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Mary Meeker: Mobile Internet Will Soon Overtake Fixed Internet

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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 (s goog) 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 [email protected] 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 (s aol) and Netscape in the early 1990s. According to Meeker, adoption of the Apple (s aapl) 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.

41 Responses to “Mary Meeker: Mobile Internet Will Soon Overtake Fixed Internet”

  1. lets see- she has a pyschology degree and MBA
    no computer engineering or science degree
    she has never worked in a technology or telecom company
    she works for a firm that almost went bankrupt last year
    and listed the wonderful bubble IPO’s

    and I should believe the future of the internet from her?

    am i the only one…

  2. Aimee Davenport

    Social Networking is a huge part of my life as well as the lives of all my friends. I don’t think that any of us use email anymore. I also find that all my classsmates ask for me on facebook not what my email address is. It is alot easier to communicate using facebook. If I see one of my friends are online and I have a question about homework I can IM them instead of seending a message and then waiting for a response. I guess I am part of the generation that wants instant gratification. The only problem with social networking is the idea that everything is private. My generation needs to understand that employers are now using social sites for hiring employees. So they need to be very careful about what pictures they have posted and the comments they leave. All in all though I think that social networking sites have allowed me to keep in better touch with my friends from out of town so I don’t think I personally will slow down on using them.

  3. We here in our household can confirm what Mary is talking about due to our own internal “house” network stats. Five years ago, all of us had desktops and we were using IM sites like AOL and Yahoo. Two years ago, we had laptops and were accessing social media sites like MySpace. This year, we all have cell phones and are accessing Facebook and other IM tools with our cell phones.

    What we have also found out though is that while we agree with Mary’s stats, we also still use all of our previous tools as well. We still use desktops and laptops for heavy duty computing use (MS-Office, Husband’s job, etc) and some IM. We don’t think the desktop and laptop are disappearing anytime soon either due to business use of heavy duty applications such as ERP and heavy duty spreadsheets. Some companies are starting to develop portals for some content, but largely it’s still on desktops for companies like my husband’s who make high-tech industrial equipment. You can’t configure that stuff on a cell phone, nor would you want to.

    What we find as the driver more than anything else is the lower cost of the devices and ease of use. IM and connections to social sites are easy via cell phone and since they are portable, you never “lose” the connection. What Mary fails to point out, though, is that you do lose some features when switching from desktops/laptops to cell phones. Try sharing pictures or showing a video via yahoo on your cell phone – you can’t as carriers have locked those features out. However, I can take a picture or video and send it to someone, so we fail to understand why carriers have done what they’ve done other than to force users to communicate in ways they want.

    EMail still has its uses. When you are sending a 3 page letter to your relatives about what has been going on for the past 3 months – email makes sense and it has a “permanency” to it. Would we use it to ask our kids what time to pick them up for band practice? – no, that’s what IM is for and it’s usually in the form of a simple text message, not a message on facebook.

    What has us wondering is when EU/EMEA devices will hit the US shores. Imagine using your cell phone to obtain a soda at a soda machine, or using it at home to deal with control of your environment. Those applications exist outside of the USA but don’t exist here. We find that strange and wonder if the USA has lost its edge in the high-tech world.

  4. Travis Nash

    The statistic I chose to write about is e-mail usage versus social-networking usage. In this article Mary Meeker says that in 2007 social-networking passed e-mail in time spent with about 100 billion minutes a month. Then in 2009 it passed e-mail in the number of users with actual accounts. This is in large part due to having access to social-networking sites on your cell phones. The social networking site Mixi has seen mobile usage sore to 72% compared to 17% just three years ago. I myself do spend much more time on social-networking sites than I do on e-mail sites. I also do frequently check my Facebook from my cell phone, and I never check my e-mail from my cell phone. I believe that the demand for social-networking sites at all times is due to the much easier and faster way to communicate in comparison to e-mail. Also people tend to check their Facebooks, Myspaces, and Mixis much more often than they check their e-mail accounts, and having these sites directly on your cell phone makes it even easier to communicate.

  5. luke barry

    I think the Apple statistic is pretty mind blowing. The I phone and I touch are such popular products and there online capabilities renowned. Its pretty remarkable how fast they have continually caught on. Not to mention Mac laptops are everywhere lately. They are user friendly and smooth and sleek. I own one myself and I find it to connect on airports easier than most PCs. I still haven’t had a problem with it yet and I’m rough on her.
    Anyway apple seems to be consistently strong with their products and I think so far this affects my life almost on a day-to-day basis. I don’t even own either the I touch or the I phone and still one of my friends will have one when we cant find the restaurant we are trying to get to. Apple is loyal to their customers in keeping their services up to date. There’s a new application coming out constantly for every user.
    Marketing. Apple’s commercials are dead on with their advertising for these products. The I phone in particular. Even all of at&ts adds depend on the I phones abilities to use the Internet so freely and easily. I saw a commercial where a mother tapes her babies first steps and puts it on the internet and sends it to the absent husband too. In a couple of years, when we all have an even more advanced version of these devices, everything we do could be affected.

  6. Mary Meeker the author of this article mentions that social networking sites have become greater than email. Statistics show that people spent over one million minutes on social networking sites in 2007 and since then it has doubled in minutes. The rate of people using their mobile devices for internet does not surprise me because it is so much more accessible. Mary Meeker mentions that in the past five years the mobile phone usage is quite a bit larger than the usage of desktops. I agree with the author because people don’t bring their desktops everywhere like they do their mobile device. A mobile device is much easier to bring with you everywhere. I feel that a lot of the people around me have all these smart phones, however I personally feel that if my laptop is right at home why not use that, I don’t have the patients to use such a small screen on a mobile phone. However if I was a busy business worker and always on the go my cell phone would be so much easier to use but since I’m a college student I don’t feel it necessary to use my mobile phone for my school work.

  7. Renee A

    Recent statistics relating with the growth of mobile internet computing have many points. One point that relates is having the internet on your mobile device comes along with many advantages. More and more people have used access of their mobile devices for more data usage than actual voice. With more people using internet access through cell phone carriers, the increase of this has people believing that in just a short amount of time that desktops wont be as popular as they have been. Some points taken from this is that internet access on your mobile has easier usage, secure payment plans, and personalization. This would affect my life personally because it becomes easier access to the internet. Instead of having to find a computer to simply check email or get a hold of a friend maybe on face book I would be able to do it right off of my mobile device. As of right now I do not have internet on my phone but I think as time goes on and technology advances I will surely enough get use to my phone as being my main source of communication. Personally it can become very beneficial due to the fact that I am always on the go and sometimes it becomes more of a task to get onto a computer and take the time rather than just accessing it from wherever I may be.

  8. Jessee Hoover

    The rapid increase in mobile internet versus fixed internet does make sense. For me, there are many pros. Those that are mentioned are all completely true in everyday life. Using just one cell phone for everything makes it easier. Getting online on my cell phone, which does just about anything else for me, makes sense. To me, it also feels more secure. It is mine, rather than some public computer. Not to mention just paying for my cell phone with a data plan is cheaper than paying for internet access. It cost me $169.99 for my cell phone, plus my $55 bill each month. I can also add a data plan for $15 per month. All of this is so much cheaper than going and buying a computer and paying a monthly internet bill. I can also do just about anything I want to personalize my phone and the internet that I can access on it. It can be changed any time to fit with my interests and my needs. It is no surprise that the voice usage patter has gone from 70 percent to 45 percent as we get more internet capable phones. I do not nessicaraly believe that this is a negative thing. In my case, I have nearly any information that I need right in my pocket.

  9. This woman is still around?
    I thought she was sent out to perma bull pasture with abby cohen.

    Honestly, do people actually believe that this woman and her ilk know anything?

  10. The “Internet Age” has arrived, and companies who do not integrate the Internet into their businesses will lose out to more adaptive competitors. I just wrote a blog on this topic and commented on Bill Gates’ predictions about the future of online:

  11. Mary was known as “Queen of the Net” and later “Queen of the Bubble” after the dot com crash. She also was known as “Pump and Dump” Mary. She would talk about a hot stock and it would ramp 30% in day, at which point her company would sell. To believe this woman has any credibility beyond the obvious is crazy. Suggest this article from Fortune May 2001 about the real Mary. Essentially people don’t change. Sorry Mary

  12. I think it’s cute how she merges “desktop Internet era of the 80s” into ONE of the “big events” – this was two distinct things, first desktop PCs (without Internet through the 80s) followed by the dramatic explosion of Internet adoption in the 1990s – the Internet saved PC sales – who uses a PC without the Internet now, right?

    It’s a cute re-writing of history.

  13. Oopsie… someone made a Photoshop boo boo. I have to wonder at the motivation for Photoshopping a MacBook Pro into the picture (notice her elbow). Or, perhaps they now have completely transparent screens. Who knows…

  14. I generally like the research that Morgan Stanley’s tech research team does but this particular work is a bit sub-par given the quality that I’ve come to expect off them.

    Firstly, the very definition of both mobile internet and mobile devices is getting blurred. What is mobile internet – using wifi, using 3G+ ? What is a mobile device – my 10” notebook, ipad or smartphones ? A clarification would have been useful to set the context right.

    Secondly, social networking vs email. How can social networking surpass email in terms of unique users ? Given the use-cases of social networking and email, comparing time spent on each doesn’t even make sense.

  15. Thanks for covering this, Mathew. I enjoy hearing what Mary’s predictions are! I’d like to download the deck via Scribd, but that feature doesn’t look enabled. Don’t want to kill trees printing out this massive doc. Could you enable it?

    • I don’t think I’m able to do that, Pam. Technically it’s Morgan Stanley’s copyrighted property. As far as I know we’re allowed to display it for media purposes, but I don’t think we’re allowed to redistribute it.

  16. 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!

    • 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.

  17. 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??

  18. 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?”

  19. 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.