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Competing effectively against your most potent competitor

New market disruptions take root in non-consuming contexts. For instance, mobile phone photography began not because early phone cameras were good. They weren’t good at all but good enough when a camera was not within reach. The quality was poor but the photo taken would not have otherwise been taken, making a lousy photo better than no photo.

The result is that the total number of photos taken this year will be ten times higher than the total number of photos taken before the advent of mobile phone cameras.[1]

This rush to use the phone as a camera has meant that phone makers are keen to improve their product (so as to compete effectively with it against each other) and as a consequence they overtake the incumbent camera makers in quality as well as quantity.

The same phenomenon was experienced by fixed component “Hi-Fi” audio products. The quality of mobile music was poor but it was convenient and convenience translated into consumption and consumption translated into quality improvement and eventually the evaporation of usage of the traditional category.

Now consider how ad dollars are getting spent. The following chart shows the eMarketer forecast for ad spending mix across different media in the US.

Screen Shot 2014-07-02 at 7-2-8.12.01 PM

It would appear that the “Mobile” media is competing effectively against the other media types, especially the non-Mobile digital (i.e. PC-based experiences).

However, if we look at the absolute spending forecast the picture shows that Mobile is responsible for most of the growth in the overall spending.

Screen Shot 2014-07-02 at 7-2-8.13.10 PM

In other words, Mobile is creating new consumption of ad spending. If the forecast is correct, it suggests that if Mobile was not an option, ad spending would probably remain flat.

Mobile is capturing all the growth but it’s also the creator of this growth. The reason for this is that people are consuming mobile (i.e. looking at their device screens) more without necessarily looking at other media much less. Mobile is effectively creating consumption and therefore competing effectively against non-consumption.

Nielsen data backs this up by also citing that user “app time” on devices increased from 18 hours and 18 minutes per month in late 2011 to 30 hours and 15 minutes in late 2013.

That’s a lot of screen time which results in a lot more “inventory” of valuable ad space becoming available. Of course the ad buyers will buy the inventory. The value it provides is clear and they will increase their budgets to accommodate it.[2]

Note that mobile phone makers did not set out to punish newsprint manufacturers. They did not set out to cause suffering for Canon or Nikon. They did not build devices to crush JVC and Pioneer or the myriad of music, photo, and print industry participants. They just wanted to make better phones.

Because they focused on a job to be done that was not done well by alternative products they created consumption. They then used that additional consumption to expand into obvious adjacent use cases. The result was disruptive.

There was no escape for the incumbents. The approach of making a camera into a phone would be doomed as would making an amplifier into an iPod. The outside entrant approach was the only way to “pivot” if such a pivot was even thought desirable.

This is why non-consumption is such a difficult competitor to those in the business of serving consumers and a pushover for those in the business of doing something else altogether.

Notes:
  1. The total number of photos taken in 2014 is likely to be around 880 billion. Prior to 2000 the total number of photos ever taken is estimated at 85 billion. []
  2. Note that the PC does suffer a decline in ad spending but it’s not nearly as much ($8.5 billion drop) as Mobile’s gain ($54 billion gain) []
  • Nevermark

    Nice report. It would be helpful if the same colors were used in the two charts.

    • http://nmuppala.wordpress.com Nalini Kumar Muppala

      Please peruse. They are the same colors.

  • jinglesthula

    You titled the piece “Competing effectively against your most potent competitor”. It seems an incumbent and ‘non-consumption’ (really the newcomer supplying the unmet need in the historical non-consumption space) are each other’s most potent competitors.

    I’m curious which one you meant as the antecedent of ‘your’ in the title. I assume you mean the newcomer, and that the effective competition strategy is the asymmetric approach.

    • http://www.asymco.com Horace Dediu

      I meant that non-consumption is a potent competitor and that entrants compete more effectively with it. It’s therefore the “most potent” competitor for incumbents. With ‘your’ I address the incumbent mainly.

  • Jared Porter

    Looks like something of a challenge to Google as much of its ad revenue comes from PC display ads as opposed to mobile, traditionally. Advertisers will shift to where the attention is. Google’s model may be more assailable in mobile?

  • Tatil_S

    > “That’s a lot of screen time which results in a lot more “inventory” of valuable ad
    > space becoming available. Of course the ad buyers will buy the inventory. The
    > value it provides is clear and they will increase their budgets to accommodate it.”
    I am not sure I buy this argument. Ad spending is limited by overall marketing budgets, which is limited by overall consumer spending. Total ad spending cannot outstrip the growth in consumer spending over the long run.

    • peter

      I would agree. If you look at advertising spending over long periods, it moves within a fairly limited range (expressed as a percentage of GDP) it seems (see links below).
      I think by its nature advertising is akin to a sales commission on GDP. To the extent that advertising enables faster product discovery, it could justify attracting a larger share of GDP.
      Currently, online advertising is despite identity tracking targeted very poorly. Given that state of affairs, it is hard to see how it could sustainably attract more spending.

      http://www.businessweek.com/articles/2014-03-03/advertisings-century-of-flat-line-growth

      http://www.galbithink.org/ad-spending.htm

      • Tatil_S

        I agree, targeted advertising is still very ineffective. Even when the ads don’t feel random (Ally bank or the latest action movie), they usually feel like ads based on content of the page: Political action committees in political websites, gadget ads on tech blogs. So far these do not feel better targeted than pre-internet era TV or newspaper advertising.

        Then, there are some ads for products that follow me for a month after checking out that product at some retailer’s or the manufacturer’s website. These feel amateurish, as they keep showing up weeks after I actually buy that product. If I am not quite keen on it to begin with, they make the company/brand/product seem desperate for a sale if overdone and they quite occasionally are overdone.

        Maybe, the state of affairs is not surprising. Amazon is supposed to be the best in “recommendations” based on my past purchase and browsing history, which is all contained within its walls and tied to my identity quite tightly due to a named account with a home address and a credit card. Yet, its recommendations are full of laughers quite often. There are many times it recommended a cheaper version of something I bought a few weeks ago. Its book recommendations still do not feel as relevant as B&N’s promotional emails.

      • Walt French

        @Tatil_S writes, “These feel amateurish, as they keep showing up weeks after I actually buy that product.”

        A couple of days ago I got into a discussion about (“smart”) watches, and had to google the brand that I thought was the last watch I owned (a decade ago?), because although it had a titanium backplate, my wrist is hopelessly sensitized from wearing a very nice Seiko many years ago, and apparently having my perspiration react with the nickel in its stainless steel back.

        Sure enough, this AM I saw an ad for Skagen. Too bad they paid for an ad that won’t get ‘em a nickel; I really liked the slim design & rest of the very non-Fossil look.

    • Walt French

      I don’t really wish I were closer to the ad industry, as I was about to write. But it’d help understand the reasons why internet ads are such a small (though rapidly growing) share of total ads.

      I think you and @peter make a good case. But I’d go more negative about share. Based on casual observation of TV, newspaper and magazine ads…
      * A lot of magazine ads are driven by the high-margin products for their usually-wealthier demographic than even an iPhone reaches: cosmetics, autos, fashion clothing. Mostly, I’m not aware of appropriate mobile apps that’d be compatible with the wealthy/glamorous image these products want to convey…most apps are geared at high-volume usage, especially by the younger set with less income.
      * TV ads get pretty focused (not a lot of Preparation H ads on World Cup games; not a lot of beer ads on the 10pm news) and my scant viewing might be especially skewed. If mobiles become entertainment devices, there’s room for Budweiser to buy placement, but Twitter is too focused to leave much room for Lexus SUVs.
      * Newspaper ads are quite (not hyper-) local; mostly aimed at middle-aged and older demographics (the people who still read ‘em). It’s hard for me to imagine the budget-stretching coupon-clipper flipping thru Google Shopper before going out on a day’s shopping, or a prospective car buyer explicitly turning to Facebook to see what they might test-drive.

      The internet’s transformation of the consumer economy is real, but in two ways it actually works against the need for the current volume of ad spend moving to mobile. First, mobile is a lousy context for lots of current ads (mags), is (at least somewhat) the wrong time/place for the biggest slice (TV), and is the wrong demo for what’s left of the ad spend (newspapers). If I have a focused product need, Amazon or eBay can help me shop; if I have a general lifestyle focus (performing arts; travel; fine dining; spirits; …) then the internet ads I’ve seen are almost comically bad or utterly useless. (My ISP will have Google put an ad up top if I accidentally mistype “delta.co” but that ad will not sell another ticket that I wouldn’t have bought anyway.)

      Second, the internet’s ability to connect me more precisely to what I want to know, diminishes my need for product info pushed at me from advertisers.

      By at least one measure I’ve seen today, total ad spending as a fraction of our economy has been dropping rather noticeably. I expect mobile to continue capturing share, but less than it captures share of attention. In some sense, we’ve already passed “Peak Ad.”

      • Tatil_S

        I agree with some of your points, but I don’t agree that Twitter and Facebook would not be good places for Lexus ads. That is the beauty of ad networks and targeted advertising. Even though users would not turn to Facebook or Twitter for car shopping advice, advertisers (supposedly) know whether you are either shopping for a car or you could be persuaded to start through the profile gathered about you through ad networks. They can show you their ads regardless of which site you are visiting. The actual webpage you are reading may contribute to your potential shopper profile, but the ad does not have to be closely related to what you are reading or the app you are using at that moment in time. Well, that is the theory anyways and the reason behind all those Facebook “like” buttons all over. Facebook is trying to put together a more accurate profile about you by tracking where you visit outside of Facebook.

  • Mark Jones

    “The approach of making a camera into a phone would be doomed as would making an amplifier into an iPod.”

    But Apple did make an iPod into a smartphone. Was Apple successful because the smartphone was really a computer, and Apple was just making a much smaller Mac?

    • charly

      The iphone was not an ipod with a phone but a mobile phone with a MP3 player

      • Mark Jones

        What’s your point?

      • Space Gorilla

        charly is an Apple-is-doomed troll, his (or her) point is always that Apple is dooooooooooooomed!

      • Mark Jones

        Ironically, he’s unintentionally highlighting how Apple was able to disrupt itself.

      • charly

        That being able to play music was only a secondary for the iphone. The first iphone was more a chromebook-on-the-go with added phone function than an ipod + phone

      • Mark Jones

        So what? Did you even read Horace’s piece?

        Nokia and Motorola featurephones, circa 2006, had both crappy cameras and mp3 players. The question is why couldn’t Nikon or Canon or Kodak (who already had small fully digital cameras) successfully have made a phone that had a secondary purpose as a camera when Apple was able to successfully do so from an equally dissimilar base of iPod? Or why was Apple able to see the necessity of disrupting its booming iPod business with a phone/computer while the camera makers couldn’t?

        Also, if you can remember what it was like in 2007, iPod was way more important, from a marketing and user adoption perspective, than Internet communicator to the mainstream consumer. Internet communicator was important, but really only to first adopters and geeks.

      • charly

        Kodak was a film maker. It didn’t survive the move to digital. In 2006 people did not send on the whole pictures from their mobile phones (mms existed but wasn’t commonly used). Point-and-click camera’s where around 300 which was more that the price of an average featurephone. Those two reasons combined made it too difficult for canon & Nikon to enter the featurephone market. Also making a phone with a good camera isn’t difficult as long as you make it thick. Canon & Nikon didn’t have any expertise in making thin camera’s

      • Mark Jones

        Umm, wrong. Kodak made the Quicktake camera with Apple. They launched EasyShare digital cameras in 2001. Also, MMS was created in 2004 and from wikipedia: “by 2008, worldwide MMS usage level had passed 1.3 billion active users who generated 50 billion MMS messages.” None of them were from iPhone, which didn’t support MMS until iPhone OS 3.0 in 2009. Regardless, photos could be sent in emails and that was possible with 2006 Blackberry 8100 series, 2005/2006 Nokia E/N-series (2 and 3.2 MP camera) smartphones, and others.

        The reasons you state are exactly what incumbents say when explaining why they shouldn’t make the products that will soon totally disrupt their markets, as you (just like the camera makers) again misread what “good” is relative to the consumers desired jobs to be done. The camera makers were unwilling to believe that consumers would think 2 and 3.2 MP cameras would be acceptable trades for communications (MMS/email/Internet) and always-with-you capability.

        The wonderful iPod click wheel and 80 GB storage were sacrificed in going to iPhone, but Apple was willing to believe that iPod nano-sized storage and multi-touch screen would be acceptable trades for most people.

      • http://www.noisetech-software.com/Home.html Steven Noyes

        Strongly disagree. The iPhone was, first and foremost, an amazing MP3 player. It was not an afterthought. It was, first and foremost, a revolutionary new phone with an simple to use touch interface (and visual voicemail). That was not an afterthought. It was, first and foremost, a great mobile web-browser. That was not an afterthought.

        There was an amazing amount of painstaking detail that went into all three of those areas. Smartphones of the time already had horrible versions of all three.

      • charly

        If it first and foremost a web-browser and first and foremost a great phone than i seriously doubt that being an mp3 player was also first and foremost.

        ps. It obvious is not a fantastic mp3 player. standby time and use time is less than a few days. Making a mp3 player/mobile not-smart phone with a standby time of a few weeks isn’t hard (small screen, big battery)

    • http://www.asymco.com Horace Dediu

      The iPod was not made into a phone. The core of the iPhone was software. In fact, the iPod touch was an instance of a new product rather than the continuation of the original iPod. The software that made the iPhone possible was not something other consumer electronics companies could create.

      • Mark Jones

        Are you saying that even if Canon (for example) could foresee the disruption coming, they wouldn’t have been able to make a phone with a camera? They wouldn’t have chosen to acquire the software expertise or processes?

        Motorola and Palm didn’t think Apple had the expertise to make a good cellphone, either, but they did. Apple acquired/hired that expertise (partly by working with Moto on the ROKR) and so did Google. So clearly, cellphone making and camera making abilities can be bought/developed. Thus, are you saying that only a computer/OS/ software company (i.e., Apple, Microsoft, Google?, Palm?, RIM?) could’ve made an iPhone-like smartphone, because that capability was much more fundamental to it than any other capabilities?

      • Sacto_Joe

        Mark, for a long time now I’ve been of the opinion that it was far easier for Apple to add the elements of a cell phone (among other items) to a sophisticated computer than to add a sophisticated computer to a cell phone, and consequently it was generally very difficult for cell phone manufacturers to match the iPhone. (Note that the one exception to this was Samsung, but that Samsung (1) had some inhouse computer expertise already and (2) made a conscious decision to emulate the iPhone (and later the iPad) as closely as possible – indeed, far too closely! It was also to their advantage that they had a huge installed base of customers for their cell phones who were primed to upgrade to smartphones.)

        Of course, that completely supports Horace’s contention that “created consumption” is extremely difficult to compete with.

      • DesDizzy

        Respondents seem to have forgotten the Nokia Communicator which was in fact a pocket computer…….

      • Sacto_Joe

        DesDizzy, that’s really desperate. The whole multitouch interface is missing (see http://en.wikipedia.org/wiki/Nokia_Communicator ). Without multitouch, the pocket computer is doomed to failure.

        Nice try, no cigar.

      • DesDizzy

        Multi-touch wasn’t around at the time, but there was no reason this couldn’t have been added, but Nokia went copycat instead

      • Mark Jones

        First, Nokia hesitated to respond at all because the iPhone just wasn’t as good a phone (i.e, no 3G). Then, they thought it was about the hardware features. When they realized it was about the underlying software and system integration, and the resulting responsiveness and ease-of-use, and that Symbian had shortcomings that were really hard to fix, it was too late.

      • charly

        Maybe developing a phone needs more than 6 months? Also Elop killed Nokia

      • DesDizzy

        Mark – Wouldn’t disagree with any of your points. Would add that I think, like Samsung, Nokia lacked a vision for excellence. They had been used to a scatter-gun approach.

        I was one of those people who paid £900 for a communicator off contract (I have every iteration). And in these pre-Blackberry days the communicator was the phone of choice for many in the City. Perhaps if Nokia had adhered to and iterated this product/Symbian, it could have devolved into a reasonable competitor to the iPhone. However, they did not.

      • charly

        Apple didn’t make a good phone. Standby time was sub par

        and their antenna aren’t that great either (remember the rubber band) But Nokia phone’s are still lousy camera’s compared with point-and-click camera’s from Canon and Nikon

        ps. there were two disruption in the camera market. One was the mobile phone but the other was the end of more pixels is better. That happened for point-and-clicks around 5/6 Megapixels and with that ended a lot of demand for camera’s. I personally don’t even think that the camera market is that much smaller than what it would have been without smartphone camera’s.

      • Mark Jones

        Again, your definition of “good” is different than what consumers value overall in a smartphone. A smartphone can’t do/be everything; not even a PC can. Tradeoffs are made, and obviously standby time isn’t valued anywhere near other phone and computing capabilities in the device.

      • charly

        I was obviously talking about the phone part of the iphone. The product was for its time good but the phone part wasn’t. It was to big and standby time was to short. It was a bad phone but a good smartphone.

        Just as the Lumia is a bad camera but a good smartphone camera

      • Sacto_Joe

        I have to agree with Mark. What Apple did was add a phone (and other things) to a computer. Phone makers, as history shows us, had a far, far more difficult time adding a computer to a phone!

    • normm

      Amplifier companies don’t really have any expertise that gives them an advantage in mobile devices, but camera companies have made small cameras for a long time, which have already gone through a quality evolution. I personally would be willing to buy a substantially heavier and thicker mobile phone if it had a *much* better camera, as long as it was still an excellent smartphone in all other ways. A Nikon branded Android phone might still attract interest, for example.

      • charly

        What is the sales record of those Samsung camera phones? Seeing that they only have one model indicates to me that they are not fantastic

  • charly

    Mobile phone camera’s are still not as good as cheap camera’s and the same is true for Hi-Fi equipment

    • Tatil_S

      Not having optical zoom and optical image stabilization is certainly an impediment. On the other hand, users do not need image stabilization if they don’t zoom. :)

      • charly

        The ccd in a phone is also smaller than in a cheap camera and much smaller than in an SLR. But then you send them over with Whatapp which re-compress them into artifact heaven

      • Tatil_S

        On the other hand, the smartphone imagers are infinitely bigger than zero, the size of an imager that I don’t have with me. My parents get to see more of those photos while I am vacationing than the ones I take with my SLR and share weeks after I get back home.

      • Walt French

        You *could* travel with a laptop.

      • Tatil_S

        Laptop? Pffft, I am way ahead of you on that one. :) I downloaded my pictures to my iPad with a card reader during our last vacation. It is really fun to browse pictures on a retina screen and iPad is much easier to carry around than a laptop. (Besides I cannot really justify the expense of a retina MBP purchase.)

      • Steve White

        This issue came up about 110 years ago with the Kodak Brownie Box Camera. That too was a camera inferior in many ways to the fine studio cameras available at the time. Its major advantage was that a non-photo oriented klutz could take a picture that was “good enough” 90% of the time.

        The iPhone camera is simply a Brownie. It’s good enough for what most people want a camera to do. That’s why it’s doing so well.

        But I love my Canon :-)

    • Tatil_S

      It all depends on your definition of better and cheap. How easy is it to share your pictures with a cheap camera? Heck, how easy is it with an expensive one? It is still far easier to take panorama pictures or edit photos with an iPhone than with thousand dollar cameras, let alone cheap point and shoots. HDR can also be more convenient and in some respects with better image quality on smartphones, depending on the circumstances and the quality of the image processing software used on your phone.

    • Walt French

      I’m working on software to make them better, but bump into a LOT of people who show their iPhone photos and say (essentially), “this is more than fine enough.”

      In truth, they’re often damn good, much more than they need to be, most of the time. The fact that A-B compared versus an SLR’s print, anybody could spot the inferior print 99 times out of a hundred, doesn’t matter if you’re just sharing a photo of your grandkid on your iPad, or of your kids at Disneyland on your iPhone.

      Likewise with your observation about music, although the biggest problem is lousy source material that the listener doesn’t care about, or perhaps the headphones. Even for a former audio engineer such as myself, I am quite happy hearing a 1950′s opera broadcast over modest-bitrate Sirius*, if it’s a great performance (as almost by definition, they are) or it evokes a live performance I loved.

      * As a game, I usually guess the recording date within 5–10 years when my wife starts up a broadcast and keeps the intro silent. Much worse audio chain than CDs ripped to my old iPod Classic + Etymotic ER-4Ps.

    • Mark Jones

      It all depends on how you measure “good.” My mobile phone camera is much much better than standalone cameras, cheap or expensive, at taking selfies, and much much better at delivering photos (i.e. conveying the story) to everyone that matters within a couple of seconds, among other things.

      And my mobile phone is much better than my hi-fi equipment whenever I’m not in my own house, which is likely the majority of my waking hours.

      • charly

        There are also point-and-click selfie camera’s

      • Mark Jones

        And under what circumstances can you deliver those selfies to other people? Which, after all, is the real important purpose of the selfie.

      • charly

        If you let whatsapp recompress them then there is no point. though i asume that they work much better in low lighting

  • http://nmuppala.wordpress.com Nalini Kumar Muppala

    Mobile is capturing all the growth but it’s also the creator of this growth. The reason for this is that people are consuming mobile (i.e. looking at their device screens) more without necessarily looking at other media much less. Mobile is effectively creating consumption and therefore competing effectively against non-consumption.

    While I agree that a lot of mobile use happens in previously non-consumption scenarios (commuting via public transport, waiting – in a line or for transportation or at a service provider), it is not clear whether most of it is complementary to other media consumption. Can the 30hrs of time spent on mobile devices be all previously non-consumption time?

    If some of the jobs previously done via print and TV set are now being done via mobile devices, some of the time spent reading print media and watching on TV sets has moved to mobile devices.

    Could it be that a majority of those people still consuming TV programming via TV sets are more valuable to TV advertisers because they would not be an audience on mobile devices?

    • Sacto_Joe

      My guess is that this has far more to do with the addition of brand new customers than anything. Remember, before there were smartphones there was a HUGE outbuilding of cellular, including and maybe especially in countries which didn’t have “land lines”. The smartphone revolution is basically following down these original low information routes, forcing them to be fleshed out and increasing the information that can flow through them. Indeed, the growth of Apple’s high end phones is actually pretty much hostage to the fleshing out of the original low-information mobile network.

  • Eric Chang

    Horace, I really appreciate the analysis. My question: if a company’s most potent competitors come from non-consumption and lateral entrants, is Apple an example of of a true innovator creating variants off of their core business, while also cautiously expanding into new lateral markets, while maximizing their domain by leveraging the halo effect with their ecosystem integration?

    • http://www.asymco.com Horace Dediu

      Yes.