Video Content in a Mobile World: Diet-Sized and Distributed

100 Calorie Snacks

While the tech industry was buzzing over Facebook’s $19 billion acquisition of WhatsApp, the social network’s original blockbuster deal, Instagram, was quietly making some interesting news of its own. Action-sport channel Network A, a property of next-generation media start-up Bedrocket, announced the launch of a first-of-its-kind video series called ‘#goodstuff’. The lifestyle series, which focuses on event and product reviews in its first installment, will be exclusively distributed on Instagram over the course of ten, 15-second episodes.

Instagram Video, which only launched this past June, has had a couple of other ‘firsts’ on the branded, short-form content front in recent months. In December Mass Appeal launched the first animated video series on the app followed by the launch of Instafax, a news-clip series from BBC, in January. While watching videos over the internet has become commonplace thanks to YouTube, Netflix and others, these three video series are the first to be created specifically for a mobile-first social networking audience. The combination of Instagram’s photo/video sharing experience with user engagement and growth figures that exceed those of Facebook, as well as those of rival mobile social networking apps, makes the company and it’s 150 million-plus user platform a logical place to experiment with new forms of atomized content creation and distribution.

The typical process for distributing video content online usually includes developing a branded destination website and accompanying YouTube channel to garner views. That won’t work in mobile, where apps are preferred by users and competing for attention is further challenged by siloed experiences and navigation constraints relative to the web. Instead of introducing yet another app for consumers to hopefully download, content creators have the opportunity to leverage the popularity of the most engaged social apps to efficiently reach their intended audiences.

In a day an age where smartphones have enabled content consumption to proliferated (just look at music video site Vevo’s recently revealed 2013 viewership stats), some mobile applications have imposed functional constraints (Twitter’s 140-characters, Instagram’s 15-second videos, SnapChat’s disappearing content, etc.) to create unique, and successful, user experiences. Without these limitations on the web, content creators have never had to consider developing stories to fit this new mode. While Netflix has shown us that a full season of House of Cards (about 13 hours) might be the upper-limit for online video storytelling, consuming this type of content is still best suited for TVs and laptops. Mobile devices, with their smaller screens, slower data connections and app-centric usage already lend themselves to content ‘snacking’- so why not experiment with optimizing production for these mobile confines.

The onslaught of webisodic content during the aughts, which launched such companies as Blip.tv and EQAL, eventually proved to be overly optimistic. But the issue might have been one of timing more so than anything else. The social-mobile generation is more likely to trade quality for content brevity and platform convenience in a world of streaming digital distractions.  Recasting webisodes to fit the realities of mobile could enable such experiments as lonelygirl15 to succeed longer-term. If the right content experience can be created for audiences, the quality will follow. If ESPN’s SVP of Product Ryan Spoon comments are any indication, users are willing and ready. The question is- can you successfully condense something like Modern Family into 3-minute seasons?

Time will tell if the ‘mobisode’ makes its way into your stream.

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Hitting Reset on the Internet and Mobile

Reset_Button

Every day there seems to be a new figure released that enforces the notion that mobile is also eating the world. The problem with most of the coverage of this type of data is that (1) the pace of mobile adoption shouldn’t come as a surprise and (2) the definition of what constitutes ‘mobile’ needs to be revised.

With smartphone penetration about to cross 60% and tablet ownership almost doubling from last year to a third of the U.S. population in 2013, it’s no coincidence that the amount of incremental traffic that mobile brings to the 50 most-visited internet properties now averages 28% (reaching a high of 223% in one instance) according to comScore. In response to this, media companies are reinventing their content consumption experiences to meet the growing demands of mobile users. Atlantic Media launched Quartz, a digital-first, mobile-oriented publication late last year while The New York Times is in the process of redesigning its online presence (slated for release this fall) to resemble the single-page stream layout popularized by social networks. Even native web media outlet ReadWrite is leveraging responsive design to adapt to their multidimensional mobile audience. This design trend will only accelerate the transition of internet activity from the desktop to mobile devices.

Remember, the personal computer, which reached the mass market more than 15 years before the web browser, was never intended to be a web-centric device. The evolution of wireless technologies and networks combined with the invention of smartphones and tablets are allowing digital companies to finally hit the reset button and create internet experiences that are designed to be more useful, from both a content and advertising perspective, than the current incarnation of the commercial web which borrowed heavily (to everyone’s eventual detriment) from print.

What this means for evaluating the mobile phenomenon is that instead of accepting all these stats at face value, we need to look at mobile’s ability to drive incremental adoption and create new monetization opportunities above and beyond the natural growth that comes from cannibalizing PC-based audiences and revenue streams.

This brings us to the issue of what exactly constitutes ‘mobile’. Typically we think of smartphones and tablets as providing mobility. But if you take into account that over 90% of tablets being purchased only use WiFi and, as a result, are primarily used inside the home, what differentiates these devices from laptops, which we consider PCs, aside from the form-factor? If you also include the divergent behavior of smartphone and tablet users the whole concept of what mobile is and represents needs to be redefined.

Instead of thinking of mobile as a device, we need to think of it as an activity. The two data points that matter most in defining mobile activity then are a user’s location and their data network. So if someone is at home or at work they shouldn’t be considered mobile. In this context the use of smartphones and tablets (instead of desktops and laptops) for accessing the web and certain apps (that also exist as websites) is done out of convenience rather than the need for a specific capability- and usually enabled over a WiFi network. The only experiences that should be classified as mobile are in locations where people usually don’t spend an extended amount of time at with their devices and are typically connecting to the internet by way of cellular or MiFi networks- so pretty much everywhere else. Building products and services that maximize utility in these scenarios is where mobile becomes useful. If we can agree on a better definition of mobile, then we can better quantify this opportunity, understand network constraints and figure out solutions that create new value.

This isn’t to say that devices that use WiFi networks or are used at home aren’t valuable- especially when you consider IP-based ad targeting and the second screen opportunity (something I’ll touch on in a future post). It’s just that the mobile activity on devices in these locations don’t generate incremental value unless they are using mobile-only applications (such as HotelTonight or Uber) and could, in fact, be destroying value for certain companies when taking into account that mobile users monetize at a lower rate than their desktop equivalent.

If PCs Are Becoming Trucks Then What Will Wearable Computing Be?

Wearable_ComputingOne of the many prescient observations made by Steve Jobs during his lifetime came while being interviewed at the All Things D conference in 2010:

When we were an agrarian nation, all cars were trucks, because that’s what you needed on the farm. But as vehicles started to be used in the urban centers, cars got more popular. Innovations like automatic transmission and power steering and things that you didn’t care about in a truck as much started to become paramount in cars. … PCs are going to be like trucks. They’re still going to be around, they’re still going to have a lot of value, but they’re going to be used by one out of X people. … I think that we’re embarked on that. Is the next step the iPad? Who knows? Will it happen next year or five years from now or seven years from now? Who knows? But I think we’re headed in that direction.

Headed “in that direction” indeed, as worldwide smartphone shipments passed personal computers in 2011 and tablets are expected to do the same to portable PCs this year and all PCs in 2015. But as Android and iOS-based devices start relegating Windows-based PCs to specific tasks, is the same phenomenon about to happen to these mobile technologies thanks to wearable computing?

Wearable devices, which includes health trackers (i.e. Jawbone Up, Fitbit Flex, Nike+ FuelBand), smart watches (i.e. Pebble and many more expected from major consumer tech companies) and smart glasses (i.e. Google Glass), are projected to be a $50 billion business in 3 to 5 years according to Credit Suisse. But in order to reach that potential, wearable technologies need help from, coincidentally enough, the smartphone. That’s because wearable electronics lack the processing power and internet connectivity necessary to run their own native apps. So instead, these devices must leverage the latest Bluetooth technology in order to access existing mobile phone applications and wireless networks. This allows otherwise passive wearable interfaces to actively control the information being displayed on the device (i.e. YouTube videos on Google Glass or RunKeeper activity stats on a Pebble watch) or synched with the phone (i.e. steps tracked by Fitbit). Over time hardware technology improvements and more robust software will allow wearable computers to become their own app platforms, and in the process, relegate the smartphone to a subset of activities.

Which activities the smartphone focuses on going forward will depend on how consumers’ use of computing technology evolves. In keeping with Jobs’ analogy, if the personal computer is becoming the truck, then its primary purpose will be to enhance user productivity related to process-heavy tasks such as data extraction and manipulation, media editing and creation and software development. In turn tablets, because of their size and portability, are quickly becoming the device of choice when it comes to commerce, content, casual gaming and media consumption. This makes the tablet’s role more like that of an SUV rather than a truck. Even though smartphones will be used a lot like tablets when it comes to consumption activities, it will do so in shorter bursts of time and with specific intent (i.e. comparing product prices, looking up directions and movie times). Where the device will excel is in providing mobile connectivity akin to a MiFi device but programmed to route information in specific ways. Since smartphones will be used in the most variety of ways it should be considered the traditional car in the computing line up.

Smart_Car

So where does that leave wearable computing? With a focus on specific activities per device type and efficiencies gained from not having to constantly interact with our smartphones, wearables might turn out to be the smart cars of the computing world.

Why Viewable Impressions Won’t Matter

Reading the increasing velocity of articles written on the topic over the course of last year, ‘viewable impressions’ has displaced ‘ad verification’ as the hot delivery topic in the adtech industry for 2013. But when you start to consider how the media consumption habits of internet users are changing, does trying to determine which approach is the most accurate in identifying whether ads are being served within a viewing pane really going to matter in the near future?

Consumers are spending a growing amount of time on social networks- more than any other category of sites on the web and as such are becoming accustomed to a content consumption experience that differs from typical website content management systems. The traditional web page is an adaptation of legacy print media which pieces together multiple columns of static content with blocks of ads in a portrait layout. Led by Facebook’s News Feed, social networks are popularizing a different approach that displays standardized units of content, in the form of text, links and images, from a user’s social graph in a single column that updates with new information in real-time.

Quartz_AppThe pace of adoption of mobile devices is furthering the spread of this stream-based approach to presenting content, as digital media companies attempt to package all of the information embedded on a traditional web page into a mobile app or website which is limited by the smaller screen sizes of smartphones and tablets. An early example of this has been Atlantic Media’s launch of Quartz in September, which is a digital only business media property built specifically for the mobile web that just announced that it has already reached 1.4 million unique visitors as of December.

Facebook_SponsoredStoriesThe reason the adoption of a new digital consumption experience matters to the viewable impressions conversation is in how the content and associated ads are being presented to users. Both Facebook and Twitter have shown how this combination can work in the age of social streams and mobile devices with Sponsored Stories and Promoted Tweets respectively. Both ad units are integrated into the content feed from a look and feel perspective and targets users based on their social graph relationships. The ad units themselves can be fixed in the flow of the content stream, moving down the page as the feed refreshes with new updates, or fixed at the top of the feed. In either case, since the content cascades down from the top of the app or web page the ad is always being presented, and thus seen, in the user’s viewing area.

The stream-formatted approach to content presentation is also starting to make its way on to traditional digital media websites like ESPN which launched the beta of its SportsCenter Feed in September. ESPN, which has traditionally been an early adopter of digital technologies and experiences, is taking a similar approach as Quartz in delivering a real-time, ad-supported, news feed with the added capability to consume subsets of the stream via content-specific tabs as well as the ability to add skins to the background that further promote the content sponsor.

ESPN_SportsCenterFeed

In all of these stream examples, the ad creative is muted compared to the typical bright and flashy ad unit and consists of a single advertiser. So what the advertiser loses in ‘wow’ factor (or ‘ow’ from the user perspective) with a traditional ad experience is made up for in relevance (hopefully) and singular attention by not having to compete with other advertisers on a page and by being presented front-and-center to the user- ensuring the ad is seen. As the real-time news feed approach to presenting media proliferates, it will alleviate the need to utilize delivery verification services for viewable impressions for digital media entities adopting this new approach.

Remember, it wasn’t that long ago that the adtech industry was consumed with a different delivery issue- ad verification, with the likes of AdSafe Media and DoubleVerify raising over $50 million combined over the course of 2010-2011 to build a business around solving for this issue. In 2012 both AdSafe and DoubleVerify replaced their CEOs while AdSafe also underwent a rebranding as ad verification became commoditized at the ad server level and smaller problem, especially related to premium content publishers, than the industry led everyone to believe. Let’s not go through this again with viewable impressions.

Photo image source for Quartz: @erichfranchi

The Valuation Disconnect in Mobile

Well before the media anointed mobile the Next Big Thing, venture capitalists saw its potential. Consumers have rewarded VCs for their foresight by how quickly they’ve adopted non-voice mobile services over these past couple of years. The result has been a number of high-profile liquidity events this year starting with mobile ad network Millennial Media’s IPO followed by Facebook’s acquisition of Instagram for an eventual price of $736 million and record levels of gaming sector acquisitions led by mobile. With all this positive momentum it’s not surprising that VCs continue to allocate an increasing share of deals and dollars to mobile startups as the overall number of investments has reached its highest levels since the dot-com days.

In contrast to this optimism in the venture community, Wall Street is down right negative towards mobile. Google’s third quarter earnings announcement was met with a 8% drop in share price in part due to the increasing number of search queries being performed on mobile devices which is causing a deceleration in the company’s revenue growth. And while Facebook’s most recent quarterly earnings report resulted in the stock rising 20%, the company’s market capitalization is still only at 60% of its peak value from its first day of trading. This is in largely due to concerns over Facebook’s ability to monetize their growing mobile audience, which now consists of 600 million users, including 126 million of which use Facebook mobile exclusively.

The Typical Relationship

So why the disconnect in how these investors value mobile? It can be partially explained by how each type of investor evaluates investment opportunities to begin with. Venture capitalists, especially early stage ones, typically look to buy private, and thus illiquid, stock in pre-revenue companies with nascent, but potentially market-disruptive, ideas. As such, these investments may take up to 10 years to realize a return for their VCs, if at all. Contrast this with public market investors, such as hedge and mutual funds, which focus on the predictability of earnings and revenue growth relative to a company’s market value and reevaluate their investments in real-time based on news and quarterly earnings reports since liquidity is readily available in these stocks.

So when VCs invest in start-ups, especially consumer-oriented ones that are ad-supported, they are betting not only on a company’s potential to execute on their business plan but also on the formation of a rapidly growing market. Due to this, the focus is usually on customer acquisition and market share growth- not revenues. As a market begins to mature in size and opportunity, monetization solutions are developed, usually by other start-ups, allowing the entire market to benefit from the creation of new revenue streams. Companies that don’t get acquired and can show they have a path to profitability have the opportunity to go public and in the process become industry bellwethers, using their new capital infusion and stock shares as currency to further enhance their market position.

Why Mobile Had Been Different

In the case of mobile, a couple of things happened that has affected the usual relationship between the private and public markets. First, the consumer adoption of mobile has outpaced any other technology in the history of the U.S.- including radio, TV and the internet. As such the native monetization solutions that were developed alongside these other technologies have been slow to scale in mobile because (1) the ad formats currently being used are largely re-purposed ad technologies from the desktop internet, such as banner and rich media ads, which were easy to launch with in an effort to capture mobile revenue early on and (2) advertisers have been slower to allocate advertising budgets to mobile than previous technologies due to this speed of growth- funds that would be used to help spur innovation in ad experiences on mobile devices.

The economic realities of increasing supply of mobile ad inventory coupled with relatively low demand for quality ad experiences thus far has resulted in effective CPMs that are 1/5th the price of desktop internet advertising. This disparity in monetization capabilities between mobile and desktop is forcing public investors to reevaluate consumer tech investments where mobile is becoming impactful enough from a usage perspective to potentially affecting earnings. With Millennial Media, a pure-play mobile ad network, and Pandora Media, whose ad-supported internet radio audience is now 75% mobile, still not profitable as publicly-traded companies, investors will continue to discount the mobile businesses of public consumer technology companies for the foreseeable future.

Without having proven their business models to Wall Street yet, Millennial and Pandora can’t be considered mobile bellwethers, which is needed to preserve the private-to-public valuation relationship. Companies such as AdMob and Instagram might have achieved bellwether status if they hadn’t been acquired before realizing their potential as stand-alone public companies. As such it might be left to existing ad-supported consumer internet tech leaders who are able to make the audience and business transition into mobile to perpetuate the ecosystem. Facebook, which has faced scrutiny over its performance as a public company in part due to mobile, has the momentum in user growth and sheer audience size to accomplish this transformation if they can prove their various mobile ad products can profitably scale. Because of this you could argue that Facebook actually went public too early, instead of too late, if you look at it as a mobile-first company. Probably the best positioned public company though is Google which acquired what is now the most popular mobile operating system in Android, largest mobile ad network in AdMob and is seeing mobile growth in its core search business as well as across YouTube.

Mobile is Really Two Different Experiences

The second part of the answer to the valuation disconnect is in the definition of mobile. When research companies forecast trends and investors talk about opportunities they always speak about mobile as if it were one cohesive distribution channel when in fact it is composed of two distinct experiences- smartphones and tablets. Being able to differentiate between the two is critical because of the activities each device is best suited for based on the physical limitations of each display as well as their monetization opportunities.

Smartphones

While Apple might be credited with ushering in the consumer mobile era with the launch of the iPhone in 2007, it was the launch of the App Store the following year that enabled smartphones to properly leverage their mobility as the physical limitations of mobile phone screens (3 to 5 inches in length) required task-specific applications be built instead of all-encompassing web experiences. Because of this, the most successful app experiences, as Benchmark Capital’s Matt Cohler eloquently describes it, mimic a remote control in that they are easy to use and provide a specific utility to consumers. In turn, advertising on mobile phones need to abide by these same principles in order to be valuable.

Rare Crowd’s Eric Picard described the current mobile ad format problem in a recent article while also presenting a possible solution for smartphones that is interruptive without being intrusive- and can be delivered at scale. For app developers that have large enough user-bases though, creating native experiences, especially ones that can leverage location, will always result in better value for both the advertiser and consumer. Expanding on sponsored ad units that Facebook (via Sponsored Stories) and Twitter (via Promoted Tweets) have popularized in the social activity stream and more recently on mobile, location-based social exploration platform Foursquare launched Promoted Updates for local merchants this past summer and crowd-sourced traffic app Waze launched its own self-service advertising platform earlier this month that focuses on solving users’ location-based needs.

Tablets

Like smartphones, Apple can also be credited with jump-starting the tablet market a mere 3 years ago. The company was prescient in introducing the iPad as a tool for consuming media as users have made watching TV shows, playing games and reading the primary uses for the device. This makes sense when you consider the screen size of tablets (ranging from 7 to 10 inches) allows consumers to replicate the offline experience of reading a magazine or watching television in a more convenient and personal format than traditional computers allow for. Because of this, advertising on mobile tablets can be interruptive like traditional media and less concerned with other vectors such as location since most people are using their tablets at home and as a second screen complement to watching television. That means online video and rich media interstitials, which are higher-valued ad units than traditional banner ads, will work with minimal refactoring compared to smartphone ad experiences. That doesn’t mean there isn’t an opportunity for companies to innovate around the ad experience as start-ups like Kiip are proving by rewarding user engagement and retention within mobile apps with real world rewards.

When It’s All Said and Done

With tablets expected to outsell PCs by next year, focusing efforts on this part of the mobile market might be the most prudent move for consumer tech companies with mobile audiences since the advertising experience most closely resembles the desktop internet from both a format and value perspective. The smartphone advertising market will take longer to scale simply because of the utility-oriented nature of the user experience.

As these advertising solutions sort themselves out though, so should the discrepancy between public and private market investor valuations around ad-supported business models. As start-ups fill these gaps in the consumer mobile space with monetization solutions that prove to be effective, so to will public investors get comfortable with the long-term value mobile users have to offer, which, at the end of the day, will benefit everyone involved in growing the value of the mobile industry.

I Spent a Few Hours in the Future and I Liked It

Tuesday I was in New York City for the day on business. After finishing up my last meeting it was time for me to make my way to the airport to head home. The process of getting from 34th and Madison to my seat on Delta flight #6054 at LaGuardia took me through a series of events over the course of a few hours that gave me a hopeful glimpse into how we will perform everyday transactions in the near future thanks to mobile consumer technologies.

I started things off by launching Uber’s smartphone app to request a town car. With the evening taxi cab shift-change in full effect (good luck tracking down a cab that will take you out of Manhattan at that time of day) and an expiring promotion from Uber that would make the entire trip cheaper than a taxi ride anyway (thanks Ed!) I requested one of their contracted drivers pick me up through the app. With Francisca, my driver-to-be, estimated to arrive in 13 minutes (an unusually long wait for Uber by the way) I went across the street to grab an ice coffee from Starbucks for the ride. After ordering my drink I paid for it by showing the barista my phone which displayed a barcode from the downloaded Starbucks app for her to scan. The barcode contained my Starbucks card information and credit balance for her to deduct the appropriate amount from. After picking up my drink I went outside to meet Francisca who had called to confirm my location and her momentary arrival. Once we arrived at LaGuardia I thanked her and went inside Terminal D- no payment transaction required. That’s because the fare was calculated by Uber based on the time, distance and tolls incurred during the trip (which was tracked via GPS) and charged to my credit card on file with Uber, who emailed me a receipt of the transaction with all the details by the time I made my way inside Terminal D.

To get to my boarding pass I skipped the ticker counter and kiosks and headed straight to the security line where I opened up an email from Delta and launched the link to my QR code-based boarding pass. Aside from my driver’s license for identity purposes, that’s all I needed to get to my flight’s gate. Since I made it with time to spare I decided to grab some dinner at a restaurant called Bisoux. At my table, and every other seat in the restaurant for that matter, was a tethered iPad and electrical outlet. So while my phone was recharging I pulled up the restaurant’s app on the iPad to order my meal. I paid for my food, including tip, by swiping my credit card through the credit card reader attached to the outlet and had the receipt emailed to my work address. While I waited for my food to arrive (about 15 minutes), I used the iPad to catch-up on some email (and Twitter once my food had arrived). After I was done eating I got up and left without having to track someone down for a bill and payment. Heading over to the seating area at my gate I was greeted by more iPads and outlets (in fact the entire Terminal D at LaGuardia is outfitted with iPads, credit card readers and electrical outlets thanks to OTG Management, an airline food service company) to catch up on my news feeds until it was time to board my flight. One more showing of my QR code boarding pass to the gate attendant and I was off for DC.

In total, during my 2 ½ hour experience that took me from Manhattan to LaGuardia:

  • I conducted 4 transactions (buying coffee, transportation to the airport, buying dinner and boarding a flight)
  • Used 5 physical items to complete these transactions (smartphone, driver’s license, iPad, credit card and credit card reader)
  • Paid for everything using 2 mechanisms (smartphone and credit card)
  • Used 2 wireless networks (Verizon’s mobile network and LaGuardia’s WiFi network)
  • And in only 2 of these instances could I not control the timing of the entire experience (ordering at Starbucks and waiting in the security line at the airport)

With a few realistic software updates and better planning though, these four transactions could have been completed using just one device, a driver’s license and one wireless network by (1) incorporating the payment mechanism directly into the restaurant’s ordering app from OTG Management and making the app available for my smartphone, (2) enabling drinks orders through the Starbuck’s app and (3) enrolling in TSA Pre√ to avoid the traditionally slow security line experience.

Some other insights about the future I came away with from this experience:

Battery Life: This continues to be a huge issue with smartphones, which are increasingly being instrumented to perform computer-like tasks as a result of apps, GPS utilization, mobile browsing and multi-tasking (I drained half of my phone’s battery in a matter of 3 hours due to my little experiment). Without quicker improvements in battery life technology or in the development of wireless charging capabilities, which uBeam is attempting to tackle, the adoption of many of these types of consumer applications, especially those that leverage location, will be hindered. Until batteries can meet the daily demand of consumers the proliferation of charging stations at airports are an adequate solution but needs to be more broadly deployed across additional public and retail spaces (coffee shops, malls, etc.) to be truly valuable.

WiFi Networks: Connecting to publicly identifiable WiFi hotspots is unnecessarily challenging for laptops, let alone smartphones as quickly degrading connections and networks that require “additional information to log on” are a drain on productivity. Add to this the disparate WiFi policies across venues, such as WiFi being free at Washington’s Dulles airport but not at New York’s LaGuardia, consumers’ ability to enter and complete transactions is severely curtailed when a wireless carrier network isn’t available (like in a building or subway for example). Ideally the wireless carriers would take it upon themselves to aggregate various WiFi networks and offer up access as part of a mobile plan. Until there are better, more consistent solutions, companies like Connectify, which aggregates multiple broadband connections into a single high-bandwidth link, and Open Garden, which provides crowd-sourced mobile connectivity, are attempting to meet consumer demands for greater availability and throughput by leveraging the current publicly WiFi infrastructure.

Payments: Two types of mobile payment experiences are emerging in the real world depending on whether you are purchasing a product or service. When buying physical goods, like a cup of coffee, QR and barcodes are being used to facilitate digital payments at the register or provide proof of purchase. In these scenarios services like LevelUp from SCVNGR and Square, which recently announced a deal with Starbucks, are providing the underlying payment processing and generating the associated user codes. For transactions that involve purchasing a service, like a car ride, the entire payment experience can occur within the mobile app itself with companies like Braintree, which is used by Uber, and Stripe providing the transaction processing and merchant notification. At the end of the day what all these companies are vying for is a piece of the worldwide mobile payment transaction market which is expected to reach $1.3 trillion in 2017 according to Juniper Research.

Mobile Wallet: While every transaction I performed was through a specific app, the future of mobile payments is `all about the mobile wallet. Companies at every point in the mobile commerce value chain are joining forces to get their cut of the fast-growing mobile payment market by attempting to aggregate consumer activity and demand. Isis, the wireless carrier-backed initiative, is slated to debut next month on the heels of this month’s announcement from a group of brand name retailers and merchants regarding the launch of Merchant Customer Exchange, which is building its own consumer mobile payment application. Sitting between the carriers delivering the underlying mobile service and the retailers at the point of sale are mobile operating system providers Google, which provided an update on Google Wallet earlier this week, and Apple, which demoed Passbook this summer for the much rumored new iPhone, who are launching their own competitive mobile wallet initiatives. The key to the success of any of these services will be their ability to go beyond just providing a frictionless payment mechanism. The applications that seamlessly incorporate payment options, purchasing preferences, loyalty programs and promotional offers directly into the mobile app and transaction process will be the most successful wallet solutions.

Identification: While the mobile wallet has the ability to create a contact-less payment society, the one physical item it won’t eliminate any time soon is the government issued ID. A truly digital form of personal identification (be it a driver’s license or passport) would be too easy to forge or replicate by criminals and implementing fingerprint or retina scanning as an alternative form of identification is wrought with infrastructure and privacy concerns. So until biometrics can become a viable and cost-effective solution, the physical wallet is here to stay- unless you decide to use a mobile phone cases that doubles as a wallet.

It’s interesting to see how software development and hardware advancements are continually being leveraged to simplify and speed up the experience of completing transactions by challenging legacy models and removing manual steps in the process. Combined with business innovations, consumers are finally able to control when and how these activities are being executed which further enhances the overall experience. While not perfect, from what I was able to do over those few hours, I like where our future days are headed thanks to mobile.

With the Acquisition of Instagram Facebook is Only Halfway Done in Mobile

So Facebook decided to one-up its own IPO proceedings last week with the news that it had acquired the photo-sharing mobile application Instagram. By any conventional metrics, the $1 billion price tag for a company with no revenues, 13 employees and 30 million users at the time makes little sense. On a relative value basis though, the move is a brilliant one by Facebook. The company essentially paid 1% of its market value for Instagram which is well on its way to surpassing 100 million mobile-only users by the end of the year. To put this growth into perspective, it would make Instagram 1/10th the overall size of Facebook and potentially 1/5th the size of Facebook’s mobile audience by the end of the year- not bad for a company that’s been around for less than 2 years. More importantly though, by acquiring the most popular free app in Apple’s App Store, Facebook adds a critical capability that extends its platform experience in mobile.

Facebook was a child of the now officially-ended Web 2.0 era, so its website was built to be experienced on personal computers. Now thanks to smartphones an app economy has emerged that has enabled companies like Instagram to optimize the user experience of their applications solely for mobile phones. Alongside the acqui-hire of the team from mobile messaging app Beluga last year (which subsequently built Facebook’s Messenger app) Facebook now has apps that bring the company’s core features from facebook.com, photo-sharing and communications, to a complementary set of stand-alone mobile user experiences.

These acquisitions don’t solve all of Facebook’s mobile needs though. Since Facebook Messenger and Instagram, as well as Facebook’s own apps, are built specifically for smartphone operating systems half of the mobile subscribers in the U.S., and an even a greater percentage in the largest European Union countries, can’t access these apps because they don’t own smartphones. Even with sales expected to cross 1 billion devices worldwide in 2014, smartphone penetration will still only reach 15% of mobile users, meaning Facebook can’t rely on smartphones reaching a tipping point in the near-term to address the risk factors associated with its growing mobile audience.

As Facebook reaches market saturation in many developed countries, the company will need to rely on emerging markets for the majority of its future growth from a user acquisition, and eventually, a monetization standpoint, as the primary means of accessing the internet in countries such as Brazil, India and Russia will continue to be through mobile devices. That means creating mobile experiences that are ubiquitous across devices and not tied to any specific operating systems is paramount for Facebook to scale its mobile offering. The Instagram deal notwithstanding, Facebook has spent the past year putting the pieces into place to address the other half of the mobile landscape.

Starting in March 2011 Facebook acquired Snaptu, a provider of smartphone-like usability on feature phones for an estimated $60 to $70 million to expand the capabilities of Facebook for Every Phone. Then in October the company announced the release of its mobile app platform that enables social discovery of HTML5 and native apps. Facebook followed this up with the acqui-hire of the team from HTML5 app platform Strobe and the hiring of a head of Mobile Developer Relations from Strobe competitor Sencha in November. Since then Facebook has continued to support the launch of their mobile platform with a series of mobile hack days and the open-sourcing of their browser test suite, Ringmark, for building apps on the mobile web. With 1 billion HML5-capable phones expected to be sold in 2013 the open, mobile web will be just as important as native smartphone apps to Facebook’s success.

With Facebook’s IPO now expected to take place a month from now on the heels of a booming advertising business, the company is well positioned to support a $100 billion valuation. But for Facebook’s stock to continue to perform well one of the key non-financial metrics investors will focus on is active user growth. As the company’s mobile user penetration trends past 50% of its overall user base towards 100% due to increasing smartphone adoption and emerging market user growth, extending the Facebook platform capabilities in mobile will allow the company to create natural revenue extensions in mobile for both its advertising (like the recently announced Reach Generator) and payments businesses that leverage both apps and the mobile web. But with international representing a growing portion of Facebook’s revenue mix, developing an ecosystem around the mobile web will be especially important for the company to continue to drive engagement and revenues.

If Facebook can execute on the assets they have put in place now, the company can turn the most overanalyzed aspect of its S-1 registration statement into its biggest growth story. In the process Facebook just might be able to answer the question- who’s going to be the Facebook of mobile- with itself.

Photo image source: Johan Larsson on Flickr

How Mobile and Real-Time are Helping Maximize Revenues and Utilization

Yesterday an interesting set of announcements hit the tech world that highlighted some of the early successes start-ups are seeing in helping businesses maximize revenue opportunities and service utilization.

  • Overnight, Uber, a provider of high-quality, on-demand car service officially announced the availability of is service in a second city- New York.
  • Then Gigwalk, which turns iPhone users into an instance mobile workforce announced that it had exited its beta period and raised $1.7 million in seed money in the process from an all-star list of early-stage investors.
  • Finally TaskRabbit, which offers a marketplace for people to outsource their errands announced its own $5 million Series A funding round to help expand its service beyond Boston and San Francisco.

Each of these companies is attempting to apply the same concept behind peer-to-peer computing projects, such as the search for alien life forms, in utilizing available bandwidth. But instead of leveraging unused computing power, these start-ups are leveraging excess capacity in service-oriented businesses. For any type of service business, time not allocated or used to generate revenues are opportunities that are lost forever, just like when an airplane takes off with empty seats on it. In the case of Uber, the company is trying to alleviate this problem by matching professionally licensed drivers who have idle time while at work with new, short-term, fare opportunities. Meanwhile Gigwalk is pairing people with availability in a specific location with large corporations that need specific, once again short-term, tasks completed in that area. In the case of TaskRabbit, it’s allowing consumers who have free time on their hands to run errands on behalf of other consumers who don’t.

The opportunity to provide a service and generate revenues in a given period of time isn’t limited to these types of jobs though as other capacity-based service industries are benefiting from real-time yield maximization as well. Daily deal service LivingSocial has already tested its Instant Deals in D.C. offering lunch at participating restaurants for $1.00, while industry leader Groupon is developing a similar service called Groupon Now that enables restaurants, spas, and other retailers to drive business to their establishments through the use of real-time incentives. This makes perfect sense when these service businesses are not operating at full capacity. Taking the same concept of driving utilization through discounts, Hotel Tonight has launched a mobile app for booking same-day hotel rooms in a number of cities across the U.S.

The underlying enabler of all of these start-up services is the smartphone. Without the ability for consumers and service providers to communicate in real-time based on one or both parties’ location and availability, the opportunity to match the two entities wouldn’t exist. This would leave service providers without a way to generate additional revenues or complete certain projects in real-time and consumers without a way to benefit financially- either through service discounts or by generating additional income for themselves. The economic potential for retail and capacity-based services will only grow as smartphones and tablets become more ubiquitous and enable new business opportunities and economics to be created around simple, short-term, service-oriented tasks.

I’m excited to see what other service industries (airlines, data collection in the real world, movie theaters, tourist attractions, etc.) will benefit from start-ups that can help bridge the gap between existing sales opportunities and maximizing a service providers revenue potential by creating what are essentially real-time exchanges for specific services. For established service industries, there will always be a market for start-ups that can bring new revenue opportunities to the table. For entities willing to pay consumers to perform services on their behalf, the key will be to make the task short and easy to complete to attract the widest applicant pool for these jobs.

Android: Winning the Smartphone Battle, But Losing the Mobile OS War

Earlier this week I received a long-awaited text message from Verizon Wireless notifying me of a credit I had available towards a new phone if I renewed my contract for another two years. After 9 ½ years of BlackBerry devices (my first BlackBerry actually ran on the Mobitex network, for the old-school mobile-types out there) I’m ready for a change. With a relatively paltry selection of native apps and a mobile web surfing experience reminiscent of dial-up internet access circa 2000 the question I’m left with is which smartphone do I go with- one from Android or Apple?

With the Android-based Motorola Bionic delayed until the second half of the year and rumors of the iPhone 5 shipping anywhere between September and the next year, the immediate decision seems to come down to whether I should get the 4G LTE network-enabled HTC Thunderbolt or iPhone 4. But is this the real question I should be asking myself?

The speed of Android’s rise to prominence in the U.S. smartphone market has been nothing short of amazing, growing from a 9% market share in February 2010 to 33% in February 2011, vaulting Android’s operating system from 4th to 1st place in the process according to comScore. Over that same period of time Apple’s U.S. smartphone market share has stayed flat at 25%. This had led to people like venture capitalist Fred Wilson of Union Square Ventures to suggest that developers should build for the Android operating system first.

What Fred’s analysis, this market share data and my question fail to address though is the broader market dynamics of mobile. The battle everyone is focusing on is Android versus iOS smartphones- and why not? With 70% of the U.S. still using feature phones, according to the same comScore data, the market opportunity for smartphones remains massive. Even so, the war between Apple and Google is actually taking place at a much broader level, as decisions made by consumers like myself and developers alike will decide who the eventual market leader will be for the entire mobile operating system (OS) market- not just smartphones.

While Android might be winning the smartphone market share battle, it’s at the mobile OS level that iOS holds the advantage over Android. Google’s primary market for distributing its mobile OS is the smartphone via HTC, Motorola, Samsung and other handset manufacturers. Apple on the other hand distributes iOS across three markets through its own devices- handheld entertainment devices (via the iPod Touch), smartphones (iPhone) and tablets (iPad). Because of this Apple’s outlook is much broader in scope- to get its other iOS devices into the hands of the 80% of the market (70% of the feature phone users in the U.S. plus the 1/3rd of the smartphone market not on Android or Apple smartphone) not using an Android or iOS smartphone. By getting consumers to purchase an iPad or iPod Touch, Apple can create a barrier to entry for Google through high switching costs.

With every app install, especially paid ones and those that can be used across device types, consumers increase their switching costs for leaving Apple’s ecosystem. So when the time comes for iPad and iPod owners to upgrade their mobile phones, the iPhone is the natural choice since these users are already familiar with Apple’s App Store and iOS user experience. With the iPod’s market share pegged at 70% of the digital music market last year according to NPD and iPad’s at 85% of the tablet market in 2010 according to ABI Research, Apple has a huge advantage over Google in getting consumers onto its mobile OS platform through these types of devices. As iPod sales begin to decline though, the growth in iPad sales will be the key complimentary product in Apple’s effort to gain market share in the smartphone market.

According to a different study released by comScore earlier this week, there is evidence to corroborate iOS’ network effect for Apple in the U.S. iOS’ reach is 59% greater than that of Android when you combine iPad, iPhone and iPod users. This translates into approximately 38 million iOS users overall in the U.S. versus nearly 24 million Android users. More importantly though, in looking at iPad sales specifically, BlackBerry users account for the second highest percentage of iPad owners, behind iPhone customers, followed closely by Samsung and LG. This represents a great opportunity for Apple to convert these users into iPhone customers once their contracts are up or they ready to switch to an advanced smartphone. Update: comScore just released a similar study for the European market showing Apple’s reach being 116% greater than Android in France, Germany, Italy Spain and the UK- albeit on a smaller user base (29 million consumers) than in the U.S. As it relates to iPad adoption, Nokia users closely follow iPhone users in iPad ownership, providing Apple with a huge opportunity to take market share from the largest mobile handset manufacturer in the world.

So how can Android better compete with iOS at the mobile OS level?

  • First, Google needs to nail down agreements with the music industry’s four main record labels in order to launch its cloud-based music competitor to iTunes. This will allow manufacturers to create devices that can finally compete with the iPod and eliminate the biggest feature advantage of the iOS platform.
  • Second, Android tablets need to be synched with the smartphone’s OS platform. The Motorola XOOM, which launched with much fanfare towards the end of February as the first real competitive threat to the iPad (after winning Best of Show at CES in January), seems to have come up short. Sales of the tablet have been estimated at 100,000 devices in its first 5 weeks on the market compared to the iPad which sold 300,000 devices its very first day and nearly 5 million devices in the just announced second quarter. By running a newer and completely different version of Android than its smartphone siblings (Honeycomb 3.0 versus Android 2.0 thru 2.3.3) the device hasn’t been able to leverage apps from the smartphone Android Marketplace. According to Apple’s COO Tim Cook a fragmented ecosystem where Android tablets have less than 100 apps to choose from while iPad customers have 65,000. Without a cohesive OS platform across device types, Android will lack the switching costs afforded to Apple’s OS ecosystem.

For developers, the 189 million cumulative iOS devices sold through the end of March 2011 represents a huge market opportunity. Add in ease of monetization and payment mechanisms in addition to a formal app discovery process that is still lacking in Android’s marketplace, you can see why companies like Color and Instagram chose to launch in the iOS App Store first and why there continues to be more apps available for iOS than Android even though Apple has a more stringent app vetting process.

As for myself, the decision was easy once I took a step back and looked at the broader mobile OS ecosystem options. Even though I already owned an iPod Touch, I’ve decided to go with iOS primarily because I was planning on picking up a new iPad in the first place. So by default, the iPhone it is for me. With three different types of devices being tied to iOS when it’s all said and done I will be Apple’s ideal customer. The only question I have left? Do I wait for the white iPhone.

Apple’s Game of “Heads I Win, Tails You Lose”

Remember as kids when you were given the know-how to always win at coin-flips? By uttering those 6 simple words “heads I win, tails you lose” you were able to set-up the rules of the game in a manner that seemed fair, in that it provided an outcome for both participants, but always resulted in you being the winner of the coin-flip and your opponent the loser (until of course they realized what was going on).

This is essentially the game Apple is playing in the tablet market right now. The company, which launched the industry with the unveiling of the iPad last April, has yet to see a truly competitive offering after selling 15 million iPad units in 2010. The only notable rival last year was Samsung’s Galaxy Tab. This Android-based tablet, which launched in November at a slightly lower price point than the iPad but at the expense of comparable features (smaller touchscreen display and less internal memory though it does include front and rear-facing cameras), has not met sales expectations.

The Motorola Xoom, which gets released today, is expected to be the first viable alternative to the iPad after winning Best of Show at CES in January. This device comes equipped with Android’s tablet-specific Honeycomb operating system and hardware specs to match current versions of the iPad, with the addition of memory expansion capabilities and front and rear-facing cameras, but accomplishes this at the expense of price (higher compared to iPads) and app offering (a handful versus the iPad’s 60,000).

In both of these instances, a trade-off between product and price had to be made by the manufacturer. To compete on price, Samsung had to sacrifice on product (i.e. screen size and memory). To compete on product, Motorola had to give on price (i.e. be more expensive). Throw in research that shows the iPad has 90% awareness among consumers, and you can see why tablet manufacturers must beat Apple on both product and price to beat the iPad.

Heads Apple wins, tails tablet manufacturers lose.

While Apple competitors might be able to match, or even exceed the design and hardware capabilities of the iPad at some point in the future, doing so at a lower price point would be challenging. Apple understands their strategic price advantage and is continuously looking to expand on it.

Case in point- based on iSuppli’s research, the single most expensive component in the iPad’s manufacturing process is the touchscreen display. So it’s no surprise that Apple revealed on its most recent earnings call that it has made long-term financial commitments of $3.9 billion dollars with three suppliers believed to be display providers. If correct, this means Apple would control 60% of the global touch panel capacity according to Taiwanese industry website DigitTimes. Controlling this amount of supply would have two major effects on the tablet market as (1) it would lock in favorable pricing and predictable supply for Apple going forward in manufacturing future versions of the iPad and (2) create supply constraints and pricing pressure on tablet manufacturers.

Once again, heads Apple wins, tails tablet manufacturers lose.

The concept of vertical integration is nothing new to Apple which acquired Intrinsity last year, a semiconductor chip design firm responsible for developing the iPad’s original A4 processor, in an effort to bring the skills and development costs in-house. This became another component cost advantage over the Motorola Xoom which leverages NVIDIA’s Tegra 2 for its processor.

With Apple’s event next week expected to showcase the next iteration of the iPad, which should once again place the product’s feature set ahead of its competitors, the question to Android, Tablet OS and WebOS tablet makers is: want to flip again?

Photo credit: Algie Moncrief/Flickr