This post serves to summarize the current state of the smartphone market.
Most definitions of smartphones are ostensive and, as such, involve pointing out examples of this or that phone being a “smartphone.”
However, there are some common themes used in defining the word smartphone:
From the consumer perspective, how is smartphone is defined makes no real difference. Consumers do not go out to look for smartphones - the go to buy an iPhone, a Blackberry, a good texting phone, the cheapest phone, a phone with turn-by-turn directions, a cool phone with music, etc.
From the perspective of analysts, it is safe to assume that the definition will remain somewhat important since it represents a subsegment of the market that can be isolated. As such, analysts will likely settle on defining smartphones as handsets that use a high-level operating system (i.e., the big six noted above provided by RIM, Apple, Windows, Palm, Symbian and Google).
The “smartphone market”
iSuppli’s forecasts show that global smart phone unit shipments will be close to 200 million world-wide, 193.3 million out of the 1.11 billion overall handsets shipments.
According to IDC, the smartphone market grew by 68% in 2008 and is projected to grow by 20% in 2009 and 25% in 2010. Already, about 30% of the mobile phone shipments in the U.S. are smartphones that have e-mail and web surfing functionality.
At the end of Q2, 2009 NDP’s device tracking revealed that despite smartphone growth, features phones still make up 72 percent of new handset sales. Smartphones represented the remaining 28 percent of device purchases, an increase of 47% in smartphone market share. functionality.
By 2013, it is expected that almost 4 in every 10 handsets sold will be a smartphone.
U.S. Smartphone Shipments
Based on U.S. consumer sales of smartphone handsets in NPD’s report, Q1 2009 ranking of the top-five best-selling smartphones is as follows:
- RIM BlackBerry Curve (all 83XX models)
- Apple iPhone 3G (all models)
- RIM BlackBerry Storm
- RIM BlackBerry Pearl (all models, except flip)
- T-Mobile G1 by HTC
According to FierceWireless, based on preliminary research results from IDC, IDC ranked the top-selling smartphone models in the U.S. for Q2 2009:
- RIM BlackBerry Curve (all 83XX models) - ranging from $39.99 and $149.99 on AT&T, T-Mobile, Sprint, Verizon and other
- Apple iPhone 3GS (all models) - $199 to $299 on AT&T
- RIM BlackBerry Pearl (all models, except flip) - ranging from free to $99.99 on AT&T, T-Mobile, Sprint, Verizon and others
- Apple iPhone 3G (all models) - $99 on AT&T
- RIM BlackBerry Bold - $199.99 on AT&T
- RIM BlackBerry Storm - $149.99 on Verizon
- T-Mobile G1 by HTC - $149.99 on T-Mobile USA
- Palm Pre - $199.99 on Sprint
- HTC Touch Pro - $79.99 to $349.99 on Sprint, Verizon and AT&T
- HTC Touch Diamond - $79.99 to $299.99 on Sprint and Verizon
It seems evident that RIM is enjoying the benefits of broader availability. Together with the low price point of familiar devices like the Curve and Verizon’s aggressive promotion of RIM devices have created strong momentum for RIM in the U.S.
It is too early to tell the impact of the Verizon / Google partnership announced yesterday, Oct 6, leading up to CTIA. The announcement indicates that the two companies will develop a series of Android-based devices that include pre-loaded applications from both the companies and third-party developers.
World-wide Smartphone Shipments
World-wide smartphone market share (based on Q4 sales):
- Symbian OS (41.7%)
- RIM Blackberry OS (19.5%)
- Windows Mobile OS (12.4%)
- iPhone OS (10.7%)
- Linux OS (8.4%)
Nokia has been the dominant supplier of handsets worldwide for the past 5 years, garnering close to 40% market share. According to Apple and Generator Research projections, Apple will surpass Nokia in the smartphone category in the coming years with Nokia’s market share dropping to 20%.
Apple sold 13.7 million iPhones in 2008. It has been forecasted that Apple will sell more than 50 million phones in 2011 and 80 million in 2012, mainly driven by worldwide expansion and overall popularity.
Nokia will still remain a dominant player due to the global strength of their brand and distribution as well as their ability to provide a full range of phones, beyond smartphones.
Android will have the added benefit of similarly being used beyond smartphones but also being licensable by any phone manufacturer. As such, devices shipping with Android are expected to outpace iPhone sales in the coming years. According to Informa Telecoms & Media Analysts, Android will outpace the iPhone by 2012. Strategy Analytics estimate that 8 million Android devices will ship in 2009, ABI Research has put the number closer to 4 million given that up until recently there were only two devices in the market.
Android momentum will likely be attributable due to:
- Support by a wide range of device manufacturers
- Low BOM costs due to open source OS
- Ability to address both feature phones and smartphones
Apple, being locked to individual carriers will also limit growth during the period that Android is being brought to market.
Smartphones & App Stores
Yesterday, leading up to CTIA, the Microsoft Windows Marketplace for Mobile became available via the new 6.5 phones. The Windows marketplace can be accessed via the Web or an on-phone storefront. CNET estimated that at the time of launch there were at least 100 apps altogether, including Facebook, Netflix Mobile, Windows Live, Zagat to Go and Midomi.
At the spring CTIA, RIM launched BlackBerry App World. Recently, TechCrunch covered a Distimo report analyzing the Blackberry App World that showed that average price for apps is more than three times higher than those found in Apple’s App Store and the Android Market.
In the fall of 2008, the Android Market was launched, concurrently with the HTC G1. The Android Market was recently updated in September 2009.
Apple launched their App Store in July 2008. There have been wide-ranging estimates on the size of the Apple app store market. There is the now infamous Lightspeed analysis that claimed as of May, 2009 that Apple has made $20-45M from their App Store. A year ago August, Steve Jobs claimed that Apple stands to reap at least $360M / year from their App Store. Other estimates from VisionMobile Research put the revenue close to $500M / year.
In contrast, according to Nielsen, U.S. on-deck revenue from apps and games was around $1.5B in 2008. This includes, not only smartphones but all feature phones. For example, Verizon, together with Qualcomm has had the longest running carrier-based app store (BREW) in the U.S. As of 2008, Qualcomm’s BREW (i.e. on-device middleware and storefront) shipped on over 500 million handsets worldwide. In 2007 an average of 80 million downloads per month and generated over $1B in revenue.
As of this summer, over 40 million devices (includes the iTouch) have shipped that support the App Store and there; close to 6.5 million active iphone users in the U.S. alone; and over 1.5B downloads with 65,000 available apps created by a community of 100K developers.
I provided a more in depth discussion of app stores and marketplaces as they were emerging in 2008 in this post.
Smartphones & Data Use
Eric Puterbaugh (brother, Nellymoser co-founder) recently gave an address at the MEF Mobile Leadership Summit entitled “State of the Union in Mobile.” Nielsen’s numbers clearly show that smartphone are driving data usage. Smartphone users show much heavier usage in all categories, including Internet, messaging, email, app downloads, location services and game downloads.
For example, close to 70% of smartphones owners use email in contrast to only 12% of feature phone owners. Similarly, 71% smartphone owners use the Internet and only 15% feature phone owners use the Internet.
Within the smartphone category, the iPhone still outpaces data activities such as Internet usage, apps downloads, full track music and video viewing.
Smartphones in context: Communications, Entertainment, Computing
Michael Mace has a more nuanced approach towards looking at smartphones, putting them in context with handsets, portable entertainment devices and computing devices.
He analyzes mobile devices by putting them into three categories: entertainment, communications and computing. In its current manifestation, the iPhone is squarely playing in all three categories. Blackberry, in contrast, is squarely in communications and computing. Cellphones / feature phones are squarely in the communications category, whereas the iPod and e-book devices are in the entertainment categories. MIDs and ultra-mobile PCs are in the computing category.
In “The shape of the smartphone and mobile data markets,” Michael concludes the following:
There are three big groups of mobile data customers, each with different needs and tastes, each was about 12% of the population:
- people who focus on communication (e-mail, messaging, conferencing)
- people who focus on entertainment (games, video, music)
- people who focus on managing information (databases, documents, note taking)
The RIM appeals to communicators. The Palm Treo and touchscreen Windows Mobile are on the border between communication and information management. The iPhone is not a Blackberry killer. The biggest opportunity currently not being addressed is in information management.
Since smartphones are somewhat of a novelty, phones such as the iPhone were able to own all three categories. In the coming years, it is difficult to imagine all the major smartphones will compete to be best in all three categories. While, Blackberry and Palm have started making inroads towards the entertainment aspect of the spectrum, it is hard to imagine winners that do not focus on their core constituents and address their specific device needs. We’ve seen some signs of this in that some smartphones do not have very decent voice communication capability.
Recent trends and emerging smartphone landscape
There are a number of recurring trends throughout 2009:
- Wireless broadband - LTE / 4G
- Network capacity strained due to smartphones
- Intersection of home & mobile
- Continued fragmentation in devices, formats, networks
- Netbooks & other connected consumer & enterprise electronics (Kindle)
- Apps versus browsers
In addition to these general trends, there have been major advancements in mobile phone hardware / software, including touch user interfaces, location services and video & camera capabilities.
It is hard not to imagine that the 3 major operating systems will be Android, Windows, Apple. Nokia seems to be keeping their options open in terms of Symbian, Windows, Linux. Surprisingly, Nokia dropped the Linux OS (Maemo) in favor of Windows on their upcoming netbook.
Yearly, rumors emerge that Microsoft will buy RIM. I believe that Microsoft will likely need to buy RIM to own the enterprise space and gain better traction outside of the U.S. , unless NokiaWith regards to Palm, perhaps Nokia may believe that they need to buy them to get a foothold in the U.S. market.
Unfortunately, the future of smartphones will be the result in two major forces: mobile operators and the device providers.
First, mobile operators will continue to drive to retain subscribers and drive the value of their network. This will result in a number of consequences ranging from aggressively driving the cost of smartphones down (e.g., working directly with manufacturers to create alternatives to the iPhone and Blackberry) or perhaps even providing the network as a service, i.e., a value-added set of services beyond the classic “dumb pipe” mode. What will emerge will be a reinforcement of the current trend in which the operators provide targeted devices related to types of data usage, e.g., texting, camera, gaming, etc. And, although the operators have had app stores in market well before Apple, they are making a strong second go at it to improve upon
Second, device providers will continue to strive to maintain and substantiate their device margins. As we’ve seen over the past year, a number of providers will also attempt to vertically integrate ala Apple. The drive to sustain value will continue a “feature battle” in which phones will rapidly become faster, more flexible and more connected. Those that can sustain over-the-top services (e.g., Apple, Blackberry - perhaps Nokia), will increasingly come in conflict with the goals of the operators.