Vacations are good for fresh thinking. I started today's morning preparing to come back to work and my mind was buzzing with thoughts of the truly big picture. Last spring and summer I often got caught up with the minutiae of the percentage in market share or the next user number in text messages or the latest added consumers to mobile, etc. But there is a big picture to it all. The Contest for Convergence for the 5 Trillion Dollar Trophy.
To understand how enormous number we are looking at, its more than ten times bigger than the global computer industry including all PC hardware from desktops to laptops and netbooks and tablet PCs like the Kindle and iPad... plus the applications and software industry enabled by the PC industry. Take all that, and multiply that by ten! Or take television and radio, the total broadcast industry - and multiply it by 15. Or take the global internet and all its revenues out of Google adwords and broadband fees etc, all of the internet revenues - and multiply that by 20. We are looking at the biggest economic prize of our lifetimes, and it is 'in play' as we speak, with Fortune 500 giants like Nokia, Apple, Google, Hewlett-Packard, Vodafone, Microsoft, Sony, Samsung etc all angling to be one of the winners in this ultimate race of the decade, perhaps even the race of the century. So a quick review of where we stand.
I have been preaching the convergence story in each of my 9 books and was personally involved in the early stages of the digital convergence, from creating the world's first computer company advertisement to the internet (media and internet convergence) to leading the team that created the world's first fixed-mobile converged solution (fixed and mobile telecoms convergence) to authoring early documents on the future of convergence (at Nokia's Telephony Gateways digital convergence unit, I authored the first White Paper for the industry to discuss how to do the internet on mobile). That was all more than a decade ago when I was actively involved in 'doing it' rather than a consultant 'preaching it' haha... But I do know quite a lot about the realities of digital convergence not only from studying the matter, but from doing it myself.
So its no surprise to my readers and fans, and readers at this blog, that I believe passionately in digital convergence. So lets not review my view. Lets see what some others have said about digital convergence 'recently' - say past few years.
The computer industry is headed to mobile. After Apple introduced the iPhone in 2007, and changed its name from Apple Computer to Apple, and now calls itself a mobile company, the bigger computer maker rivals have all joined the chorus. Now Dell, HP, Lenovo, Acer etc all sing of the same hymn book. The future of the computer industry is mobile. Maybe that is not a big surprise, they have been predicting the pocket computer for two decades already..
The media industries are more interesting. The (former) Director General of the BBC said that all broadcast content will be available on mobile (and BBC's successful iPlayer is a perfect example of how a broadcaster can take a big slice out of the digital convergence into mobile). The CEOs of the major media giants from Publicis to Warner Music to EMI have all started to sing 'future of media is mobile' stories. Publicis CEO Maurice Levy said that within a few years "most of the music", "most of the information" and "most of the advertising" will "transit through your cell phone."
WEB AND ADVERTISING
What of the internet? Good question. A few years ago there was a big battle of will the internet win or the mobile? Now it seems to be clear, it will be that the internet will converge onto the mobile. In fact, the future of the internet is mobile. Google CEO Eric Schmidt has been saying that for years already, and the new Google strategy, 'Mobile First' is a clear indication of how seriously they are taking it. And Google are not alone among internet giants believing in a mobile future. From 2007, Yahoo has been saying the same. So if you thought that perhaps the internet was threatening your business, that may be a short-lived threat, say for industries already feeling the full threat like bookstores or video rentals or music stores or travel agencies etc. If the internet itself is headed to mobile, the salvation for a bookseller or video or music or travel company is not to go online, it is to 'leapfrog' the technology gap and go directly to mobile. Like the book publishing industry is doing in Japan for example where mobile books outsell ebooks already.
Advertising goes where the media audiences go. Advertising has been on mobile phones for a decade already but in mostly small numbers and niche campaigns hidden in the digital ad budgets. That changed last year when the advertising industry woke up seriously to mobile. When the global ad budget declined, and all other forms of advertising shrunk in revenues, mobile advertising spending doubled worldwide. As I witnessed when I delivered my keynote to the Mobile Marketing Association global event in the meccha of advertising, Manhattan of the Mad Men of Madison Avenue haha, the big global ad agencies are all ramping up their competences in mobile, and I am witnessing it myself with far greater interest now in my mobile marketing workshops and seminars, such as delivering a keynote to the big MMA event in Sao Paulo this week. The global ad industry top management may be late to the mobile party, but they are dead serious about it now. As we learned from Universal McCann the advertising giant, one in seven media minutes is spent with mobile already today, as mobile is often the digital response channel for legacy media like television, radio, print etc. Voting for American Idol, that kind of experiences.
WHAT OF MONEY
So the telecoms industry itself is migrating to mobile, no surprise anymore this late in the game. The computer industry is going mobile. The internet is going mobile too. And the major media industries and advertising are headed to a pocket near you too. But thats not the full picture. I have said for many years now, that we have yet another 'dimension' in this race, of a major economic sector headed to mobile: Money. In practise, its banking and credit cards when considering the classic major financial industries, or digital money in a technical sense (insurance is also going to join the mobile revolution a bit later). The first two SMS-enabled vending machines were installed in Finland twelve years ago, and soon thereafter the first SMS-enabled parking was launched in Norway. We've had full mobile payment solutions in the Philippines for a decade already. Mobile credit cards are nearly as old. But the migration of money is very slow. We hear of some great successes - more than half of Helsinki area public transportation single tickes are sold via mobile, and all of parking in Estonia is mobile, and now more than half of all banking accounts in Kenya are mobile banking accounts. But its still tiny bits in small countries. Yes, about half of South Koreans and the Japanese have mobile digital money enabled phones and services, but its nowhere near yet where half of their economy would transit the phone, and they are the most advanced digitally converged nations.
In m-money it is very early going. Gartner told us that in 2009 there were 73 million people who used a mobile phone to make a payment. Informa counted that the world had 67 million people with a mobile banking account. Contrast that with the 2.1 Billion people with a banking account as reported by the BBC last year. If we want to measure the 'migration rate' then currently one third of one percent of all banking accounts have migrated to mobile. That is a very tiny fraction. But that was exactly how it was with smartphones vs personal computers in 2000, or how it was with the mobile internet users out of all internet users in 2002, or what it was with advetising in 2006. Less than one percent. Its easy for many in banking and credit cards to be fooled into thinking this tsunami wave of convergence will not hit their shores.
Yet in South Africa it is normal to get your paycheck paid directly to your mobile account. Norway was the first country to let you submit your tax return by mobile. South Korea was the first country to make 'cards' out of Credit Cards optional - all credit card services are automatically enabled onto your mobile phone (instantly when the credit is approved), and if you want, a free plastic traditional credit card can be mailed in a few days also to your home address - if you so desire. There is no need for plastic cards in South Korea, but you may travel to a less advanced country like say Germany or USA or Australia or France where they 'still use plastic credit cards' haha... In Japan the mobile wallet is the most advanced where it not just includes your banking and credit and payment and loyalty cards. It adds your keys to your home and car, the pass-keys to your office, your identity card, and now as the phone collects your payment behavior, they have launched the mobile consierge to the phone, to help manage your life. The users absolutely love it, suggesting the phone seems to read your mind.. And taking those lessons, Nokia launched Nokia Money in India and is enabling near field to all its new smartphones.
While the big banking execs are mostly blissfully ignorant, thinking that launching an iPhone App is tantamount to a mobile strategy, haha, the tsunami wave is well under way. So the migration has started. Sweden started this summer the first parliamentary discussions about when is the right time to abandon printing cash, and moving to a mobile money only digital money economy! They aren't about to do it any time soon, but they have started the serious discussion about the end of money as we knew it.
That covers the giant industries I want to mention in this blog today. Telecoms, broadcast and print media, advertising, computers, the internet, banking, credit cards. These are all industries whose size is above 200 Billion dollars annually - ie each is bigger than the total global handset business including smartphones and dumbphones and all phone based accessories like spare batteries and phone covers and memory cards etc (combined, is worth about 160 billion dollars in total - a small fraction of the 1.1 Trillion dollar mobile telecoms industry where the majority of the revenues come from mobile services like voice, SMS and premium mobile data services).
There are many more industries, more small ones, that also are impacted by mobile, like cameras, music, videogaming, the watches and clocks industry etc, but those are so small (all under 100 billion dollars in size) that I won't spend much time on them now. They were involved in the first mobile battle of convergence, what I called the 'Battle for the Pocket' in my second book M-Profits in 2002.
There also are many other industries that are seeing impact from mobile, but who are unlikely to be totally cannibalized by mobile. So take air travel. Finnair launched the world's first mobile check-in in 2001 and today half of their passengers use the service. But mobile will not enable our air travel. We can't fly on the phone. We can book our seat and pay for the ticket and get a boarding pass to the phone, but we still need an airplane to burn jet fuel to fly from one airport to another. That isn't changing by mobile. So mobile can only influence a small part of the travel experience, whether in airplanes or hotels or trains etc. But in music, mobile can cannibalize all digital music. Same in the newsmedia or gaming or advertising or indeed money and banking and credit cards.
So yes, the automobile industry is eager to get into mobile too, many new cars feature SIM card slots for example and the next internet (after the internet has gone mobile) will be in cars. But again, if we need a car to get us from point A to point B, until they invent teleportation, we will keep needing that car (or some rival like a bicycle or bus etc). Mobile cannot cannibalize the whole car market like it can't cannibalize the air travel market or the hotel industry etc.
So this blog is about those industries that can expect far more than half of their total value, possibly the whole industry, to migrate to mobile in the coming years and decades. And that, if we take the dozen industries mentioned in this blog (excluding travel, cars, hotels etc) is worth a cool 5 Trillion dollars or about 9% of the total global economic spending of all economies on the planet.
HOW FAR HAVE WE COME?
So lets look a bit at how far we've migrated into mobile.
The telecoms industry is far along the way. 81% of the total telecoms industry has migrated from fixed landlines (0% in 1978) to mobile when counting total subscribers.
The internet had 0% mobile users in 1996. At the end of last year we reached mid-point, where half of all internet users accessed the web at least part of the time using a mobile phone (which includes the simple WAP type of mobile internet usage common in many parts of the Emerging World markets). So the internet has migrated 50% in 13 years.
Meanwhile there was no mobile phone that was a computer prior to 1997. There were stand-alone PDAs yes, but no advanced 'smartphone' to give computer like performance. Today all major PC makers have entered the smartphones battle and all say the future of the computer is the smartphone (something I have been saying for many years now). I counted on this blog that if we add both the traditional PCs including desktops and portable computers, and the smartphones, we get a total market size of 465 million units for 2009. Smartphone accounted for 37% of that amount last year. So we can say that in 13 years, mobile has already cannibalized over a third of the computer market.
Music was the first mobile content type in 1998 and today about 38% of all consumer music spending is mobile (when we include ringing tones). Videogaming followed and today a quarter of videogaming service revenues is generated on mobile. It would be an interesting market analysis to count all gaming-oriented smartphones (like the iPhone, most downloaded apps are games after all, the iPhone can be said to be the first globally successful gaming phone platform to rival the Nintendo and Playstation Portable..) and their value into the videogaming software value, the proportion would be bigger still.
I don't have a good measure for wristwatches and alarm clocks. But sufficient to say that clearly more than half of consumer uses of telling time - and of the wake-up alarm - is now from the mobile phone.
Of the big media industries like print, broadcast and the related advertising industries, their migration into mobile has only started and is in the low single digits in percent of total revenues or total content delivered. So these are all very early in the game.
And like I said, Banking and Credit Cards are at far under one percent of total users (and far far less than that in total value of the transactions going through mobile).
But I want to end on the 'lesson' for this blog. Cameras. The camera industry boldly and bravely (and foolishly) thought mobile phone based cameraphones would never catch on, and never rival their industry. That was a short-lived battle that was over in only 3 years. Sharp and J-Phone of Japan launched the world's first cameraphone in 2000. By 2003, more cameraphones were sold globally than all stand-alone digital cameras. By the next year, cameraphones alone outsold all types of stand-alone cameras (digital and film-based). Today cameraphones outsell stand-alone cameras by 10 to 1.
The camera industry correctly forecasted a dramatic growth in consumer adoption of digital cameras for this past decade. The growth was even better than they expected. But the growth was shifted from stand-alone digital cameras to cameraphones and the sales of stand-alone digital cameras stalled and stagnated. This is a common pattern in the 'Battle for the Pocket' as I have chronicled from the PDA vs Smartphone battle to the musicphone vs iPod battle, etc. Same pattern always. So what happened to the big four camera brands? In 2000 when the cameraphone was launched the world's biggest camera brands were Canon, Konica, Minolta and Nikon, all out of Japan. Today only two of them continue making cameras, Canon and Nikon - which both quickly shifted their focus from consumer snapshot cameras to premium professional and semi-pro camera systems. Minolta and Konica have quit the camera business altogether. This is the decade of the biggest growth of consumer camera use ever, where the annual market for new digital camera purchases grew by more than 10 fold. It was the golden age of cameras, yet two of the big 4 failed to survive this enormous opportunity.
Same is true of the various other cameras-oriented industries like Kodak and Polaroid. The world's most sold camera brand is Nokia. The world's most sold branded camera optics are not Nikon or Canon branded lenses, they are Carl Zeiss optics, on many premium Nokia cameraphones. Of the total population on the planet, out of any person who has ever used any type of camera, for 9 out of 10 such users, the only type of camera they have ever used, is on some cameraphone. It may be difficult for older readers in the Western industrialized countries who see the long lines of cameras and accessories sold at the electronics stores, yet the numbers are perfectly clear.
So lessons. The cameraphone did not kill the stand-alone camera. It just took 90% of the market. For the mobile industry that was far more than 'enough'. The big phone makers like Nokia, Samsung, SonyEricsson and LG are not in the business of creating professional cameras. They can happily leave the small 'pro market' to the specialists like Nikon and Canon. But as the mass market vanished, the mass market business also shifted. Kodak, Minolta, Polaroid, Konica and so many other major camera industry players had to abandon the camera related business and shift to something else like professional imaging or scientific instrumentation or photocopiers or whatever, or else go bankrupt - like Polaroid has done, twice already.
If they had aggressively pursued the mobile market, either through a premium cameraphone or a specialist role in the ecosystem or in partnership - any of the big giants of cameras could have a major role in the mobile industry today. Look at Apple, a computer maker, who decided to do its music player (iPod) on a phone as the original featurephone iPhone 2G, and then decided to make it a full 'pocket computer' by the second release of the iPhone 3G as a real smartphone in 2008. They only sell 2% of the world's total mobile phone handset market today, but its such a huge market, that it powers the majority of Apple's revenues and the majority of Apple's profits.
That is what Lenovo wants now, as they launched their LePhone and sold 100,000 units in the first quarter. Its not as good as Apple did in 2007 but Lenovo is at least taking a stab at this market, rather than how the cameramakers hid their heads in the sand and tried to avoid the truth.
I counted that in 2006 there were 7 of the Fortune Global 500 biggest companies on the plant, who made a smartphone. These were essentially the big phone makers like Nokia, Motorola, etc. At the start of 2010, there were 23 companies that had either launched or were launching a smartphone, out of the Fortune Global 500. That made the smartphone space one of the most competitive of any industries on the planet, with probably more global giant rivals than any other industry ever in the same space. (At least when it comes to banking, most banks tend to operate regionally or nationally, with only a few global banking brands).
Note this growth was not that smaller 'newcomers' making smartphones had 'grown' into the Global 500. It meant that previous global giants of other industries had decided to enter the mobile space, like computer makers such as Apple and Dell, like internet giants like Google and Yahoo, like mobile operators/carriers like Vodafone and Hutchison, and softwre maker giant Microsoft etc. Obviously the year has not been kind in the over-competitive smartphones bloodbath (Google and Microsoft very visibly quit the smartphone handset business already, but both are increasing their software and services focus on mobile, so they have not abandoned the opportunity in digital convergence).
WHAT DOES CONVERGENCE ENABLE
Remember that converence gives us new opportunities of better experiences and as an industry, vast new opportunities. When you take a bookstore and put it online like Amazon, yes you can have some 'distribution' and 'warehousing' benefits and you can sell a larger catalog of book titles than the bricks-and-mortar bookstore down the street. But what of the reviews. What of my shopping history. What of others who liked that book. And personalized recommendations. Such abilities are impossible in traditional bookstores. In a small 'mom and pop' bookstore, if you were a loyal customer, you could perhaps gain the familiarity with the bookstore owner, to be able to get some recommendations. But that is rare and would take years of competence to develop by the bookstore owners, and still would not be nearly as powerful as the Amazon recommendation engine, in pinpointing exactly what kind of books I may like.
Look at Google. Before search engines, it was not practical to try to find 'all available information' on a given topic, unless you lived next door to a major library like the US Library of Congress and were a wiz at using the library's card catalog system - and then spend hours digging through book indexes and tables of content. It would still not be as thorough as any Google search today, and it would take years to learn the skills and days of research in the library. Yet a child of 6 can do the same within a fraction of a second on Google today.
The digital convergence enables fantastic new services and abilites we never could have imagined. Take airline seats today. What travel agent could have specialized in Hong Kong to Sao Paulo travel for me today. What price ticket would I have gotten, on what airline combination, and what miserable layaways on the travel connections? Yet we can go to Expedia or Travelocity or Opodo whatever travel site you want to use, and get to see dozens of flight options - and their prices - and their routes - and the actual aircraft used. Then we have seat guru, which will tell me what in-flight electricity options are on that class of seat on that specific aircraft type on that particular airline. A paper based traditional travel agent would never ever have that capacity, except perhaps for the few 'domestic' airlines that serve their home town. But I see that instantly for all airlines. We get vastly superior services for consumers when we seek opportunties out of digital services. And this is all before we start to enable my flight itself with mobile check-in, or the hotel does a mobile phone enabled locks to my hotel room etc.
WILL DISRUPT MORE THAN ENABLE
But it also often means cannibalization of the legacy services and their eco-systems. So take music. At the end of the previous decade, the majority of music sales was through the sale of music CDs. Artists would compile 'albums' of about 15 songs, sold at a price far greater than the one hit that currently made the artist popular on the charts. A huge support system was in the recording industry to produce the sound of the music, to produce the CDs, to ship them to music retail stores, and to use the radio stations, music video TV stations like MTV, and promotional concert tours to help promote the album sales.
Then came the internet, Napster, social networking, MySpace and YouTube. Almost all music became available on the net for free. The market changed drastically. The big music store chains started to fail and go out of business. The CD market shrunk sales year after year. But music didn't end. The market adjusted in two ways. The internet and digital enabled new ways for fans to discover their music and artists (MySpace, YouTube, social networking). Artists could still sell tickets at concerts, so they shifted more of their income from selling albums to concerts. And new digital formats emerged like the ringing tone and ringback tones, which now deliver a third of the total global consumer spending on music worldwide. The music industry was slow to get into this opportunity and there were many problems along the way - witness Crazy Frog. But consumers have not abandoned music. They still spend about 30 Billion dollars on it annually, only the traditional music publishing industry is getting an ever smaller slice of that.
So some skills are changed. The digital convergence brought powerful authoring and editing tools to any musician on their PC (and eventually increasingly also on their smartphone). That diminished - but did not eliminate - the role of the traditional music studio for creating music. Digital convergence changed music creation - the sampling of instruments popularized by the early 'synthesizer' music of the 1970s and 1980s has made it easier for an artist to 'master' multiple instruments. The mechanics of expert handling of a guitar or violin or piano is no longer as critical for the creation of music. It did not end the need for 'real musicians' ie playing at symphony orchestras etc, but it helped popularize music creation, by the masses, for the masses. Digital editing of sound has enabled errors in sound quality to be 'fixed' - ie some boy bands and girl bands may have members who don't have good singing voices (perhaps are better dancers or just pretty on stage ) that can be increasingly 'fixed' electronically. Again, that does not end the need for pure excellence in real singing - witness UK singing sensation Susan Boyle
What the digital convergence did, most of all, it dis-intermediated some players, and re-intermediated others. The 'talent scout' at recording companies (The Big Labels) is a job that is disappearing. That is nothing new, once there was a huge need of typing skills at major offices, typing pools, before the word processor and email made most of their typing work redundant. There was once a need for staffs of receptionists to answer phones, but voice mail took most of those jobs. Etc etc etc
We still have a need for real music and real musicians and real creative arists. The digital convergence may be making the difference between the average musician and superstar even greater - a Madonna or Rolling Stones can command astronomical fees, but the average starting rock band probably earns about the same per 'gig' per night, adjusted for inflation, as rock bands did in the time of the Beatles and Elvis 50 years ago.
HOW BIG WILL IT BE
I think we have enough evidence from early digital convergence to make some preliminary hypotheses. We can assume that the legacy businesses, that do not embrace the digital convergence, to survive as a premium professional services industry but eventually fail the mass market. Thus they cannot sustain the number of players they have today. But that likely digital convergence will not kill most industries. These will be tiny niche industries, but can be profitable and sell to very passionate specialist customers, and those who specialize within the remaining industry but manage to capture the premium end of that market, can make a nice living in it. These would by definition become very stagnant mature markets sustaining only a few players.
A new converged economic opportunity emerges within the digital convergence which will not be as big, as the separate industries would be separately. So the cannibalization will eat into the size of the 'total pie' of the industries prior to convergence. But balanced against that shrinking of one pie, is the simultaneous growth of the total pie. So far up to now, the converged opportunity has always ended up far bigger than the initial industries that got into it.
When the battle for the pocket started a decade ago, the total value of all pocketable digital gadgets was about 100 Billion dollars in very rough terms. By the time the mobile phone had beaten the major rivals, PDAs, stand-alone cameras and musicphones, by 2006, the total pocketable gadget market had doubled to more than 200 Billion dollars in value, of which mobile had about three quarters. But most of what makes a modern mobile phone valuable to consumers is not the PDA or camera or music abilities of it. There are far more abilies and functions and services that game as additional growth areas, like mobile internet or MMS picture messaging or mobile payments and banking, etc. Our phone today is far more than 'just' a PDA-camera-music-phone.
The same happened in fixed-mobile convergence. The mobile did cannibalize some of the fixed telecoms revenues (and Skype probably took more of the fixed telecoms revenues than mobile) but today, the resulting combined telecoms industry is far bigger, about twice in size. Yet the opportunities did not come from just fixed telecoms services like local and long distance calls and voicemail, or those enabled on mobile. The mobile opportunity developed new abilities beyond convergence, starting from SMS and ringing tones more than a decade ago to augmented reality today.
THE BIG PRIZE 5 TRILLION DOLLARS
So that is what we are fighting for. The value of the different industries today headed for major cannibalization by mobile, where the majority of their business will end in mobile - is worth 5 Trillion dollars. Mobile alone is worth a bit more than one fifth of that, so there is far more from 'outsiders' to 'contribute' to this journey, than for the legacy mobile giants to do
It will be a big battle for this decade and for the banking and credit cards, that will last well into the next decade, but the convergence is inevitable. And do remember, this is not just about smartphone apps, or even about smartphones. Its about 'mobile' as the industry which is the ultimate convergence point and end-state for all digital convergence. That is what we are monitoring here on the Communities Dominate blog..
PS - if you'd like to read more, I have a few thoughts on the lessons of digital convergence up to now here, after the link