The Mobile Revolution: How Mobile Technologies Drive a Trillion-Dollar Impact

The Mobile Revolution: How Mobile Technologies Drive a Trillion-Dollar Impact

          
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The Mobile Revolution: How Mobile Technologies Drive a Trillion-Dollar Impact

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  • The Global Economic Impact of Mobile Technologies

    Mobile technologies are a critical driver of the world economy, generating global revenue of almost $3.3 trillion. (See Exhibit 3.) The mobile revolution has accelerated innovation worldwide, boosting global GDP and creating new jobs across a vast array of industries.

    exhibit
    • Mobile is directly responsible for 11 million jobs worldwide, and the indirect impact far exceeds this number.
    • More than two-thirds of mobile industry jobs are high-value, knowledge-economy jobs, such as innovation research, component and device design, and app development.

    In the midst of the global economic downturn, mobile has been a beacon.

    The mobile value chain extends across continents, bringing with it a boost to national economies around the world. A smartphone sold in Germany by a South Korean vendor, for example, involves coordination among many economies. The technology inside this smartphone is likely developed among the U.S., several European Union (EU) countries, South Korea, and China. Components are likely produced in some combination of the U.S., South Korea, Japan, and Taiwan, and assembled in China. Likewise, the network infrastructure—such as base stations, which are critical to the operation of this smartphone—was likely produced in Asia and uses patented technology largely developed in the U.S. and Europe.

    The mobile revolution has generated enormous investments in R&D and infrastructure worldwide.

    • Companies in the mobile industry invested $1.8 trillion in capital expenditures (capex) and R&D from 2009 through 2013.
    • Over the past five years, total investment in mobile technologies has exceeded investment in pharmaceuticals and biotechnology combined.
    • Mobile communications infrastructure is one of the only infrastructures that relies almost solely on private investment (unlike, for example, bridges, roads, airports, water, and sewage).

    In the six countries we analyzed—the U.S., Germany, South Korea, Brazil, China, and India—combined mobile GDP (mGDP) contributes more than $1.2 trillion to overall GDP. (See Exhibit 4.) These six countries account for 47 percent of global GDP. To isolate the growth of mGDP from overall GDP, we used an expenditure-based approach that assesses consumption (consumers purchasing mobile devices and services and engaging in mobile commerce), investments in mobile technologies, government spending, and net exports of mobile technologies (a country’s contribution to the worldwide mobile economy).

    exhibit

    South Korea, the U.S., and China are among those nations with the largest mobile contributions to GDP. Net exports (the difference in value between exports and imports for a given country) have had a dramatic impact on mGDP in certain countries. For nations with high production relative to domestic consumption, such as South Korea, exports are a major, if not the main, driver of mGDP. Countries with the strongest mGDP also tend to have unique capabilities within the highest-value portions of the mobile industry—intellectual property (IP) innovators, device manufacturers, and component designers—enabling high net exports. South Korea’s high mGDP, for example, is due to its major role in producing and exporting essential mobile products and components.

    In the six countries surveyed, mobile typically accounts for 2 to 4 percent of each country’s GDP, with a compound annual growth rate of 10 to 20 percent. In the U.S., the 3.2 percent of GDP related to mobile exceeds the GDP of such essential industries as entertainment, transportation, automobile, hospitality, and agriculture.

    A strong area of growth in mobile technologies will come from app developers, who are pioneering new ways to use the cheap and abundant bandwidth provided by the most advanced mobile standards. Important advances in mobile connectivity, geopositioning, and multimedia technologies have inspired new apps that transform the way we communicate (Twitter, WhatsApp), travel (Google Maps, Uber), make purchases (Yelp, Square), discover new music (Shazam, Spotify), and share memories (Instagram, Snapchat)—wherever we are. For apps to continue this growth, more innovation in core communications technologies is needed, as each major technological advance enables new waves of capabilities. According to Kevin Systrom, CEO and cofounder of Instagram, “The one thing that would keep us back is the ability to get data to the phone quickly and reliably. It needs to be fast and seamless—consumed instantly.”

    Three Economies Driven by Mobile

    Countries reaping the greatest rewards from the mobile economy—for example, South Korea, the U.S., and China—have all followed their own unique paths to success.

    South Korea. South Korea has quickly become the world’s most advanced mobile economy, having embraced 3G and 4G since their onset. Mobile represents 11 percent of the country’s GDP, valued at $143 billion. South Korea is a leading actor across all phases of the mobile value chain, particularly in its high-value segments such as design and production of devices and components. A strong focus on R&D and bold investments in nascent technologies, such as semiconductors in the 1980s and Code Division Multiple Access (CDMA) two decades later, helped South Korean players take the lead in design and manufacturing operations. Two of the leading smartphone OEMs—LG and Samsung—are based in South Korea. These companies have managed to transition from low-cost products to premium, cutting-edge products, contributing exceptionally high value and building a strong global brand. By participating at such a fundamental level in the value chain, South Korea has become a highly successful net exporter, with exports of devices and components significantly exceeding imports in overall value.

    The U.S. The U.S. is a major contributor to core segments of the mobile value chain, with companies like Qualcomm innovating in core communications technologies, Apple leading in OEM, Google with the most widely used smartphone operating system (Android), and Facebook as one of the most popular global apps. As a strong player in mobile innovation, the U.S. gained a leadership position in 4G technology. U.S. app developers have generated an array of new businesses. The U.S. has the largest absolute mGDP of all countries studied. Mobile’s contribution to U.S. GDP is currently 3.2 percent ($548 billion) and expected to reach nearly 5 percent by 2020.

    China. In emerging markets, China has led the way in embracing mobile. (See the sidebar “Alipay Leads the Way.”) With China’s wide deployment of affordably priced 2G and 3G services, Chinese consumers have benefited greatly from mobile technologies. In 2012, China became the world’s largest smartphone market.

    ALIPAY LEADS THE WAY

    E-commerce and (more recently) m-commerce have taken off in China. With $295 billion in e-commerce revenues in 2013 (up from $74 billion in 2010), China has surpassed the U.S. to become the world leader in e-commerce. By 2015, mobile commerce in China is projected to reach $41.4 billion, accounting for 8 percent of all its e-commerce, according to KPMG.

    The explosion in Chinese m-commerce is due in large part to Alipay, a mobile payment system that enables consumers to make payments anytime, anywhere. With 190 million active users in 2014, up from 100 million in 2013, Alipay has become China’s number one mobile payment tool, according to The Wall Street Journal.

    Alipay currently dominates consumer e-commerce in China and is becoming a major force in the Chinese economy. With 300 million account holders, Alipay is believed to have processed more than $500 billion in digital payments last year, helping Alibaba capture 80 percent of all online transactions in the country.

    Many of these transactions are managed through a single mobile app: Alipay Wallet. With this smartphone app, users take control of many activities traditionally handled by banks, such as opening an interest-bearing money market fund account, adding or withdrawing funds from the Alipay account, paying bills, and transferring money. It also allows users to make offline purchases from vending machines and brick-and-mortar stores.

    By building trust among users through the escrow payment model (the funds will not be released to the seller until the buyer has received the products and is satisfied with them), facilitating quick and easy payments while on the go, and virtually eliminating the need to carry cash, Alipay and Alipay Wallet have helped ignite e-commerce and m-commerce across China. In the words of one Alipay customer, “80 percent of all my online transactions are done through Alipay.”

    Mobile represents 3.7 percent of China’s GDP, with a 17.7 percent compound annual growth rate from 2009 through 2014. China has become a highly competitive place into which to import and assemble components into finished products, allowing the country to tap into its strong manufacturing base. China has been gaining market share in higher value areas, with the success of companies in the device space (such as Lenovo and Xiaomi) as well as telecom equipment manufacturers (such as Huawei and ZTE). Lenovo’s recent acquisition of Motorola has further strengthened China’s capabilities in mobile innovation. Also, China is now home to more inventors in mobile technologies than any country other than the U.S. and South Korea. China is also seeing the rise of a vibrant app community, with approximately 1 million people working in this high-growth field—more than twice as many as in the U.S.

    The Ripple Effect

    Mobile has been a driving force in the success of some of the world’s most valuable companies: 6 of the 25 most valuable companies in the world are participants in the mobile value chain—Apple, Google, China Mobile, Alibaba, Facebook, and Verizon. In the smartphone era, these six companies have grown their revenue, on average, 35 percent annually. Facebook alone grew 78 percent year-over-year between 2009 and 2013, with mobile currently representing 88 percent of its user base (of which 60 percent are mobile-only users) and accounting for approximately 66 percent of its revenue. All are major players in the mobile economy and have benefited tremendously from advances in the core technologies that enable mobile communications. Mobile is also driving intense innovation in the start-up community as well—7.9 percent ($37 billion) of all venture capital (VC) funding in 2014 was invested in mobile start-ups, up from 3.8 percent in 2010. (See Exhibit 5.) Mobile’s share of VC investments is more than double its share of GDP, indicating the critical role that innovation plays in mobile and highlighting the industry’s prospects for growth.

    exhibit

    As this global snapshot demonstrates, the mobile value chain has generated enormous economic and social benefits for both developed and emerging markets. Mobile commerce creates a ripple effect that spreads throughout the global economy.

    Case Study: Flipkart Sidesteps the Desktop

    For the majority of Internet users in India, mobile devices are their primary portal to the online experience. Only about 5 percent of users in India own personal computers. (By comparison, PC penetration in the United States and Japan has reached 90 percent or more.) According to Unitus Seed Fund, 34 percent of people in India access the Internet exclusively through mobile phones. Mobile penetration in India is expected to reach 953 million subscriptions by 2015, up from 507 million in 2009. In light of the strong disparity between PC and mobile usage in India, some companies have crafted their business models to capitalize on the mobile revolution.

    Flipkart, India’s largest e-commerce marketplace, caters to the huge numbers of people in India’s towns and cities who rely on mobile devices for commerce. Consumers can use the Flipkart app to search, share, compare prices, and shop from thousands of third-party vendors in more than 70 categories (including clothing, appliances, and power tools)—generating major purchasing power for customers previously unable to access the Internet.

    More than 10 million people in India have installed the Flipkart app. Mobile traffic growth for the app is twice that of PC-driven traffic growth, and over 50 percent of the company’s traffic comes through the mobile app and the mobile website. Flipkart anticipates that mobile commerce through the app will constitute more than 75 to 80 percent of all user traffic in India by 2016.