From The Ad Model To The Drug Model

Michael Hedges February 21, 2013 Follow on Twitter

The rapid advance of mobile devices continues to dazzle related industry sectors from media to advertising and consumer electronics. The trend is clear: mobile is here. The rest remains a quandary.

Internet usage is increasingly mobile, and increasing at a dizzying rate. Tables are becoming the device de jour, replacing the individual PC. The number of tablet users in Germany has nearly tripled in the last year, according to a report by Initiative D21 released this week, reported Handelsblatt (February 19). Just under two in five Germans are using smartphones to access the web, up from 24% one year on.

“Mobile internet is now the major development pushing towards a digital society,” said State Secretary at the Federal Ministry of Economics and Technology Hans-Joachim Otto, presenting the results. “This study shows the dynamic we desperately need.”

For that segment of the consumer electronics industry, this is great news. Only smartphones and tablets showed retail growth in the United States last year, according to market researcher NPD Group, quoted by techradar.com (February 19). Notebook and desktop PC sales all dropped, as did flat-screen TVs. Overall consumer electronics sales in the US continues drifting lower.

“Most market segments have high penetration rates and the demand for additional devices is slowing, or declining,” said NPD Group analyst Stephen Baker. “Tablets and smartphones have been able to stimulate demand for additional devices, but unfortunately it hasn't been enough, yet, to sustain positive growth trends.” NPD Group is predicting a slow 2013 for US consumer electronics.

There is no slow-down in smartphone and tablet demand in China, explaining flocks of Apple and Google executives recently visiting. The Chinese market is set to surpass the US market in mobile device sales this month. “The race is now effectively over: the US will very likely never lead again,” reported GigaOM (February 19), quoting forecasts from Flurry Mobile. This has something to do with China having about a billion more people than the US.

Folks tend to replace their smartphones every 18 months or so. Tablets are so new it’s difficult to judge the replacement cycle. Emerging, too, is a picture of the differences between smartphone and tablet usage. Smartphones are utilities; checking emails and bus schedules. Tablets are fun; catch-up TV, games galore and maybe reading the newspaper.

Techies – and others – believe the tablet will unconditionally replace the PC in the consumer space, more slowly in the business space. And so, the tablet screen is competing with the PC screen for digital ads. Google search traffic from tablets – the nexus of digital advertising – is expected to increase this year to 20% of all search traffic, predicted online advertising specialist Marin Software, quoted in Wired (February 14), from 6% at the beginning of 2012. Tablet ad click rates are near those of desktops while smartphone platform ad rates lag substantially.

Delivering all this digital goodness is making mobile telecoms even richer. Well, maybe not. Mobile telecoms are facing twin headwinds of new infrastructure costs to meet consumer expectation.

As usual, the technology people have a solution: super-fast, super dense 4G mobile internet. But mobile telecoms have been slow to stump up zillions for 4G licenses. The 4G spectrum auction in the UK (February 20) fell short of expected yield to the treasury. 4G broadband speed is comparable to the fixed-line rate.

“The disappointing revenues from the 4G auction, well below government forecasts, are a reflection of the challenges that mobile operators face in growing revenues from their users in the social media age,” said technology analyst Magister Advisors managing director Victor Basta in a statement. “Data-heavy social media services are causing huge growth in data traffic across mobile networks. Mobile operators increasingly find themselves in a role that is about supporting end users’ social networking habits, with little, if any, commercial benefit. Social networking has effectively turning mobile network operators into digital drug mules.”

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