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A “Smarter” Smartphone

With the global economic recession reducing the demand for mobile handsets, smartphones shine as the single bright spot in an otherwise depressed market. As a result, industry stakeholders become increasingly invested in their success.

While new consumer-oriented handsets have expanded the appeal of smartphones beyond the corporate world, mobile internet usage has not yet become mainstream; the high prices of both handsets and data plans remain considerable barriers to penetration. To improve affordability without destroying profit margins, individual stakeholders in the mobile value chain need to work collectively to generate economies of scale and reduce operational costs.

Smartphone Growth Bucks Industry Trends:

The demand for mobile phones saw a 9.4% year on year decline in the first quarter of 2009 – the steepest contraction in demand since Gartner initially began tracking the market. However, with sales increasing by 12.7 percent in the same period, smartphones are clearly defying industry trends[1].

Breaking down smartphone sales by manufacturer, both Apple and Research in Motion (RIM) saw significant gains in market share at the expense of Nokia, the current market leader. A strong first quarter performance for these two companies indicates that as smartphones increase their presence in consumer markets, mobile applications and services have become increasingly integral to the mobile experience, and users are willing to invest in costly handsets and data plans in order to enjoy their benefits.

The Handset Market Has Grown Increasingly Polarized:

Given the popularity of high-end handsets and slow sales in the mid-market, Ovum, a global advisory and consulting firm, has found that the mid-tier handset segment has been hit hardest by the economic downturn.  The dissolving middle-market has left vendors and mobile operators focusing on two types of handsets — the low-end and high-end segments. [2]

High-end smartphones have become a priority because of the strength of their recent performance while low-end mobile devices are attractive because of the opportunity to sell a high volume of these less costly devices in emerging markets.

However, Ovum also predicts that global mobile phone shipping volumes will be down by 9.1 percent by the end of 2009. As a result, to combat declines, mobile stakeholders must dive deeper into current trends and their impact on future sales.

Focusing On Only the Highest Income Consumers Will Hinder Growth:

As the handset market grows increasingly polarized, industry stakeholders may taking the high-end market for granted while failing to realize opportunities to open new markets.

A recent iPhone consumer survey from Nielsen reveals that 40 percent of iPhone users have household incomes above $100K. For those consumers whose financial situation affords them a certain luxury in purchasing decisions, high-end handsets and data plans are in keeping with their lifestyles. However, the number of consumers who fall in this income bracket is quite small, which means that focusing on this group alone may limit the potential to expand the high-end segment of the mobile handset market.

Mobile Stakeholders Must Increase Affordability of Handsets and Data Plans:

On the other hand, there are many indications that a more price sensitive consumer might be interested in purchasing a smartphone at a lower cost or discounted price. For example, the recent “buy-one-get-one” promotion that Verizon Wireless used to stimulate sales for Research In Motion’s (RIM) BlackBerry Curve, was so successful, that, in the first quarter of 2009, the Blackberry Curve became the best-selling consumer smartphone in the US, indicating that for some consumers, cost remains a significant factor in handset purchases.[3]

Manufacturers, service providers, developers and other firms with a vested interest in the success of the mobile industry can increase the growth of web-enabled mobile devices by improving the affordability of handsets and data plans, which are currently too expensive to appeal to a significant volume of otherwise interested consumers.

Expanding the Market Will Benefit All Parties in The Mobile Value Chain:

While, in the past, carriers were particularly opposed to lowering costs and priced data plans high in an effort to limit network saturation, recent financial and political shifts may alter their attitudes around increasing subscriber volume. With wireless penetration rates already high, more aggressive competition coming from the prepaid sector, and the economy struggling, Morgan Stanley recently downgrading both Verizon and AT &T to overweight. As a result, the pressure is on for carriers to prove the strength of their business model.

For manufacturers and developers there are multiple benefits as well – bringing web-enabled handset adoption the lower end of the market will expand their market size significantly.

Mobile Stakeholders Must Act Collectively to Increase Profits:

Currently, fragmentation in mobile operating systems and environments and management makes it difficult to provide a mobile service for the mainstream consumer. As a result of individual companies creating “walled gardens” around their own developments and repeatedly reinventing the wheel, the cost of handset development is high and the speed and frequency with which innovations can be brought to market is reduced.

Similarly, inoperability in data service management creates net inefficiencies that cause bandwidth and data service to remain so expensive for carriers that it becomes difficult to reduce costs for the end user. While tiered pricing may be one way to increase subscribers, as carriers initially feared, it has the potential to slow down the network for current customers and offer limited bandwidth for new ones.

To avoid losing current customers or destroying profit margins in the effort to appeal to price sensitive consumers, all stakeholders must first increase economies of scale in their own business models, and then leverage collective gains in efficiency to improve affordability for the end user.

[1] Gartner, “Dataquest Insight: Market Share for Mobile Devices, 1Q09.”

[2] Ovum, “Mobile phone forecast pack 2008-2014,”

[3] NPD Research,


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