Age of Smart


By Monish Chhabra ǀ 1st July 2014

A male friend of mine recently told me – “When I feel stressed with work, I go online and buy something”.

Retail therapy has become ubiquitous with the advent of smartphones and online shopping (over half of all online transactions today involve free shipping). The joy of purchase is instant and the expense not as real, when done virtually.

Oniomania is now pandemic.

Amazon recently introduced a new online shopping experience. It unveiled its first smartphone called Fire Phone. The phone’s software can recognize 70 million images of products sold at the Amazon online store.

Just point this phone at something you wish to buy and the item is shipped to you. That simple! You don’t even need to know the product’s name.

Imagine if they come out with thought-recognition software. All you need to do is think about something and it’s bought!

Screens are already learning our behavior and preferences. The more time we spend on them, the more predictable we become. The following graph shows the time spent daily on different screens, in various countries.

Source: KPCB

People in the emerging economies spend the most time staring at their screens, as much as 9 hours daily in Indonesia and Philippines.

The longest part of this - 3 hours - is spent on smartphones alone. If we add in tablets, mobile devices are consuming half of the total screen time.

The smartphone is the strongest addiction in almost every country. TV comes close in developed countries (US, UK and France). However the KPCB survey shows that most people continue to use mobile devices even while they watch TV.

There are 7 billion people in this world. Almost 80% of them have a TV. It is the most commonly owned electronic equipment in the world.

Since its first launch, the TV took 90 years to reach this level of ownership. Mobile phones are near the same level in just 40 years.

1 out of every 3 mobile phones in use today is a smartphone. Among the new phone being sold now; 2 out of 3 are smartphones. The catalyst is the falling cost.

This month, Google announced 3 new smartphones in the series Android One, at $100 each. Just 5 years ago, an average smartphone was priced at $500.

More incredible is the cost of bandwidth. Internet data that cost $1000, 15 years ago, now costs less than $1.

Mobile internet is the first use of computer and internet for many people. It changes how they live and interact with the world. Traditional models are challenged, changed and obsoleted. Businesses and economies are both under threat.

Advertising, education, healthcare, communication, retail, banking, transportation, entertainment and information are all transforming. Their form, reach, speed and costs are changing. The new mobile economy is spreading far and fast.

Non-smart phones are also getting smarter.

USSD enables such phones to connect to specific services on internet, without data plan. Unstructured Supplementary Service Data (USSD) is a text-based data-transfer protocol, which has been long available on normal feature phones.

A USSD session is initiated by typing a message starting with asterisk (*) followed by digits. This creates a real-time two-way exchange of data that can be used for mobile banking etc.

In many African countries today, mobile money accounts out-number bank accounts. People use phones to buy insurance, pay bills, receive salaries and get loans, all without internet.

Recently, MTN in South Africa offered Mobile Money VISA card, which is backed by a mobile account, not bank account. Some mobile accounts even pay interest on balances.

Applications like Fonetwish enable non-smart phone users to access Facebook or Twitter. Prevalent in South-east Asia, Africa and Latin America, it doesn’t need a data plan to work.

A subscriber just dials *325# on his phone and a USSD session is activated. He can then access and use the Facebook account.

These users are the final frontier. In another 5 years, the smartphones would conquer them too. The generation starting out then, would have no memory of a phone that was not smart.

Like today, we have no memory of ‘credit’ that is not smart.

The long-duration bonds (>10 years) have produced double-digit returns this year, even exceeding the high-yield bonds.

In May this year, the Canadian government issued 50-year bonds at 2.96% yield. Corporates like Caterpillar and Volkswagen also recently issued similar long-term debt.

At the rate Canada borrowed, it would take a lender 24 years to double his money. That is before considering the inflation. Or maybe, it is accounted but not expected.

Deflation isn’t a threat to smartphones alone. Just ask the ECB. It turned its overnight deposit rate negative this month (-0.1%). It smells the danger in an over-leveraged world.

Debt and default are neighbors on the street of deflation.

    • Italian government debt is now the same size as Germany. Are Germans still keen to pay for it?

    • 40% of the high-yield issuance in Europe this year is from first-time bond issuers.

    • High-yield issuance in the US has been more than the equity issuance in each of the last 5 year.

This month, the yield on Spanish 10-year government bond fell below the US 10-year treasuries.

Risk-free has a new offer. Buy ten and the risk comes free!

This write-up is for informational purpose only. It may contain inputs from other sources, but represents only the author’s views and opinions. It is not an offer or solicitation for any service or product. It should not be relied upon, used or construed as recommendation or advice. This report has been prepared in good faith. No representation is made as to the accuracy of the information it contains, nor any commitment to update it.