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 summarise 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-subsidised, network-compatible version.

Monetising mobile
It's no secret that monetising 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 monetis… 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 monetising mobile without bugging users is sure to be one tough nut to crack for Facebook.

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