The speed of life

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The consumer-led mobile smartphone transformation

Series overview
Through PwCs ongoing consumer research program, we gain directional insights on consumer attitudes and behaviors in the rapidly changing media landscape. This report summarizes key findings from a quantitative survey and followup focus groups with smartphone users, exploring how consumers use smartphones, how the technology has affected their everyday lives, and how much they expect to increase their use of smartphone activities during the next few years. We conducted a two-phase program to capture this data. In Phase 1, held in spring 2011, we fielded a broad, nationally-representative survey of 3,282 smartphone owners/ users aged 18 to 591. In Phase 2, we conducted focus groups to gain a deeper understanding of some of the underlying reasons for behavior reported in the survey.

I. Executive Summary
For todays smartphone consumers, mobility isnt just about making calls or checking email on the goits a lifestyle. Since the launch of Apples iPhone in 2007, smartphones have transformed the way consumers connect with businesses and each other. From downloading videos to buying coffee, checking bank balances to updating Facebook, consumers now rely on their phones for an astonishing range of activitiesand their enthusiasm for those devices is only going to intensify in the next two years, particularly as apps become more creative and convenient. For businesses, this transformation represents a wealth of opportunities. Consumers have an appetite for useful, intuitive apps that make their lives easier, such as location-based apps, and many prefer apps over browser-based access because theyre often easier to use. Even tasks that consumers traditionally use their browser to performsuch as purchasing merchandise, managing travel or personal finance, and downloading or streaming videosare ripe for transition to smartphones, particularly if companies can design apps and functions that make those activities more secure and convenient. Significantly, consumers expressed a keen interest in using their phones to make purchases, although they want the purchasing process to be easier and more streamlinedmore like Starbucks, which allows them to use their phone as a credit card by simply scanning the screen. However, companies must also find a way to allay consumers myriad concerns about privacy and security. Clearly, smartphones are here to stay. The challenge for companies is to determine how to use mobility to capture growth and uncover new forms of competitive advantage. To help our clients address this, PwC used a combination of qualitative and quantitative approaches to gain consumer insights on three critical questions listed on the next page.

1 This survey size provided a 95% to 99% degree ofconfidence.

1. How will consumer preferences and behaviors continue to evolve around popular smartphone-based activities? 2. What business challenges will shape and influence the rate of growth for smartphone-based activities over the next one to two years? 3. Which early-stage activities seem best positioned for growth over the next one to two years?

II. Key findings

How will consumer preferences and behaviors related tosmartphones evolve? 1. Consumer enthusiasm toward smartphones (and their reliance on the devices) will continue to strengthen. Most smartphone owners believe there is virtually limitless potential for what the device can do, a perception enhanced by the hundreds of thousands of available apps, which facilitate the functionality and value of the smartphone. I rarely get my computer out, unless I need to write a long email I just use my phone so much. Its just easier to Google something on my phone or check Facebook on my phone, rather than go from my computerRespondent, aged 2129 We examined fifteen possible smartphone activities, ranging from basic communications to video conferencing to managing healthcare (See Chart 1, p3). Within the next two years, we expect to see significant growth across all of theseactivities. Consumers expect that the proliferation of apps will facilitate a variety of these functions (See Chart 2, p3). While 98% of smartphone owners already use the device for voice, texting, and email, 46% anticipate that they will increase their usage rates for these basic communication services in the next two years. In fact, 21% expect they will at least double their use of their smartphone for basic communication activities, a trend driven by increased access to the Internet and consequent email and social networking use. Only 12% currently purchase merchandise with their smartphones. However, 45% anticipate that they will increase this activity in the next two years, with more than a third of those consumers (16%) expecting to at least double the time spent on this activity, a trend due to their expectation that apps will make the purchasing experience easier.

Technology drivers for future state of the consumer-led mobile transformation

Device innovation (tablets, e-books, etc.)

Enterprise mobility

Platform competition

Cloud & 4G networks

Consumers & Mobility

Social media

Over-thetop premium video Mobile VoIP

Locationbased services

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Chart 1: Benchmarking the state of current consumer smartphone-based activities

Currently engage in activity at least once per week. All 15 activities, ranked by usage frequency 100%
2% Nearly half or more engage in 3 key activities on a daily basis:

80%
31%

1. Basic communication 2. Accessing news, weather or sports 3. Accessing social networks

60%
98%

21%

40%
43% 53% 47% 30% 28% 19% 19% 7% 5% 4% 4% 4% 5% 3% 3% 4% 3% 4% 3% 4% 3%

20%

13%

12%

11%

11%

10%

Daily

Chart 2: Consumer expectations for increased use of smartphone-based activities

12 years future expectation for activity engagement Top 2 box: A little more or a lot more. All 15 activities, ranked by usage frequency 100%

80%

60%
46% 45% 40% 25%

40%

20%
21% 18% 17% 21% 17% 18% 17% 19% 16% 16% 17% 16% 13% 17% 15%

A lot more (at least 2x as much)

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A little more time

0%

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13 times per week 53% 47% 32% 27% 23% 30% 28% 29% 27% 29% 27% 46% 46% 46% 45% 43% 32% 49% 43% 37% 27% 24% 26% 27% 43% 42%

0%

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2. Some smartphone activities, such as accessing social media, will continue to skew toward specific genders or demographics. Certain activities appear to have staying power in terms of demographic skews over the next one to two years (See Charts 3 and 4 below). Those include: Checking news, sports, and weather (currently skewsmale) Accessing social media networks (currently skewsfemale) Uploading video (currently skews 1824) Managing finances (currently skews 1824)

Other skews may diminish as consumer behavior, preferences, and attitudes evolve, especially with respect to Gen X and Baby Boomers. The following activities will experience broader adoption beyond the 1824 year-old age group (See Chart 5, p5): Finding a location/using a GPS (currently skews 1824) Accessing online research (currently skews 1824) Downloading/streaming video (currently skews male, 1824) Certain activities that currently appeal only to early adopters demonstrate a broad male skew that is likely to concentrate in the 1824 demographic in the next year or two: Using mobile video conferencing Connecting to a TV/PC Use as a DVR remote

Chart 3: Gender skews with staying power

Skews with staying power for the next 2 years 70% 60% 50% 40% 30% 20% 10% 0%
Male Check news, sports & weather Female Access social network 60% 46% 42% 51%

Chart 4: Demographic skews with staying power

Skews with staying power for the next 2 years 18% 16% 14% 12% 10% 8% 6% 4% 2% 0%
1824 Upload a video 2534 3549 5059 Managing finances 17% 14% 12% 8% 6% 12% 10% 8%

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Chart 5: Current skews more likely to diminish in one to two years, moving to a broader appeal
Skews likely to diminish within 2 years 25%

3. Location-based services appear poised for growth Smartphones are moving beyond the ability to simply provide directions. Some examples of current apps include Yelp!, Fandango, and Urbanspoon. These, amongst other apps, provide consumers with recommendations for where to go and what to do. Interestingly, smartphone users seem willing to forgo some privacy concerns in return for the right value proposition. Consumers, especially in younger demographics, increasingly use this technology.

20%

15%
21%
21%

10%

20%

More than half (56%) use their device at least weekly to find a location or place
11% 8% 3%

5%

13% 11%

9%

12% 11% 7%

Among 18- 24-year-olds, 69% use this feature at least once per week, while 21% use it daily. Smartphone users view location-based services as one of the top three most important mobile activities (See Chart 6, p6), ranking it behind checking the news, weather or sports, and view it as about half as important as basic communications (voice, email,text). Over the next two years, 53% of smartphone consumers believe they will increase their use of location-based services. No other activity covered in this report measured higher for increases in expected future use. This represents a huge opportunity for commercial applications, such asfoursquare.

0%
1824

Finding a location /using a GPS 2534 3549

Accessing online research 4950

Downloading/ streaming video

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Chart 6: Consumer smartphone-based activities considered top 3 most important

Top 3 most important mobile phone activities All 15 activities, ranked by usage frequency 100%

80%

60%
98%

40%
51% 49%

Nearly half identified finding a location/place as one of the top 3 most important mobile phone activities

20%

43%

10%

16%

15%

0%

7%

2%

2%

4%

1%

1%

1%

1%

4. Consumers will continue to embrace apps over browser-based access Todays most popular activities (other than basic communications) are primarily accessed via apps (See Chart 7, p7). Consumers view apps as key drivers to making smartphone functionality quicker, easier, and better There are more and more apps. Theres an app for everything that you do ... It makes everything easier.Respondent, aged 3045 They are quicker and easier. The only reason I ever use a browser is to Google stuff.Respondent, aged 2129

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What business challenges will shape and influence the rate of growth for smartphone-based activities during the next twoyears? 1. M-commerce (mobile commerce) growth hinges on change in consumer attitudes toward security andconvenience. Most consumers (86% in the past year, 42% weekly or more) have used a smartphone to research possible purchases of service and merchandise. But comparatively fewer (52% in past year and only 12% weekly or more) are making purchases on their mobile devices. Qualitative research points to some of the disadvantages of using a smartphone for retail transactions as well as when it can beadvantageous: Not secure enough: Some consumers said they were concerned about the safety or confidentiality of transmitting or storing bank account and credit card data on a smartphone. The survey found a direct correlation between those who are hesitant
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Chart 7: Preferring app access for the most popular activities (vs. browser)
Growing popularity of apps 90% 80% 70% 60% 50%
84%

40% 30% 20% 10% 0%

Check the news, weather or sports
56% 61%

68% 69% 68% 56%

64%

68% 53% 42% 35% 19% 12% 39% 29% 22% 57% 55% 57% 35%

Access a social/ business network

Find a location/ Place

Online research

Upload videos/ photos

Manage personal finances

Purchase Merchandise/ services

Do at least weekly

Access via an App today

Will access via an App in 12 years

to share personal information (such as credit card numbers) and those who purchase things online less frequently. I will check it out, but Im not going to buy it on my phone because Im still not 100% comfortable typing in my credit card number and all that stuff. But I research it on the phone and go home and buy it.Respondent, aged 2129 Theres a fine line for security purposes. If you lose your phone, therefore, youve lost everything that means anything to you.Respondent, aged 2139 Too small a screen: When it comes to purchasing, consumers complained about difficulties with viewing purchase details and entering a lot of information, including credit card numbers and home addresses. Id rather buy on a computer. I feel like I can see everything in front of me more clearly. Its more comfortable.Respondent, aged 2129 The virtual wallet: Transactions where the smartphone can be used more like a credit card to scan barcodes to investigate and/or pay for items are highly appealing for their ease and conveniencecreating a virtualwallet.
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I use the Starbucks mobile app every morning to pay for my coffee. Im looking forward to seeing more applications like that, where I can store my financial information and instead of having to take a credit card out of my wallet, I can just flash a barcode in front of a scanner at the store and pay for it.Respondent, aged 3045 2. Marketing ROI growth for mobile advertising depends on consumer attitudes toward privacy. Sharing personal data is still a sensitive issue (See Chart 8, p8). Many consumers are reluctant to share information (likes/dislikes, hobbies, interests, current location, mobile purchase history, home address, etc.) even if it would mean receiving marketing communications customized to personal preferences, such as ads, offers or discounts. Most consumers (61%) were at least somewhat willing to share personal information in return for customized marketing messages, but far fewer (20%) are extremely or very willing to do so. The youngest age segment (1824) is the only one that is slightly more willing to share (31%). More are trusting of the mobile services carrier: Given the choice, more consumers (30%) say they are more comfortable sharing personal information
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with carriers than third-party Internet sources (such as Facebook) or handset manufacturers. However, nearly as many (25%) said they were not comfortable with any of these three. Mobile carrier service companies were the ones trusted by a majority (65%) to share/transfer information to a new handset or across multiple mobile devices. Implications for behavior: There were four times as many 18-24 year-olds as 50-59 year-olds among the pool of consumers most willing to share their personal information. However, it will be crucial to consider whether there is divergence in terms of their actual behavior. In other words, how likely is it for attitudinal differences across generations to be mitigated by the right value proposition? Which early-stage activities seem best positioned for growth over the next two years? 1. Never say never: Certain activities are ripe for transition to smartphones Our data showed that many smartphone users have never used their device for activities where corresponding online behavior is already entrenched (See Chart 9, p9). These activitiesinclude: purchasing merchandise (46%), managing travel (41%), managing personal finances (38%) downloading/streaming video entertainment (31%) While challenges related to convenience, security and privacy could be driving the high percentage of nevers for these activities, directional insights from our qualitative data imply that increased usabilityfacilitated by business model innovation and better use of mobile app design and developmentcould go far to overcome such concerns. On [travel websites]... You have to click on so many little things. I have to get my finger right on the little link to go to the day or whatever. So, nine times out of ten Ill wait and get on my computer to do it when I get home. Respondent, aged 2129

Chart 8: Willingness to share personal information in exchange for customized marketing information
Willingness to share personal information
3%

100%
12%

8% 13%

5% 13% 9%

19%

75%
42% 43%

35%

50%

41% 22% 20% 15% 12% 7% 3549 16% 5059

25%

19% 16% 6% 10% 8% 2534 Very unwilling Somewhat willing Extremely willing

0%

6% 1824

Extremely unwilling Somewhat unwilling Very willing

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Chart 9: State of current consumer smartphone-based activities: never responses

Top 3 most important mobile phone activities All 15 activities, ranked by usage frequency 100%

80%

60%

40%

82%

76%

75%

73% 61% 46%

20%

41%

38%

31% 16% 15% 14% 5% 3% 0%

0%

III. Implications to your business

How can you use mobility to capture growth and uncover new forms of competitive advantage over the next one to two years? 1. Certain activities are ripe for transition to smartphones. Consumers say they rarely use their devices to purchase merchandise, manage travel, manage personal finance, or download/stream videospartially because of security concerns, but primarily because existing apps are cumbersome. Companies that make these tasks easier and more secure through better apps and functions may be able to boost activity in these areas. 2. Leverage location-based services and sustainable skews to boost advertising and marketing ROI. When combined with location-based information, user recommendations and word-of-mouth have become very powerful drivers of consumer behavior. Create strategies that will boost recommendations through check-ins and positive consumer comments. Use the power of smartphone functionality and apps to speed the transition from consideration to purchase through the integration of single sign-on (e.g., via traditional social media sites), barcode scans, and one-click purchasing. 3. Integrate mobile apps into the broader online, multi-screen mix to enhance the customer experience. Consumers are moving toward a new normal of multiple screens. The smartphone creates a customer experience of bridging activities that go across both browser-based and app-based connectivity. To the extent that your smartphone apps can reduce complexity and increase convenience, consumers can be expected to welcome them.

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4. Security and reliable data management are highly prized by consumers. Build an effective approach to mitigating customer-related data and identity theft risk in the mobile environment. The shift from PC to smartphone-based management of key activities, such as managing personal finances and healthcare issues, remains critically dependent on the ability to deliver secure data management and protection. Building a competitive advantage and capturing growth in the mobile environment requires that the organizations security strategy extends fully into the mobile environment; it needs to provide end-to-end safeguards for customer profile data and transactions. Consider potential collaborative strategies with mobile carriers to leverage both their brand and their core data management capabilities. Our survey showed that consumers trust mobile carriers more than other organizations for sharing/transferring their personal information to a new handset or across multiple mobile devices.

For more information on how digital transformation is shaping the entertainment and media industries, please contact one of our specialists: Deborah Bothun deborah.k.bothun@us.pwc.com (213) 217-3302 Paul DAlessandro paul.dalessandro@us.pwc.com (312) 298-3753 Chris Isaac christopher.isaac@us.pwc.com (214) 754-5035 Additional information is also available on the following PwC websites: Center for Technology and Innovation: http://www.pwc.com/us/en/technology-innovation-center/ publications.jhtml Consumer Intelligence Series: http://www.pwc.com/consumerintelligenceseries 2010 North American Wireless Survey: http://www.pwc. com/us/en/industry/communications/publications/2010north-american-wireless-industry-survey.jhtml

2011 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the US member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. NY-12-0308

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