In mobile world, tech giants struggle to get up to speed
Devices • Once the disrupters, they’re now being disrupted.
Published: October 27, 2012 03:20PM
Updated: October 27, 2012 11:49PM
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(AP Photo/Charles Krupa) Demand for Intel chips inside computers — which are much more profitable than those inside smartphones — is plummeting.

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 Golvin, an analyst at Forrester Research, the technology research firm.

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 recent disappointing earnings reports from Google, Microsoft and Intel, in large measure related to revenue from mobile devices. Facebook’s earnings managed to beat expectations last week, but it’s still trying to prove it can consistently generate revenue beyond desktops.

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, although 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.

Facebook is already experimenting with ways to use what it knows about its users to show ads when they are using other mobile apps. Google is making efforts to link what a user does on the computer and phone, to show someone a cellphone ad based on what they have searched for on a computer at home, for instance. But just last week, European regulators warned Google to amend its privacy policy that allows the company to gather information about people across Google products.

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 Yoffie, a Harvard Business School professor who studies the technology sector.

“The Web started in 1993, 1994,” 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.”

Mobile provides huge business opportunities, industry analysts say, 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.

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.

It is offering location-based ads, such as a T-Mobile campaign that sent users ads when they were near stores. Some mobile ads already make more money than desktop ads, said Google’s chief financial officer, Patrick Pichette.

But one of Google’s biggest challenges is tracking whether people make a purchase after they see a mobile ad. Unlike online, where Google knows if someone buys a camera after searching for it, the company does not know if someone searches for a Thai restaurant nearby and then eats there. That is why it is trying to follow people into the physical world, with services like Wallet for payments and Offers for coupons. Facebook is trying to use what it knows about its 1 billion users to serve up ads on other applications they download on their phones. For instance, a soda brand that wants to target men in Los Angeles who like the Lakers could show them ads not only when they are logged into Facebook’s mobile app, but on other apps, as well.

Not wanting to watch from the sidelines as people abandon computers for smartphones, Microsoft on Friday introduced a version of its Windows software tailored for touch-screen devices and a new tablet, the Surface.

But Microsoft executives told analysts recently that the slowdown in computer technology was because of other factors besides mobile, such as tough economic conditions and companies waiting to buy software until its new software, Windows 8, arrived.

Intel also is playing catch-up by making chips not just for computers but for more than two dozen smartphones and tablets coming onto the market. The shift to mobile has also created a market for Intel because its chips are in the huge data servers that power the cloud, where much mobile data is stored.

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