A Reuters article over the weekend suggests that Nokia (NOK) is joining the rush towards mobile software sales. This is old news.
More interesting is that, in the article, Strategy Analytics forecasts the value of the mobile content market -- including downloadable games, ringtones, wallpapers, video, mobile TV, text alerts and mobile web browsing -- to grow 18 percent to $67 billion this year. Last week, I was writing a profile on the sector for a good friend of mine, and I was estimating that the mobile content market would range in size between $50 billion and $70 billion. I am more pessimistic than Strategy Analytics on growth forecasts for this year.
Based on the people I am speaking to in the industry, 2009 is likely to show a flat to 5% growth over 2008, so I suggest that there is a greater likelihood that the market could measure slightly less than $60 billion. However, it doesn't matter what the growth rate is. The more important notion is the sheer scale of the market. Whether 2009 is worth $50 billion, or $70 billion, it is a massive market that has developed in record time.
I will put this into perspective. This is a quote from the last year's call transcript when Microsoft (MSFT) announced its proposed takeover of Yahoo! (YHOO). "The online advertising industry is a very large industry today at over $40 billion and it's forecasted to grow quite rapidly to reach nearly $80 billion in the next three years".
Many investors would likely be very surprised at the scale of the mobile content industry in comparison to online advertising. The mobile content market may even be larger than online advertising right now. Not only that, it is likely that the mobile content market will show sustained growth higher than the online advertising market over the next 5 years. As well, its sheer potential is probably over 10x greater due to the number of mobile subscriptions worldwide (based on stats from IDC).
The reason why investors are likely to be surprised at the scale of the market is that there is no equivalent to Google (GOOG) for investors to be wowed by. Essentially, there is no dominance and, in fact, the sector is marked by incredible fragmentation. Hundreds of thousands of content developers, thousands of content distributors and aggregators, hundreds of service providers including carriers, handset developers, online retailers, and software vendors are all vying in this market.
With the exception of some of the headline grabbers like Apple (AAPL), RIM (RIMM), and Google, most of the ecosystem is undercapitalized and toiling in relative obscurity. The fragmentation makes it hard to make money, and the complexity of the ecosystem spooks investors. However, in this problem lies a really robust opportunity for consolidation. In the end (within 10 years), the majors will divide this giant pie amongst themselves. However, in the meantime, there are potential small-cap consolidators on every continent.
Earlier this winter some of Bay Street got a chance to see a possible consolidator candidate operating out of Europe. I believe that there are a few other potential candidates operating in North America that are generating cashflow and recognize the opportunities for roll-ups. Investors that back some of these operators could make a lot of money as the ecosystem matures (BTW...none are operating in Toronto).