The Great Mobility Magic Show – abracadabra!
Some of the predictions and estimates about the size of the mobility market are so grand that the average eye would pop-out at the suggestions. There are claims of the mobile apps market being a $30bn market (again contestable if you take the published numbers from Apple’s AppStore and do the math given Apple and iOS has an approx 20% market share, in which case the market size would be half the number we have assumed) that will grow 250% by 2015. The total mobile user base is likely to equal the world population, approx 7bn by 2017. Total smartphone sales are tipped to touch 1bn in 2015. The number of app downloads that happened in 2011 is upwards of 10bn! The average number of apps in a smartphone is ~65. Well, there are ever so many numbers to this equation that someone would have you believe that this is all that will happen in one’s life 5 years down the line.
I wanted to take a closer look at some of these claims and hence size up the market. The mobility market could be broadly divided into
- Hardware or device-related spend (note that this would included all bundled software)
- Ongoing communication services spend
- Mobility apps spend (these are non-commercial, non-enterprise software apps typically available for downloads)
- Enterprise mobility apps spend (commercial and enterprise applications tailored to mobile devices)
The average cost of a smartphone is $135 today and to be able to make the claims that the smartphone market will be 70% of the total mobile phone market within 5 years, the price point will need to be significantly lesser than $135. Let us assume that the average smartphone will be priced at ~55% of what it is priced today and hence will be priced at approx $75. The sales figure is supposed to be a billion phones a year in 2015, so the total smartphone market is likely to be $75bn that year (and more beyond!). The Total Cost of Ownership of a smartphone device needs to take into account around $100 per month (actually much more if you go by current averages) of rentals et al that you pay for the voice and data communication services. So this translates to a total of $1,200bn on communication services spend. The mobility paid apps downloaded statistic puts the current size of that market at approximately $15bn. This constitutes around 40% of gaming, entertainment and sports apps and the rest being 60%. This contests the $30bn figure we started with but let us run with a $20bn current market size and with the 250% growth projection, this is another potential $50bn market. The last of the claims is that the enterprise mobile apps market would be in the $165bn ballpark in the same timeframe.
Now, that’s a big market with significant upside potential for everyone to be seriously interested, right? Well, let us take a look at some of these numbers from a different perspective altogether.
From the above calculations, the average cost of ownership of a smartphone device without any apps would be around $1275 a year in 5 years or approximately $3.50 per day. The total world population is just over 7bn and is growing at around 1.4% annually. This would translate to the world population being 7.5bn, 5 years from now. As on date, 5.1bn of this 7bn population (72.8%) earns less than $10 a day. More than 3.1 bn folks among them earn less than $2.50 a day. Assuming these folks would focus on eating, drinking, clothes and shelter, before using a smartphone; this shrinks the potential customer base by around 45%. I am also making a small assumption here that the 500 million folks we would add to the population over the next 5 years would all not be the privileged few but would be in the same ratio as the current distribution of the population. Seemingly the least amount of money you would need on a PPP basis to stay above the hunger (read starvation) line is $1.25 a day. This is the precise point where I would like to hazard a guess on what percentage of the population that earns between $2.50 and $10 a day would spend the $3.50 per day on owning a smartphone. My take is 0 but for the benefit of the hardcore optimists (HOs), let us say 10% of these folks would actually own a smartphone, whatever it takes. That would still shrink the potential base by a further 26%. This leaves us with a solid 29% customer base! There are around a billion folks out of the 7bn who are under 7 years of age. I know the kids are really getting smarter, they would probably be using smartphones during these particular ages, but I am not sure all of them would have a dedicated smartphone with a mobile (voice + data) connection in their individual names! Again, for the sake of the HOs, let us assume 10% of this lot would also contribute to making up the market! That still rules out a further 13% from participating in this relentless mobility march. So we are down to some 16% of the folks that make up this world that is the potential market! So 1.2 billion folks would keep buying 1.2 billion smartphones on a yearly basis 5 years from now to make the numbers we assumed. For the product, that is a 100% market penetration with a 100% annual churn! I hope I could take these kinds of ideas to investors and get some funding for my next whacky dream!
The best 4G connections seem to be giving around 20mbps data rates as we speak. Let us assume everyone has them for this analysis. The average mobile app of the future is likely going to be sized at 50-100 MB and we could assume that the average download times for an app would be in the 1 minute timeframe. Assuming the total number of downloads goes up to around 50bn paid apps (assuming a dollar an app and the size of the market we assumed). Paid apps make up for around 12% of the total apps downloaded, so the total number of downloads would need to translate to 825bn to achieve the magic mobility dream! That is 825 billion minutes to download stuff. Assuming 16 hours of waking time for an average person in this world and take some ablutions out of the way, half a million people would spend their lives downloading stuff!! The average smartphone user spent around 11 hours each month playing games!! This would increase to about 20 hours a month to support the download stats in the end-game scenario for our time range.
Now, let us turn our attention to the claim that the Enterprise mobility apps market is seen to be at $165bn in the same timeframe. The services and software spend within the ICT spend currently adds up to approximately $1200bn. Over $300bn of this spend is in the Infrastructure Management space and another $300bn on system software, internal FTE costs et al. The growth of the software and services spend has gone down dramatically and in the past 5 years averages an annualized 4%. The denominator representing the total market therefore is around the$ 730bn ballpark. To hit the $165bn market size, the mobility spend would need to be a fourth of the total software and services market!
Somewhere, in the midst of all this, I am sure the implication is that people around the world, 5 years from now, would do pretty much everything on the go, no matter where they are headed! Pretty much every 2nd person above the poverty line will carry a smartphone. At least 10% of all kids born would take to the smartphone within a couple of years of leaving pre-school. People are likely to be spending a day each year downloading and 20 days each year playing games on their smartphones. And this loss of productive time will have zilch impact on the economy or the affordability of the smartphone itself.
Well, I do not bite this as it appears at face value. There certainly is a market out there for mobility. It is far closer to saturation than one may want to believe. I would tend to look at some business case claims far more closely than the industry currently does. In my view, customer base expansion is likely to be less of a play than re-cannibalization of the existing base itself through more value in the product and services offered.
Note: The views expressed here and in any of my posts are my personal views and not to be construed as being shared by any organization or group that I am or have been associated with presently or in the past.
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