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Seven-Inch Tablets May Become Dominant

This morning Apple announced that it sold "3 million iPads in 3 days." However it didn't specifically break out the number of iPad Minis it sold, as opposed to iPad 4s. My guess would be that more than 50% of those three million tablets were iPad Minis. 

Also today device tracker IDC released new Q3 figures for tablets. The company measures "shipments," not sales to end users, so its numbers may not be an accurate reflection of actual market share. However the IDC data show Android tablets finally gaining against the iPad. 

Most of this Android tablet growth has come in the 7-inch category, where the Kindle Fire (a quasi-Android device) and the ASUS-made Nexus 7 have done very well. In other parts of the world, though not in the US, Samsung has done relatively well with its Galaxy Tab devices. 

Screen Shot 2012-11-05 at 8.56.32 AM

According to ASUS its Nexus 7 is selling nearly a million units a month. The success of Kindle Fire and the Nexus 7 has everything to do with their $199 entry level price. While the first Kindle Fire is a mediocre device at best the Nexus 7 is a terrific smaller tablet for the price. The iPad Mini is indisputably the best 7-inch tablet on the market now, but its $329 price makes the Nexus 7 a very attractive "second best" choice for many people. 

This holiday season, tablets will be the consumer electronic gift of choice, much more than smartphones and PCs.

Microsoft's new Surface RT will be going up against Android-powered tablets and the iPad. The recently released Samsung-made Android Nexus 10 has, according to Google, the highest resolution screen on the market. However it's  surprisingly a big disappointment in several ways (I have one). Indeed, it's unlikely Apple will face much competition in the 10-inch tablet category, even from Surface. 

However the 7-inch tablet category is a different story. It will be intensely competitive with price vs. quality being the main calculation in most buyers' minds. Amazon/Kindle Fire will vie with Nexus 7 for those users who are more budget conscious. The iPad Mini will be the clear choice for those who are not concerned about spending more. For those in the middle, however, the Nexus 7 does the best job of reconciling price and quality.

In many respects, because of its portability, the 7-inch tablet is more desirable than the 10-inch version. It may in fact become the most common type of tablet in the market from a unit-sales perspective. Regardless, the "establishment" of the 7-inch tablet as a new category of device (4 inch smartphone, 7 inch tablet, 10 inch tablet) creates new opportunities and challenges for marketers.

Only Apple has a meaningful number of tablet apps -- though that will likely change over time. Accordingly most mobile websites and apps treat the 7-inch device as though it were a big smartphone, which leads to awkwardness in several respects, especially when it comes to ads.

And just when you thought people couldn't own more mobile devices . . .  We're moving into a period when affluent consumers have a smartphone, a small tablet, a larger tablet and a PC in their homes. That makes everything more complicated for publishers and marketers, though not the consumer. It also means the PC will continue to be the loser of this diversifying consumer-device marketplace.

Google Brings More Speech to Voice Search for iOS

Earlier today Google released an update for its iOS search app, which had been in iTunes approval limbo for seemingly several months. The new app works on the iPhone, iPad and iPod Touch. At first it doesn't appear to be much different from the previous version. However there are two major changes and improvements: voice search with spoken answers and knowledge "cards."

While earlier versions of the Google search app for iOS had speech-to-text input, the new app includes the Siri-like spoken results that Google introduced for Android devices months ago. If Google has a structured result from its "Knowledge Graph" database, the female assistant voice will read it back. If not, Google will simply provide a more traditional list of web links.

 Screen Shot 2012-10-30 at 1.18.49 PM

Typically these structured results are presented as "cards." They can include images and other rich information and constitute "answers," where Google is confident of the result. Google introduced this "assistant-powered" voice search capability and knowledge cards in Android 4.1 in early Q2 (we're now up to 4.2). Accordingly the differences between the Google experience on iOS and Android are now less pronounced -- so to speak. 

The one missing piece from the new iOS app (which Google probably cannot execute on iOS) is Google Now. Google Now is the company's predictive search capability that combines users' search histories, time of day, location, calendar information and other signals to provide personalized and other contextually relevant information (e.g., traffic, flight times, nearby restaurants) -- without requiring the user to affirmatively conduct a search.

It doesn't always work. But when it does it's very impressive.

Google is the dominant mobile search provider across platforms, with a nearly 95% share in the US market. In a Q2 consumer survey about mobile search, conducted by Opus (n=503 US iPhone 4S owners), 19.3% of respondents indicated they used the Google search app. The remaining majority (roughly 70%) of users either entered queries in the search box in the Safari toolbar (where Google is the default) or they went to Google.com to search the mobile web. 

Related: Google now says that there are in excess of 700,000 Android mobile apps. That number is now at or near parity with Apple. 

iPhone vs. Android Is Quickly Turning into: Apple vs. Samsung

The battle between Apple and Android is quickly turning into a face off between Apple and Samsung as the latter obliterates all other Android competitors. This morning Samsung announced massive Q3 profit, while IDC estimated that the Korean conglomerate had shipped just under 57 million smartphones in the quarter.

By comparison Apple sold just under 27 million iPhones in its fiscal Q4, which ended September 30. 

idc q32012 520x327 Samsung widens global smartphone lead, as Nokia drops from top 5: Report

A noteworthy aside related to the chart above, Nokia is gone from the ranks of the top global smartphone vendors.

In contrast to Samsung, HTC, which had been one of the early leaders with Android, is now really struggling. The company saw a nearly 50% decline in revenue for Q3. In part because it's getting squeezed out of the Android market by Samsung's success, HTC has turned its attentions back to Windows in an effort to diversify revenues. 

However, unless or until Windows Phones start to gain share, the smartphone landscape is really about Apple and Samsung. Everyone and everything else is just an "also-ran."

Opera: North America Sees 70% of Global Ad Requests

A few years ago Opera bought mobile ad mediator AdMarvel. Today the company released its Q3 State of the Mobile Web report, which focuses on advertising. It features some great data about platforms, revenue categories and CPM rates. All the data are drawn from Opera's global network of publishers and advertisers representing 40 billion ad impressions per month.

One of the major findings is that 70% of mobile ad impressions are happening in North America (mostly the US). Asia is next and then Europe. 

 Distribution of ad impressions globally

Opera also reported eCPM rates by region. The global average eCPM was $1.31, with the US average slightly higher at $1.37 and Europe lower at $1.13:

  • US eCPM -- $1.37
  • EU5 eCPM -- $1.13
  • Rest of World -- $0.73

Opera reported on ad revenue by smart device. The company said that iOS devices generated more revenue and higher eCPM rates than competing devices: 

Once again, this quarter, iOS leads the pack in monetization performance with an average eCPM of $1.64. This outperforms the global average eCPM of $1.31 by over 25%.

Screen Shot 2012-10-25 at 3.46.52 PM

The iPhone and iPad in particular saw higher eCPM rates than other devices. Interestingly, despite the much larger number of Android phones, the iPhone generates roughly 2X Android revenue for Opera. 

The company also pointed out that while RIM/BlackBerry is losing share in global markets its position remains strong in the UK. 

Opera said that the category "Business, Finance & Investing" generates more ad revenue than any other in its network. It also said that 73% of Opera's mobile ad revenue is coming from apps (vs. mobile Web).

You can review the full report here

Pew: Democrats Morely Likely to Make Digital/Mobile Campaign Contributions

Based on a survey of 2,010 US respondents, the Pew Internet Project found that about 1% of mobile phone owners had made a presidential campaign contribution through their mobile phones. This compares with 13% of all US adults who've made a contribution (using any method) to one of the presidential candidates in 2012.

By comparison, roughly 10% of US adults "have made a charitable donation of any kind using the text messaging feature on their cell phone." Among the 13% who've made a presidential campaign contribution, Pew says:

  • 67% donated "offline" (in person, over the telephone, or through the mail)
  • 50% donated online (including via email prompt)
  • 10% donated by sending a text message from their mobile phones or using a mobile app

Regarding party affiliation and contributions, Pew found that "16% of Democrats and an identical number of Republicans have made a contribution to a presidential candidate . . ." However most Republicans make their contributions "offline," while Democrats "are much more likely" to make a digital contribution:

  • 57% of Democratic campaign donors have contributed online or via email, compared with 34% of Republican donors.
  • 15% of Democratic campaign donors have contributed via text message or cell phone app, compared with 6% of Republican donors.

Earlier data from 2012, generated through surveys from UC Berkeley, Google and IPSOS, show that between 20% and 35% of US adults have made purchases (of one sort or another) on their mobile phones. It's not clear, however, whether these numbers include buying music or mobile apps -- probably yes.

Over time more and more people will simply use mobile devices to do what they would otherwise do on a PC, including making political contributions. In addition, people will become increasingly comfortable using stored credit card data to buy things with their phones. 

To get more of the "lowdown" on mobile payments come see my panel at the Open Mobile Summit in San Francisco on November 7. The session is "Wallet wars: Mobile payments from theory to practice" and will feature speakers from PayPal, Google, HomeDepot and Visa.

Surface Receives Mixed Reviews Likely to Be Overshadowed by iPad, Android in Q4 Sales

Yesterday the first reviews of Microsoft's Surface RT tablet came out. (RT is the iPad competitor starting at $499; a more laptop-like Windows Pro tablet will debut later at higher cost.) There were some positive reviews, a bunch of mixed reviews and a few that were largely negative. Here's a sampling of comments:

  • Wired (positive): This is a great device. It is a new thing, in a new space, and likely to confuse many of Microsoft’s longtime customers. People will have problems with applications — especially when they encounter them online and are given an option by Internet Explorer to run them, only to discover this won’t work. But overall it’s quite good; certainly better than any full-size Android tablet on the market. And once the application ecosystem fleshes out, it’s a viable alternative to the iPad as well.
  • Mossberg (mixed): Microsoft’s Surface is a tablet with some pluses: The major Office apps and nice optional keyboards. If you can live with its tiny number of third-party apps and somewhat disappointing battery life, it may give you the productivity some miss in other tablets.
  • Gizmodo (negative): Should you buy it? No. The Surface, with an obligatory Touch Cover, is $600. That's a lot of money. Especially given that it's no laptop replacement, no matter how it looks or what Microsoft says. It's a tablet-plus, priced right alongside the iPad and in most ways inferior.

Many of the reviews argue and hope that the RT tablet will improve over time and that a second or third generation version of the device will be significantly better after Microsoft addresses some of the weaknesses, bugs and criticisms. 

Surface RT had appeared to be off to a good start, selling out pre-orders. However one tech blog, critical of the device and calling it dead on arrival, suggests that the majority of the pre-order sales were to Microsoft itself for employees:

I've heard that Microsoft made 250,000 initial Surface RT tablets, half of which (125,000) were the now sold-out 32GB model. But of those 125,000 tablets, a full 80,000 were purchased by Microsoft itself for employees. That means only 45,000 consumers and corporate IT managers have plunked down for Surface RT.

It's hard to know how much credibility to assign to such a claim. If it's true however it indicates either a lack of public awareness or a lack of interest. 

While Windows Pro tablets will compete with higher-end laptops (at similar higher prices), RT competes with the iPad and the larger Android tablets. In that context, given the mixed reviews, Surface RT will probably struggle. Accordingly the first generation device probably will only see modest sales, suffering essentially the same fate as Windows Phones have suffered to date. 

The broader Windows 8 operating system has received many positive reviews but some very mixed ones as well. Microsoft is praised for boldly overhauling the PC OS but dinged for creating potential confusion for consumers. There have been a few Microsoft observers who have even predicted "disaster" for the company.

The Windows 8 handsets are shortly to be released as well. The Nokia Lumia 920 has been lauded for its design but the device is no blockbuster or savior for Nokia or Microsoft in the mobile arena. 

With potential consumer confusion over Windows 8 (the OS) and the probability that Microsoft powered handsets and tablets will be overshadowed by Apple and Android devices in holiday sales, the company is unlikely to get the immediate sales boost it needs. Indeed, the new Microsoft tablets and Windows Phone 8 devices were supposed to reset the company for the new multi-platform era. However so far it appears that Microsoft has right now only made a kind of down payment on potential future gains. 

ISIS Finally Launches, New Google Wallet Coming Soon

Carrier backed US mobile payments initiative ISIS is finally live in two cities (Austin and Salt Lake City) this week after several delays. ISIS relies on near-field communications (NFC) and is very similar to rival Google Wallet, which also uses NFC technology. Like Google Wallet, ISIS will work at merchant locations with NFC-enabled POS terminals. There are approximately 300,000 such terminals in the US. 

Currently there are nine phones across T-Mobile, AT&T and Verizon that are compatible with ISIS. As many as 20 are expected by year end.

Google Wallet, which has been in the market for a little over a year, has seen very low levels of consumer adoption and usage. That's partly because there are relatively few available compatible handsets. Carriers have also not been entirely cooperative. Verizon in particular has blocked Google Wallet on its handsets, theoretically because of security concerns. However, ISIS is a direct competitor and were Google Wallet to succeed ISIS might not. As it is ISIS is a very long shot for the carriers.

Beyond this there is limited consumer awareness and interest in the US in NFC-enabled smartphone payments. 

Recognizing that it must do something to broaden the appeal and potential adoption of Google Wallet, the company is preparing to relaunch it soon. The Google Wallet site says, "The next version of Google Wallet, coming soon. Request an invite."

As part of the invite request process the Google Wallet site asks whether users have an iPhone, Android or "other." As widely known, the iPhone is not currently NFC compatible. All this suggests that Google is partly moving away from NFC or, perhaps more accurately, broadening Wallet's capabilities so that many more people can use it without NFC handsets.

Currently there is no leader in mobile payments in the US market. However, there are early indications that Apple's Passbook is seeing some traction among iPhone users. While Passbook supports stored value cards it right now doesn't fully support mobile payments.

Yahoo Probably Compelled to Buy a Mobile Ad Network

Yahoo used to be one of the leading mobile ad networks. And it used to be ahead of Google in terms of innovation and mobile ad revenue. But that now feels like a lifetime ago.

While the company still has decent reach and, presumably, mobile revenue it has fallen way behind market leader Google as well as some of the independent mobile ad networks such as Millennial Media and JumpTap. Millennial Media is now a public company with a market cap of $1.15 billion and JumpTap has secured roughly $120 million in multiple investment rounds. The latter is rumored to be contemplating either a sale or an IPO.

Both companies, among a few others, are now Yahoo acquisition candidates.

Yahoo just announced Q3 2012 revenues, which showed about 2% growth. Display revenue was the largest contributor to revenues but basically flat YoY. Search grew 11% (on a non-GAAP basis). Google "owns" mobile search so display represents the greatest area of opportunity for Yahoo in mobile.

Indeed, mobile is one of the cornerstones of new Yahoo CEO Marissa Mayer's strategy. However, the company's mobile capabilities need to be substantially beefed up. On today's earning call Mayer said the following: "At some point in the future, Yahoo will have to become a predominantly mobile company. By that I mean that at least half of our employees will be working on mobile." She added that Yahoo will be doing a great deal of hiring in mobile.

Beyond its own mobile properties and sites, Yahoo needs to be able to deliver ads to third party apps and the mobile web if it's going to see truly meaningful mobile ad revenue. This leads almost inexorably to an acquisition, which could take the form of one of the leading independent mobile networks or a mobile ad exchange, which would mirror its acquisition of the Right Media online ad exchange several years ago. 

Mayer has been busy assembling her leadership team (many former Google executives) and the thought is that she'll announce some sort of major acquisition in the near term. I had previously thought it would be a consumer facing site such as Foursquare. However I think a mobile ad network now is also a good possibility.

If she wants to hit mobile and local at the same time, she could acquire xAd.  

Revisiting My 2012 Mobile Predictions

For several reasons I had occasion to look back at some of the mobile predictions I made in January. At the risk of sounding self-important or boastful many of them have come to pass. In fact I was somewhat surprised by the number, which is why I'm posting about it now.

For review, here are the original predictions from January:

  1. 2012 ends with 65% smartphone penetration in the US
  2. Android reaches 60%+ smartphone penetration by the end of 2012
  3. Voice search: Siri expands its reach to many more third party services; Google and Microsoft beef up their competitive voice offerings
  4. Apple launches its own mapping service for iOS
  5. RIM’s co-CEOs resign in 1H 2012
  6. Windows Phones see modest but not huge success in North America, greater success in Europe/Asia
  7. Major smartphone security (hacking/virus) event happens this year (most likely on Android handsets)
  8. Mobile payments see continued growth but 2012 isn’t the “breakthrough” year
  9. Tablets galore: 100 million tablets in market by the end of 2012 (globally). The iPad represents 65% of the market
  10. Google announces mobile ads “run rate” of $4 billion (in Q4)
  11. Facebook launches mobile advertising in 1H 2012
  12. Amazon buys a mobile ad network (Millennial or Jumptap)

Here are my comments and updates on each item:

  1. The smartphone penetration number (per Nielsen) right now is 55%; we'll probably end the year close to 60%
  2. Android smartphone market share in the US is 53% now (per comScore), probably going to 55% - 57% by the end of Q4 2012
  3. Siri has been beefed up and its structured data sources expanded. Google has answered to some degree with "Google Now" and related voice assistant; however Microsoft hasn't done anything significant in this arena beyond its core voice search. 
  4. Apple Maps launched of course
  5. RIM’s co-CEOs both resigned in the first half
  6. Windows Phones have continued to lose share in the US market (per comScore) but have seen some modest success in other markets
  7. Android malware has dramatically increased but there has been no single cataclysmic event 
  8. Mobile payments and wallets continue to make incremental gains (see Apple Passbook) but 2012 isn't the "breakthrough year" 
  9. The iPad's market share is about 68% on a global basis today. Roughly 84 million iPads have been sold to date and many millions of other non-iOS tablets. I suspect the 100 million threshold will be crossed by the end of Q4 if it hasn't been already
  10. Google announced a mobile run rate of $8 billion, with probably 70% to 75% of it being ad revenue. 
  11. Facebook did launch mobile advertising 
  12. Amazon has not (yet) bought a mobile ad network

Not bad . . .

Nokia Q3: Lumia Sales Not Happening

Nokia announced Q3 earnings yesterday. The company lost 969 million euros or $1.27 billion. It reported sales of 2.9 million Lumia smartphones during the quarter, which was down from 4 million in Q2. CEO Stephen Elop attributed the sales decline to the announcement and impending arrival of Windows 8 and a delay in consumer purchases accordingly. 

Nokia sold 3.4 million Symbian handsets for a total of 6.3 million overall smartphone sales in Q3. However Symbian has been discontinued as the company focuses exclusively on Windows Phones. Nokia CFO Timo Ihamuotila said the following about Nokia device sales in Q3:

Our Smart Devices net sales decreased 37% sequentially due to lower Lumia and Symbian net sales. This was partially offset by higher overall Smart Devices ASPs. Looking at our Lumia volumes in more detail, we saw a sequential decrease in shipments to 2.9 million units, with declines in all regions except for Middle East and Africa. From a product-level view, we saw sequential growth in the lower-priced Lumia offering, more than offset by declines elsewhere in the Lumia portfolio.

The evidence suggests that Nokia continues to have success at the lower end of the market but at the higher end it's struggling. Nokia's Elop promises this will change with the release of the Nokia Lumia 920, its first Windows Phone 8 smartphone. 

In the US AT&T will reportedly have an exclusive for six months on the handset. Presumably that was in exchange for aggressive promotion and placement in AT&T stores. We'll see if that helps but I'm quite skeptical. 

I don't think there's any reason to believe that Nokia will sell a great many more Lumia 920 handsets than it has sold of earlier models this past year. The company should have pursued a dual path with Android and Windows Phones. Of course Microsoft wouldn't have permitted that and still been willing to turn over hundreds of millions of dollars to Nokia in support. 

Nokia has lost in excess of 4 billion euros since it announced its partnership with Microsoft. And it doesn't appear that the hemorrhaging is over yet. 

Google: $8 Billion Mobile Run Rate, 75% Probably Ads

Under some pressure to show that it's monetizing mobile, yesterday on its earnings call, Google announced a new "mobile run rate" of $8 billion. That compares with a run rate of $2.5 billion a year ago. The numbers aren't a direct comparison; Google threw everything into the $8 billion figure (ads, Google Play, app sales).  

Here's what CEO Larry Page said in announcing the new run-rate number yesterday: 

This time last year, I announced that our run rate from mobile advertising hit $2.5 billion . . . But now, we’ve built up additional mobile revenue from users paying for content and apps in Google Play . . . I can announce our new run rate for mobile is now over $8 billion. That’s quite a business.

CFO Patrick Pichette added a small amount of additional clarity: 

The new [mobile] run rate is different from the one we gave you a year ago. And more specifically, last year, it included only our gross revenue from mobile ads, but this year, in this number we also added the gross revenue from the mobile sales of Google Play content. And finally, it also includes the consumer spending on the Play apps . . .

[O]f the three categories I gave you, ads continues to be the bulk of it, the vast majority of it. And then on the case of the Google Play, it’s important to note from a modeling perspective that everything’s that’s content, that is whether a book, a movie content is actually booked on our books on a gross basis . . . Everything that is tied to apps is booked on a net basis, but it’s still a huge kind of number in all cases.

Pichette said the "vast majority" of the $8 billion in revenue was comprised of mobile ads. Trying to estimate what percentage of this figure is ads with greater precision than "vast majority" is a bit tricky. 

Google is counting content sales on a gross basis and app sales on a net basis (30% of the total). Despite Android's larger footprint than iOS, Google Play makes less money than the iTunes App Store. 

 

In March, Flurry said that revenues in the Google Play market were 23% of the App Store. However this was limited to app sales and not content (if I'm reading it correctly). Google includes content sales (movie rentals/sales, book sales) on a gross basis.

Apple makes roughly $4 billion annually on App Store sales according to financial analyst estimates. Twenty three percent of that would be $920 million. If we assume that Google Play app sales have increased since Q1 Google night now be seeing a $1 to $1.5 billion app sales run rate on a global basis. 

It's harder to estimate gross content sales; I haven't seen any estimates of Google content sales at all. Google's content sales are nothing like Amazon's. However, let's be extremely generous and say that it's $2 billion (gross) on an annualized basis.

Using these extremely loose estimates, $5 to $6 billion of the $8 billion run rate would be attributable to ad sales and $3 to $3.5 billion to content and app sales. Pichette's language "vast majority" to me implies something around 70% to 75% (or more) of the $8 billion is ad revenue. That would be right between $5 and $6 billion. 

Is Mobile Driving Down the Price of Google CPCs?

Google inadvertently released its Q3 revenues early today. The company reported that consolidated revenues (including Motorola) were $14.1 billion, a 45% increase vs. last year. Google said that Motorola brought in $2.58 billion. However there was an operating loss of $527 million. Indeed it was argulaby the weak link in the Q3 earnings report.

Minus Motorola, Google's revenues were $11.5 billion with 67% of that coming from Google sites vs. its third party network and other revenue sources. Paid search clicks grew roughly 33% vs 2011. However cost per clicks (CPCs) were down about 15% vs. last year. 

While Google has yet to directly address this, the reason for the lower CPCs is likely the growth of mobile search and the shift of some categories of queries to mobile devices from the PC.

Mobile search volumes have grown significantly; however marketers value mobile clicks less than PC search clicks. The main reason is the challenge of proving ROI. Consistently we see that mobile click-through rates (CTR) are higher than on the PC. But "conversions" are much lower. 

Part of the reason may be the infamous "fat finger" problem. But the larger issue is how marketers are defining and tracking conversions. The e-commerce-centric way of thinking about conversions just doesn't work for mobile. Most users don't transact on their smartphones. They go into stores -- where 95% of retail spending happens -- or they follow up on PCs and tablets later to buy. 

Because marketers can't generally track in-store transactions or later PC/tablet conversions they assign a low ROI to smartphone based queries. This in turn causes them to bid less on those keywords.

In the local segment, there's a shift going on from PC map-based queries to smartphones. A Google representative recently said that up to 50% of mobile search queries carry a local intent. And comScore recently documented that trend and argued that map-based search on the PC had peaked and was now in decline: 

In the past six months alone, according to comScore Mobile Metrix, the number of smartphone visitors to Maps websites and apps has jumped 24% to 92 million unique visitors – a monthly penetration of 83% among smartphone users . . .Searches with a Mapping/Navigation intent on the Big 5 Engines are down 34% over the past 15 months, going from 74.8 million to 49.5 million in August. comScore Search Planner shows that search clicks to Map/Navigation sites show an even steeper decline, down 41% to just 55.2 million in August.

We're likely to continue to see a flattening of local search volumes on the PC and a continuing shift to mobile devices (mobile web and apps). Nobody really knows how much local search query volume is flowing through mobile apps. However a January 2012 survey found that half of smartphone owners conducted local search in apps, with Google Maps being the leading app.

Once marketers more fully embrace mobile and get more sophisticated about ROI we should see the price of mobile advertising and mobile CPCs increase. Google of course will be one of the chief beneficiaries of such a development.  

Microsoft Surface RT Tablet to Match iPad Pricing, Starts at $499

When Microsoft introduced its Surface line of tablet computers earlier this summer the burning question was: how much would they cost? While price isn't the only variable that will determine success or failure it's a big one.

Since that time several PC makers have started to announce their Windows 8 laptop lineups, with most machines coming in above $600. However today Microsoft inadvertently revealed the pricing of the devices. The screen in the Microsoft store has since come down. Below is a screen capture of the pricing page. 

Surface pricing

The basic RT model, which is Microsoft's direct iPad competitor, starts at $499 (32GB). If you want the "Touch Cover" keyboard, it goes up to $599 and then more for greater memory. The more fully equipped Windows 8 Pro models will cost more. But they essentially are the PCs of the future; a hybrid machine that will combine on-device and cloud storage. 

The interesting question now that the RT's pricing has been revealed is whether consumers will consider it an iPad competitor or a laptop alternative. If it's the latter it will be in something of a different category and could do quite well. However if it's regarded and positioned as a direct iPad competitor it may suffer. 

TeleNav Buys Local Ad Platform ThinkNear for $22.5M

TeleNav has been generally in the business of personal navigation devices and smartphone apps. Over the past couple of years the company has also gotten into mobile advertising, taking ads from the YP and xAd networks, in addition to increasingly selling its own ads to brands and franchises. The ads are all location based or geotargeted.

TeleNav decided it wanted to get into local-mobile advertising in earnest and has announced the acquisition of ad network ThinkNear. The price was $22.5 million in cash and stock. The ThinkNear team now joins TeleNav.

ThinkNear offers precise geotargeting and what it calls "situational targeting," which is a mix of context and audience targeting:

ThinkNear helps advertisers reach consumers within 100 meters of any location, which is more precise than the zip code and designated market area (DMA) targeting typically offered by most ad networks. The ThinkNear network reaches tens of millions of customers across more than seven billion impressions per month. The precision and scale of ThinkNear allows advertisers to take advantage of the most distinctive aspects of mobile phones, which more than 85 percent of American adults now own.

ThinkNear's targeting technology also enables Situational Targeting, which takes into account where consumers are, what they are doing, and what is happening around them. For example, a sports memorabilia store can target an NFL fan with an advertisement for a nearby sale on branded jackets, blankets and umbrellas while the fan is tailgating on a cold and rainy day. Hyper-local Situational Targeting provides consumers with ads that are more relevant to their real-time needs and interests as they go about their day.

The company also announced that ThinkNear would become Scout Advertising, which includes search and display inventory. (Scout is TeleNav's smartphone app/consumer navigation brand.) ThinkNear sources some of its inventory from the various mobile "exchanges."

Scout Advertising is essentially a more complete and extensive version of the "hyper-local" ad network Navteq (Nokia) was trying to build. However Navteq appears to no longer be in the business of advertising.

In addition to the usual metrics, Scout Advertising can also tell a marketer whether the consumer actually arrived at his/her destination. Thus business models can be click, impression and arrival-based. TeleNav also says that its CTRs are "well above online and mobile industry averages, and over 40% of customers who click on an ad will ultimately take action to drive to an advertiser's location." 

While most ad networks offer geotargeting, with varying degrees of accuracy (but generally not lat-long), TeleNav/ThinkNear join a short list of ad networks that can deliver much more granular location targeting. Indeed, its current (or perhaps former) partners, YP and xAd, are now its most direct local-mobile competitors.

Teed Up: Mojiva Introduces Dedicated Tablet Ad Network

It's possible that "T-commerce" and "tabvertising" may over time become more important to brands than advertising on smartphones. Mindful of the growing number and importance of tablet devices ad network Mojiva today announced a dedicated tablet network:

The Mojiva ad network reached an estimated three million tablet devices in January 2011, grew to 25 million by January 2012, and reached 40 million tablet devices as of June 2012. The number of tablet ad requests per month on the Mojiva ad network was 119 million in January 2011, increased to 655 million as of January 2012, and reached an impressive 2.13 billion tablet ad requests per month as of August 2012 – a nearly 20-fold increase in 20 months.  

Mojiva's new tablet network will give advertisers and agencies the opportunity to purchase prime inventory and display rich media ad units across highly valuable audience channels, which include luxury goods, entertainment, news, parenting, tech enthusiasts and sports enthusiasts. 

The Mojiva announcement was being touted today as "the industry’s first tablet-only mobile advertising network." However that's not entirely accurate. Google introduced tablet-only targeting in July of last year. 

Data aggregator eMmarketer has forecast that by the end of the year there will be 53 million tablets in the US. However this estimate is probably low. It will probably be closer to 60 million or more, especially with more lower-priced tablets, the forthcoming iPad Mini and a big holiday shopping season in store for tablets. (PCs probably won't be so lucky.)

Third quarter reports from several digital agencies and marketing firms (RKG, Covario, Kenshoo) show that the tablet ad spend is growing and that ad performance outpaces smartphones and rivals the PC. In the chart below, according to Covario, the tablet share of mobile ad spend has grown to 48% from 27% a year ago. That suggests it will exceed 50% by the end of the year.

Tablet Share of Mobile Ad Spend Has Grown

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Source: Covario Q3 2012 Quarterly Global Paid Search Spend Analysis

Mobile devices generated 21% of paid search clicks in Q3. While the numbers vary from firm to firm, paid-click volume on PCs is still significantly greater than mobile devices. Accordingly there's quite a lot of growth ahead for paid clicks on mobile. 

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Source: Kenshoo Global Search Advertising Trends Q3 2012

Despite the fact that Internet traffic is still dominated by the PC, many data sources indicate that tablet CTRs are significantly higher than corresponding CTR rates on the PC. It's also harder to discount or dismiss tablet clicks as "unintended" the way that several firms are now doing with smartphones. Furthermore, RKG's Q3 digital advertising report shows that the revenue per click from ads on tablets is nearly as high as on the PC. 

Mobile vs Desktop: CPCs & Click-Through Rate

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Source: RKG Digital Marketing Report Q3 2012

While some data indicate that the cost per click of tablet ads may be approaching or even exceeding comparable ads on the desktop, most sources still show the cost of tablet ads being lower and a better value than ads on the PC.

Mobile vs. Desktop: Revenue per Click by Device
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Source: RKG Digital Marketing Report Q3 2012

The emerging challenge with tablet advertising, of course, is the varying screen sizes that are starting to take hold in the category. This is especially true with the 7-inch form factor. An equivalent of responsive web design will need to be created for advertising to accommodate the range of screen sizes coming into the market: 4-inch, 5-inch, 7-inch and 10-inch.

Half of US Homes Mobile Only or Mobile First

The US Center for Disease Control (CDC) is tracking the number of US households that are "wireless only" or primarily wireless. Wireless only means there is no landline in the house; primarily wireless means that people receive "all or almost all calls on wireless telephones despite also having a landline telephone."

My wife and I, and others we know, fall into that second category. We have a landline but rarely use it. It's a number we give out for "official purposes" and it acts as a telemarketing "spam catcher." The majority of people who call that number get voice mail. 

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The last time I wrote about this data, in June, the CDC reported that just under 30% (29.7%) of American households were wireless only. Beyond this, 15.7% of US homes received all or almost all calls on wireless telephones." In total, 45.4% of US homes were either mostly mobile or wireless only. The CDC findings were based on polling data from the first half of 2011.

Earlier this week I checked back to see if the numbers had changed at all since June. They have; they've continued to grow.

According to CDC data collected between July and December 2011, 34% of American homes are now "wireless only." In addition 16% are mostly mobile, receiving "all or almost all calls on wireless telephones despite also having a landline telephone." This means that a total of half of all US households now rely primarily or exclusively on mobile phones.

The populations, according to the CDC, mostly likely to be mobile only are the following: younger people under 34, adults living alone, those without higher education and less affluent or poor families. Those more likely to be mostly mobile are: affluent adults, parents and adults with college degrees.  

Because these data lag about six months we can estimate that the current combined figure is probably closer to 55% of US homes being mobile only or mobile first.

Mobile Ad Revenues $1.2B for the First Half, Heading toward $2.5B for the Year

The IAB released its half yearly digital ad revenue report for the US market earlier today. Total "online" revenues were approximately $17 billion, compared with $14.9 billion a year ago. Search was the single largest revenue category and has been for some time. It accounted for 48% of total digital ad revenue in 1H 2012 or $8.1 billion (vs. $6.8 billion in 2011).

Mobile revenue for the first half was $1.2 billion or 7% of total digital ad revenue. That compares to $636 million for the same period in 2011. Ironically the MMA is recommending that brands and marketers devote 7% of their ad budgets to mobile. 

As might be expected, the IAB said that mobile was the fastest growing of the various digital ad categories it was tracking.  Screen Shot 2012-10-11 at 4.32.50 PM

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If we extrapolate from the numbers in the report we can project that full-year US mobile ad revenues will come in between $2.4 and $2.6 billion depending on how good Q4 is this year. 

Demand for iPhone, iPad Remains High, iPad Mini: Not So Much

Several data sources over the past week have indicated very high levels of enthusiasm for the iPhone 5 and the iPad "Classic," but not as much interest in the rumored (yet forthcoming) iPad Mini.

Financial services and investment firm Pacific Crest reports that its checks reveal continuing, high levels of demand for the iPhone, which is reportedly hurting Android sales. According to a report in Fortune: 

[Pacific Crest's James] Faucette writes that he's seeing several Android-based vendors aggressively discounted previously "high-end" flagship-type products to mid- and low-tier pricing. "While the [Samsung] Galaxy SIII will continue to generate positive news flow as a viable iPhone competitor," he writes, "we continue to believe that as an ecosystem, Android's shipment levels likely peaked in the U.S. as far back as last October and are likely to see further declines in the future if the retention gap doesn't close."

Piper Jaffray found similarly high demand among US teens for the iPhone, as well as high ownership of iOS devices. Based on a survey of more than 7,000 teens the financial frim found 40% owned an iPhone, while 44% owned (or had access to) a tablet. Nearly three-quarters (72%) of those who owned a tablet had an iPad, according to the survey. 

These teens were also interested in the iPad Mini, especially if it were to be priced at less than $300. Pricing an iPad Mini creates an interesting challenge for Apple because it's new iPod Touch is priced at $299 and above. Nexus 7 and Kindle Fire tablets are priced at $199; so Apple can't go much beyond $200 in pricing the Mini. However that would potentially cannibalize sales of the new iPod Touch. 

In contrast to the Piper Jaffray survey, e-commerce site TechBargains.com conducted a survey of visitors to its site (n=1,332) in September and found only 18% of respondents were interested in an iPad Mini:

  • 18% of the surveyed consumers plan to purchase the iPad Mini, while 45% of respondents planned to purchase the new iPhone
  • 50% of those surveyed are not interested in buying the iPad Mini
  • 32% are undecided about the smaller iPad

Among the 18% who were interested in buying an iPad Mini: 

  • 14% indicated a plan to wait in line the day it is released
  • Original iPad owners are the most likely to pay for the new iPad Mini with 27% of them planning to purchase the tablet
  • Current Kindle Fire owners and those who don’t currently own a tablet are least likely to purchase: 16% of Kindle Fire owners surveyed and 16% of respondents who don’t own a tablet said they plan to purchase the iPad Mini

Pricing and features will ultimately determine how popular a smaller iPad tablet turns out to be.

PC Shipments to Decline -- No Surprise Here

It's no surprise that PC shipments are set to decline this year. While the enterprise market remains modestly healthy the consumer market for PCs is weak. And it's not just the economy; demand is fading.

We're in a "post PC" world now; consumers have many more device options to accomplish tasks that at one time could only be done on the PC. Indeed, MS Office is reportedly coming to iOS and Android devices. Office was the last barrier to totally giving up the PC for many people. 

IHS iSuppli has projected a 1.2% shipment (not sales) decline from 2011. But unlike shipments that never translate into consumer sales, there can be no sales without shipments. 

The company said that not since 2001 has the PC market contracted like this on a global basis: 

The total PC market in 2012 is expected to contract by 1.2 percent to 348.7 million units, down from 352.8 million in 2011, as shown in the figure below. Not since 2001—more than a decade ago—has the worldwide PC industry suffered such a decline.

When you step back and look at the broader device market, you can see how much growth lies ahead for smartphones and tablets (and who knows what other connected devices) in the future. The PC will likely chug along in workmanlike fashion but its days of robust double-digit growth are over.

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Source: ITU World Telecommunication/ICT Indicators database, Gartner, Morgan Stanley (2011-2012)

Report: Smartphones + Tablets = 21% of Organic Search

Digital marketing agency RKG has released a Q3 report (based on aggregated data from its client base). The report covers search optimization, paid search, social media, email, comparison shopping and mobile. I'll focus here only on the mobile data.

The firm said that tablets (mostly iPads) and smartphones combined to drive 21% of organic search traffic in the third quarter. RKG commented that "this was nearly double the level we saw in Q3 last year." Because of the iPad and iPhone, iOS dominates organic search traffic from non-PC devices. According to the RKG report, "iOS held a 77% share of mobile organic search in Q3, an increase from 75% in Q2."

Operating System Share of Organic Search

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RKG also said that "revenue per click" (RPC) was almost the same on the iPad as it was on the PC, while smartphone RPC "languished at roughly a fifth that of desktop." Part of this is because only e-commerce events are being measured and captured. RKG and its clients aren't seeing the indirect impact of smartphones on conversions or purchases that happen later on PCs, tablets or in stores. Accordingly these data are somewhat skewed. 

What's interesting to observe in a more "apples to apples" context, however, is the discrepancy between iPad owner-users and Android tablet owners: "the iPad generated an average RPC that was more than double that for Android tablets, including the Kindle Fire and Nexus 7." 

Mobile vs. Desktop: RPC by Device

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From a paid search marketing standpoint tablets and smartphones cost less and outperform PC (search) advertising. The discrepancy between costs and performance was greatest on smartphones. One reason why this may be so is that many marketers and platforms aren't necessarily valuing mobile correctly because of the conversion-tracking problem. Nonetheless it's a great opportunity for those that aggressively embrace it. 

Mobile vs. Desktop: CPC vs. CTR

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