jhm212 (< 20)

Video Goes Mobile

January 04, 2010 – Comments (1) | RELATED TICKERS: ONT.DL , GOOG , AAPL

Two primary drivers of technology today are video and the internet. Video anywhere and the mobile internet have now entered into a new technology cycle and are poised for explosive growth for many years. A new technology cycle will last about 10 years which means there will be tremendous wealth creation opportunities in video and the mobile internet for about 8 more years. This technology sector should garner outsized relative gains as the mobile internet market develops and a large portion of incremental profits go to companies that drive innovation and gain scale. Companies with the foresight to combine superior video technology into their mobile internet products stand to potentially see the greatest success.

A brief overview into video and the mobile internet, the primary drivers in the new technology cycle:

The Video Growth Explosion: Consumer consumption of video continues to accelerate. The global fascination with video continues to grow as viewership over TV’s, PC’s and now mobile devices is rising on all 3 screens. Large PC video sites like YouTube and Hulu get the headlines yet there are 1000’s of websites that primarily feature video. Every major global media company is now strongly engaged in monetizing video and video is now a feature on just about every website created. The proven historical growth of video isn’t about to change and the trend toward mobile devices point to a strong growth opportunity through the fast growing mobile internet.

The Mobile Internet: The mobile internet is ramping faster than the desktop internet did in the last technology cycle. Also, based on user opportunity, it’s bigger with compelling opportunities in every region across the globe. Many experts are predicting that smartphones will replace PC's / laptops for a growing number of people in smartphone’s accelerating worldwide adoption. Annual growth rates for the smartphone in Latin America, Africa and the Middle East is about 40%. It was reported that 1.2 billion cellphones were sold in 2009 with over 190 million of these being smartphones. In 2014, it is projected that over 570 million smartphones will be sold annually. The user market for smartphones is poised to triple within 5 years.

Smartphones are just one of the exciting opportunities in the mobile internet for emerging devices. Wi-Fi will connect a growing array of emerging devices, including netbooks / smartbooks, media players, tablets / slates, eReaders, automobiles and telematics, cameras, picture frames and gaming devices. These devices are now being designed with mobile internet connectivity as the primary feature.

The market for these mobile internet devices in the new technology cycle is projected at over 10 billion units. An important aspect to consider is that all of these devices require specialized chipsets and processors that utilize optimized hardware accelerations to enable the high-definition (HD) video. Most providers of the intellectual property (IP) used in these devices employs a ‘licensing / royalty’ business model. The IP is licensed through an upfront fee while backend royalties are collected under varying terms based on the device.

As mobile devices supplant the home computer as the primary platform for using the internet, a hot technology sector will involve the next generation networks that will support the device’s capabilities and user experience. Long-Term Evolution (LTE) and 4G technology will play an important role but so too will the industry’s ability to best manage bandwidth.

Why Compression Matters: Internet traffic data continues to increase. Since the inception of the internet, the data quickly grows to fill any ‘pipe’ used to deliver it. Internet video quality has recently seen noticeable improvements and internet video alone is expected to account for 60% of all consumer internet traffic within two years. With it's surging growth, the mobile internet is experiencing the same bandwidth issues as the available wireless spectrum is indeed limited, (just ask AT&T). It will be the companies using superior video compression and bandwidth shaving strategies that will have the best opportunity to drive device innovation and market scale in one of this new decades largest opportunities, the Mobile Internet.