"For every one person online, there are two who are not. By the end of the decade, everyone on Earth will be connected."
-- Eric Schmidt, chairman of Google (GOOGL 2.84%)
If you think the Internet is powerful now with just 2 billion users, think again. When the next 5 billion Internet users come online, it's going to empower the world in an unimaginable way. Although Eric Schmidt's claim may be a bit exaggerated, there's no denying that the world is becoming more connected with each passing year. The International Telecommunication Union estimates that 38% of the world's population will use the Internet in 2013, which represents a 3% increase from 2012. Undoubtedly, the key enabler to such growth hinges on the proliferation of smartphones across the world.
For investors, there are three major areas to consider resulting from the rise of increased Internet users.
Naturally, as more Internet users come online, more search queries will be conducted. Considering that Android commands a 70.1% smartphone market share, it puts Google in an excellent position to benefit from mobile search queries. However, mobile search may not be as profound for Google as once thought. The open-source nature of Android gives other businesses the opportunity to modify the Android experience so that it no longer benefits Google. Companies such as Baidu and Amazon.com have modified the Android shell, effectively undermining Google Search.
To help mitigate this threat, Google has established the Google Free Zone in emerging-market countries, allowing users to use Google Search, Gmail, and Google+ without the need for a data plan. It's currently available in three countries but ultimately aims to captivate a base of one billion Internet users. In theory, this approach should drive mind share to Google's brand, which over the long term could prove extremely valuable to Google's business.
Thanks to the rise of smartphones and tablets, John Donahoe, the CEO of eBay (EBAY 1.06%), believes another 2 billion Internet users will come online in the next three to five years. He also believes that the nature of commerce will change more in the coming three years than it has over the past 15. As a global commerce platform equipped with a thriving PayPal business, eBay expects that it will enable more than $300 billion of global commerce by 2015. For those keeping track at home, this represents an increase of $125 billion from 2012 levels. The smartphone has completely reshaped the world of commerce, and eBay is in excellent position to benefit from the fact that more users will begin shopping on the world's marketplace.
Over 1 billion strong, Facebook (FB 3.86%) is already a thriving platform for communication. Like Google, Facebook has taken a "Google Free Zone" approach to capture the mind share of users in areas of the world where Internet usage (and Facebook usage) remains low. The company has begun offering free or discounted access to Facebook Messenger in 14 countries. Building mind share in areas of the world where Internet usage is poised to take off could ultimately prove valuable to Facebook's business.
The new digital age
First, the Internet changed the world, and now, the smartphone is changing everything once again. It's going to change the way the world shops, communicates, and gathers knowledge. There's little doubt in my mind that billions of new Internet users will start coming online in the coming years. Helping support this belief is that the world has only reached about 25% smartphone saturation worldwide. Ultimately, the companies that know how capitalize on increased smartphone adoption are poised to be winners over the long term.