Mobile leverage

There are around 1.6-1.7bn* PCs in use today, and there are already perhaps 2bn iOS and Android devices**. Over the next few years the great majority of the mobile base will convert to these devices: there will be 3-4bn smartphones in use*** and hundreds of millions more tablets. 

So, mobile means there will be two to three times more personal computing devices connected to the internet. But actually, that understates the change massively. The difference in how those smartphones are used is actually just as important as the raw numbers. 

First, they are not shared and they are personal. Of those 1.6-1.7 bn PCs, a little over half are consumer devices, and a large proportion of those are shared. The others are owned by companies, and at the very least they're restricted in what you can do with them for personal uses, and many of them are actually single-purpose devices. So it's helpful to think about somehow discounting that PC base to reflect actually personal personal computers - by half, or more. Just as there's a 'full-time equivalent', what's the 'personal computer equivalent'? It's not 1.6bn - it's probably more like half that. 

Then, these new devices go everywhere. The British term 'mobile' is rather more helpful than the American 'cell phone' (or the German 'handy'). They take the internet to wherever you may be, so they're available across the whole day, and they're available in different contexts: 5 minutes using Amazon in a store may be worth more than an hour on the Amazon website at home (this alone significantly broadens the scope of industries affected by the internet). 

Next, these devices are much more sophisticated than the 'web browser + mouse & keyboard' paradigm that's been the desktop internet for the past 20 years. The camera is arguably the one of the most important input methods, with perhaps 2bn photos shared every day already, and location, push notifications, motion sensors and everything else keeps accelerating the sophistication and richness of what's possible well beyond the desktop web. 

Finally, the step change in ease of use provided by the new generation of operating systems changes what it means for someone to have such a device. A very large proportion of PC users would describe themselves as 'not computer literate', or at best getting by following 'recipes' within a narrow set of tasks, but far fewer say they're not phone literate or even smartphone literate (though a curve obviously remains). The usability of this new class of devices of itself multiplies the reach of the internet. 

When you pull these strands together, smartphones don't just increase the size of the internet by 2x or 3x, but more like 5x or 10x. It's not just how many devices, but how different those devices are, that has the multiplier effect

To put this another way, if you were to go from 50m text-based mainframe terminals to 100m PCs, you could say you've doubled the market, but that would miss the point - you've improved things by 10x, not 2x. The same applies to smartphones. 

Finally, this change in scale is multiplied further by the general collapse in the costs of building a product and taking it to market over the past decade or so. Regardless of what you think of Yo as a product, one programmer got to 1m pretty active users in a month with no funding. How much would it have cost to support 1m active users of anything in 2000?

That is, mobile will expand the scale of the opportunity by 10x, while the cost to reach that opportunity, at least in theory, has decreased by at least 10x as well. 


* Microsoft reports "1.5bn" daily Windows users, Apple said in the WWDC keynote that there are 80m MacOS users and desktop Linux estimates are somewhere around 60m.

** Google reported "1bn" Android users at Google IO (so perhaps 1.1bn over the summer). Chinese Android is at least 400m and not included in Google's number. Trailing 24m iOS device sales are a little under 470m: taking a slightly longer life-span (which is certainly the case for iPads and very probably for iPhones given the second-hand market) would go to 600m, perhaps more.

*** There are over 6bn mobile connections, but this includes a very large amount of multiple SIM ownership and dormant connections. The GSMA estimated 3.4bn human users at the end of 2013, and that's at the low end of estimates.  

In mobile, everything is still wide open

The mobile platform horse race is very entertaining, and a very reliable way to get page views. But it’s also, increasingly, a second-order question. So far, Apple and Google are both winning, in different ways. That may change over time - Apple may make a substantially cheaper phone or developers may shift to making Android apps first. But that’s really not a very interesting topic anymore - everything that can be said has been said, and it wouldn't even necessarily change very much unless you're an Apple or Google shareholder.

To me, the first-order issue is the sheer scale of mobile. We’re going from 1.5bn PCs on earth, either corporate and locked down or consumer and shared and in neither case really mobile, to perhaps 3bn smartphones, that are completely mobile and personal. This means that the internet, by whatever metrics you want to use, gets two or three or four times bigger. It also means the internet can 'eat' a lot of new sectors, across things like, say, retail or payments.

Within this, complexity. I think there are three big differences between the desktop and mobile internet: 

  • ‘Pre-Netscape’ - the desktop internet resolved pretty quickly into ‘the web, and everything else’, and didn’t change much for 20 years. Mobile does not have that single unifying interaction model. We have apps and app stores and messaging systems and iBeacon and a lot more besides, and none of this is finished yet - we do not have resolution into one settled way to do things. Everything is still changing. 
  • ‘Pre-PageRank’ - as a consequence of this complexity the door is wide open for ways for people to find and discover services and ways for companies to reach those people. After the early chaos of the web Google’s PageRank gave a single unifying vector - we do not have such a vector for mobile services. Given the much greater complexity and sophistication of the smartphone platform versus the PC web browser, we may never even get that one unified tool. 
  • Identity -  a smartphone is a a social platform in a way that a PC never was - it has an address book and many other features that apps like WhatsApp can leverage. But it isn’t clear what the point of identity that ties all of these together would be - is it the PSTN number? Email address? Facebook ID? Or some shifting mess of all of these? We have Facebook and Gmail, but it's almost as though we're waiting for them to be invented again. 

As platform owners, Apple and Google will play roles in shaping some of these (or, at least, they will try to). But really, the platform wars are over and everything is wide open. What you look at and how you engage with it, share it, find and discover it are all wide open opportunities in a way that hasn’t been true on the web for a long time. That makes this a really exciting time to be talking to entrepreneurs at a16z

What does mobile scale mean?

Some time in the next six months, the number of smartphones on earth will pass the number of PCs. 

Screen Shot 2013-12-18 at 17.51.51.png

This shouldn't really surprise anyone: the mobile business is much bigger than the computer industry, and there have been more mobile phones than PCs since at least the late 1990s. There are now perhaps 3.5bn to 4bn* mobile phones, replaced every two years, versus 1.7-1.8bn PCs replaced every 5 years.

But there was always a wall between the two industries - neither really saw or paid attention to or sold to the other, or if they did (like Microsoft) they didn’t get anywhere. Smartphones broke down that wall - suddenly tech companies could sell to an industry with $1.2 trillion annual revenue, and suddenly mobile operators are faced with people who think about product cycles in weeks rather than years.

Both sides are slightly shell-shocked, and I often feel that neither has quite internalised the scale of the change. Mobile operators still try to make messaging services, and tech people still get surprised that you can sell more phones in a quarter than the PC industry sells in a year. 

Screen Shot 2013-12-18 at 18.12.45.png

The driving dynamic is that smartphones are not actually a new industry - rather they are a category change sweeping through a huge industry that was already there, hiding in plain sight. The great majority of those mobile users are converting to mobile phones running Unix, and mobile phones (on average) are replaced every two years, meaning this is a very rapid cycle. 

So we will end up with somewhere over 3bn smartphones in use on earth, almost double the number of PCs. (In fact, the more meaningful question is how many people will have a data plan: when you go to low income levels in emerging markets you find people who are happy to buy a $50 Android phone but operators who cannot afford to give that person a gig of data a month for a dollar.)

In truth, none of us have really internalised what change this means. The fact that Apple makes more money than Microsoft or that smartphones outsell PCs isn’t really the point. Rather, the entire internet is being changed fundamentally - both the size and the character of the internet are going to look quite different from what we have been used to. 

First, scale. There are perhaps 900m consumer PCs on earth, and maybe 800m corporate PCs. The consumer PCs are mostly shared and the corporate PCs locked down, and neither are really mobile - at best you can take them from table to table. Those 3bn smartphones will all be personal, and all mobile. So the internet goes from a shared device at home to a screen in everyone’s pocket. And that’s without considering several hundred million tablets, which blur all of these boundaries. 

This means that the internet gets several times bigger. One could talk about time, or engagement, or use, or value, and all of these metrics are problematic, but it is clear that mobile devices will become the dominant part of the internet - we will stop talking about ‘mobile internet’ in much the same way that no-one talks about ‘new media’ anymore. 

Just as importantly, the character of that internet changes too, and not just because of mobility and screen size. On the desktop, ‘internet' has really meant ‘web’, with a few exceptions such as Spotify or Skype. Everything happened inside that browser window, and that didn’t really change at all for 15 years. On mobile, clearly, that is not the case - we have a much richer array of routes to market and models for interaction, and this complexity and innovation is growing all the time. The web is no longer the only option and Google & Facebook are no longer the only option. Some of these changes in dynamics were obvious from the start - others have taken time to appear. A good example is the way that smartphones remove the winner-takes-all benefits of a leading social network, and so obliterate Facebook’s monopoly on social. There are more changes coming - mobile is changing all the time in a way that the desktop internet did not.

In a sense, then, one could suggest that smartphones liberate the internet from the browser in the same way that the browser liberated it from the command line. 

All of this means that the operating environment looks very different, and a lot of our assumptions need to change. A lot more is up for grabs, and the scale of success looks different. When a dozen guys in a garage with a hot service get struck by lightning, that means 50m or 100m users, not 1m, and in time it might mean 1bn. A great many industries that came unscathed through the first wave of the internet - the desktop wave - are now facing disruption. Lots of things that look like the right idea are going to turn out to be blind alleys, like Yahoo, but at the same time even irrelevance can mean a big business - Facebook has lost its monopoly but the mobile opportunity may be big enough that that doesn't matter. Web search is no longer the only discovery channel but Google is doing better than anyone else at finding what comes next. 

It's now the season that people are supposed to write sets of predictions of what will happen next year. For me, the prediction that comes out of this is confusion, change and opportunity. I really don't know what will be the most important thing that will happen in 2014, but that's kind of the point - everything is on the table. 


*There are around 6.5bn mobile connections, but a great many people have more than one SIM

Polarisation, continued

Playing with a new chart format. This shows quarterly handset unit revenue at the 8 'branded' handset OEMs, over the past three years. It includes all phones, not just smart.

Screen Shot 2013-05-02 at 5.15.40 PM.png

The polarisation of the industry is pretty clear. Not shown: the 'other category - Chinese OEMs making up increasingly large volumes for which this sort of data simply isn't available.

Smart devices versus Broadband lines

Sometimes the simplest observations are the most compelling.

According to the ITU, there are now around 650m fixed broadband lines in the world. 

In the 24 months to December 2012, around 915m iPhones, Android phones and tablets will have been sold. At the current rate of growth, which shows no signs of slowing, there will be twice as many of these smart mobile devices as there are broadband lines within a year.


Of course, real life is messier than that makes it look - you need to think about multiple users per PC and multiple PCs per connection, etc, etc. But none the less, the shift in the balance of consumption over the next few years will be profound. 

Polarisation, continued

Sometimes the simplest images are the most compelling.


This chart shows quarterly revenue for the handset units of Samsung, Apple, Nokia and the rest of the industry since July 2011. It includes some estimates for small points of detail it it is mostly just the data the companies report.

Apple (with cyclical swings) and Samsung are taking almost all of the growth - one taking the high end and the other taking all the rest. 

US Q2 smartphone share

As reported by the US operators, supplemented by some reasonable solid estimates on my part. The iPhone had around 47% share in Q2, roughly level with Android (RIM is now very small in the USA). 

2 years ago the iPhone was only offered by AT&T, which had 30% of the market. Today it is offered by operators with 80%. I strongly suspect that the iPhone ‘5’ will be ranged by T-Mobile (whose spectrum has been reconfigured, making this more practical): all things being equal that would take it slightly over 50% market share. 

This is especially relevant in the light of this internal Apple survey, disclosed today as part of the Apple/Samsung patent lawsuit: people choose operator first and phone second, especially in the US, given the highly variable coverage that operators provide.