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Guest Post: The 'Mobile' Gold Rush
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
Here's the basic mobile gold rush model: poach advert spending in a stagnant economy.
The mobile gold rush of Web 2.0 continues to attract thousands of techie fortune seekers to San Francisco. It's an old story, and a compelling one: there's gold in them thar hills, and I'm a-gonna git me some. The only thing that changes is the nature of the gold.
The dot-com boom of the late 1990s created a new gold rush in San Francisco and Silicon Valley that fizzled in the early 2000s as the same old reality hit home: only the first few gold-seekers hit it big, and most of the late-comers trudge home empty-handed.
Over 50,000 people left the San Francisco Bay Area as employment in dot-com technology imploded.
The new gold rush is mobile--mobile apps, mobile services, mobile anything. And so the timeless gold rush story is dusted off and launched anew: young coders are paying $600 a month for the right to sleep in someone's laundry room; the average rent on a one-bedroom apartment is over $2,500.
Developers are breaking ground on dozens of residential highrises that will add thousands of apartments and condos to the Market Street corridor. Rent for a postage-stamp studio: $2,000 a month (maybe more if the market will bear it), but we know hipsters like bicycles so they'll be plenty of secure bike-racks. Amenities galore!
Though there are already thousands of pricey restaurants in San Francisco, dozens more are opening every month as entrepreneurs rush to claim their piece of the tech "miners" spending.
You know the story: the canny folks didn't bother seeking gold, they sold the tools to the miners and fed them--a fresh egg, after all, could fetch a princely weight of gold in the feverish economy of gold mining towns.
It's too bad the actual gold in the mobile gold rush--income streams in the billions of dollars--doesn't exist. All technology boils down to this: either it increases productivity or it's a time-sink. Some technologies serve both masters, of course, and perhaps mobile technology is the ultimate in promising productivity but delivering time-sink.
Let's disassemble the mobile gold rush into its constituent parts. The easiest way to do that is to follow the money.
1. How big is the income stream generated by sales of mobile apps, services and hardware? Most apps are free or sell for a few dollars, ditto services. With Android tablets going for $45 a piece in China, hardware profits are heading down. How much premium will people pay for an Apple or Samsung tablet?
People like to tout $1 billion in sales in this or that; fine, but what's the net, and is that net rising or falling? What else is in the pipeline that offers similar functionality for free?
2. People now expect free everything except their monthly 4G service bills. The real money in mobile is the monthly service fees; people routinely pay $150+ a month for their smart-phone service; no wonder you can get a free phone if you sign up for a lengthy service contract.
As correspondent Mark G. recently observed, you will soon be able to buy a fully functional Android-OS tablet for $1--if you sign the service contract.
3. So if there's no money in selling apps/software or hardware, then what's left? Marketing. The hot new vein of gold the frenzied tech-miners are digging is mobile advertising and targeted marketing.
The scenario that everyone imagines is this: carefree wealthy young people are out on the town and they seek a pizza. They open an app (free of course--the money is made in delivering the advert) and all the nearby pizza places that paid to join the advert network show up on their little screen. Oh joy, the terribly difficult task of locating a pizza place has been simplified, and the restaurant owner gladly ponies up the advert fee for the special delivery of a customer.
Nice, but how realistic is this scenario? How many billions can it possibly generate? The entire ad industry is about $170 billion a year, and that covers everything: television, radio, print, Internet and mobile. Advertising & Branding Industry Overview. Mobile adverts are still a thin slice of that: $4 billion.
That's the gold everyone's seeking: a larger slice of the advert pie. It is obvious that mobile can poach a lot more advert dollars from other media, hence the gold rush to mobile everything that serves adverts.
It is a given that a targeted ad, specially sent to the most important consumer in the world, you, based on your own unique desires of the moment, will be more effective than a TV, radio or print advert that reaches thousands of people with the same message.
Big Data machines are grinding away at reams of marketing data to select the most effective platforms and techniques to "grow mobile's share" and make advertising even more compelling to enterprises. Everyone will soon have a specialized mobile advert campaign designed for them, with "guaranteed" (ahem) results that beat every other competing media.
These truisms are feeding a corporate frenzy for mobile technology. The game plan for all these hot-shot coders seeking nearly instant wealth is not to design a service that generates tens of millions of dollars annually--the game plan is to rough out an idea, claim it will generate tens of millions of dollars and then sell it for millions of dollars to some corporation desperate for a "mobile strategy."
Is that a sustainable model? No, because once every corporation has scooped up a company with 11 coders for a couple million dollars, then the need to scoop up more start-ups fades.
All this overlooks the basic mobile gold rush model: poaching advert spending in a stagnant economy. If we look at who pays income taxes as a rough guide to how many people have disposable incomes large enough to have money to blow on excess consumption, we conclude that only the top 10% of U.S. households have enough income to respond to adverts, as The top 10% of households paid fully 72.7% of all Federal income tax, the top 5% paid 60.7%.
As noted here many times, real median income (adjusted for inflation) is down 8%. If we subtract out the income of the top 10% (which is rising), then the decline for the bottom 90% is a lot more than 8%.
Bottom line: fewer dollars of income, higher costs for essentials leaves fewer disposable-income dollars left to blow on consumption.
If only the top 10% have significant disposable income, then advertising is a diminishing-return game, as everyone chases the dwindling number of dollars available for purchases of non-essentials. Is poaching adverts a solid foundation for a gold rush? Not by historical standards.
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As if I don't have enough to do without a smart phone. Fk em.
lloyd blanfein is on right now CNBC,,,,,,everything is ok,,,,,,,silly zero hedgers and their gold and silver
OT -
I surveyed a few listeners.
their answers range from baleenable to believable to balienable to blendable to bail-in-able
http://www.youtube.com/watch?v=XU_q77z0PcQ&t=2120s
and
http://www.youtube.com/watch?v=XU_q77z0PcQ&t=3100s
draghi uses the word 4 times
I listened to it with headphones, and it's definitely baleenable, as in "something that can easily be converted into a baleen whale."
It makes perfect sense that they look upon depositors as a whale looks upon krill: a huge swirling mass of edible protein.
Edible protein?? Baleen??
Maybe a balut..
Good eatin’ as a challenge when toasted in back in Olongapo.
Does anyone still actually view electronic ads, it;s so 20th century? Has nobody discovered tracking protection and ad/popup blockers? I trul wonder about the ACTUAL value of online advertising which nobody views?
ya but every effing day that freak Tom Keene with the lovely Sara talk Facebook (mobile), Apple (iPhone) and then both genders swoon over Yahoo's Marissa (perma smile) Mayer and her mobile strategy
http://www.google.com/search?q=marissa+mayer&hl=en&source=lnms&tbm=isch&...
watched it like 5 times, no fucking clue what baleenable means. ability to be liened?
Bail-In Able
I speak jive reptile.
thanks cog, was fucking with my head for a bit there.
able to be filtered through the baleen...
Since everyone under 25 is un/under employed they have plenty of time to jack their phone off all day. To bad they are running out of money to pay for it.
They are a productive bunch.
Don't worry. Another pre-approved credit card app arrived in the mail today.
<Stick saved again.>
Wonder if the new Obamaphones will come pre-loaded with an EBT app?
I don't own a single app and; I don't see what I am missing.
I have a buddy that used to tell me about every app he was loading a few years ago. "You just gotta have this." Haven't heard anything about apps in at least a year.
I have a few but most of them are useless.
I use the Square app to run credit cards over a tablet (no good for anything else).
I have one called "Wallpaper Wizardii" because the "advanced" Android operating system can't stretch a desktop background like Windows 95/98 did 15+ years ago.
The eBay app is practically useless. The notepad app is like Clippy trying to "help" you and screwing everything up. None of the browsers (stock, FF, Chrome, Opera, etc) work quite right for any number of reasons. The PDF readers crash way too often even on simple forms.
I'd program my own but then I'd rather do that on a Windows desktop anyway. Why the hell can't Microsoft put out an affordable X86 tablet?
Microsoft engineers are too busy telling each other how awesome they are and Charles Emerson Winchester III is in his palatial office day dreaming about the days when he had hair.
To answer your last question first, see what happens when Intel releases the Bay Trail Atom SOC. I'm pretty sure it will be x86 compatible. Several big hardware names are supposedly working on hybrid tablets with this SOC, but they may go Android, or so I've heard.
That said, I think it's time to come out of retirement (IT geek from 1970 thru 2011) and start up a small company developing apps for smart phones. Then I'll hope to sell out to some company, as described in the article. The only thing holding me back is - what's a smart phone? I'm thinking of mailing my son to ask him - he said he has an Eye Phone, or something like that - but it's raining outside and I'm all out of stamps.
Backgammon NJ... it is just like the old FIBS
I've been thinking the same for some time. Good piece.
App bubble...not to be confused with APPL bubble.
At least we've got virtual dollars are chasing virtual products.
indeed - iphone was launched 7 years ago! app/mobile bubble is the last puffs of hot money into the system. YELP? 25+% today. Yelp is 75% pay to play 'reviews' paid for by proprietors. perhaps the $1 a review 'content strategists' (see, a throwback from my web 1.0 days) are why the unemployment rate is so low. 120 ads a month and you pay for your iphone bill.
If we look at who pays income taxes as a rough guide to how many people have disposable incomes large enough to have money to blow on excess consumption, we conclude that only the top 10% of U.S. households have enough income to respond to adverts...
Bullshit.
"There are two distinct classes of men...those who pay taxes and those who receive and live upon taxes."
-Thomas Paine
What about those who pay taxes, and then live off the subsidies they recieve, like bankers?
gotta net that shit out, man
So then you agree with the author that only those making $135k+ can afford to respond to adverts?
No, that # is bullshit. Certain adverts could be substitutes. How many people that make $135k+ will respond to an advert to save $1.00 on pizza? Also, the top 5% that paid 60% of income taxes will probably never respond to mobile advertising... that's for the "poor" consumers. The author should give us the data on who actually responds to adverts in addition to the theoretical ability to afford them based on income taxes. Being able to afford something and being able to put it on a credit card are two different things.
The Paine quote was just stuck in my head and I jacked your thread since you brought up the silly tax assumptions guest posted.
Another 10% of the population have EBT to swipe for adverts. Plus, most people still make choices about food, or what new car to buy on credit.
Greed is good. Are you a crony capitalist?
<I've got a mobile app for that if you aren't.>
What about Mobile, Alabama?
So what do these investors see that we don't see? They can't be just simply stupid? But maybe dreamers....
They see dead people.......
People keep walking right into it with you.
Can't resist......
Gentlemen, this here thing is a very dim reflection of the NASDAQ event of the latter half of the 1990's. It is not even remotely comparable.
What IS comparable, even exceeding, is the degree of HYPE which everyone from Lt. Gov Gavin Newsom to the Mayor Ed Lee are indulging in (Ed wants to build a second Macau on Angel Island); and the GREED of the stupid landlords crowding out their residents and throwing long-established businesses from the 16th Street corridor and tripling rents so that some goth chick can move her inventory of flimsy $75 t-shirts in; and the FLATULENCE by which the SOMA District is getting overbuilt in a stunning way.
And these kids are not getting paid nearly as much; they are riding bicycles to work for fucksake. And have a look at the "Mid-Market Renaissance" which features people shitting in the streets in broad daylight.
See you this time next year, and we'll talk again about your 2.0 !
this is where the grasping for straws happens
Mobile phones are a credit bubble in and of themselves. The sheep do not realize that the Uber I-Droid 999 is, in fact, a $600+ device, the cost of which is financed through the plans (also known as tax conduits), which are needed for the device to do anything.
Next you'll be saying that there is no Easter Bunny and that college loan debt can't be discharged in bankruptcy.
The iDroid is a $39 device that is financialized to seem like a >$500 device.
You should check out the Chinese super mocha pudding bread sandwich tablet on sale at the French place for 80.00 bernakibucks.
Actually not. The top of the range mobiles are about $400 worth of hardware with a 60% margin on top. This is subsidised down to $10 by the telcos who then charge you $50+ a month for $15 worth of data on a 2 year contract.
The Chinese company devices which have exactly the same software and hardware inside, are also subsidised by the Chinese government so you get $300 worth of hardware for $100 then apply the telco subsidy on top.
The hardware is heavily subsidised. It's more expensive than you think.
Yup...It's been apparent for a while that smartphones are the dot com bubble 2.0
"Ecosystems" are simply pennies for throwaway "fart apps".
It will settle down to something real... like Amazon ... but till then 99.9999% of what you see with respect to mobile is utter utter shite.
Nothing good can come out of San Francisco.
Be prepared for your phone manufacturer and service provider to sign [to recover R&D losses] advertising contracts and your whole phone experience to go to shit.
Internet explorer still can't fix all the crud the cross marketing programmers imbedded into it's shitty web nav during the dot.com boom.
come out?
that doesn't sound manly to me..
paraphrase.. G Carlin
Mobile phones are tracking devices and Google is the new NASA.
it's hard enough to keep your PC free of tracking shit, on a smartphone it is all but impossible - if you read the fine print on the apps you download you are selling your soul
Doesn't matter. Most people aren't using theirs anyway.
exactly and for most millennials they really don't give a shit as they beat themselves to that vid of their buds ex
NASA? I think you mean NSA.
Oh, we have some very nice bicycles, a few fine new whiskey bars, and excellent cannabis clubs. There are many good things here.
I'm guessing Charles doesn't have the whole story......in fact if there was one area id pick to save the economy, its tech....not saying it will.....but that's the area of strength for America.....
If this story is true, then not for long. High school girl expelled and charged with felonies for what essentially amounts to putting Mentos into Pepsi, as a chemistry experiment:
http://www.alternet.org/civil-liberties/16-year-old-girl-arrested-and-charged-felony-science-project-mistake
If everytime someone makes a puff of smoke or a loud bang, they get charged for detonating an explosive, expect all science education to go right down the tubes.
I hate alternet. They could really use a 50gbit/sec UDP flood 24/7.
Charles you don't get it. The smart phone isn't about making money. It's about bread and circuses with the masses. The apps keep them busy and attached to their phones. This allows TPTB to monitor the sheep.
Was in a sports pub last weekend. Place filled with tv screens but not enough distraction for the 20-something couple at the next table as both were texting in between taking bites of food. Heads down and fingers flying.
i'm not sure anyone under the age of 15 can speak a language anymore
This is true in many areas of new tech. Look at streaming media. We have Netflix, Amazon Streaming, Hulu and Comcast On Demand. But people only have so much eyeball time to dedicate to watching stuff. It's all about pulling viewers from one area to another. But now that essentially everybody is online the overall real growth in viewers is slight.
The tech industry went through one big growth wave when everything was wired and we all got computurs and went online. Currently it's at the tail end of the 2nd big wave driven by mobile devices. What's left to power a third wave? Cybernetic implants? Home robotics? Both those are decades away.
i would put it on record that the second a viable cybernetic implant with only read access and signal output capacities (to be plugged into a removable transmition device), coupled with a seperate optical nerve stimulation inplant was in beta, i would go under the knife.. but yeah, we're still a bit out, as always the military and porn will be the driving industries.
edit: to the junker, sorry, i like tech(although favor nature more), what were you doing when you were 15? i was organizing a meeting to form my local branch of the WTA(world transhumanist association).. sorry, i know thats crazy and all, because we'll never have personal transponders right? either ride the wave of civilization or fear the tide, both are legitimate forms of existence. i would rather have land to work and feed my family with (personally), but it's not an option to me currently. and fuck monsantos ownership of life bullshit.. but that's a seperate issue i guess.
none of the men coming to that meeting realized i was in my young teens, odd how anonymity destroys preconceived boundaries.
mobile tech has offered more than just eye candy........there a legions of small business owners who are able to streamline their business and open up time by performing much of their job tasks via smartphone..............
Right you are. I wonder, however, just what percentage of smartphone/tablet usage is for business purposes.
close to none, it is the disintegration of the pc markets margins, only thing left is to knock the printer(ink) industry on it's ass.
it creates an atmosphere where "life" and "business" merge, destroying huge swaths of unnecessary labor.
You know the story: the canny folks didn't bother seeking gold, they sold the tools to the miners and fed them--a fresh egg, after all, could fetch a princely weight of gold in the feverish economy of gold mining towns.
Case in point, bitcoin mining hardware. Delivery of units is even delayed a few months so by the time you get the hardware its edge has already been replaced by newer units:
https://products.butterflylabs.com/homepage/50-gh-s-bitcoin-miner.html
solid point on the mining equipment and service industries being the sure bet over being one of the gold rushers yourself.
What amazing new technology has come out that replaces which bitcoin mining equipment? The delays with Butterfly Labs was that they massively overestimated how little energy and heat their chips would produce on 65nm process. They were off by about 500% (or their estimates were only 20% of real-world operation).
The smallest unit was to be 5w but is now 30w and needs its own wall plugin instead of USB. The biggest unit will likely need ~8 Kw power; at 1500w it would have worked on a 15a 120v plug. Now it will likely need a 240v 30a appliance connector. Oops.
Had a smart phone for a few weeks, never again, Ericsson T39 reloaded
I use a 2007 Samsung S3600; it even has a camera!
Mobile advertising does not influence me. I cannot remember one single add I have seen this week.
ok, so marketing and/or advertising will fall on it's ass if they keep with the manda-click popups and subscription fee-esqu non-scalable mobile apps. if it isn't seamless and unintrusive you're just going to piss someone off and they'll go elsewhere, unless you actually offer content or commentary that can't be found somewhere else for free (like zh, several other blogs, one of the reasons i don't adblock this site).
online legacy journalism is going to shoot itself in the foot just like with the newspapers, once they realize that information wants to be free then they can actually offer something people will support, the old monopolistic model will not work without government enforcement and curtailing the rights of real journalists further, to the point where you get media (and it's already nearly there) that is a mockery of the reality they purport to represent.
this is the important part: it must be common knowledge that some listings on a network are more equal than others (tagged as such, maybe even only on a subconscious level, see fark.com 's "amusing" tag(full credit to whoever thought that up please)), but that they do not receive special treatment beyond immediate availability of listing, it must be moderately more difficult to access unbiased listings (by rank first shown to the individual), as in, you can only sell placement of information, not treatment, preferential reviews will be disproved if the experience doesn't match, and your platform will be discredited...
so yeah, sell placement, location location location all that bullshit, most people will just jump on the first thing with decent reviews that they see, otherwise create something that caters to a specific niche and charge an entry fee for any information which isn't just a little outdated(premium on hip, wtf ever, you know, like financial news letters..)
and responce to last few paragraphs on chasing dollars, yeah, me and the people i know don't generally give a shit about ads for products, because we just buy cheap or for utility. because that's all that makes sense.
but whatever, just the pointless and disorganized thoughts of a madman.
edit: TLDR; ideas. sorry for wall of text, too much time on my hands as of late..
And what about the barrage of ads and pop-ups that will still be pushed on users without any request? You can bet they will be there too, invading privacy, interfering with, and distracting users from what they are trying to do with their device; you know, like making a phone call.
I remember ditching my home land line for a cell phone primarily to avoid all the solicitation calls I was getting. Eventually the government stepped in and banned the practice without user permission. Now it’s happening all over again with cell phones and mobile devices, but an order of magnitude worse. It’s justified by marketers and companies which assist them in every way you can imagine, but, it all boils down to “because we think we can make money at it, that’s why”.
Who needs it? I guess that’s why I still carry my flip phone.
at what point do companies realize that intrusive advertising isnt "all publicity is good publicity".
again; printer ink, you can refill a cartridge for nothing ( i paint/draw in multiple mediums, i know how to mix oil, acrylic, inks, whatever..) all they're doing now is making kill switch cartridges that once one of them "runs dry"(often the off colors, there is no "limp mode" where B&W still functions without chartreuse) will not give the all clear until it is "filled"(i've filled them, it's a software issue.....), planned obsolescence to the max, worthless companies extracting profit for no utilitarian gain, fuck them all.
go to a REAL second hand store, one that is tax exemption donation based, and tell me there aren't literally hundreds of worthless printers there(depends on scale), what do people take from the printers? only the cartridges, to be reprogrammed filled and resold... and loose memory cards that people forgot of course..
The people who profited most during the gold rush were the people selling picks and shovels.
Some of these apps are quite useful, even madatory for certain things. I use one that I document my time during my work day, snap photos even and email to clients whenever I want.
No more "well, what exactly did you REALLY do today for my $X?...." Here, Judge, here is the whole project step by step, fuck you white collars geeks who can't change a light bulb and don't want to pay! Labor and contractors can be easily taken advantage of.
PS when they talk mobile they are talking tablets not just smartphones
There is no way to make advertising on mobile nothing less than annoying.
Right now mobile ain't making shit in the way of profits. It is all Dot.com 2.0 clicks are more important than profits B/S. I have seen this play before and it did not end well for 98% of the players.
The one app I use regularly is the free Weather Channel app, and half the time it doesn't work right. It might update the current temperature, but the hourly forecast stays stuck on yesterday. That kind of problem. Angry Birds and Fruit Ninja work fine, but talk about a time waste!
I had Atlantic Monthly on Kindle Fire, and now Guitar World, and they are far from easily readable. The screen is just too small.
When I use the Kindle to read stuff here at zerohedge and Naked Capitalism, I have to turn off (disable) the java script or the damned ads will take over the screen, annoy the hell out of you, and make easy reading impossible. Plus,it is hard as hell to type or comment on stuff.
Then, you have to remember to re-enable java to watch a youtube video. Which half the I don't remember and have re-load the crap.
All of which means I don't see much of a future in the mobile ad stuff either. Or even tablets in general. Sooo, I use my laptop most of the time.
Squeeky Fromm, Girl Reporter
Stupid fucking toys for even stupider sheep.
Who the fuck needs a phone for anything other than phoning?
What the fuck is going on with the youth when they use phones for googling, facebooking, and twatering? What the fuck is wrong with face to face coversations for fucks sake? Just wait till the signals are turned off. I have said this before and I say it again, what fucking use is a mobile fucking toy going to help you out in the real fucking world with??
Dont ask the fucking obsolete eight month later device to plant potatoes mind. Even its newer version wont plant tatties.
Grow the fuck up, and get a fucking life, gadget retards, you will need it soon enough.
Fucking mindless, brainless fucking idiots.
First: I love your posts. 2nd: I generally agree. 3rd: I was amazed my senior friend finally purchased smart phone and monthly service. But his primary app is pretty helpful: he has a few cameras scattered in his very elderly mom's home and can check in and speak with her anytime, for minimal fee. And yes, he does visit her often enough too, but this camera/security thing sure beats the old systems of paying some industry who sub hires someone in Bangladesh $15/mo, does it not?
But again, I generally agree. I ride my bike through the local U campus. These idiots walking while staring at their phone are just epic dumb.
Most of the mobile is already being done 'in-house' by the larger advertising firms. BTW, this is what I do for a 'living'. It is not really high tech. Programmers just have to adjust the desk top designs to accomodate the different sizing of tablet and mobile devices. From my view, this is hardly a revolution....just a slight variation on the theme of web advertising.
Next, mobile homes!
Some people live in their cars. Is that what you meant?
If I ever buy a smart phone they will make a killing as my big thumbs accidentally click on their advertisments. I am sure most clicks are not on purpose.
Entertainment, education and information. Those are the three things people will pay for. Apple doesn't have the pricing right at this point. Movies have to be a lot cheaper before the mass market will join in. Netflix is a bit smarter about it and they also have an app
Education is just in its formative years online but they are a legitimate threat to the teaching establishment. Once the governments of the world learn that they can have one superstar teacher teaching twelve thousand students and making up the difference with teaching assistants, they will start to migrate to web based teaching....and there goes more jobs. Thanks Jobs
Cofidentially it is rumored that Prez Obama is now conducting beta testing on some new type of Google glasses....a "heads up" display replacing the teleprompter.....buy Google call options now....this news will create a 10% gain...