As Blackberry announced that it's finally going to stop manufacturing phones, we're seeing a big shift underway in where the value sits in mobile. One of the slides from Mary Meeker's last Internet Trends report showed how the year-on-year increase in global smartphone shipments is slowing dramatically as the market reaches a higher level of maturity.
She's not the only one to make this observation. Analyst business CCS Insight have predicted that mobile phone shipments will decline by 1.3% year-on-year in 2016. Smartphone penetration in markets like the US and UK has now reached 85%. Improvements between model upgrades has become increasingly marginal. Users are holding onto their phones for longer periods of time. Meaning that increasingly the value for both makers and operators is shifting away from the upgrade cycle and more towards the phone as a service.
But something else is happening too. Recent Nomura data (via mobile app tracking service SensorTower) published on Recode a while back suggests that the days of booming app downloads are over (unless you are Snapchat or Uber that is). This is supported by data from Comscore (charted a while back and below by Quartz) showing that the majority of US smartphone users don’t download any apps in a given month:
Getting people to download a new app, it seems, is becoming ever more difficult. The data suggests that people increasingly have all the apps they need are not actively looking to download new ones. The Nomura data showed that in May, the top 15 app publishers in the US saw downloads drop by an average of 20% year-on-year (apart from, of-course, Snapchat and Uber). And that list is dominated by the big players.
Not only do we seem to be downloading less apps, but the way in which we're interacting with them is also changing. An increasing proportion of mobile interaction is happening not in apps but via search and the notifications layer (in other words more at the operating system level) meaning that apps are becoming akin to publishing engines rather than destinations in their own right. The data implications of this are pretty fundamental. To quote John Borthwick:
'Push based alerts are evolving into notifications, into rich action based notifications, into bots.'
As Tom Goodwin once noted, no wonder the battle is increasingly for the customer interface – that's where all the useful data is. Thin, service-driven layers that sit across everything.
So as more value shifts to the operating system level, the focus on AI as a differentiator is intensifying. As was noted in the recent Google Firestarters on the theme, AI has been around for years but a confluence of factors means that it is suddenly where all the development is focusing. The fact that messaging apps, into which AI-driven conversational interfaces fit so neatly, are now bigger than feed-base social networks. The fact that voice activation is becoming more normalised (Google recently said that 20% of queries on its mobile app and on Android devices are voice searches). The fact that new hardware (Echo, Google Home, Pixel phone, Samsung's estimated 500m devices that they ship every year) is combining with new software (Alexa, Assistant, Allo, Facebook M, Siri, Cortana, Samsung buying Viv) to extend the reach of AI into everyday life. The fact that the whole ecosystem is becoming increasingly open (Amazon now has over 3000 'skills' on Alexa, Apple opening up Siri to app developers, the launch of Google Actions, the Facebook Messenger platform). As Chris Messina said, this is not a fad, it's a revolution in customer interface.
Azeem Azhar has talked about the law of AI Lock-in. How, once AI starts to confer an advantage to a particular business in an industry, it becomes increasingly critical to success in certain classes of products and baked-in to competitive advantage, resulting in increased investment from everyone ('Competitors need to respond. Because without AI you are nowhere'). Google CEO Sundar Pichai has said that AI is the future of Google, ushering in a post-smartphone world where intelligence is embedded in everything.
The shifting value in mobile that we're seeing is just the start of something much bigger.
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