Apple, Facebook, and the "State of the Web"

Last week, Internet analyst turned venture capitalist Mary Meeker presented one the best PowerPoint presentations I'll peruse all year. In what has become known as the "State of the Web" address, Meeker covered a wide range of tech topics. While I won't try to summarize the entire thing in one sitting, I will shed some light on a few stats from her presentation that should resonate for both Apple (Nasdaq: AAPL  ) and Facebook (Nasdaq: FB  ) investors.

Global smartphone adoption
While I knew there was significant upside in the penetration of smartphones worldwide, I was astounded to learn that smart-devices account for a scant 16% of total mobile phone subscriptions around the globe. When looking at statistics for China, the growth opportunity is amazing, as 3G penetration stands at only 6% after doubling in the past year. That one stat alone highlights the great mobile opportunity ahead in China, and for Apple, one huge catalyst for accelerating growth in China appears to be taking shape.

China Mobile (NYSE: CHL  ) , the country's largest wireless carrier, which boasts 670 million subscribers and is about three times the size of the next-largest carrier, China Unicom, recently announced that it is in discussions with Apple to officially carry the iPhone. Seems a little late, doesn't it? The problem has been China Mobile's unique 3G network standard TD-SCDMA, which isn't compatible with current iPhones. 

However, China Mobile customers are so enamored of the phone that more than 15 million have paid exorbitant retail prices to use unlocked iPhones on the company's archaic 2G network. Thankfully, Qualcomm's (Nasdaq: QCOM  ) next-generation Gobi baseband chip, which will play well with China Mobile's network, is widely expected in the next iPhone. Given customer enthusiasm for tortoise-like 2G speeds, it doesn't take a genius to understand the opportunity presented by a carrier-subsidized, network-compatible version.

Monetizing mobile
It's no secret that monetizing mobile is one of Facebook's biggest challenges. In fact, I've read about it so much I'm sick of hearing the two words used in succession. Unfortunately for Facebook shareholders, the statistics offered by Meeker don't paint a very bright future for monetiz... I mean... generating revenue from smartphone users. With advertising accounting for 85% of total revenue, Facebook is already widely aware of the 20%-80% discount mobile ads receive relative to desktop delivery.

However, there is still a large gap to fill in reconciling mobile ad spending with the amount of attention the mobile medium receives from consumers. Currently, mobile accounts for 1% of total advertising spending despite commanding about 10% of consumer attention. Conventional wisdom suggests that mobile spending will converge with the attention percentage over time, similar to how it has played out with desktop Internet ad spending. 

However, I think there could be a major flaw with that thinking. Mobile presents some unique challenges for advertisers given its small form-factor, and doesn't lend itself to the plethora of formats offered to desktop advertisers. On the other hand, it also offers unique opportunities such as highly targeted location-based advertising. Time will tell, but monetizing mobile without bugging users is sure to be one tough nut to crack for Facebook.

While Apple has been generating serious profits for long-term investors, those looking for the Facebook IPO "pop" were burned in a big way. One reason, outside of underwriter shenanigans, is that Facebook's valuation was predicated on unattainable near-term business performance. That valuation is coming back down to earth, but has further to fall before it looks attractive to me. If you aren't willing to wait on Facebook and want an online leader that's already proved itself with solid performance, you need to read about this company today. While only a fraction of Facebook's size, the company boasts a much more diverse revenue stream. Find out more about this company in our special free report: "Forget Facebook -- Here's the Tech IPO You Should Be Buying." Pick up your free copy today by clicking here.

At the time of this writing, Brenton Flynn owned no shares of the companies mentioned. The Motley Fool owns shares of Facebook, Qualcomm, Apple, and China Mobile. Motley Fool newsletter services have recommended buying shares of Apple. Motley Fool newsletter services have also recommended creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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