November 17, 2012 at 15:00 PM EST
How Mobile Can You Go? A Mobile Take On Q3 Tech Earnings
Editor's note: Jay Jamison is a Partner at BlueRun Ventures and is based in Menlo Park. Wall Street is basically demanding big public tech companies to answer the question, “How mobile can you go?” And based on a read of the big tech companies’ recent Q3 earnings reports, they all got the memo. Here’s my take on their mobile strategies.
JayJamison

Editor’s note: Jay Jamison is a Partner at BlueRun Ventures and is based in Menlo Park. He focuses on early stage mobile, consumer and enterprise opportunities, and he serves on the boards of AppCentral (acquired by Good Technology), AppRedeemFoodspotting, and Thumb. You can follow him on his blog and on Twitter.

In August, I wrote about how the Mobile Era was upon us and how the Mobile Wave was impacting Facebook and Zynga. I wrote about how mobile represented a big shift, and the giants of the social web needed to show that they could jump onto this wave or risk being disrupted.

Wall Street is basically demanding big public tech companies to answer the question, “How mobile can you go?” And based on a read of the big tech companies’ recent Q3 earnings reports, they all got the memo. Here’s my take on their mobile strategies.

Facebook

First up, Facebook had a busy quarter, having welcomed its billionth member. Where was mobile in Facebook’s earnings announcement? At the very top, Facebook co-founder and CEO, Mark Zuckerberg was on mobile about 10 seconds in to his remarks. And his prioritization and story was so clear, simple and strong that any fifth grader could understand it, let alone Wall Street analysts. To summarize his pitch, mobile enables Facebook to reach way more people. Mobile Facebook users open Facebook more frequently—mobile users are 70 percent likely to open Facebook on a given day, versus 40 percent if you’re a PC-only Facebook user. And with the recent launch of Facebook’s native iOS app, Zuckerberg showed that time and engagement on mobile Facebook was increasing.

More users, more engagement, more money. Simple. On top of that, they’ve ditched HTML5 for a native iOS app that rocks. The Instagram acquisition has closed (and quadrupled users to >100 million), and has more traffic than Twitter on mobile in the U.S.

Google

With nearly $57 billion in current assets on its balance sheet, a horde as large as Apple’s and nearing Microsoft’s, Google is, in poker parlance, one of the big stacks, sitting behind a mountain of chips. And with a big wall of chips in poker, there are basically two strategies. One, hang back, play safe, and let weaker players beat themselves up. Or two, get even more aggressive, making big, audacious bets that, if wrong, could hurt but also raise the bar on the competition. Google’s clearly chosen the aggressive route. Purchase Motorola Mobility. Drive Android to unit share leadership. And waiting in the wings, Google Glass, which could well be the breakthrough product of this decade.

Wall Street dinged Google’s most recent announcement, fretting about the continuing integration challenge of Motorola Mobility and worrying about the lower per-unit economics of Google’s mobile ad revenue.  I’m more bullish long-term. Integrating a hardware company like Motorola Mobility into an Internet company like Google is a big challenge. Totally different cultures, timelines, etc., but at the end of the day, I don’t see the integration as make or break.

Monetizing mobile ad revenue is, however, make or break. And getting to an $8 billion run rate on mobile alone (nearly double of Yahoo!’s entire revenue in 2011), shows that Google knows a bit about monetizing mobile. More broadly, with the assets it has in place — Android, Chrome, maps, its ad products, etc. — Google is positioned well. While it might take some time to bring per-unit economics on mobile in line with the web, with the elements of location, real-time, always on/always connected nature of mobile, I’m bullish on Google in our mobile future.

Microsoft

And what’d Microsoft have to say about its mobile future in its earnings announcements last week? With the coordinated launches of the Windows 8 platform (for PCs and tablets), Windows Phone 8, and the new Microsoft Surface, it’s getting into the game in a manner that suits its strength as the central point of the PC ecosystem.  Microsoft’s advantage has always been its broad ecosystem — from chipset manufacturers (Intel, AMD), hardware OEMs and peripheral makers to software developers — that could create a vast array of product offerings and price points. A PC on every desk and in every home, with a broad selection of printers, scanners, joysticks, and software that usually basically work. And this worked great, until consumers started getting way more mobile, and smartphones and tablets exploded onto the scene.

As a former owner of both an HP-based PocketPC from Microsoft in the late 90s and an HP-based Microsoft Windows Tablet 10 years ago, I’m perplexed regarding where Microsoft finds itself in mobile today. It’s not like it didn’t try to get there 10 years ago. It did. The offerings just weren’t good enough.

And that’s really the key question this time around: Are the offerings good enough? Despite the very cool look and feel of Metro, XBOX Music, etc, it’s too soon to call the future one way or another here. Will consumers adopt en mass? Will developers look to and start developing against Windows 8? Will the vast bulk of the profit pool of laptops, tablets and mobile continue to get hoovered up by Apple, Google, and Amazon? No wonder Microsoft called Windows 8 the most important launch since Windows 95!

Amazon

If the always amazing, always innovative ecommerce leader were a sports team, I’d compare it to the New England Patriots. Both are innovative, consistent, and winners. And listening to an Amazon earnings call is like listening to a press conference of New England Patriots Head Coach Bill Bellicheck. Both are great at responding to questions with answers that don’t really say anything concrete about how things are going.  When asked on the earnings call about how the Kindles are selling, Amazon SVP & CFO, Tom Szutak basically says, yep, we’re selling a lot of them, and yep, users are consuming content through them. That’s Classic Bellicheck.

Similar to Apple, Amazon understood very early and executed on great bets that the shift to mobile represented a great opportunity for commerce. For Amazon, these Kindles are like mini checkout terminals for its massive digital storefront. Cha-ching. So remaining focused on driving unit share of the Kindle devices and the storefront is a great offensive strategy.

Apple

With a market cap as large as Microsoft, Amazon, and Google combined, Apple is the super heavyweight of the bunch. The initial reaction on Apple’s earnings announcement is that growth is slowing and there’s concern around cannibalization of the iPad with the iPad Mini. Also there was hand-wringing on declining gross margins.

I’m not worried about this stuff. If I were an Apple exec, I’d be laser focused on how to continue to drive market share in tablets for a few reasons. First, the tablet market continues to explode. Indeed, in a recent presentation, Kleiner Perkins Caufield Byers general partner Mary Meeker forecast Q2 2013 as the date when the installed base of smartphones plus tablets will surpass the installed base of PCs. Second, tablets will continue to be great consumption devices, with users purchasing books, movies, music, TV shows, apps, and all kinds of stuff that Apple provides seamlessly and profitably. So Apple has a lot of strategic interest in continuing to drive market share leadership in this category, even at the expense of short-term gross margin pressure.

Critics may argue that if there were any clouds on Apple’s very broad, cash-rich horizons, it’d be the question of the company’s next big thing — a TV perhaps? While this critique may sound too “what have you done for me lately?” keep in mind this industry moves fast. Apple owned the last decade, with the iPod/iTunes, the iPhone, and the iPad. But winning last decade doesn’t necessarily assure anything (just ask RIM). Given the time Apple spent in the wilderness, it very likely understands this better than most.

Apple is working on a next big innovation. They’re just keeping it a secret.

Yahoo

Trying to get out of the wilderness is Yahoo, which stunned the tech world with the hiring of Marissa Mayer as CEO. If you want to get out of a hole, stop digging. Hire Mayer.

Yahoo’s Q3 earnings call was notable as the first for Mayer in the CEO chair. A slight beat of expectations led to a nice bump in the stock. And listening to Mayer, it’s pretty clear that she’s got a crisp idea of the strategy and execution Yahoo needs. But she also realizes that job No. 1, namely getting the leadership, culture and team set up for success at Yahoo, has to be her core focus. The leadership vacuum and churn that preceded here had an impact.

Mayer has an extraordinary track record as a product executive. In reading her remarks in full, she sees opportunity at Yahoo around search, mobile and elsewhere. Her pointing out that Yahoo has 76 different applications on iOS and Android underscores this. I thought this comment was also spot on:

As the world becomes increasingly mobile, the way we all consume content has dramatically shifted. Interestingly, when you look at the most frequent uses of smartphones, they include checking the weather, checking sports scores, checking stock quotes and other financial information, watching videos, sharing photos, getting the latest news and playing games. Does that sound like any particular company that you know?

So Mayer clearly gets mobile and the prioritization at Yahoo here is likely high. When you read her comments more broadly, however, you do realize that she’s still up to her arms in terms of getting the culture and the team right. She points out in her comments that in business the best teams win.  Great start. There is till work to do. Stay tuned.

Investor Scorecard

Here is how I would score if I were going to invest purely based on these companies’ mobile strategies:

Buy: Facebook, Google, Amazon, Apple; wait and see: Microsoft, Yahoo. As to what it means for the mobile-centric startup community:

The war for mobile talent will continue. Mobile developers are in crazy demand these days. With the ever-increasing focus on mobile by all these companies, this war will continue. I’d expect that we’ll continue to see these large public companies being active in M&A activities, especially to bolster their mobile talent.

Leveraging native across different platforms is a huge plus. Facebook walked away from HTML5 and released an awesome iOS app, with Android coming. Although there is tremendous potential and excitement around HTML5, it seems crazy to not follow Facebook’s lead. User expectation on the quality and responsiveness of mobile apps really demands that you go native. With the increasing share we’re seeing in Android (and with the growth of Kindle), mobile companies that can crank out and innovate across iOS and Android have a lot of potential.

Anticipate growing opportunity in tablets. Apple CEO Tim Cook is on the record consistently and over time with the vision that tablets will overtake PCs. And we’re going to see an explosion of devices, on iOS, Android and Windows. As tablets go more and more mainstream, I’d anticipate opportunities for new disrupters to enter, leveraging the browsing and discovery experience available there. There’ve been great generation 1 tablet-centric apps—Flipboard, Pulse, and other emerging companies like Pickie. But I think we’re only just getting started here.

Stay tuned for more big moves by the big players. It was once unthinkable for Microsoft to build its own PC-hardware; now it has the Surface. Similarly, it was hard to visualize Google choosing to buy Motorola Mobility to crank out mobile devices. Who knows what’s next? There’ve been rumors of Amazon planning a smartphone and Apple releasing a mind-blowing next-gen television. I forecast that this will be an era of big steps by big players. No one can really afford to sit back.

 Thrilling times indeed.



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