June 2, 2016
Report raises questions about “peak smartphone,” discusses missed opportunities in mobile advertising and predicts that voice search is about to transform the internet
The days of the internet growth and smartphone sales going gangbusters appear to be numbered, even as voice integration and messaging aps are poised for big market breakthroughs and mobile advertising remains a $22 billion opportunity, according to widely respected internet analyst Mary Meeker.
A partner at the Silicon Valley venture capital firm Kleiner, Perkins Caufield & Byers, Meeker has published internet trends since 1995. Among other things, she’s credited with accurately predicting the emergence of mobile video, messaging apps and the ascension of China as a global economic powerhouse. Her current round of forecasts were unveiled June 1 in a 213-slide presentation given at Code Conference in California this week, and are already making waves through the tech and media worlds.
Flattening of worldwide internet adoption rates, expect for India
The worldwide web has already ensnared approximately 3 billion people, or 42% of the global population. That expansion, coupled with unfavorable macroeconomic trends like tepid GDPs, higher rates of government debt and declining birthrates, indicate formidable obstacles to increasing internet adoption figures further.
The current rate of internet penetration worldwide is a flat 9% year-over-year. That rate slips to 7% if India is discounted. Internet user growth in the world’s second most populous country accelerated by 40% year-over-year, up from 33% year-over-year in previous reports. The total number of internet users in India rose to 277 million, vaunting the country past the United States to occupy the No. 2 spot in the global user market.
Elsewhere, challenges to converting large offline populations living largely in Asia and Africa include a lack of network infrastructure and incentives to log on to internet, and in some cases low levels of literacy.
Internet user experience is transforming dramatically
Meeker predicts that by 2020 half of all web searchers will be conducted by voice or image search.
While Meeker raised some red flags for smartphones (see below), she was bullish on voice-driven interfaces like Amazon Echo. Voice searches currently account for one-fifth of all queries on Google and Android, and Google’s voice recognition software now boasts a word accuracy rate over 90% after being pegged at below 80% as recently as 2013.
Approximately 10 billion short videos are viewed online every day. Viral videos are performing better than ever and have enormous impact on driving consumer behavior. Meeker citied the ‘Chewbacca mom’ video that has drawn more than 150 million viewers and propelled Kohl’s to become the most downloaded app in the U.S. iOS App store, even though Kohl’s was mentioned just twice in the video.
As typing recedes on the search front, messaging apps are poised to take on far greater importance, and may even challenge the home screen on mobile devices as the primary display. WhatsApp already is among the top three apps worldwide.
Digital advertising grows, but remains out of synch with consumer habits
U.S.-based internet advertising increased by one-fifth between 2014 and 2015. Most of that surge is accounted for by just two companies, Facebook and Google, which, when combined, claim a 76% share of U.S. internet ad growth. The ability to provide advertisers highly specific user data for targeting purposes is a critical advantage for any platform seeking advertisers.
Mobile ads grew by an eye-popping 66% year-over-year, while desktop ads mustered a growth rate of a mere 5%. But despite the numbers, Meeker says mobile advertising remains chronically underfunded compared to legacy media. People now spend only 4% of their time consuming print media, versus 25% of time engaged with their mobile devices and another 22% of their time browsing the internet. Yet print advertising accounts for 16% of all U.S. ad spending, and mobile just 12%. Meeker estimates there’s a $22 billion gap between mobile consumption rates and mobile ad spending.
Facebook remains the most dominant social network by far, with users between 18 and 34 years old averaging more than 1,000 minutes per month on the platform. Instagram and Snapchat clocked in as the next most popular networks. Meeker highlighted branded Snapchat filters as particularly promising sources of investment, as data shows typical Snapchat users interact with them for 20 seconds.
The total number of smartphone users increased 31% year-over-year in 2015. The figure is currently hovering around 21% this year. The drop is indicative of a larger trend of decreasing smartphone sales numbers. Worldwide shipments of smartphones have dropped to 10% year-over-year from previous the marker of 28%.
Meeker estimates that iPhone sales, in particular, peaked in 2015. Apple recently reported its first quarterly decline in sales in over a decade, brought about largely by the first year-over-year reduction in iPhone sales. Meeker predicts the market share owned by Apple iOS software could shrink by 11% by the end of the year.
Apple’s primary competitor, Android, is on pace to grow its own market share by 7%. Globally Android accounts for 81% of the total market compared to 16% for Apple iOS, though its prominence is partly attributed to a lower price point, which limits profit margins for device manufacturers.
Smartphones remain a major expense in many parts of the world. The average retail price of a smartphone is 10% of the gross national income per capita in India and Nigeria (combined population: 1.42 billion) and swells to 15% in Vietnam.
Transportation landscape could see big changes as well
The auto industry is hurtling toward a major upheaval as Tesla and Google race to develop the first self-driving car. Each company is pursuing a separate track to automation. Tesla’s working incrementally to advance automation technology through a series of vehicle designs, while Google's approach is to go for broke trying to design an autonomous automobile from scratch.
This battle of innovation between two tech giants is one of a myriad of favorable conditions Meeker points to, which, when taken together, carry the potential to ignite a major revival of the U.S. auto industry.
Meeker also forecasts, however, a coming decline in car ownership levels due in part to rideshare companies like Uber. Uber’s shared-ride service, UberPool, now operates in 36 cities worldwide (a sevenfold year-over-year increase), and accounts for 20% of all Uber rides. Along with offering cheaper fares for passengers, UberPool is attractive to drivers for its efficiency; it has saved operators from traveling 90 million more miles and burning 1.8 million additional of gasoline that would have been consumed using just UberX.