Data Crunch: the big threat for mobile eCommerce

Credit: foodshare.net

While every body is getting excited over the new mobile devices that shall make our life so much easier (and fun); with great applications and great true web browsing, sharing experience on social medias, etc... there are recent news that didn't attract so much attention, but have a HUGE potential impact on all this.

Whether you're using an iPhone, a Samsung Galaxy S, a Tablet (Apple, Samsung, Dell, etc) or even a laptop with 3G USB dongle; all those mobile devices consume data!! And they consume a lot of data!

There's also wi-fi, but except when you use them at home, those devices are by definition mobile, and chances of finding a free wi-fi connection you can connect on in few seconds wherever you are, well, they are pretty slim unless you spend your time in your favorite coffee-shop that happens to have free wi-fi (and where you're not sharing the connection with the other 20 guys around you).

The issue: data consumption is exploding!

With declining ARPU on voice declining fast, all operators (or almost) went into the data segment to get back on the growth curve. It took off with 3G as well as with USB dongles. And it's working great for them. It's actually working too well! The smartphones and the tablets are totally exploding data consumption as shown by several reports, to a point where data consumption has surpassed voice consumption already!

• Validas showing an "overall growth in average monthly wireless data consumption at a rate of 464 percent  from Q1 2009 through Q2 2010"
• Nielsen sees a 230% YoY growth for the same period
• Coda Research Consultancy quoted in TechCrunch, predicts data traffic to rise 40-fold by the next 5 years, or a  117 percent compound annual growth rate; most of the traffic (68.5%) coming from video
• Abiresearch finds an annual compound rate (from 2009 to 2015) of 42% and 55% in Western Europe and North America respectively;
• A nice study from Finnish firm Zokem showing that 50% of data usage on smartphones are comign from apps, the other 50% from the web browser.

When you understand that smartphones roughly represent 30% (at best) of mobile phones in most advanced markets, and when you see their sales roaring, you understand why those firms make such predictions (even if they vary quite a bit).

But  also surprising, what many analysis do not highlight, is Cisco's findings that majority of data traffic (70%) will come from laptops and other mobile-ready devices (tablets?)

Source: Cisco

Now any normal person would think: wow, this is great!!! Well, not everyone...

A question of capacity and investment

While all operators see in this trend a great news for their data revenues, which have soared along with its usage; they also see a threat, very short terms, in a sense that, well... they don't have the network infrastructures to withstand such high data demands!!

What mobile operators face, and thus consumers as well, is saturated networks, dropped calls, long connexion time. To cope with this, operators have to invest huge amounts in servers and infrastructures; but it won't be enough and it's most of all impacting their profit margins.

The short to mid term solution is the 4G or "LTE".  Apparently Verizon will announce today at the CTIA its launch of the first American LTE network in the 30 NFL cities (read more here). AT&T has announced mid September launching commercial LTE by mid 2011. I won't argue on the technical aspect of the evolution of the network, but it seems that LTE is the direction most operators are taking.

Now you would say, why hasn't 4G been implemented before or why isn't it implemented at larger scale. I haven't honestly investigated deep in into this, but putting the following 2 information together, you have an aswer, about AT&T (from their press releases):

• "The company is spending $700 million in capital expenditures on LTE this year and "will go far beyond that" in 2011, Stankey said.
• "During the first quarter of 2010, AT&T’s mobile data revenue was up nearly $1 billion, surging $947 million to $4.1 billion, up 29.8 percent over last year’s Q1. AT&T says its wireless data revenues have nearly doubled over the past two years."

So on one side they are investing $700 to upgrade the networks, and $4.1 billion in revenues on data just in Q1 (still growing); which will also probably increase again with tiered pricing.

So  the short terms solution is implementing tiered pricing. This means that "true unlimited data plans" are over, and now mobile operators will implement various data plans for different data usage; with main goal to limit the data usage and to keep their profit margins while still investing in necessary infrastructure.

Many operators have already done it:

• Orange France; most of their "unlimited" data plans are in fact capped (need to read the small print)
•  AT&T - Read article of FierceCIO, June 2010
• Verizon - Read article of intomobile.com, September 2010
• O2 UK - Read article of mobilegetspersonal.com, June 2010
• etc.

Now it's true that most consumers, yet, only consume small amounts (below 2 GB per month) and that the data plans are more meant to limit heavy users. For example, in Cnet's article (July), they wrote:

"Those most affected by the change are the 3 percent of customers who AT&T says are using 40 percent of the network assets. These are heavy data users. It will also likely affect iPad users and customers who want to use their iPhone or smartphone as a modem to connect to the Internet wirelessly."

Basically, early adopters of new technologies will be penalized; at least that's what they say, and this represents only a small portion of consumers.

Bottom line: a constrained mobile eCommerce environment!

On one side, operators are giving up the "all you can eat", but on the other side they are all going to launch soon the LTE which will solve many capacity issues (apparently)...

But what worries me most is that the depth of usage of true mobile Internet, in an unrestricted way, is not yet for tomorrow. It's no secret that eCommerce really exploded when Internet connection got cheaper, unlimited and fast (ADSL, fixed monthly plan where you can consume without any limitations).

With all new devices, new usage, new applications, all Internet (and thus data) dependant, if mobile operators are to curb Internet usage, well, it will necessarily slow down its true adoption as a full eCommerce / information space. If usage is increasing, it's because there's simply more people with a decent device being to connect; not because most consumers (will) consider their mobile devices as a their prime Internet device; which is the direction it's taking.

To me, it thus sounds like there's a dichotomy between what the industry is pushing us to use (devices, content, etc), and data consumption limitations.... 

Let's hope that this is just a temporary situation.

An opportunity though...

As in any environment, when constraints are set, there are always smart people developing situations to go around this.

So short term, I would really monitor companies offering services allowing to decrease data needed to send/receive data. We're talking data encryption, video standards, etc.

It makes sense! When gaz consumption is increasing and you want to limit it, either you increase  taxes to limit its consumption; either you build cars more fuel efficient. All manufacturers have chosen the latter solution; so why isn't the mobile industry doing the same?

Interesting articles

• "The Wireless Data Crunch" Torronto's Globe and Mail; June 2nd 2010 
• " Mobile video traffic: Alleviating the capacity crunch" FierceWireless, July 6th, 2010
• "The Mobile Bandwidth Crunch: Strategies for the Next Decade", Wireless Week, August 20th, 2010
• " Is 4G Better Than 3G?", Discovery News, March 30th, 2010