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Summary:

Mary Meeker, the head of Morgan Stanley’s global technology research team and the woman once dubbed the “Queen of the Net,” says in her latest State of the Internet report that two trends will continue to dominate over the next decade: mobile and social networking.

Mary Meeker of Morgan Stanley isn’t just any Internet analyst. She was covering the sector when the brokerage firm was the lead underwriter for Netscape Communications’ initial public offering in 1995, was dubbed the “Queen of the Net” by Barron’s magazine in 1998 and was covering the space in 2004, when Morgan Stanley helped launch the Google IPO. Now a managing director at Morgan Stanley and head of the global technology research team, she has released her latest massively detailed “State of the Internet” report, which she has been putting out periodically since 1995. She presented the report during an event this afternoon at Google, which was streamed live as part of the Events@Google series (the presentation is embedded below).

And what does Meeker see in her crystal ball this year? Two overwhelming trends that will affect consumers, the hardware/infrastructure industry and the commercial potential of the web: mobile and social networking. Such a conclusion is hardly earth-shattering news to GigaOM readers, for we have been following these trends over the past year or two, but Meeker puts some pretty large numbers next to those trends, and looks at the shifts that will (or are likely to) take place in related industries such as communications hardware. She also compares where the rest of the developed world is in terms of mobile communications and social networking with Japan. Again, not a radically different approach to the one many tech forecasters take, but Meeker has the weight of some considerable research chops on her side.

The Morgan Stanley analyst says that the world is currently in the midst of the fifth major technology cycle of the past half a century. The previous four were the mainframe era of the 1950s and 60s, the mini-computer era of the 1970s and the desktop Internet era of the 80s. The current cycle is the era of the mobile Internet, she says — predicting that within the next five years “more users will connect to the Internet over mobile devices than desktop PCs.” As she puts it on one of the slides in the report: “Rapid Ramp of Mobile Internet Usage Will be a Boon to Consumers and Some Companies Will Likely Win Big (Potentially Very Big) While Many Will Wonder What Just Happened.”

Meeker says that mobile Internet usage is ramping up substantially faster than desktop Internet usage did, a view she and her team arrived at by comparing the adoption rates of iPhone/iPod touch to that of AOL and Netscape in the early 1990s. According to Meeker, adoption of the Apple devices is taking place more than 11 times faster that of AOL, and several times as fast as that of Netscape. Helping to drive this is 3G technology, which Morgan Stanley says recently hit an “inflection point” by being available to more than 20 percent of the world’s cellular users (although penetration is only 7 percent in Central/South America and 13 percent in Asia/Pacific — excluding Japan, where it’s 96 percent).

But that mobile boom will take its toll on carriers, Meeker says, because mobile Internet use is all about data. The average cell-phone usage pattern is 70 percent voice, while the average iPhone is 45 percent voice. At NTT DoCoMo, data usage accounts for 90 percent of network traffic. The analyst says her team expects mobile data traffic to increase by almost 4,000 percent by 2014, for a cumulative annual growth rate of more than 100 percent. Such numbers will likely strike fear into the hearts of carriers, but joy into the hearts of equipment suppliers and mobile service companies.

One of the implications of mobile access is a growth in ecommerce, says Meeker, featuring things such as location-based services, time-based offers, mobile coupons, push notifications, etc. In China, the success of social network Tencent proves that virtual goods can be a big business, she says — virtual goods sales accounted for $2.2 billion worth of the company’s revenue in 2009 and $24 in annual revenue per user. Online commerce and paid services made up 32 percent of mobile revenue in Japan in 2008, up from just 14 percent in 2000. Meeker’s report suggests that the rest of the world — which is still below the 14 percent-mark — could see much the same trajectory over the next 10 years.

Meeker says that users are more willing to pay for content on mobile devices than they are on desktops for a number of reasons, including:

* Easy-to-Use/Secure Payment Systems — embedded systems like carrier billing and iTunes allow real-time payment

* Small Price Tags -– most content and subscriptions carry sub-$5 price tags

* Walled Gardens Reduce Piracy -– content exists in proprietary environments, difficult to get pirated content onto mobile devices

* Established Store Fronts -– carrier decks and iTunes store allow easy discovery and purchase

* Personalization -– more important on mobiles than desktops

On the social networking side, Meeker’s report notes that social network use is bigger than email in terms of both aggregate numbers of users and time spent, and is still growing rapidly. Social networking passed email in terms of time spent in 2007, hitting about 100 billion minutes/month globally — it’s now twice that — and passed email in terms of raw user numbers in July of 2009, with more than 800 million. Given the rate at which Facebook has been growing, that number is probably now closer to a billion. Meeker attributes social networking’s success to the fact that it’s a “unified communications + multimedia creation tool/repository in your pocket.” And Japan’s experience makes how crucial mobile is to that equation: Mixi, one of the country’s largest social networks, has seen its mobile page views grow to 72 percent of the total from just 17 percent three years ago.

Mary Meeker’s presentation:

Post and thumbnail photos courtesy Flickr user Shapeshift.

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  1. Jason Grigsby Monday, April 12, 2010

    Is there anything in today’s report that differs from her talk at Web 2.0 Expo in Nov or the extensive report Morgan Stanley released in December?

    I’m not trying to be a jerk here. Just honestly trying to figure out if she has any new data that she revealed today since video of presentation and slides aren’t here.

    Thanks.

    1. That’s a a good question, Jason — I haven’t compared them in detail, but the general themes are certainly the same.

  2. Mary has the depth of experience to base her projections on – she was part of both the Netscape and Google IPO’s! She has been immersed in the “state of the internet” since 1995. After the rapid ramp of mobile internet usage, we really don’t want to be part of the crowd that’s standing in the digital dust, looking perplexed and mouthing the words, “what just happened?”

  3. Sanjay Maharaj Monday, April 12, 2010

    The rate of increase of mobile users is really impressive over the last year , I think her projections will be blown away sooner rather then later.
    Will email die a natural death? and will it be repalced by social networking as a full mode and medium to communicate??

  4. Brian S Hall Monday, April 12, 2010

    I don’t have a crystal ball but I do have a glass eye. The biggest shock to me is someone has paid her a good bit of money to tell us what we all already know.

    1. Don’t be such a jerk. We might already know this but it’s always good to know some details.

  5. The internet platform has always been designed to do this.

    It’s going to go far beyond mobile. That’s why it’s here.

  6. What a brilliant comparison! The growth rates of Netscape and AOL against those of NTT DoCoMo and the iPhone+iPod Touch!

    Its like comparing the growth rates of the refrigerator and the freezer! After all, they both help keep food cold, right? It took the refrigerator 15 years to go from being an equipment owned by 1% of the England+Wales households to 20% of them (1946 and 1961 respectively)*. On the other hand, the freezer only took 9 years to do the same thing (1968 and 1977)*! Conclusion : By 1990 at the latest, there will be more freezers than refrigerators in the UK!

    Oh wait, you mean equipment adoption doesn’t follow linear growth, and that it can be a little more complex than that? Mobile internet could very well out-pace “desktop internet”, but the method used to reach this conclusion is flawed. Why not choose to represent the adoption rates as a percentage of the total user base? In 1994-95 there were much fewer people that owned computers than people that owned mobile phones in 1999-2000 or 2007-08. As such, if AOL’s 3MM subscribers in Q11 represents 90% of the “userbase” (i.e. population with a computer in territories where AOL was available), then it’s a substantially faster adoption rate than then iPhone, which despite being a massive hit is still far from being 90% of all mobile telephone subscribers in territories where the iPhone is available. Otherwise you can probably show that AppleTV is bigger than Black & White TV over the first months in 1928, and that you should invest all you can in Apple because in 25 years, AppleTV will be adopted by more than 98% of the American population!

    1. That’s a fair point, Alex — using AOL and Netscape adoption rates may not be the best analogue for measuring desktop Internet usage. I don’t think Meeker was saying it was a one-to-one relationship or a flawless comparison, I think she was just using it as a benchmark to show an overall trend.

  7. She’s still rocking them in the aisles 10 years after the dotcom crash I see. Those who forget the past are doomed to repeat it….

  8. Finance Geek » Mary Meeker’s Awesome Mobile Internet Presentation Tuesday, April 13, 2010

    [...] Mathew Ingram at GigaOm recently reminded everyone about Morgan Stanley analyst Mary Meeker’s thesis that mobile is the next major wave of computing innovation. [...]

  9. Stefan Constantinescu Tuesday, April 13, 2010

    Have any links to her new report so that we can read it for ourselves?

    1. Stefan, I’ve uploaded Meeker’s presentation to Scribd and embedded in the post.

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