Mobile Growth: Don't Bet On It
A thread today made me think a little bit about the future of the mobile internet. The person I was talking to (Dan from Ticketstumbler, an awesome YC-backed startup) mentioned that mobile was a good source of future growth for Google. I’m not exactly what I’d call bearish on the mobile web, as I think there’s a lot of potential there, but I’m probably not bullish either. Here’s why.
First, he mentioned that mobile devices outnumber PCs by something like 10:1. True. But not all mobile devices are created equal, and currently something like 80-90% are worthless for any web surfing beyond checking the weather even here in the US, and its worse overseas. That will change, but slowly because most phones are dirt cheap pay-as-you-go clamshells purchased by people in third world countries. I remember reading that the most popular mobile provider in China has more customers than there are American citizens.
China, India, Russia, Brazil, and the rest of the developing world make up the majority of mobile users (because they make up the majority of the world’s population) and are why those devices outnumber PCs by so much. Those countries are also worthless to Google (and other websites) because they have, per capita, very little money. (And because Google can’t seem to get them to use their product, but that’s presumably a problem the big G can solve, whereas their poverty is not.) That may change, but you better believe that if China grows as wealthy as the U.S., making their traffic worth real money, their ratio of phones to PCs will look about the same as ours.
I don’t know exactly what the ratio is in the developed world, but there’s no way it’s 10:1. According to a survey done by Seagate 3 years ago, 76% of Americans own a computer. It’s safe to say that 760% of the population does not own a mobile phone. According to this one survey I found, it’s 82.4%, making the ratio about 1.08:1, if you assume PCs have stagnated over the last 3 years. In reality it may be below 1:1, and even if everyone buys a cell, it will be somewhere around 1.25:1 in the developed world (i.e. where the money is).
Second, people will, until some radically new, currently unforeseen technology becomes available (and I’m talking way beyond Blackberry/iPhone here) prefer surfing on the PC over the web when both are available. The input devices are better. Keyboards on a PC are significantly easier to use than the one on a Berry, and the mouse is still a far better input device than the touch screen. And most importantly, even the smallest monitor is 4-5x the size of the iPhone, which itself is about the biggest screen you can feasibly have and still fit in your pocket.
Because people will prefer a computer over a cell-phone, they effectively spend more time around PCs than they do phones. Most people spend a third of their day at work (possibly with a PC handy) where they generally cannot use mobile phones, and much of the rest at home, where again a PC is usually available. Mobile devices are only useful when you’re not at home and not driving, and that’s just not much of average Joe’s life. Most of his waking life is spent either near a PC at home, near one at work (or, if he’s blue collar, near neither at work) or driving between those two places.
In fact, even if some currently unimaginable technology makes people prefer Googling from their phone, it’s not growth any time they do it near a PC. It’s simply shifting from one source to another.
Also people are never going to be too keen on, say, entering a credit card on their phone in a restaurant or subway. The Internet’s cash flow, at the bottom, base level pretty much involves someone entering a credit card somewhere. Buying something on Amazon, subscribing to a porno site, loading up the account at their favorite online poker room. Run any Google search and look at the paid links. It’s almost entirely to places that you buy stuff from, or (far less frequently) it’s to somewhere that makes its money by linking to places that you buy stuff from.
That’s probably a problem that is somewhat solvable. For instance, once you’ve entered your credit card on Amazon, you can order from a restaurant without having to do it again. But it’s still just another reason for some people not to use your site and is going to detract from overall profits. That means fewer people are going to want to advertise on the mobile web, and CPMs will suffer.
So, I believe that even in 5 years, mobile device traffic will be significantly lower than good old fashioned PCs, and it will also have lower revenue per page view.
That doesn’t mean I don’t think it’s worth developing in the space. There are, certainly, some awesome things you can do on the mobile web that you can’t on a PC. For instance, a site that price compares items using bar codes would be worthless to a desktop user, but potentially great for the guy with an iPhone. I think there are some very neat gaming applications as well, and certainly lots of stuff we haven’t even imagined yet. But for the most part, the mobile Internet is just a crippled subset of the normal Internet, and people are too often near the good old fashioned web for it to be worth a lot in the grand scheme of things.
So it’s a growth area for sure, but I wouldn’t be buying Google at a 30 PE ratio because of it alone. It remains to be seen just how much people will use it as it grows in popularity. Hell, it remains to be seen just how much it will grow in popularity, since most people still use their cell phone primarily as a phone, with some SMS mixed in, and take the free (with a 2 year contract of course) clamshell.
I personally have had a smart phone since before anyone ever heard that term, and I’ve seen the mobile Internet grow from virtually non-existent to where it is today. And I have to say it’s so much better now than it was 5 years ago, and it will be that much better again in another 5. But it’s still got a long way to go before I’ll use it even 10% as much as I use my PC, and I’m on the cutting edge.