Consumer

How savvy consumer companies are plying mobile commerce, 4.24.13

In the late 1990s, when smartphones first gave users the ability to surf the Internet on the go, functionality was sluggish. It was fashionably novel to have mobile access to the Web, but that access was far from efficient.

But all of that’s changed markedly since then. With robust broadband networks growing in scope and speed continually, smartphones can now gain access to the Web quickly and juggle multiple Web-based applications without performance lags. Consumers increasingly rely on their smartphones for e-commerce, including buying and renting homes and apartments, and for social media. And tablet computers now also provide mobile capability.

To be sure, consumer-focused companies are taking notice of this change. They are improving their mobile Web sites in the hopes of differentiating themselves from competitors. We think that as consumers use smartphones and tablets for an ever-expanding list of functions, consumer-discretionary companies Amazon.com, eBay, Facebook, HomeAway, and Zillow are best capitalizing on the enhanced capabilities of mobile devices.

Mobile: economic driver

The proliferation of smartphones, tablets, and other mobile devices is a powerful economic trend. In fact, we daresay smartphones and tablets are defining today’s global economy in the same way that the Ford Model T reshaped the economy of its time. About 837 million smartphones are expected to be shipped this year, a 23% increase from 2012, according to research firm Canalys.

And as those devices multiply, the amount of mobile Web traffic escalates as well. Web traffic is measured in petabytes. A petabyte equals 1 million gigabytes and can, for instance, hold 13.3 years’ worth of high-definition video. Last year mobile-Internet traffic amounted to 885 petabytes per month – a 1,080% increase from 2000, Cisco Systems calculates. Put another way, one of every three minutes of digital-media consumption is now being spent on a mobile device.

To be sure, personal computers (PCs) remain the most popular way to surf the Internet, accounting for 63% of Web users, versus 37% via mobile devices, according to comScore, a research firm. But that balance is shifting. In our estimation, if current trends continue, mobile users should outnumber desktop users in 2014, driven in no small part by the desire to be online from just about any location.

Always with you

With smartphones and tablets, consumers can be constantly connected to the Internet. As Tom Standage, digital editor at The Economist, aptly put it, "The Internet is fast becoming an extra layer overlaid on reality, accessed by a device that is always with you." Sixty-six percent of Americans tap the Internet on their smartphones at least once a day, and 35% expect to use their smartphones even more for that purpose in the future, says Google Insights.

That constant connectivity is reshaping consumer behavior, especially as it pertains to e-commerce. Previously, central to e-commerce was the practice known as "showrooming" – customers visiting stores merely to investigate an item before they would buy it online via their PCs at home. This sent companies that depend on brick-and-mortar stores – "brickosaurs," as dubbed by research firm AllianceBernstein – scrambling.

Now, many shoppers aren’t bothering to wait to use their home PCs before buying things. Instead they buy with their smartphones and PCs on the showroom floor. As a result of such new consumer habits, e-commerce is being transformed into mobile online shopping, or m-commerce.

Amazon: m-commerce leader

One m-commerce leader is Amazon.com (headquarters: Seattle, market capitalization: about $124 billion), the largest Internet retailer by far. Amazon.com Chief Executive Jeff Bezos was quick to realize that e-commerce was going to migrate from the desktop to mobile devices. That’s why his company created the Kindle and then the more advanced Kindle Fire – two devices with a direct pipeline to Amazon’s expansive digital-media library. It’s an ideal arrangement for Amazon, akin to putting an Amazon store in their customers’ hands. And it’s a nightmare for the "brickosaurs" that didn’t see m-commerce coming.

Amazon has become proficient at cross-screen marketing, which enables a shopper’s preferences and browsing history on a Web site to be embedded either on a PC or a mobile device, allowing for seamless, personalized shopping anywhere. And Amazon’s introduction of one-click purchasing has proven a powerful incentive for consumers to impulse shop.

It’s that kind of innovation that has permitted Amazon to draw 49.6 million visitors to one of its mobile sites or applications last July, the most recent month for which data is available, reports comScore. Those 49.6 million people constitute 47% of all U.S. smartphone users. In addition, Amazon commands 59% of all mobile department-store Web traffic, according to Experian Marketing Services. In contrast, Amazon’s closest competitor is Walmart.com, which attracts about 9% of traffic.

eBay: ideal for mobile

M-commerce has also been fertile ground for another Internet-retail pioneer, auction Web site eBay (headquarters: San Jose, market capitalization: about $73 billion). Because smartphones and tablets permit go-anywhere commerce, they’re perfect for eBay’s auction-based model. If you’re an eBay junkie, think about this: how many auctions have you lost because you were outbid at the last moment, while away from a computer?

Now, however, eBay’s mobile applications allow you to bid from almost anywhere and notify you via text or e-mail when you’ve been outbid. Perhaps that helps explain why more than 120 million eBay mobile applications have been downloaded to date. Those applications are adding more than 2 million items for sale a week, making it easier than ever for you to buy a rare Mickey Mouse watch or sell Aunt Midge’s vintage tea set. And on eBay you can obtain non-auction, fixed-price items for sale by retailers via your mobile device as well.

The company offers mobile-only deals and inventory and unveiled a mobile-gift guide during last year’s holiday-shopping season. All of these efforts have contributed to a doubling of mobile sales at eBay in 2012 from the previous year, to $13 billion. Business prospects are such that eBay expects to generate $20 billion in mobile sales in 2013. And largely because of m-commerce, eBay has projected its annual revenue to reach at least $21.5 billion by 2015, up from $14.1 billion in 2012.

Real estate goes mobile

It’s not just the retailing industry that’s being swept up in the rising mobile tide. So is the real-estate industry, both its sales and rental segments. Before the Internet, for instance, middle-class American families who wanted to buy a home would pile into the car and spend days shuttling from open house to model home, with the kids complaining from the backseat all the while. And that was just to find potential fits – never mind the elaborate process of actually buying the home.

Now, home buyers can start the process from their smartphones and tablets. They can screen available homes in their area according to many criteria, view high-resolution photos of the homes, and connect with realtors – and avoid the House-Hunting Death March of years past. And when they are visiting a prospective new home, families can obtain all the data available about it with a mobile device on the spot, which is helping to expedite their buying decision.

Zillow (headquarters: Seattle, market capitalization: about $1 billion) is an online real-estate company that has been particularly adept at connecting would-be home buyers and renters with sellers and realtors. Through Zillow, buyers can find properties, calculate the affordability of mortgages and rents, and get advice from real-estate professionals. And realtors use it to find new customers. Talk about win-win.

Digs: see my photos

Zillow recently launched a new Pinterest-style home-improvement site called Digs that lets users share photos of their favorite decorating projects. In our judgment, as more millennials – those born after 1980 and before 2000 – reach the stage in their lives when they’re ready to rent an apartment or buy a home, they’ll be using smartphones to help them do so. Because of the groundwork that Zillow is laying now with ventures like Digs, we think the company should be many millennials’ first stop.

Zillow has the most popular real-estate application on the iPhone, iPad, Android, Blackberry, Windows Phone 7, and the Android-tablet mobile devices. More than 50% of Zillow’s traffic now originates from mobile devices. (That number ticks up to 60% on weekends, when most people have more time for house or apartment hunting.) Rising traffic volumes have led to 77% revenue growth for Zillow from 2011 to 2012.

Another real-estate company, HomeAway (headquarters: Austin, Texas, market capitalization: about $2 billion), allows homeowners to rent their properties to vacationers. HomeAway’s business model offers budget-conscious travelers an alternative to hotels. Brian Sharples, HomeAway’s cofounder and chief executive, discovered an untapped market when he realized how difficult it was for him to rent a vacation home, then founded the company in 2005 to help people like him solve that problem.

Now HomeAway has more than 712,000 vacation-rental listings in 171 countries. HomeAway gets most of its bookings from tablet users, but users of smartphones also frequently browse the company’s available listings. In the past three years the company’s revenue has swelled by 67%; operating income, by 117%.

Social and mobile converge       

Finally, smartphones and tablets are a boon to social media. Via these devices, users remain connected to their social-media networks the same way that remoras are attached to sharks – constantly, pausing only to eat. For example, Americans aged 18-64 who use social-media networks did so for an average of 3.2 hours per day, according to a study by research firm Ipsos Open Thinking Exchange. And where there are millions of eyeballs scrutinizing social media, it follows that there will also be hundreds of millions of potential advertising dollars.

We think Facebook (headquarters: Menlo Park, California; market capitalization: about $64 billion) is best-positioned among social networks to capture those advertising dollars. Indeed, Facebook is the leading domestic Web site for mobile users. The company’s commitment to mobile has been demonstrated by its purchase of mobile-photo-sharing service Instagram, its investment in mobile-programming language HTML 5, and its practice of training all its engineers to be mobile developers.

Among the 1 billion Facebook frequenters monthly, 600 million of them use mobile devices, according to the company. Revenue from Facebook’s mobile ads totaled $305 million in the fourth quarter, according to technology site TechCrunch. That’s about 23% of the company’s total advertising revenue, up from 14% since just the third quarter. As Mark Zuckerberg, Facebook’s founder and chief executive officer, noted recently, "In 2012 we connected over a billion people and became a mobile company."

As we see it, not only Facebook but Amazon.com, eBay, HomeAway, and Zillow may ultimately be able to characterize themselves the same way, as mobile companies – or more precisely, as savvy, thriving mobile companies.

 

 

 

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Turner Investments, founded in 1990 and based in Berwyn, Pennsylvania, is an investment firm with more than $10 billion in assets under management in stocks, as of March 31, 2013. Turner manages growth, global/international, and alternative separately-managed accounts and mutual funds for institutions and individuals.

As of March 31, 2013, Turner held in client accounts 185,978 shares of Amazon.com, 1.2 million shares of eBay, 2.1 million shares of Facebook, 2.4 million shares of HomeAway, and 293,630 shares of Zillow.