsey

BIA has raised the amount of its overall forecast from last year considerably but dialed back somewhat the portion allocated to local. That's because the firm began to recognize marketers weren't buying local fast enough. SMBs aren't buying mobile ads directly and brands have only recently started to explore local targeting in earnest. Depending on several variables that may accelerate in the next 12 - 24 months. 

YP said that it had $350 million in mobile-ad revenue today. It's not selling mobile advertising directly to the company's mostly small business advertiser base. Rather this is how the company is allocating or attributing revenue from ads that appear on mobile devices but are originally sold as part of a broader package. 

The local portion of BIA's forecast is dominated by search advertising, which has been the major contributor to local-mobile ad revenues. BIA maintains the assumption that search will continue to dominate local advertising throughout the forecast period. And mobile paid search is consistently expected to have more than 2X local ad revenues vs. mobile display in the BIA forecast.

Share of Mobile Local Ad spend by Format BAI Kelsey

Yet there are many more display impressions (in apps for example) than search queries. I don't know ratio off the top of my head but it's quite significant. If we're going to see billions in local-moble ad revenue it can't all come from search queries on Google. (Almost all paid search revenue in mobile [95%+] will go to Google for at least the foreseeable future, if not indefinitely.)  

Today paid search represents just under half of all PC-based ad revenue. It's likely that will track with mobile over time. 

I do believe that location will increasingly be used by mobile display advertisers, networks and exchanges. But it will also be used together with other variables as a way to reach particular audiences. Location will be both simplified for advertisers and incorporated into larger mobile ad-targeting concepts ("context"). Thus location will be a layer, among other variables, in mobile display and probably not remain a single targeting methodology -- except in geofencing and related "conquesting" scenarios.

Emarketer projects that the majority of mobile revenues will be controlled by a small number of companies: Google, Facebook, Twitter, Apple, Pandora, Millennial Media and "other." Other includes a large number of companies, including Microsoft, Yahoo, mobile exchanges/DSPs and still others. 

mobile ad revenues by company emarketer

The collective "other" category above is probably much too small. However I do agree that a relatively small group of large companies with significant scale will control and collect the lion's share of mobile advertising in the US, just as on the PC. Google, Facebook and Twitter will certainly be among them. 

Google is accelerating the growth of mobile ad revenue with its recent introduction of Enhanced Campaigns, which will push more AdWords advertisers into mobile at higher CPC rates. And by bundling PC and tablet advertising together paid-search on tablets will also grow much more quickly. Location-based ad targeting on tablets is a bit of a wild card: location matters somewhat less on tablets than smartphones but the "ad canvas" is much richer on tablets.

Facebook has also been dialing up the amount of ad revenue it generates from mobile, simply by showing more ads in its apps. Home is a wild card and may or may not favorably impact mobile ad revenue for the company. 

What qualifies as a "mobile" ad may become murkier and more of an attribution question as in the YP example -- such as combined tablet and PC ads in search or Facebook ads that appear equally in mobile and on the PC. And what qualifies as "local" ad in mobile is also a bit of an issue. I would argue a local ad in mobile is one that includes an explicit location mention in the ad creative (or landing page). A "local ad" can also be one that has no location mention but uses explicit location targeting at a DMA level or "below." Ads that target by state, province or region should probably not be considered "local."

Google's Enhanced Campaigns and related simplification of media buying and location targeting will significantly boost ad spending attributable to mobile. I think however the eMarketer numbers for 2016 and 2017 are still too high. I also believe the BIA position that most mobile ads will be localized is also incorrect -- unless the definition of local is radically enlarged. 

Low-Cost Tablets to Accelerate Decline of PC Market

Last week there was a Reuters report asserting the next Google-ASUS Nexus 7 will have an improved screen and may cost as little as $149. The current entry level Nexus 7 is $199. Reuters also said that if it's not the new Nexus 7 than the existing tablet's price may be reduced. The current entry level Kindle Fire from Amazon (with ads) costs $159.

As this all indicates there's a kind of "race to the bottom" going on that may radically depress margins on Android tablets. Furthermore we're likely to see a decent $99 7-inch Android tablet in the next year.

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The growth of smartphones and the emergence of these reasonable-quality low-cost tablets such as the Nexus 7 are accelerating a trend toward mobile device adoption at the expense of PCs and further extending PC replacement cycles. In developing countries PCs will likely never reach penetration levels seen in North America or Europe.

In its latest device forecast Gartner joins the party, affirming what we already know about PC erosion in favor of smartphones and tablets on a global basis. In its projection Gartner sees Android as the big winner, effectively replacing Microsoft as the dominant OS on tablets and smartphones.  

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The particulars and timing of this forecast will undoubtedly turn out to be wrong. However the direction of the forecast is probably accurate. With its resistance to matching price competition (probably wisely) Apple iPads will not reach tablet penetration levels of low-cost Android based tablets (though the company is considering a lower-cost iPhone).

So far, Microsoft's "2.0" efforts in mobile, Windows Phone and Surface tablets, have only made modest gains in selected markets. However Microsoft still makes money from Android OEMs via patent licensing fees. If it has to rely on licensing the company's future will be pretty grim.

If these figures are anywhere near accurate tablets are poised to become the primary computing (and advertising) platform. Yet we're likely to see quasi-converged devices (i.e., tablets with keyboards like the Surface Pro) become laptop replacements in the near term.  

The Outlook for 'Home' Screen Advertising

Yesterday Facebook introduced its homescreen Android makeover-takeover strategy: Facebook Home. It comes both fully integrated into a phone (HTC First) and as an app download. As you know it replaces the standard Android home and lock screen experiences with a proprietary Facebook environment. 

Mark Zuckerberg and others at the press event yesterday confirmed that there would eventually be ads in its "Cover Feed." Cover Feed is the new photo-centric dynamic feed that constitutes much of the experience of Home. It includes Facebook content and select "Open Graph" partner content (e.g., Foursquare, Instagram). 

Facebook stressed that it was working to make sure that any ads that eventually do appear (probably within a year, depending on adoption) would be consistent with the aesthetic experience and of sufficiently high quality. We're starting to see more ads in the mobile news feed that are of, shall we say, uneven quality. 

However Cover Feed ads have the potential to be quite effective. If they're scarce and if Facebook uses strict standards they could become the equivalent of "Super Bowl ads for mobile." That of course will largely depend on how widely Facebook Home is adopted. There's early survey data that suggests limited demand -- but surveys don't always tell the whole story and can be contradicted by actual behavior. 

In the past there have been several startups that sought to offer home or idle screen ads on mobile devices. All failed for various reasons (not enough scale, insufficient ad quality, limited advertiser demand/adoption). Today, to my knowledge, Amazon's Kindle (multiple devices) is the only place where such ads exist at any kind of scale. The picture above, at right is an example of a "Special Offer" on Kindle Fire. 

I could find no data about the general consumer attitude toward these ads -- though there is plenty of online discussion about opting out. I also was unable to find any discussion or data about the efficacy of these ads and whether they perform for advertisers. 

For many of the reasons already cited it's way too early to project how much Facebook could earn from Home ads. But if there are millions of users who adopt Home in the US and around the world, the ads could generate broad exposure (like TV advertising) and significant potential revenue for Facebook. 

An interesting secondary question arises: if the most active mobile users migrate to Home (and use the app less often), do ads on Home then effectively cannibalize ads on the Facebook app in the conventional news feed? 

Image credit: lovemyfire.com

Despite Android's OS Lead, Safari Dominates Mobile Web Traffic

Here's another one of those surprising and paradoxical Android vs. iPhone reports: according to January comScore data Android's US smartphone share was 52.3% to the iPhone's 34.3%. However Safari's mobile browser share of US web traffic is now 62%.

This represents the combined smartphone and tablet market share for iOS, according to Net Applications. By comparison the Android browser had roughly 22%. Chrome (which may be on iOS as well) had about 2.5%. 

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Source: Net Applications

By comparison, according to StatCounter, the iPhone and iPod Touch combine for roughly 52% US mobile browser market share. Android has 37%. The iPad is not included in these data however. So it appears the two sources are generally in alignment. 

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Source: StatCounter

Despite Android's continuing market share gains and lead its users are much less active on the mobile internet than iPhone users. This is probably because the Android user base is more economically and demographically diverse than iOS users. 

On a related note, Google changed the way it calculates Android version share on its developer website. It has moved from total activations to Google Play visits to reflect more active and engaged users.  

PlaceIQ Introduces 'Place Visit Rate' Mobile-to-Store Metric

In what might be considered something of a breakthrough, AdAge is reporting that agency Starcom MediaVest will be working with location-data specialist PlaceIQ to document what "percentage of customers served a mobile banner ad for a retailer subsequently visited one of that retailer's stores."

This is part of a new real-world ROI metric PlaceIQ is introducing. The company's new measurement is called "Place Visit Rate." 

I spoke to PlaceIQ founder Duncan McCall about this several weeks ago but it was pre-case study release and so non-public at the time. PlaceIQ uses an unique but anonymous ID to connect users in the aggregate who've seen mobile display campaigngs with in-store visitors. Here's how the company explains its methodology:

PVR is measured by aggregating all of the devices that were messaged during a campaign and analyzing the number of those same devices that were later seen within a specific location or place footprint. Additionally, PlaceIQ can also set up A/B testing to measure PVR lift by identifying control groups or messaging additional PlaceIQ audiences. 

PlaceIQ emphasizes that it doesn't track individuals:

Place Visit Rate does not track individuals, but rather measures if a set of anonymous devices moved to a certain location. All location data, device data and histories are disposed of by PlaceIQ after the campaign completes.

The methodology is imperfect and can only identify a portion of users who seen an ad and then shown up in a store. An article in AdAge claims PlaceIQ is only able to track "15% to 25% of all mobile ad traffic it monitors."  Beyond this, as we all know, "correlation doesn't equal causation." However this is a big step forward in terms of being able to measure the efficacy of mobile display advertising.   

Historically, coupons have been the most reliable way to measure online-to-offline impact. And mobile payments may one-day make "closing the loop" on online or mobile ads fairly routine. However most ad networks and marketers have had to use proxy data (calls, map lookups) to determine the offline impact of mobile ads. 

Telenav/Scout can track users who see an ad and then navigate to a store location. It's not clear however how often someone sees a mobile display ad and then invokes navigation to a store. 

There are others such as ShopKick and Placed, which measure in-store visits. And there are a "2.0" group of startups working on various flavors of in-store vists and activity measurement. Among them are Euclid Elements and WirelessWERX. The latter uses indoor location to provide business intelligence and analytics services for retailers. 

Accordingly there are a range of methodologies now to try and track or capture online-to-offline ad impact. PlaceIQ's approach is a significant new entry into this arena and others may quickly try to match or approximate it. 

Nuance Brings Voice Interactivity to Mobile Display Advertising

Bringing new meaning to the term "conversational marketing," voice services provider Nuance has introduced mobile "Voice Ads." The new units use the Nuance voice platform to enable smartphone (and presumably tablet) owners to interact with these ads. It's not clear right now whether these interactions would occur exclusively on display landing pages or in the initial mobile display ad creative. 

In a Siri-like way users talk to the ads and potentially receive one of several pre-programmed responses. In one sense these new Voice Ads are not unlike more traditional audio/radio ads (think Pandora).

However the interactivity --  if done well -- could create much more engagement and "lift" for the campaign. Coupled with a campaign such as Old Spice something like this might have worked extremely well. Indeed, the campaign creative and concepts are key. Poorly executed ideas could quickly backfire and become fodder for brand parodies. 

Nuance is promoting a range of benefits from using Voice Ads including engagement, brand lift and better recall. 

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The company says that it has already partnered with leading agencies and mobile ad networks to ensure the units are widely available:

Nuance Voice Ads gives mobile advertisers and creative agencies an opportunity to go beyond the limitations of the four-inch mobile device screen and create a conversation with consumers through the power of voice recognition. Voice Ads finally creates an opportunity for brands to deepen the relationship with their consumers, with targeted interactive ads that deeply engage their core audience – much in the way that the world’s most popular mobile personal assistants have deepened consumers’ relationship with their mobile phones.

Nuance has partnered with many of the leading companies in the mobile advertising ecosystem to ensure broad reach and distribution for Voice Ads – a completely new format for mobile advertising. Creative advertising agencies include Digitas, OMD and Leo Burnett, while mobile advertising companies such as Millennial Media, Jumptap and Opera Mediaworks (AdMarvel, Mobile Theory, and 4th Screen), will provide distribution to more than 100,000 app publishers and hundreds of millions of consumers globally. In addition, mobile rich media ad servers such as Celtra are providing tools for rich media production and analytics on mobile devices.  

One could also imagine clever integrations that tie into call centers at the end of the interaction to close a sale. Again, everything is going to depend on strong concepts, execution and user experiences. Nuance offers a relatively tame mock campaign example using Voice Ads in this video.