Research Notes

10 myths about the smartphone market

During the past years, the smartphone market has been attracting a great deal of attention. What started back in 1996 with the launch of Nokia’s first smartphone communicator, has over the past 10 years developed into a global segment that will sell 276 million mobile phones in 2010 – an impressive growth from the 172 million smartphones that were sold in 2009.

Strand Consult has identified 10 myths that we often hear over and over again when people try to describe the smartphone market and how it is developing in articles or at conferences. The 10 myths are:

1. Customers love smartphones

There is no doubt that smartphones are popular and a great number are being sold, but in practice, surveys show that customers are not demanding smartphones, but rather stylish mobile phones at a price they can afford. The mobile phone is most probably the world’s cheapest status symbol. Most mobile customers either want a functional or stylish mobile phone that they think is cool – very few customers are only interested in specifically purchasing a smartphone.

2. The smartphone OS is the deciding factor of customers’ choice of mobile phone
The vast majority of mobile customers around the world do not know the names of the various mobile operating systems. For today’s mobile customers, brand, design and functionality are far more important than which OS an individual mobile phone is running. The mobile industry is still far from reaching the stage of today’s computer world, where customers know that there is a difference between a PC running Windows, and a Mac running Mac OS.

3. It is the apps market that is driving the sales of smartphones, and the platform with the largest app store will be most successful in the future
Regarding the app store market, there is no doubt that Apple with their app store has the largest app store business measured by number of apps. But when we examine sales growth during from Q2 2009 to Q3 2010, we see that Symbian, Android and RIM have had a larger growth in their sales of mobile devices than Apple – despite the fact that Nokia, RIM and Google have significantly smaller app stores.

4. Smartphone customers spend a great deal of money on mobile services.

In 2009, the mobile services market had a value of XX billion USD according to The Mobile Entertainment Forum. Download and sales figures from Apple’s app store over a three-year period between XXXX and YYYY show that YY billion apps were downloaded to iPhones, and that Apple had an app turnover of 1,XX billion USD. In other words, the price of an average app was 0,XX USD. The above figures show that iPhone customers have no trouble downloading free applications, but are not very good at choosing and purchasing premium apps. We have good reason to believe that this scenario is the same for other smartphone platforms that are also offering a great number of free apps to their users.

5. Smartphone customers consume enormous amounts of mobile data and are thereby overloading the operators’ networks.

Many people claim that the increasing number of smartphones are burdening the mobile operators’ networks due to the amount of data they are generating. The problem is that the people that make these claims have not examined how much data a smartphone generates compared to the amount of data generated by a customer using mobile broadband via a dongle and the size of these two customer segments. Figures from operators around the world show that a smartphone customer consumes between 50 and 150 megabytes data per month, while a mobile broadband customer consumes between 1 and 5 Gb data per month. In practice this means that a mobile broadband customer is using between 15 and 30 times more data traffic than a smartphone customer. When we then examine the penetration of these two types of customers across a number of countries, we can see that the traffic being generated by smartphone customers is marginal compared to the traffic being generated by mobile broadband customers using a dongle.

6. The smartphone world is experiencing a battle between OS’s that is very similar to the OS battle in the PC world – where one market player finally managed to acquire almost all the market.

Many media are trying to describe the fragmented mobile smartphone OS market as a battle between a number of market players, that most probably will end with one dominating company. The problem is that the media that are taking this approach are basing their research on the computer world and have simply not understood the difference between the mobile industry and the computer industry. There are very many different mobile OSs in the mobile industry and only a few OSs are being used in smartphones – compared to the great many different OSs in mobile phones around the world. The mobile world is much more fragmented than the image you get if you only examine the few smartphone OSs and the mobile industry’s OSs will continue to be fragmented for many years to come. Quite simply it will take at least five years before there is any trend towards seeing some dominating mobile OS market players and it will most probably take around 10 years before two or three market players are actually dominating the market.

7. OSs based on open source are inexpensive to use for mobile phone manufacturers.

In the computer industry many people are convinced that open source is cheap – and when you look at what Microsoft is charging for Windows and their Office package, that is probably true. However in the mobile industry, the price for a smartphone OS is marginal compared to the total price of developing and manufacturing a smartphone. A breakdown of the development costs show that costs for IP, components, software integration etc. are so high that the actual price of a mobile OS is of marginal significance when manufacturing a smartphone.

8. The iPhone has both created and revolutionised the smartphone market.

There is no doubt that Apple has created a very stylish mobile phone. But to claim that Apple has revolutionised the smartphone market is incorrect. Touchscreen mobile phones is old news that started when Ericsson launched their model 380 over 10 years ago in the year 2000, not to mention the application interfaces being designed by Trigenix shortly after and the Flash Light solutions that Macromedia launched in 2003. The fact is that the iPhone is simply a flashier packaging of old solutions that have been around for many years. The only revolution Apple may have started is how to market a mobile phone by taking advantage of an uncritical press that have solely been focusing on one product.

9. Android is showing impressive growth and unparalleled success.

Yes, there is no doubt that Android is showing impressive growth, but how many people have actually examined who is creating this growth and why? During 2010 Android sales will grow from 6,8 million to 54 million devices, but a large share of these devices are from either HTC or Sony Ericsson, that together will have +60 % of the total 2010 Android sales.

When we started examining why the Android OS has received so much support, we saw that Nokia had in fact forced many low and medium end mobile handsets completely out of the market, resulting in various market players including Sony Ericsson moving focus away from the low and medium end handset market and instead focusing on smartphones. The enormous pressure from Nokia has resulted in many of their competitors scrapping their OS ventures (e.g. UIQ closed down), and instead focusing on alternatives that Nokia could not influence. As Microsoft could not offer a serious smartphone OS during 2009/10, many manufacturers naturally chose Android.

10. Nokia’s role on the smartphone market has been marginalised.

A lot has been said about Nokia and Nokia’s role on the smartphone market. The fact is that for a very long time, Nokia was almost alone on this market, but with the increasing competition from an increasing number of market players, it is only natural that Nokia is now experiencing more pressure and losing market shares. Nokia’s figures still show that Nokia has a larger smartphone market share than they have on ordinary mobile phones.  Nokia will probably sell over 100 million out of the predicted total of 267 million smartphones that will be sold in 2010.
The only place that Nokia’s role has been marginalised is in the media that is trying to describe the smartphone market – Nokia has most certainly not been marginalised regarding the number of Nokia smartphones that customers are choosing, purchasing and using.

It is safe to summarise that the smartphone market is being dominated by a number of myths that are based on what the press believe, rather than real figures and information from the mobile industry. On the other hand we have no doubt that this market will over time become more transparent, as an increasing number of people acquire more knowledge about what types of mobile devices customers are in reality purchasing and using.
If you would like to learn more about Strand Consult’s workshop concept and how we can deliver specific information and recommendations to your company about the smartphone market and how it is developing, please do not hesitate to contact us by clicking here  Contact Us
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