The Growth of the Global Mobile Internet Economy

The Growth of the Global Mobile Internet Economy

          
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The Growth of the Global Mobile Internet Economy

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  • Greater Affordability Will Drive Further Change

    Smartphone prices have been coming down, and the rapid advent of more affordable phones (those costing $100 or less) will drive both greater penetration and new uses. While only about 20 percent of smartphone shipments in 2013 were of phones priced below $100, more and more OEMs are now making affordable phones, including global manufacturers (Samsung, HTC), local players (Xiaomi, Micromax), and new entrants (Mozilla, Intex). In France, Wiko devices (launched in 2012) sell for about €70 and captured nearly 7 percent of sales in 2013. Wiko expanded into the UK market in 2014. Also in 2014, in India—a potentially massive market—Intex Technologies launched a Firefox smartphone for $33 (the same price as a feature phone), and Google launched Android One, a set of high-quality, affordable phones from different manufacturers, all priced around $100 and with inexpensive Internet access. Both companies plan to roll out these low-priced phones across Asia soon.

    Affordable does not mean subpar. In 2013, almost 90 percent of smartphones priced below $80 had processors faster than 1 GHz (compared with 42 percent in 2012), and 38 percent had displays bigger than four inches (compared with 8 percent in 2012).

    The increasing affordability of devices, especially smartphones, will drive three developing trends:

    • A Continuing Explosion in Smartphone Devices. It took more than a decade for the number of smartphones sold to reach 1 billion units, but only three years for the next billion to be sold. Global smartphone penetration will approach 35 percent in 2017, up from 20 percent in 2013 and 10 percent in 2011. The installed user base will double in 2017 to almost 3 billion, from 1.5 billion in 2013.

    • The Rise of the Affordable-Smartphone User. Affordable smartphones open up entirely new demographic and geographic categories of consumers—users who are likely to have below-average incomes and to live in rural areas with unreliable network coverage. Affordability has been the biggest single cap on data usage growth, leading content companies such as Google and Facebook to look for ways to lower the cost of Internet access. The total amount spent on smartphones will increase, but the average amount spent per consumer will fall as users of affordable smartphones upgrade from feature phones and focus more on price than on brand.

    • A Big Increase in Data Coverage and Quality. As more users come online, they will bring about an increase in network coverage, capacity, and quality. We expect global 3G coverage to increase from 60 percent in 2013 to 90 percent in 2019, and LTE access to increase from 20 percent to 65 percent. The average worldwide connection speed will soar from 189 Kbps in 2010 to 3,898 Kbps in 2017.

    As the growing scale of the mobile Internet drives revenue growth for operating systems, apps, content, and service providers (through more ad revenues, paid downloads, in-app purchases, and paid premium content, for example), it will also generate more competition. In addition, traditional revenue streams such as phone calls and SMS (short message service, more commonly known as texting) will be replaced by larger data packages, as consumers upgrade from feature phones to devices capable of data-driven options such as Microsoft-owned Skype and Facebook-owned WhatsApp. Initially, some providers may subsidize data usage to attract new customers. Device OEMs will benefit from rising revenues and greater economies of scale, but they will equally need to manage margins in a low-cost, increasingly competitive market.

    As discussed above, the growth of wearables and machine-to-machine communication—the Internet of Things—is likely to fuel further change in an already fluid industry.