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February 17, 2011

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Vikram

Some great data Tomi - some very nice perspective as well.

Bob Shaw

Tomi - Some very revealing data. You mentioned that Voice Calls revenues were $627 Billion in 2010. It would be interesting to know what is the growth in this segment from 2009 to 2010. My feeling is that voice call revenues will either stagnate or shrink in 2011 due to more wider use of SMS and Internet based calling like Skype.

Hoi

@Bob, I would conjecture that it won;'t shrink (stagnate..maybe). Most voice revenues in developed countries will come as part of a contract, and it's the breakage on that that will maintain revenues. In terms of internet based calling, this is unlikely to have a huge effect on revenues in 2011 as most data plans will also have the voice/messaging bundle as part of the overall plan. In terms of pre-paid devices, they are less likely to be using a phone that is capable of internet based calling and would be less likely to use them due to data charge levels on pre-paid.

As more people switch to smartphones, and if carriers offer more data only packages, then voice call revenues will start to drop. but for the near future, this is unlikely.

cycnus

tomi,

wasn't you wrote somewhere in your blog that jorma ollila were the first one to put all nokia money in mobile... way before google....

 Tomi T Ahonen

Hi Vikram, Bob, Hoi and cygnus

Vikram - thank you, yes, its a bit of a challenge always to make this annual review interesting, now thats it no longer a race where mobile was chasing some other big industry numbers like TV sets, radios etc

Bob - good question and I have that stat too (its in the freebie gift the 'Thought Piece' on mobile. So voice calls were worth $615B in 2009, now $628B for 2010 and grew 2% from the past year. For comparison, voice grew 3% the year before, so it is slowing down and approaching a plateau, but still - the growth in value alone was $13B dollars, thats a huge chunk of change in most other businesses haha..

One revealing way to understand this new growth, is to consider the parallel growth in subscribers. So the industry took what we had in 2009, and added 600 million new mobile phone users, and the industry generated 13B dollars more in voice calls. If we assumed the growth in voice all calls was all generated by the new users - how much would that be? Its $1.85 (under 2 dollars) per month that these customers spent on voice calls. In reality it is less, because the existing voice users will also increase their usage of voice calls per month (but obviously growing SMS use far more). So compare that to the global average that we now spend on voice calls which is $10.10 per month and you also see the dramatic shift in what kind of customers are being added to the mobile industry right now. Its all growth in villages among poor people who earn $2.00 per day, or second and third subscriptions for the rest of us who obviously put much less traffic on the parallel accounts.

What Hoi writes is also right, Skype is not relevant to 90% of the population in the Emerging World, they don't have PC based internet access to make use of it (and most mobile internet accounts won't be useful for Skype in attempting to save mobile phone voice call costs)

Hoi good points but it is clearly slowing and I do expect voice call revenues to plateau shortly. The overall traffic in minutes will continue to grow, especially as the carriers/operators all over the world go more and more to 'bundles' of voice minutes into the contract accounts, but the revenue growth is clearly slowing to almost none. I think we should expect about 1% growth this year and it could even be flat in revenues.

cygnus - that point was about 3G. Nokia was first major vendor to say its total future was dependent on 3G and started to re-arrange the company to win in that race, even selling the broadband unit etc.

Thank you all for the comments

Tomi Ahonen :-)

Michael Marlatt

Tomi, very insightful information as always. I never get tired of reading your posts!

Bob Shaw

Tomi - Thanks for the response. Addition of new 600M mobile phone users is an amazing number and I believe there is still quite a bit of room for growth in new additions. Also related to the above post, it would be great if you could shed some light on the following:

1. What is the average industry wide ASP for smartphones and how has it changed from 2009 to 2010?

2. How has the revenues of the carriers kept pace with the increase in mobile traffic for example did 10X increase in mobile traffic lead to 10X increase in revenue or 5X increase in revenue?

 Tomi T Ahonen

Hi Michael and Bob

Michael - thank you very much!

Bob - to your questions. The ASP for smartphones for 2010 was 330 dollars and the number is slightly down from 2009.

About the revenues for the carriers vs traffic, haha, I am sure you already know the answer, no way, not in a million years. The traffic is growing exponentially, due to the 'all you can eat' types of data plans on 3G networks and the revenues are barely up for that. No, the revenues are not keeping up at all with the growth in traffic. But this was to be expected, the shift to a new generation will typically increase network efficiency in cellular networks roughly by a factor of 10. So when we came from 2G networks to 3G networks (over roughly a 5 year period) the networks became far more efficient in moving data. The operators are able to deliver far more data today than they were able to at reasonable costs, early in the past decade. But yeah, the prices, no way, the revenues are not even close to keeping up with the huge traffic increases. That is why in most advanced markets the operators are actively trying to shift consumers to use WiFi networks and unload traffic there - led by Japan obviously where the world's first WiFi+cellular phones were released early in the past decade.

Thank you for writing.

Tomi Ahonen :-)

Bob Shaw

Tomi - Thanks for the response. I am not sure how the smartphone ASP will turnout this year especially with cheap smartphones from China.

Also your answer regarding the ratio of revenue increase to increase in bandwith consumption with the use of smartphones was very intriguing.

It appears from your answer that at present the low bandwith consumers at carriers i.e. feature phone users who predominantly use low bandwith features e.g. voice, SMS etc. are subsidizing the high bandwith consumers at carriers i.e. smartphone users who predominantly use high bandwith features e.g. web browsing, videos etc.

If this is the situation, I am just trying to understand what is the incentive for carriers to promote smartphones. Is there a huge excess bandwith capacity at the carriers?

Murat

But lets go back to MMS revenues. 34 billion dollars -

That's great but how much money do people other than OPERATORS make from MMS? So income from MMS advertising that is going to brands, agencies and developers?

Piot

@murat "That's great but how much money do people other than OPERATORS make from MMS?"

As long as it's larger then mobile apps.... then it's all good!

Andy Pearson

Tomi - I hope you get great karma for giving us all this wonderful info for free :-)

One clarification, however - when you say 4.2bn SMS users, I assume what you really mean is 4.2bn mobile accounts where SMS is used... given that there are only 3.7bn unique mobile phone users? I know there are ways to use fixed line SMS, but I can't think how there could be half a billion people who only access it that way?! In which case, any idea what the number of unique SMS users is..?

Jimmy R

more profit that they make from this market,

Alex Kerr

What's amusing in one sense, but actually not amusing at all in reality, is how far behind the curve the app development industry is.

Because they are all focussed on one or two smartphone platforms that currently (and will for a long while yet) represent only a tiny fraction of the phone using population. Yes, iPhone and Android.

It's time for a reboot of the industry's mentalities on Java Mobile (/J2ME/MIDP). This is a platform which is now far more capable, far more stable, far more connected, and far less fragmented, than it used to be - when it got it's reputation.

Developers need to get over themselves, and take a fresh look at a platform that has over 3 BILLION *potential* users. Now, the same old, same old arguments will be trotted out against it. But the real point is even when you ditch a bunch of the 3-4 billion because they're unconnected, settings don't work on the phone, whatever, you're still left with an enormous amount, many times bigger than the Android and iPhone markets put together. And the idea they don't and won't buy apps is ridiculous. Before iPhone and Android and Symbian users got their phones, they didn't buy apps either. It has been shown "build it and they will come". Apps got provided and people bought.

Java Mobile now has great standardised (adopted by Oracle) free software libraries that make UI development, and networking, etc, easy and standardised across all MIDP 2.0 editions of Java (that's most out there in the field). I'm talking of LWUIT and similar. With LWUIT you can also easily convert to Blackberry and Android, and Java Mobile as a whole works on Symbian as is.

There's really no excuse. Developers need to reawaken to the vast market in front of their eyes. Many feature (or 'dumb') phones are now just as capable as your average low end smartphone, and used by vastly many more people.

Bob Shaw

Alex -Good points. The line dividing feature phones from smart phones is getting blurred as feature phones improve in their capabilities. Further the carrier billing provided by Nokia's Ovi Store, Blackberry etc. makes it much more attractive to sell apps for feature phones in emerging economies where a good bulk of feature phones are used.

new era hats

This is a platform which is now far more capable, far more stable, far more connected, and far less fragmented

Matthew Artero

Hi Tomi,

The replacement rate math does not add up. According to the math the replacement rate must be greater than 37 months, greater than 3 years. The replacement rate is 3 years one month and 12 days to be exact. Just four and a half months shorter than the PC.

Therefore the highest percentage of the market that any new product can achieve in any given year is only one third and not two thirds of the market. Apple’s strategy of producing only one new model per year seems to be a reasonable strategy.

Every year one third of the phone market is up for grabs. Or less than one tenth of 1% (.09%) is being viciously fought over every day. If a manufacturer is spending more than it is possible to gain in a single year or single day, it will soon be out of this game.

The advertisers probably loved pushing the idea that after a phone has been on the market for a few months it has become old news and the manufacturer must produce a new one. But since people are not replacing their phones that often it actually is not an economically viable strategy.

The only thing a manufacturer really has to do to survive is be on time for seasonal sales with a winning product. Riding the wave of seasonal sales and coasting through the leaner months makes the most economic sense.

The whole idea that a manufacturer was going to win this fight by out-producing other manufacturers was a real coup for advertisers. It gave them a constant supply of products that needed to be advertised. Outselling is what matters, not out-producing.

In 2007 you said the replacement rate of phones is 18 months and you repeated it as late as June 2010.

“Growth. They sell almost 1 billion phones per year. The majority of phones go as replacements, and the phone replacement cycle is down to 18 months compared with 42 months for personal computers.”

Therefore we should be able to take the number of phones sold in a year, divide it by two, and then multiply the quotient by three to give us the total number of phones in use.

However since the number of users is growing, and some of those sells were to new users and not replacement purchases, we should end up with a product/answer that is actually higher than the current number of phones in use.

I've done this formula using the 1.38 billion phones sold last year and come to only 2.07 billion which is much smaller than the stated 3.7 billion unique users and 4.3 billion phones in use. The industry sells are short by 1.6 billion phones in order to achieve the replacement rate of 18 months.

If we take the figure of 4.3 billion phones in use and assume an 18 month replacement rate. We divide it by 3 and multiply the answer by two and get 2.86 billion phones sold per year.

We are short 1.48 billion phones to be able to claim a replacement rate of 18 months. This formula does not take into account the number of sells to new users. Therefore the answers should be coming out higher, but they are coming out lower.

A replacement rate of 18 months means that 66% of phones in use are being replaced every year. The 1.38 billion phones sold last year is only 32% of the 4.3 billion phones in use.

Because the number of new users must be subtracted from that figure, we know the replacement rate is less than 32% putting it at more than 36 months. Therefore if we take the 1.38 billion phones sold last year and multiply it by three we should get an answer that is close to but less than the 4.3 billion phones in use.

The answer is 4.14 billion. The replacement rate is greater than 3 years by 160 million units. It takes an additional 42 days of sells to replace all 4.14 billion phones in use. The replacement rate is 3 years one month and 12 days. 37 and a half months.

Matthew Artero


After we subtract the number of new users we might find that the replacement rate for mobile phones is greater than the replacement rate for PCs.


Neng Bing Doh

Where are the sources for these numbers?

Matthew Artero

Tomi,

I found an old post of yours in which you wrote "The replacement cycle for phones globally is only 18 months according to the Semiconductor Industry Association (vs 3.5 years for personal computers by the way)."

My guess is that they meant to refer to an internal component of the phone or were referring to the replacement cycle of products offered on the market; and not how often consumers buy a new phone.

karen millen dresses

I think it was Jobs who likened the "traditional PC" to a truck. At one time all "automobiles" were trucks. Now people still buy trucks, but most people get by in a car.

The general purpose PC will continue to decline in importance becoming the "truck" of the new age. There will be folks who need a truck, or have one family truck and lots of pocket/mobile cars (smart phones, tablets).

Apple has risen primarily by leading this change or kicking into high gear the change that was already under weigh.

Cloud computing is not going to harm Apple in the slightest. iOS and Android are going to be the leading "client platforms" for "cloud computing" with a mix of local apps (games and other apps better suited to local processing) and web services.

Lee

backpack

I recently came across your article and have been reading along. I want to express my

admiration of your writing skill and ability to make readers read from the beginning to the

end. I would like to read newer posts and to share my thoughts with you.

Atul Gupta

Nice Article....You really have best of breed Analytical Mind and Data Mining techniques..... there is lot of hype about apps but revenue wise the contribution is too low..... twitter has valuation of billions just because it is another form of sms or there is something more in it ? You state that **Well, SMS hit revenue levels of 120 Billion dollars in 2010, which is a growth rate of 6% from the level in 2009. Do not for one moment think SMS will go away any time soon.** & **Messaging comes in second biggest, at 172 billion dollars ** & **But lets go back to MMS revenues. 34 billion dollars.** so Messaging total should be 120 + 34 = 154 billion dollars not 172 billion dollars ? Can u clarify ?

 Tomi T Ahonen

Hi all, have been heavily travelling, so will do responses in parts.

Hi Bob, Murat, Piot, Andy, Jimmy and Alex

Bob - very good point, and the bizarre point is, that most carriers/operators do not have a cogent handset strategy! They tend to take what any given handset provider happens to push, and the marketing support they get etc. Sometimes a hot phone comes along (Razr, iPhone, Blackberry) and they kind of 'have' to have that, but mostly they don't think about what is the traffic impact of a given phone. If they really understood this point, we'd have QWERTY keypads on every subsidised phone and no subsidised phone would be sold without it haha.. (because of SMS proportion of total profits)

Murat - its obviously a small fraction of the total. Very roughly speaking half of MMS is P2P messages, so no money outside of operators. Of the rest, very roughly speaking operators take a third typically of premium MMS, so you could say 2/3 of total MMS is directly to operators, and 1/3 is split between the rest of the players in the value chain. It will be better in Asia, worse in rest of world (for non-operator players)

Piot - yes! haha, good point

Andy - oh yes, thanks, I get fantastic karma from this blog, you can be sure of that. Some of my best moments are meeting up with people who say they have been reading the blog for a long time (and often then mention a given blog story from early on, which has impacted them, haha). I wouldn't find the time to do this, if there wasn't a real karma gain to me haha... but I truly appreciate the thought! Thanks!

About subs, yes, the 4.2B is from active subscriptions, so the active SMS user who has 2 accounts, tends to send SMS on both accounts (but not always, some will prioritize on their device, ie Blackberry and iPhone user will tend to do most if not all SMS on the BB, not the iPhone). I am trying to get data to figure out the unique users from the total subscriber base in SMS usage, it is not easy and don't have enough data yet..

Jimmy - not sure which market you were talking about, sorry

Alex - thanks! yes, so very very true, Java, even after all the negative things about it, is easily 10x bigger than any single smartphone platform.. Any developer with an app idea, should do their best to launch a simple Java variant. In some cases that won't work but in most cases, a Java variant is perfectly valid and gives vastly bigger potential market..

Thank you all for writing, I'll return with more comments to the rest. Please keep the discussion going

Tomi Ahonen :-)

Matthew Artero

Lee,

Your analogy of the pickup truck is a bunch of baloney. The pickup is the top selling catagory in USA. For 2010 the top two selling vehicles are pickups and number 6 is also a pickup.

Sure if you are rich like Jobs you don't need a pickup because you can pay people to do the dirty work for you. If jobs were to go windsurfing or off road, he can have someone else haul and set up the equipment for him while he arrives by limo.

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    Tomi Ahonen is a bestselling author whose twelve books on mobile have already been referenced in over 100 books by his peers. Rated the most influential expert in mobile by Forbes in December 2011, Tomi speaks regularly at conferences doing about 20 public speakerships annually. With over 250 public speaking engagements, Tomi been seen by a cumulative audience of over 100,000 people on all six inhabited continents. The former Nokia executive has run a consulting practise on digital convergence, interactive media, engagement marketing, high tech and next generation mobile. Tomi is currently based out of Hong Kong but supports Fortune 500 sized companies across the globe. His reference client list includes Axiata, Bank of America, BBC, BNP Paribas, China Mobile, Emap, Ericsson, Google, Hewlett-Packard, HSBC, IBM, Intel, LG, MTS, Nokia, NTT DoCoMo, Ogilvy, Orange, RIM, Sanomamedia, Telenor, TeliaSonera, Three, Tigo, Vodafone, etc. To see his full bio and his books, visit www.tomiahonen.com Tomi Ahonen lectures at Oxford University's short courses on next generation mobile and digital convergence. Follow him on Twitter as @tomiahonen. Tomi also has a Facebook and Linked In page under his own name. He is available for consulting, speaking engagements and as expert witness, please write to tomi (at) tomiahonen (dot) com

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