The rapid growth of smart mobile devices is changing online markets—and the nature of competition—drastically, around the world. The impact is apparent in developed countries, and can be predicted in developing countries based on technological and economic factors in these countries. The nature of the impact, and the overlap it creates between hitherto separate markets, has important implications for business strategy and government regulation.
The introduction of fast and capacious mobile broadband networks in the early 2010s in countries such as the U.S. spurred the adoption of smart mobile phones for online activities.
In the U.S., more than 77 percent of adults had a smart mobile phone as of August 2015. The average American spent more than an hour a day using their smart mobile phones mainly for online activities.
Americans spent 50 percent more time on their mobile phones than on their personal computers as of mid-2015 and, when on their mobile phones, they spent 87 percent of their time using mobile apps compared with just 13 percent of their time using a mobile browser as of June 2015. That shift from using the personal computers and browser to using mobile devices and apps continues at a rapid clip.
Already, smart mobile phones have led to immense changes in consumer behavior. People have their smart mobile phones with them most of the day and have come to depend on them for shopping, communication, entertainment, and more.
These mobile devices are changing how people buy goods and services online, and in physical environments, as reflected by the spread of ridesharing apps globally; how people communicate with each other as seen in the widespread use of diverse messaging apps; and how they consume entertainment as people adopt streaming music and video apps. For example, around 60 percent of the visits American made to websites on November 26, 2015—Thanksgiving Day—were from mobile devices.
“Already, smart mobile phones have led to immense changes in consumer behavior. People have their smart mobile phones with them most of the day and have come to depend on them for shopping, communication, entertainment, and more.”
Mobile Disrupting Online Economy
The move to smart mobile has resulted in significant changes in the competitive dynamics of the online economy. The increasingly widespread use of mobile apps has accelerated the growth of other companies, from publicly traded ones such as Facebook, which secures 78 percent of its advertising revenue from mobile, to startups such as Uber that rely entirely on mobile devices for delivering services to drivers and riders.
Meanwhile, in the last five years Apple has vaulted to preeminence. In developed countries such as the U.S. around two-thirds of online activity on mobile devices takes place on Apple’s mobile devices using its iOS mobile software platform.
Companies that were considered central to the online economy a few years ago, such as the Yahoo ad-supported web portal, have struggled to make the transition from the desktop to mobile. Yahoo announced in February that they are seeking “strategic partners,” essentially putting the company up for sale.
The story in developing countries will be similar as they become wealthier and deploy faster mobile broadband networks. The penetration and adoption of advanced technologies is growing rapidly and will soon reach the critical levels necessary for igniting the smart mobile ecosystem. In India, for example, only 14 percent of adults have smart mobile phones.
But this number represents a 121 percent increase between 2013 and 2015. Only 5.5 percent of households were served by mobile operators that have fast enough broadband for most online activities in 2014, but that too is increasing rapidly—72 percent from 2014 to 2015.10 Indian telecom operators are expected to increase high-speed (3G and 4G) capacities over the next 5 years at a compounded annual growth rate of 125 percent.
Technology entrepreneurs and businesses are innovating towards this new reality. Technology start-ups such as OlaCabs (ride-sharing), Snapdeal (online retail), near.in (at home fulfillment of local goods and services), and Paytm (financial payments) are examples of recent startups that exploit the capabilities of connected mobile devices to deliver services and goods efficiently to Indian consumers.
“The story in developing countries will be similar as they become wealthier and deploy faster mobile broadband networks. The penetration and adoption of advanced technologies is growing rapidly and will soon reach the critical levels necessary for igniting the smart mobile ecosystem.”
Smart Devices Outpace PCs in India
The online economy in India and other developing countries will look more like the U.S. and other developed countries but with an important difference: the ratio of mobile technologies and social computing to traditional computing with PCs and fixed broadband is likely to exceed the ratio in developed, more prosperous, economies. This is because less developed countries have exhibited very low penetration of personal computers and fixed broadband connections due to the high cost of these technologies and their dependence on unreliable electricity and fixed Internet connectivity.
Only 11 percent of Indian adults have personal computers, for example, compared to 14 percent that have smart mobile phones and 81 percent that have smart or feature phones.
In contrast, mobile devices are available over a wide spectrum of price points stretching to the very inexpensive, are untethered from the burden of continuous electric power and fixed-line Internet connectivity, and universal mobile service can be provided without large scale disruptions to civic infrastructure. For instance, the online shopping site Snapdeal.com lists the 4G-capable Moto E phone running the Android 5 operating system for Rs.6,500 (about half the price of the most inexpensive desktop-PC system), and most mobile operators provide voice and data service for a couple hundred rupees per month. As a result, smart mobile devices will leapfrog personal computers in developing countries.
In a few years, people in India, and other fast-growing countries, will rely relatively more on smart mobile phones, and mobile apps, than on personal computers and browsers than people in the U.S. and other developed countries. Respected analysts and consulting firms forecast that, in India, the percent of adults with smart mobile phones will reach 22 percent in 2018 from the current 13 percent today.
“In a few years, people in India, and other fast-growing countries, will rely relatively more on smart mobile phones, and mobile apps, than on personal computers and browsers than people in the U.S. and other developed countries.”
Challenges for Antitrust Authorities
The growing size and significance of the online economy has attracted the interest of competition authorities, particularly over the role of large multi-national online platforms. The dramatic and continuing shift by online consumers and businesses to smart mobile devices has important implications for the analysis of online markets that would be prudent for competition authorities and courts to consider.
The analysis of market definition and market power needs to account for rapid dynamic change resulting from the simultaneous change in consumer behavior, development of new technologies, entry of new players, and integration of online and offline markets.
The enormity of these changes is apparent just by comparing the state of online competition in 2015 versus 2005 in a developed country like the US. Ten years ago, Google was the leading provider of online search on the web, Microsoft controlled desktop computing, four telecommunication giants exerted significant control over most aspects of mobile phones, Facebook was a nascent social network used mainly in colleges, and Amazon was an online retailer.
Today, search has migrated to online marketplaces, with Amazon serving as a search engine in front of a giant electronic mall, and to social networks, where Facebook is greatly sought after for online advertising because it enables social search and recommendations. Apple and Google have become significant players in the mobile ecosystem, and mobile phones have eroded the sales of PCs and Microsoft Windows. Amazon has become a prominent vendor of cloud computing resources used by many of the websites and apps behind the online economy.
Given the pace of change it is likely that the state of competition will be vastly different in 2020 than in 2015. Changes are likely to occur even more rapidly in fast-growing places like India.
While India has lagged the U.S. and other developed nations in adoption and penetration of landline phones, fixed broadband Internet, and PCs—the old technologies—it has leapfrogged into mobile phones, mobile high-speed Internet, and mobile computing, suggesting that these newer technologies will be even more consequential, than they have been in the U.S., in shaping competition in the online economy. Consequently, the analysis of market definition and market power analysis need to be less rigid, analyze a broader range of competitive dynamics, and be more forward looking.
“[India] has leapfrogged into mobile phones, mobile high-speed Internet, and mobile computing, suggesting that these newer technologies will be even more consequential, than they have been in the U.S., in shaping competition in the online economy.”
Cautions for Regulating Competition
The move to smart mobile, and the disruptions that shift is causing to the online economy, create four implications for antitrust analysis. In each case we are recommending that competition authorities exercise greater caution, not that they adopt a laissez-faire approach:
- Changes in consumer behavior, online entry based on mobile apps, and increased competition between mobile app-centric and website-browser centric businesses, lead to crossing and overlap between previously-separate markets, and are likely to reduce the extent to which online providers possess market power.
- Rapid changes in consumer behavior and online entry increase the likelihood of making mistakes in market definition and market power analysis. It has become increasingly difficult to predict the future even a few years ahead.
- The rapid and unpredictable shifts in competitive dynamics, and technologies, caused by the shift to smart mobile make it more difficult to design remedies, which are effectively shooting at a moving target.
- There is a greater likelihood of remedies having negative unintended consequences by, for example, limiting competition by incumbents against fast-moving entrants who quickly emerge as powerhouses. That is particularly so during these times of intense disruptive innovation resulting from the move to using mobile apps.
As the online economy produces innovative new technologies, services, and business models, spurred by the move to smart mobile, it is vital that policy and antitrust analysis account for these four implications, in order to ensure that these innovations continue to improve the functioning of society, business and the economy.