BARCELONA, Spain — When Francisco González started working as a software engineer for IBM in the 1960s, the worlds of technology and consumer banking were miles apart.
But these days, Mr. González — now chief executive of the big Spanish bank BBVA — is competing head-on with some of the biggest tech companies from Silicon Valley and beyond.
And the platform on which the battle is playing out is the smartphone — a device more powerful, and certainly more mobile, than the mainframe computers Mr. González helped program at IBM.
Smartphones and mobile apps are drawing the attention of many traditional industries, whose executives know that staying in business might mean upending their current products and services to become more relevant to digitally demanding consumers. The Mobile World Congress trade show here last week attracted not only 90,000 attendees but also seemingly as many conventional companies — like BBVA, Ford Motor and the sports clothing maker Under Armour — as tech titans and digital start-ups.
In Mr. González’s case, his company is now up against the likes of Google and Apple, which have introduced payment services that enable people to pay for items using their smartphones. New digital banks offer no-fee online accounts. And start-ups in places like New York and London provide financial products like corporate lending and wealth management that were once the sole domains of traditional banks.
“In the next few years, there will be a new league of competitors,” Mr. González told an audience at the Mobile World Congress. “There is no sector that won’t be touched by the digital world.”
The challenge for old-line industries is to offer the mobile capabilities that people are now demanding before start-ups and larger tech companies like Google and Facebook can outmaneuver them.
The increasingly widespread ride-booking service Uber has already turned the taxi industry upside down. And Airbnb, the vacation rental service, lets property owners of all sorts compete with traditional hotels to entice travelers looking for affordable places to stay.
And as advances like cloud computing, which allows masses of data to be stored and retrieved over the Internet, make starting a business increasingly cheap, industry watchers say well-established companies must rethink how they operate — or risk becoming irrelevant to consumers who increasingly rely on their smartphones for everyday decisions.
“Whole industries are being transformed overnight,” said Hans Vestberg, chief executive of the Swedish telecom equipment manufacturer Ericsson, whose products power wireless and Internet infrastructure worldwide. “These guys will have to reinvent themselves.”
This is not the first time, of course, that new digital technologies have sent entire industries scrambling to adapt.
In the 1990s, the likes of Amazon sounded the final call for many Main Street bookstores, which could not compete with the e-commerce giant’s low costs and broader selection. The Apple iTunes store — opened in 2003 — allowed people to download music directly to their devices, making record stores a relic. And the growth of Netflix hastened the demise of traditional movie rental rivals like Blockbuster.
Old-line companies might take solace in remembering that not every upstart of the web era — Pets.com is the classic cautionary tale — was able to supplant established business models.
But the rapid rise of the smartphone and mobile apps has thrown the pace of change into warp speed.
In recent years, the price of the devices has fallen sharply, enabling people in developed countries as well as emerging markets to buy a smartphone for as little as $25. That has put the mobile Internet in the hands of billions of people who, until recently, had no online access.
Analysts say companies — whether traditional players or start-ups — that take advantage of the new mobile technologies could experience meteoric growth.
Uber, which relies on smartphones to connect drivers and passengers in more than 250 cities worldwide, for example, is currently valued by investors at over $40 billion, after being founded in 2009. That is approximately double Google’s initial value (not adjusted for inflation) when it went public on the Nasdaq in 2004.
“The smartphone is what’s driving things right now,” Mitchell Baker, executive chairwoman of Mozilla, the maker of the popular Firefox web browser and software for mobile devices, said in an interview at the Barcelona show. “It’s allowing people to connect to anyone, anywhere.”
Ford was one of at least four automakers at the Mobile World Congress with elaborate booths promoting the benefits of their so-called connected-car projects. The efforts, partly meant to counter expected plans by Google and Apple to enter the car industry, include providing dashboard Internet access and smartphone apps to let drivers manage climate control and other onboard features.
Under Armour announced a partnership with the Taiwanese smartphone maker HTC to build a smartwatch that would track wearers’ workouts and connect to social networks. The move follows Under Armour’s deals to buy two makers of fitness-tracking apps last month for a combined total of $560 million.
And in a sign that even consumer product companies are striving to show their smartphone prowess, the Procter & Gamble Oral-B brand used the Barcelona show to introduce a new version of its connected toothbrush, which sends data to an app to monitor how well and frequently users are brushing their teeth.
“It’s all about what services these products could lead to,” Andrew Parker, a project director in the connected-living program of the GSMA, a telecom industry group, said at the Barcelona show.
But some analysts question how many traditional companies can overhaul their operations in time to fend off competition from smaller rivals, which can quickly exploit new tech trends.
And others doubt whether long-established companies — faced with the costs and pressures of running their existing operations — will be willing to invest heavily in new technologies that may require significant revamping of their businesses.
In contrast, start-ups do not have to rely on outdated operations and can put their money into new, and often more efficient, business models.
“A 100 percent of our people think about digital,” said James Meekings, a co-founder of Funding Circle, a London-based peer-to-peer lending network that connects people who want to invest directly in companies. The six-year-old company, whose business relies on its smartphone app, says that its network so far has lent about $800 million to American and British companies. Funding Circle sees itself as an alternative to conventional banks when companies look for financing.
“For us, it’s not just another business opportunity,” Mr. Meekings said. “This is what we do.”
Planet of the Phones
THE dawn of the planet of the smartphones came in January 2007, when Steve Jobs, Apple’s chief executive, in front of a rapt audience of Apple acolytes, brandished a slab of plastic, metal and silicon not much bigger than a Kit Kat. “This will change everything,” he promised. For once there was no hyperbole. Just eight years later Apple’s iPhone exemplifies the early 21st century’s defining technology.
Smartphones matter partly because of their ubiquity. They have become the fastest-selling gadgets in history, outstripping the growth of the simple mobile phones that preceded them. They outsell personal computers four to one. Today about half the adult population owns a smartphone; by 2020, 80% will. Smartphones have also penetrated every aspect of daily life. The average American is buried in one for over two hours every day. Asked which media they would miss most, British teenagers pick mobile devices over TV sets, PCs and games consoles. Nearly 80% of smartphone-owners check messages, news or other services within 15 minutes of getting up. About 10% admit to having used the gadget during sex.
The bedroom is just the beginning. Smartphones are more than a convenient route online, rather as cars are more than engines on wheels and clocks are not merely a means to count the hours. Much as the car and the clock did in their time, so today the smartphone is poised to enrich lives, reshape entire industries and transform societies—and in ways that Snapchatting teenagers cannot begin to imagine.
Phono sapiens
The transformative power of smartphones comes from their size and connectivity. Size makes them the first truly personal computers. The phone takes the processing power of yesterday’s supercomputers—even the most basic model has access to more number-crunching capacity than NASA had when it put men on the Moon in 1969—and applies it to ordinary human interactions (see article). Because transmitting data is cheap this power is available on the move. Since 2005 the cost of delivering one megabyte wirelessly has dropped from $8 to a few cents. It is still falling. The boring old PC sitting on your desk does not know much about you. But phones travel around with you—they know where you are, what websites you visit, whom you talk to, even how healthy you are.
The combination of size and connectivity means that this knowledge can be shared and aggregated, bridging the realms of bits and atoms in ways that are both professional and personal. Uber connects available drivers to nearby fares at cheaper prices; Tinder puts people in touch with potential dates. In future, your phone might recommend a career change or book a doctor’s appointment to treat your heart murmur before you know anything is amiss.
As with all technologies, this future conjures up a host of worries. Some, such as “text neck” (hunching over a smartphone stresses the spine) are surely transient. Others, such as dependency—smartphone users exhibit “nomophobia” when they happen to find themselves empty-handed—are a measure of utility as much as addiction. After all, people also hate to be without their wheels or their watch.
The greater fear is over privacy. The smartphone turns the person next to you into a potential publisher of your most private or embarrassing moments. Many app vendors, who know a great deal about you, sell data without proper disclosure; mobile-privacy policies routinely rival “Hamlet” for length. And if leaked documents are correct, GCHQ, Britain’s signals-intelligence agency, has managed to hack a big vendor of SIM cards in order to be able to listen in to people’s calls (see article). If spooks in democracies are doing this sort of thing, you can be sure that those in authoritarian regimes will, too. Smartphones will give dictators unprecedented scope to spy on and corral their unwilling subjects.
The naked app
Yet three benefits weigh against these threats to privacy. For a start, the autocrats will not have it all their own way. Smartphones are the vehicle for bringing billions more people online. The cheapest of them now sell for less than $40, and prices are likely to fall even further. The same phones that allow governments to spy on their citizens also record the brutality of officials and spread information and dissenting opinions. They feed the demand for autonomy and help protest movements to coalesce. A device that hands so much power to the individual has the potential to challenge authoritarianism.
The second benefit is all those personal data which companies are so keen on. Conventional social sciences have been hampered by the limited data sets they could collect. Smartphones are digital census-takers, creating a more detailed view of society than has ever existed before and doing so in real time. Governed by suitable regulations, anonymised personal data can be used, among many other things, to optimise traffic flows, prevent crime and fight epidemics.
The third windfall is economic. Some studies find that in developing countries every ten extra mobile phones per 100 people increase the rate of growth of GDP-per-person by more than one percentage point—by, say, drawing people into the banking system. Smartphones will remake entire industries, at unheard-of speed. Uber is a household name, operating in 55 countries, but has yet to celebrate its fifth birthday. WhatsApp was founded in 2009, and already handles 10 billion more messages a day than the SMS global text-messaging system. The phone is a platform, so startups can cheaply create an app to test an idea—and then rapidly go global if people like it. That is why it will unleash creativity on a planetary scale.
By their nature, seminal technologies ask hard questions of society, especially as people adapt to them. Smartphones are no different. If citizens aren’t protected from prying eyes, some will suffer and others turn their backs. Societies will have to develop new norms and companies learn how to balance privacy and profit. Governments will have to define what is acceptable. But in eight short years smartphones have changed the world—and they have hardly begun.