In mobile world, tech giants struggle to get up to speed
October 28, 2012 4:00 AM
Panos Panay, general manager of Surface at Microsoft Corp., speaks during an event Thursday in New York City.
By Claire Cain Miller and Somini Sengupta The New York Times
SAN FRANCISCO -- Intel made its fortune on the chips that power personal computers, and Microsoft on the software that goes inside. Google's secret sauce is that it finds what you are looking for on the Internet. But the ground is shifting beneath these tech titans because of a major force: the rise of mobile devices.
These and other tech companies are scrambling to reinvent their business models now that the old model -- a stationary customer sitting at a stationary desk -- no longer applies. These companies once disrupted traditional businesses, from selling books and music to booking hotels. Now they are being upended by the widespread adoption of smartphones and tablets.
"Companies are having to retool their thinking, saying, 'What is it that our customers are doing through the mobile channel that is quite distinct from what we are delivering them through our traditional Web channel?' " said Charles S. Golvin, an analyst at Forrester Research, the technology research firm.
He added, "It's hilarious to talk about traditional Web business like it's been going on for centuries, but it's last century."
The industry giants remain highly profitable drivers of the economy. Yet the world's shift to computing on mobile devices is taking a toll, including disappointing earnings reports last week from Google, Microsoft and Intel, in large measure related to revenue from mobile devices.
Demand for Intel chips inside computers -- which are much more profitable than those inside smartphones -- is plummeting. At Microsoft, sales of software for PCs are sharply declining as people spend money on phones and tablets instead. At Google, the price that advertisers pay when people click on ads has fallen for a year. This is partly because, while ads on mobile devices are exploding, they cost less than Internet ads because advertisers are still figuring out how to make them most effective.
Since its initial public offering, Facebook has lost half its value on Wall Street under pressure to make more money from mobile devices, now that 6 of 10 Facebook users log in on their phones.
Making money in this new game will depend on how deftly tech companies can track their users from their desktop computers to the phones in their palms and ultimately to the stores, cinemas and pizzerias where they spend their money. It will also depend on how consumers -- and government regulators -- will react to having every move monitored.
And some consumers find ads that combine online searches with physical information gleaned from mobile devices "positively spooky," said Benjamin G. Edelman, a professor at Harvard Business School.
Today almost half of Americans own a smartphone, according to comScore -- an astoundingly fast adoption since Apple introduced the iPhone just five years ago. The amount of time people spend on their phones surfing the Web, using apps, playing games and listening to music has more than doubled in the past two years, to 82 minutes a day, according to eMarketer; the time spent online on computers will grow just 3.6 percent.
"What has caught people off guard has been acceleration of the multitude of things that you can do with a smartphone," said David B. Yoffie, a Harvard Business School professor who studies the technology sector.
"The Web started in 1993, '94," he added. "It didn't disrupt everything for a decade and half. The smartphone revolution started a half decade ago. Because of the existence of the Web, it allowed the phone to have a disruptive impact in a shorter time frame."
Still, mobile provides huge business opportunities, industry analysts say. That is largely because people reveal much more about themselves on their phones than they do on computers, from where they go and when they sleep to whom they talk to and what they want to buy.
Consumers may be put off by the intrusion of marketers into their daily lives, but companies say the trade-off can be worth it -- an unprompted calendar alert, say, that tells you whether you'll be late for a meeting or a coupon when you are near a shop.
"We're really starting to live in a new reality, one where the ubiquity of screens really helps users move from intent to action much faster and more seamlessly," Larry Page, Google's chief executive, told analysts recently. "It will create new opportunity in advertising."
Companies are addressing the challenges in different ways. Despite the disappointment in its recent earnings report, Google says it is on track to earn $8 billion from mobile ads, apps and media in the coming year and has activated half a billion devices running its mobile operating system, Android. Google earns the majority of mobile ad dollars.