What (and what not) to expect in mobile in 2014

We predicted 2013 would be a tremendously eventful year for the mobile industry, and we weren’t disappointed: Some major carriers began to move away from handset subsidies and two-year contracts, a small army of new operating systems came to market, and mobile marketing finally began to take off in a big way. And 2014 may be even more tumultuous. As we enter the holidays, then, I offer a few important things to look for in the coming year – and one market to expect very little from:

Mobile will continue to revolutionize shopping, but not proximity payments. Mobile devices have become powerful tools for tech-savvy shoppers, whether those consumers are making purchases on their couch via tablets, redeeming coupons at the sales counter, or showrooming on the retail floor to access information and find the best deals. Mobile accounted for nearly one-third of all online traffic during Cyber Monday this year, according to IBM Digital Analytics Benchmark, up from 4 percent just three years ago.

Shoppers will lean on their mobile gadgets even more in 2014 thanks to the emergence of systems powered by Bluetooth low energy, or BLE. Offerings like Apple’s iBeacon (which is in trials at two Macy’s locations) and Qualcomm’s Gimbal (which is in trials at the Miami Dolphins’ home stadium) enable retailers and other businesses to engage with users on a remarkably intimate level: Customers are automatically greeted through an app on their phones as they walk into the store, and can receive personalized, location-based offers and other marketing content as they move throughout the venue.

Some have suggested BLE-powered systems could “blow NFC right out of the water” in proximity mobile payments, perhaps giving the market a much-needed boost. BLE’s range is wider, so it can be used to conduct transactions without having to tap a phone against a reader, and beacon deployments may be more affordable than integrating NFC readers at the retail counter.

But convenience and cost aren’t even the biggest challenges that continue to shackle mobile payments: A variety of competing technologies and systems are holding back the market, leaving consumers confused and retailers wondering which horse — or horses — to back. All that competition has also slowed the development of the complex business models that will be necessary to reward every player in the value chain including the end users who need some sort of incentive to reach for their phones rather than their wallets at the point of sale.

Disruption will increase among service providers, benefiting consumers. The primary business model for mobile carriers in the U.S. and elsewhere has remained largely unchanged for years: Entice customers with handsets that are sold for far less than their actual costs then recoup those costs by locking users into lengthy contracts with monthly payments for allotted amounts of voice and data access. That model is evolving, though, thanks in large part to the “uncarrier” strategy T-Mobile began pursuing this year. The nation’s fourth-largest carrier dropped handset subsidies and service contracts and launched installment plans for users who can’t (or don’t want to) pay the entire cost of the phone up front. Which means the overall monthly cost to consumers decreases dramatically once the phone is paid off, unlike the traditional model.

T-Mobile enjoyed 1 million net subscriber additions in the third quarter thanks largely to its bold moves, and AT&T — the nation’s second-largest carrier — has followed suit with new, no-contract rate plans for users who don’t buy a subsidized handset. I expect Verizon and Sprint will begin to experiment with those strategies next year as well.

T-Mobile isn’t the only player rocking the mobile boat. A small army of MVNOs are leaning on non-cellular technologies to offer services that drastically undercut even traditional prepaid plans. FreedomPop, for instance, recently launched a $99 smartphone that comes with a free monthly voice and data plan; users pay extra for usage that exceeds those allotments. Republic Wireless recently began selling the Moto X for $299 without a contract along with a Wi-Fi-only talk, text, and data plan for $5 a month — an additional $10 a month buys cellular access, and 3G and 4G plans are also available. Whether any of these new MVNOs can build a viable business is far from clear, but the increased competition they provide may force traditional cellular operators to cut their prices to compete. That’s happening in France thanks to Free Mobile, a subsidiary of the telecom Iliad that is forcing the competition to lower their rates.

Apple’s iOS will make strong progress in the mobile enterprise. BlackBerry was once the de facto mobile platform of the corporate world, but the company’s slide into oblivion leaves a huge opportunity for any user-friendly operating system that can offer airtight security and other enterprise must-haves. Every other mobile OS has struggled to inherit BlackBerry’s throne, though. Android’s massive market share is a powerful weapon in the era of BYOD, but its security has been dubious (although it is improving) and fragmentation remains a major concern. Samsung is trying to address both those concerns with Knox, a forked version of Android targeted at that enterprise, but the platform isn’t yet ready for prime time. Microsoft’s Windows Phone, which seems like a natural fit for the mobile enterprise, simply hasn’t achieved the traction necessary to tap that market when BYOD has tremendous impact. And while BlackBerry had a chance to regain its footing this year, it’s circling of the drain has only accelerated.

Apple has yet to conquer the mobile enterprise for several reasons: IT departments have been reluctant to embrace iOS because it is so tightly controlled by the iPhone manufacturer; the platform is supported by an extremely limited lineup of smartphones and tablets; and Apple simply hasn’t pursued that market as aggressively as it could. But while IT departments don’t always love the battened-down nature of iOS, which can make managing devices and apps difficult, Apple’s share of the worldwide mobile enterprise device market has grown to 72 percent, according to recent data from Good Technology. That figure will almost certainly increase thanks to a slew of new, enterprise-targeted features included with iOS 7. Apple won’t win the mobile enterprise in 2014 — the growing BYOD trend will ensure no single player dominates that market in the foreseeable future — but its dominance will increase dramatically.

Consolidation among U.S. service providers will slow and the ranks of major network operators may grow (by one). This first part sounds like a no-brainer, I know, because the 2013 M&A feeding frenzy has left very few smaller operators ripe for acquisition. But the rumor started cranking again late this year with a report from The Wall Street Journal that Sprint is considering a takeover of T-Mobile in a deal that could be worth $20 billion or more, depending on the size of the stake.  Some onlookers claim a tie-up between the third- and fourth-largest carriers would actually spur competition among service providers, providing a market where three operators of roughly equal size vie for customers. But I think a Sprint takeover would likely spell the end to T-Mobile’s disruptive streak, creating more complacency among three tier-one operators and a huge gap between them and much smaller regionals. Which is why I think the Federal Communications Commission and U.S. Justice Department are unlikely to approve any such deal.

But while consolidation was a major theme in 2013, Dish Network could actually join the field of mobile service providers next year. The satellite TV provider already owns some spectrum that it can use to build out a terrestrial 4G network, it may yet acquire some airwaves from LightSquared and it is highly likely to pony up $1.56 billion to pick up the so-called H Block during the FCC’s spectrum auction in January 2014. It still isn’t clear whether Dish truly wants to provide mobile services or whether it simply is hoarding spectrum to sell off to the highest bidder, and building a nationwide network from the ground up will take an enormous investment and no small amount of time. But I think it’s likely that in 2014 Dish finally commits to joining the mobile industry with its own branded service.

Wearable devices will spin their wheels. The tech market was transfixed in 2013 by the concept of wearable devices, from smartwatches to Google Glass to, yes, a SmartWig. I think the hype surrounding the wearable segment is generally warranted, largely because of the breadth of potential use-case scenarios: As the father of seven- and 10-year-olds, for instance, I think there’s a huge potential market for smartwatches for kids who aren’t yet ready for, say, an iPhone (and for parents who aren’t yet willing to take on another smartphone data plan). I can see why running enthusiasts would buy smart athletic shoes that help them correct their gait. And I think the day is coming where most of us are in front of a screen during nearly all our waking hours, even if that screen is our car windshield or our eyeglasses.

But the market simply has too many obstacles to overcome to break out of the gate in a big way. Not only must prices come down drastically for many of these gadgets—– there’s no way many consumers are going to pay $199 up front plus $10 a month for a kids’ watch with extremely limited functionality — but it will take quite a while for manufacturers and developers to find the right combinations of form, function and style. Also, while Google Glass is certainly compelling, mass-market adoption will require huge changes in some fundamental behaviors, including how we drive, walk down the street and talk to each other in person. (It also will have to overcome some major privacy concerns.)

Finally, there’s the looming question of business models: Will users pay extra monthly fees for data for each device, or will they pay a single service provider for data across all their devices? Will they be willing to pay for each gadget up front, or will carriers or other service providers subsidize some devices? And what kind of role will advertising play in bringing devices and services to consumers?

The world of wearable devices holds enormous promise, to be sure, and there are endless opportunities in that space. But very few of them will be realized in 2014.

Relevant Analyst
Colin Gibbs

Colin Gibbs

Mobile Curator Gigaom Network

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