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The Exponential Growth of the Mobile Internet and Changing Business Models

· February 8, 2013

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According to a new study by released by Cisco, mobile Internet traffic grew 70% in 2012 (and is predicted to grow at a 66% annual clip until 2017).  The report also concludes that the number of mobile Internet connections will surpass the number fixed Internet connections (which includes landline and fixed wireless) this year and that by 2017 the quantity of mobile Internet traffic will surpass that of fixed Internet traffic.  Other publications have identified other catchy stats from the report.  The Guardian highlighted the fact the Mobile Internet devices will “outnumber humans this year,” Silicon Republic noted that Mobile Internet data traffic is expected to increase “13 fold by 2017,” and Fierce Wireless pointed to the prediction that the average North American mobile users will consume “6 GB/month in 2017.”

While the sheer magnitude of mobile growth is amazing, DisCo’s particular focus is how this will have an effect on high-tech business models.  I have discussed this before, comparing the growing importance of mobile to other high-tech paradigm shifts.  The PC revolution (when Client-Server model climbed ahead of the Mainframe on the tech depth chart) vaulted Microsoft to the heights of the U.S. economy, and the ascendency of the smartphone catapulted Apple to the top of the tech world less than two decades later.  The exponential growth of the mobile Internet looks positioned to reshuffle the corporate technology deck once again, as making money in the mobile world is a very different beast than making money on the desktop.

Another study released this week provided some color to how the mobile explosion is changing consumers habits.  NPD, a market research group, released data showing that 37% of consumers are switching to mobile devices for content consumption, such as Facebook and Internet browsing.  This trend is likely to increase.  The PC isn’t dead, as it still remains the go-to platform for content creation, but the lucrative markets for content consumption are at least partially migrating to tablets and smartphones.

With this paradigm shift in mind, stories about Instagram’s “mobile first” strategy should not come as a surprise.  The trend of Internet companies spending most of their development money on the desktop ecosystem and then quickly cobbling together a mobile app as an afterthought is likely coming to an end.  At the very least, Internet giants and VCs are realizing that the mobile market is no longer of secondary importance.  Companies like Instagram have actually flipped the desktop-to-mobile development cycle on its head by perfecting their product on the mobile device and later releasing a website version as a complement to their mobile product.  Kevin Systrom, Instagram’s co-founder, discussed this trend in the company’s announcement of its new Desktop feed:

Today, I’m very excited to announce the launch of a product we’ve been wanting to build for quite some time now. Since our launch in October of 2010, we’ve focused on building a simple app that has inspired creativity while capturing everyday moments through the lens of your mobile phone. In fact, our focus on building out a mobile-only experience is a unique path that we’ve chosen for many reasons, the most important of which is that Instagram, at its core, is about seeing and taking photos on-the-go. However, to make Instagram even more accessible to our growing community, at the end of last year we started to expand to the desktop web, giving you the ability to see profiles from instagram.com. To continue that path, as of today, you can now browse your Instagram feed on the web – just like you do on your mobile device.

Fred Wilson of Union Square Ventures discussed the growth of the “Mobile First Web Second” business model over two years ago.  Admittedly some in the VC community have poo-pooed the Mobile First strategy.  In response to Fred Wilson’s argument Vibhu Norby responded:

All in all, mobile service apps turn out to be a horrible place to close viral loops and win at the retention game. Only a handful of apps have succeeded mobile-first: Instagram, Tango, Shazam, maybe 2 or 3 others (Games drive short-term revenue but don’t get me started on that topic – sell a billion $0.99 games with 30% taken off the top by Apple/Google and you now have the equivalent revenue of a Call Of Duty opening weekend).

You have an entirely different onboarding story on the web. You can test easily, cheaply, and fast enough to make a difference on the web. You can fix a critical bug that crashes your app on load 15 minutes after discovery (See Circa). You can show 10 different landing pages and decide in real-time which one is working the best for a particular user. You can also close a viral loop: A user can click an email and immediately be using your app with you…. The open eco-system of the web and 20 years of innovation has solved many of the most difficult parts of onboarding. With mobile, that kind of innovation is lagging significantly behind because we create apps at the leisure of two companies, neither of which have a great incentive to help free app makers succeed.

Now, I don’t necessarily disagree with Norby’s arguments, but I don’t think they refute the concept of a mobile first strategy.  In fact, I have no doubt that the mobile web presents a variety of new problems that need to be solved.  However, as the Cisco numbers illustrate, the mobile web is going to be where the new action is. (Or, as Wilson responded, “And if you don’t design your products and services for what is rapidly becoming the dominant UI, you will not maximize the success of your business in the long run.”) At the very least, to be successful going forward Internet companies are going to need to ensure they have an effective strategy for integrating their website with mobile apps.  Furthermore, having an effective stand alone mobile product is a prerequisite to getting into the fast growing developing country Internet market, where most of the Internet connections are mobile.

As any loyal business section reader likely already knows, the major web titans are frantically trying to piece together a winning mobile strategy.  In fact, Google just announced sweeping changes to its Adwords platform with a focus on improving its mobile performance, and Yahoo’s new CEO Marissa Mayer has bet the future of the company on becoming a player in the mobile ecosystem.

The rapid growth of the mobile Internet bears many similarities to the paradigm shifts of the past.  During prior paradigm shifts, many of the contemporary dominant players failed to grasp the significance of the changes afoot.  This time, however, it appears that the major websites and services of the world recognize the tectonic plates shifting underneath their feet, albeit a little late.  Although it is far from clear what the tech landscape will look like a couple of years from now and which established players will successfully navigate the transition (and which new mobile-first entrants will rise to join them), the one thing we can say for certain is that no one has a guaranteed seat at the table.

Competition

Some, if not all of society’s most useful innovations are the byproduct of competition. In fact, although it may sound counterintuitive, innovation often flourishes when an incumbent is threatened by a new entrant because the threat of losing users to the competition drives product improvement. The Internet and the products and companies it has enabled are no exception; companies need to constantly stay on their toes, as the next startup is ready to knock them down with a better product.