Web 2.0 Summit the Battle for the Network Economy Sum Up: It’s Mobile

Apple is a force in mobile advertising, Google is fighting off Microsoft in search, Facebook in social now has to find its borders next to Twitter, LinkedIn, and Myspace. This "Points of Control" map was created for the Web Summit to illustrate the battleground for the network economy. The incumbents and attackers, not to mention the sea of Spam and Government PoliSeas.

The 7th annual Web 2.0 Summit Conference held at the Palace Hotel, in San Francisco in November (2010), identified 10 points of control in the network economy, according to Mary Meeker, managing director of Morgan Stanley’s global technology research.  As the territories, acquisitions, and movement play out businesses involved with the network economy need to ask themselves what unique value added product or service can your company deliver to an incumbent or a new “attacker”?  And is the network economy mainly heading toward advertising revenue to pay for services like Facebook and Twitter?

During the Web 2.0 Summit Meeker highlights 10 points of Control or Internet trends.

1. Globality. 46 percent of Internet users are in 5 countries.

a.       USA 76 percent penetration

b.      Russia 42 percent penetration

c.       Brazil 39 percent penetration

d.      China 29 percent penetration

e.       India 5 percent penetration

Each of these countries has the greatest innovative climate for the network economy and to further improve your business core competencies; companies in those countries can teach us lessons on how to improve.  Globally, 670 million 3G subscribers access mobile Internet, showing a 37 percent Y/Y growth rate.

The highest current mobile markets are the US (136.6 million subscribers) and Japan (106.3 million subscribers).  Those markets with the greatest growth are Indonesia (57 percent Y/Y), Brazil (148 percent Y/Y), and China (941 percent Y/Y).

Two companies learning from each other how to position themselves in the network economy are Facebook and Tencent.

Tencent is China’s largest social network.  It’s like their “Facebook” with 637 million users purchasing $1.4 billion in virtual goods in 2009; gaming items to customize their virtual identity or avatar.  Facebook, 620 million users, uses real identity and may look into virtual goods to supplement their advertising revenue.

2. Mobile. Led by iPhone and Google Android; these new attackers are helping to drive the market.  Google Android has grown from 0-25 percent from 4Q08 to 4Q10.  Andy Rubin, Google executive, announced a few days ago that 300,000 Android phones are activated every day, Apple is activating 270,000 iOS devices a day.  While Android OS devices exceed Apple numbers, Apple has demonstrated quick and large sales numbers on product launches, like iPhone 4, which sold 1.7 million units in 3 days.

3. Social Ecosystems.Is it better to be Apple, Facebook, or Google?  Mary Meeker said that typically incumbents get phased out by attackers in the industry, but this time the larger companies are innovative and with different platform types.  Google has seen 16 percent Y/Y Paid click growth rates, whereas Facebook (620 million users) increase active members of 51 percent Y/Y, and Apple (iPhone, iTouch, iPad) currently has 120 million users or 111 percent Y/Y subscriber growth rates.

4. Advertising. Online advertising.  Meeker takes the audience through a slide of media time spent as it relates to ad spending in 2009.

a.       Print. 12 percent time spent, 26 percent ad spending.

b.      Radio. 16 percent time spent, 9 percent ad spending

c.       TV. 31 percent time spent, 39 percent ad spending

d.      Internet. 28 percent time spent, 13 percent ad spending

Of the 4 different media platforms, time spent and ad spending are expected to decrease in print, radio, and TV.  Since time online is expecting to increase the percent of online ad spending has yet to shift online dollars and mobile excitement is ripe from social network inventory, personalization, and local advertising.

Other online advertising trends and topics include privacy verses web analytics, retargeting, Facebook “like” vertising, exploring new advertising strategies on Twitter using Resonance through promoted tweets and trending topics, net neutrality, text advertising and other mobile marketing campaigns, Google AdWords and other search advertising, YouTube Display Ads, mobile display ads, or even QR code advertising informing customers of product or mobile coupon redemption.

5. Commerce. “Like a game.” Location-based services like Foursquare and Gowalla, group buying.  Gowalla has nearly finished creating 200 custom virtual stamps for Walt Disney World theme parks, as a fun way for Park visitors to share their memories (post photos of locations) with their family and friends, online.  Foursquare is a location based service where friends compete to see who’s the most social according to the number of badges they unlock and mayorships.  Location based services have thus far been criticized as a social game, but Mary Meeker points out that it has taken eCommerce 15 years to reach 5 percent of retail, while mobile eCommerce can reach 5 percent of retail within 5 years.

6. Media.On-demand video.  Online streaming video is up 37 percent Internet traffic during traditional TV hours, viewers on Netflix, YouTube, and Flash, according to Meeker.  YouTube content adds 35 hours every minute.

7. Internet Company Leadership. Over 6 years, 7 companies in 2004 did not make it to 2010, and 7 companies not on the 2004 list made it in 2010, according to their market share.

8. Steve Jobs. Point 8 discusses the philosophical prospective of successful Internet leaders like Steve Jobs, who has been described as by Larry Ellison, founder and CEO of Oracle Corporation since 1977, said that Steve Jobs has the, “Mind of an engineer and the heart of an artist.”

9. Ferocious Pace of Change in tech. How do you create a product or service that incumbents or attackers cannot live without?  Mary Meeker has not seen these high levels of innovation from incumbent companies in the past 20 years, and high innovation from attackers, too.  Clayton Christensen, the Robert and Jane Cizik Professor of Business Administration at Harvard Business School said disruptive innovation occurs in 2 ways.  1.  Low-End Segment Strategy.  It’s what amazon.com, Netflix, and PayPal did:  a product is introduced at the low end that is neither profitable for the incumbent nor does it meet its customer demand.  2.  Non-Consumption Strategy.  It’s what iPhone, iPad, and Facebook did:  a product is introduced that was completely unavailable before.

10. Mary Meeker’s closing thoughts. Large companies don’t normally support innovations and she explains how companies with high revenue do not usually support such high Y/Y growth rates.  These big companies are supporting large levels of growth because of mobile devices.  Mrs. Meeker puts out a caution: entitlement and interest payment is expecting to surpass revenue in 2025 (far earlier than originally expected), according to government data.

While entitlement and interest expenses is beyond the scope of this discussion, there is a growing burden of state and federal entitlement spending, mainly concentrated on pensions and elderly health care.  According to Gary Becker, the federal government is required to pay entitlement to the entire elderly population of the United States.  Further, entitlement programs (such as unemployment benefits) have been extended under the Recovery Act of 2009, this same Act provides $7.2 billion for broadband Internet access.  Therefore, businesses needed to be aware of government fiscal policies.

Watch Mary Meeker’s Presentation