Apple, Facebook Driving Big Mobile Internet Changes, Says Report

Morgan Stanley predicts that within five years more users will access the Internet using mobile devices than via desktop PCs. The change is part of a new tech cycle, encouraged, in part, by Apple, Facebook, Google and Amazon.com, as well as devices such as Apple's expected tablet PC.

Within five years, more people will be connecting to the Internet via mobile devices than via desktop PCs. This good news for carriers, handset makers and software developers comes from Morgan Stanley's "The Mobile Internet Report," released Dec. 15.

Other key points in the 424-page report-available free-are that the "mobile Internet cycle," which the Morgan Stanley analyst team, led by Mary Meeker, dubs the fifth computing cycle in 50 years, is just getting started, and offers no promises to winners of past cycles. "New winners emerge, some incumbents survive-or thrive-while many past winners falter," stated the report.

Social networking, 3G network adoption, video, VOIP (voice over IP) and "impressive mobile devices" are named as the five IP-based products and services providing the underpinnings for the team's high expectations for mobile Internet usage.

The report also singles out Apple and Facebook for creating platforms that have changed how people connect and communicate online, as well as Japan's more than 10 years' worth of mobile Internet experience, which offers the rest of the world road maps for ramping up and monetizing growth. Speaking of the rest of the world, emerging markets may also be potential sources of serious mobile Internet user growth.

This fifth cycle, the report's writers pointed out, is behaving differently than past ones: It's ramping up faster, it's bigger, it's global and, after a decade of the United States showing little prowess on the tech front, U.S. tech companies-such as Apple, Google and Amazon.com-are among the cycle's leaders.

Additionally, young but experienced industry players are expected to be key operators. "They are engaged ... and they each have something to prove," stated the report. "This includes both experienced leaders like Steve Jobs and next-generation new kids on the block like Facebook's Mark Zuckerberg."

As for those "impressive devices," the report includes Apple among those contributing to the "epic technology transformations" that occur every 10 to 15 years, spurring a new cycle.

"Many (of the tech-savvy sort) have Apple's forthcoming Tablet product on their 'must buy' lists, despite the fact that they don't know the features, the price or the launch date. They just know they love Apple products, and with Steve Jobs all over it, they believe it will be a transformative product they simply must have," stated the report. It continued:

"And we think the odds are that they are right-sometime in 2010, Apple likely will launch another record-setting, transformative wireless device. Make no mistake, Apple (and others) are not just trying to upset the cell phone market. They are aiming to transform how communications works, how entertainment and news are distributed, how goods and services are purchased ... and how we control all this stuff from the ever-expanding, rechargeable remote controls we carry in our hands."

As Apple iPhones and similar devices encourage 3G adoption and growing consumer use of a range of IP-based usage models over various mobile devices, Morgan Stanley expects smartphone sales to surpass the global notebook and netbook market in 2010, and to surpass the global, overall PC market in 2012.

While Apple is poised to be a short-term winner in the new cycle, the report added, "[In the] longer term, Google Android's open operating system (combined with clever device manufacturers), emerging markets competition and carrier limitations may pose challenges to Apple's market share upside. RIM [Research In Motion] may maintain the enterprise lead, thanks to its installed base, but the long-term outlook is challenging."