One of the key questions about where the demand opportunity for high-tech will be is about the adoption of smartphones: what will be their penetration?
One of the important considerations here is the price point:
we’re already seeing smartphones on the $99 value menu offered to consumers
a key and closely related question is how much do these smartphones cost, to the network operators who market them, and to the vendors who build them
A news item from DigiTimes, which follows the ODM and EMS community in Taiwan and China closely suggests that prices may be falling faster than (some had) anticipated, heralding smartphones for the teeming masses, rather than just the technological elite.
Prices for Android-powered smartphones are declining at a pace faster than expected due to competition for orders from handset makers in Taiwan and China…
Huawei Technologies has pursued an aggressive pricing strategy to push sales of its Android phones, especially through telecom channels… China-based telecom equipment and handset maker is making a second customized Android-powered phone, the Pulse Mini, for T-Mobile, which will begin to market the model in the UK in April 2010 with an unlocked price [that] represents a reduction of over 54% compared to … its predecessor, the Pulse, said the sources. Huawei began to ship the Pulse to T-Mobile in the fourth quarter of 2009.
Despite the threat from Huawei, most Taiwan handset makers insisted that they will continue to focus on medium- to high-end Android models to avoid fierce completion in the low-end segment.
A long while ago, just about at the point at which most everyone was proclaiming the ascendancy of the PND, I challenged conventional wisdom and predicted its imminent decline and demise. iSuppli caught up recently.
Now, as David Pogue notes in the NY Times, Android 2.0 may have helped nail the lid on the coffin:
In addition to great speed, great audio and great cell signal, the Droid offers Android 2.0’s new navigation software. It’s as close to a suction-cup GPS unit as you can get on a cellphone, with spoken street names, color coding to indicate traffic, map icons (for parking, gas and so on), satellite view and even street photos of any address. Buy the $30 windshield bracket, which fires up the GPS automatically when you insert the Droid, and nobody will know you’re not running some $500 GPS unit.
The real mind blower/game changer? This software is free. All of it. I’m guessing there wasn’t much cheer at Garmin’s Halloween party this year.
Overall, the Droid, notwithstanding its lack of WiFi, seems to be a worthy contender:
the Droid wins on phone network, customizability, GPS navigation, speaker, physical keyboard, removable battery and openness (free operating system, mostly uncensored app store)
the iPhone wins on simplicity, refinement, thinness, design, Web browsing, music/video synching with your computer, accessory ecosystem and quality/quantity of the app store
I’ve been testing the Droid, and while it has some significant drawbacks, I regard it as a success overall. It’s the best super-smart phone Verizon offers, the best Motorola (MOT) phone I’ve tested and the best hardware so far to run Android.
The Droid is potentially a big win for Verizon, Motorola and Google
[Although] Android still isn’t as slick or fluid as the iPhone’s OS
[The Droid] is only a tad longer and thicker than the Apple product. But it’s 25% heavier, which makes it less comfortable to carry around in a pocket.
Unfortunately for lovers of physical keyboards, I found the one on the Droid to be pretty awful.
There’s a great (albeit lengthy) post on Gizmodo about Android, although the title may be a little overstated:
[Android] 2.0 is more than that: it’s proof that Android is finally going to take over the world
As a digression, it’s fascinating to see how a technological innovation can re-shape language: the former meaning of android is now relegated off the first page of search results on Google, which led me to try ‘androids‘ as an alternative:
The article from Scientific American about this date with a robot can be downloaded here; I find it intriguing partly because I began my career as a roboticist and cyberneticist.
Although it may overstate the case, because we are just in the earliest stages of a fierce contest amongst at least five credible competing app phone platforms, the post from Gizmodo does summarize well much of what provides the impetus for Android and why Android 2.0 is so important:
it’s “the first truly open and comprehensive platform for mobile devices.“
Android 2.0 means the handsets aren’t just interesting anymore; they’re truly buyable
In addition to everything else Android has going on, timing is on its side. Windows Mobile is limping along with two broken legs…
…as far as most consumers are concerned, anything Windows Mobile can do, Android can do better
The Palm Pre, polished and beautiful as it is, can’t keep up with Android’s exploding app inventory, multiplying hardware partners and rock-star ability to draw talent
Android 2.0, along with Palm’s WebOS and Apple’s iPhone OS, are the main reasons the BlackBerry OS feels so clunky and old
Let’s take a quick look at each of the other major contenders:
the iPhone is the current leader, and critically works well across not just app phones, but through iTunes across other platforms such as personal computers and TV
although RIM’s BlackBerry has been the long-time leader in the enterprise, it is not doing as well in the consumer marketplace, particularly outside North America, and its software platform (RTE, APIs and SDK) looks increasingly clunky in comparison to iPhone and Android
Nokia is investing heavily in the transition to Qt and Maemo – the big question is really can it get there fast enough
Microsoft’s most recent release of 6.5 was late and lacked usability, and despite some good things being said about it 7 is still some way off, eroding support for it
while WebOS is technically elegant, the Pre’s implementation is slow, Palm lacks distribution and was really late with its SDK – it will be extraordinarily difficult for Palm to overcome these handicaps and establish itself as a credible competitor in the face of the likes of Apple, Google, Nokia, Microsoft and RIM
Android’s a strong contender, but it’s by no means yet certain that it will rule the world. In fact, one of the real possibilities is that rather than reaching a tipping point, a few of these will co-exist over the medium- or even long-term.
David Pogue has a review today of Motorola’s Droid which includes some discussion à propos how to categorize and name devices of this type.
Motorola Droid
He promotes the noun ‘app phone‘ for them, attributing it to @mentalworkout.
[Cool app, BTW, for those who have fear of flying. I took the Virgin Atlantic flight to London earlier this week; if you're lucky enough to fly in Upper Class, it's such an extraordinarily soothing experience that you probably don't need the app.]
I really like ‘app phone‘ , and suggest that we all adopt it for this class of devices:
Nokia’s N97 and N97 Mini running the latest version of Symbian
This post re-surfaced for me, however, one of the key topics that we have found ourselves debating frequently over the last many months; what is a ’smart phone’, and what should we call it?
This is a common challenge in high-tech; how do you think about new phenomena? How do you build robust mental models? We believe that having the specialist expertise to do this, and the relevant experience of having done this, is one of the key things that differentiates Endeavour Partners.
First, what are the key criteria:
downloadable applications – in which case do BREW and Java devices qualify?
user interface, such as (responsive) touch screen or QWERTY+touch pad/trackball interface to allow easy navigation for the web and similar applications
running multiple applications – which disqualifies the iPhone?
great at browsing – typically with a full WebKit browser
third party applications have to be available, affordable and accessible
what about size – is there some constraint here, because otherwise a laptop could qualify?
And what about the additional capabilities that are now part of the competitive benchmark:
fast graphics – for video, browsing and gaming
accelerometers
GPS – for location services
WiFi
There are several specific devices or types of devices that illustrate this challenge, and the grey areas involved:
older BlackBerrys with thumbwheels but without trackballs – great at e-mail web but suck at browsing
the Nokia E71, a great (particularly when it launched) device handicapped by its click-pad for navigation (which on one occasion proved enormously frustrating as the cursor moved in clicks that circumnavigated a small target without ever being able to actually click on it, on a site that should have been designed with mobile devices in mind – Handango)
Nokia E71
many of Nokia’s myriad Symbian S60 devices that have 12-key keypads, lacking either a touch screen or a viable navigation method for browsing
and what of the forthcoming Nokia N900 – is this a smartphone, or not?
and given how unresponsive the touch screen on the N97 and N97 mini can be, and some of the usability challenges that remain with Symbian, do the N97 and N97 Mini qualify?
almost all Windows Mobile devices, that lack a touch pad, requiring a stylus or arrow keys for what is enormously painful navigation (Sony Ericsson’s Experia X1 is one of the few devices that overcomes this challenge)
On purely pragmatic grounds, and notwithstanding flame wars from some purists and Verizon’s new advertising campaign, clearly any definition that excludes the iPhone on the technically focused grounds that it does not run multiple applications at once, except for some built-in apps such as Mail and Phone, does not make much sense. Although this may be an important consideration, it clearly does not deter users, and the ease of switching amongst applications mitigates this significantly.
The related question was what to call these things? We tried the term ‘smart device‘, to emphasize the that the capabilities went way beyond making a call. Unfortunately that promotes confusion as it embraces some very devices that do not have ‘phone capability at all.
So, let’s endorse the term ‘app phone‘ for these high end devices, and use the term ’smart phone’ for the broader group of which these are a subset.
We’ve been taking for granted what I think may be a central insight:
The smartphone is for the masses, not a high-end niche of techno-geeks and status seekers.
Within 5 years, smartphones will represent roughly 50% of mobile device shipments, 75% of device market revenues, and 90% of industry gross margin potential. In developed economies, smartphones will represent 40-50% of the installed base of users. In 7-10 years, virtually all mobile phone subscribers will carry a smartphone. Different markets will develop at slightly different rates based on replacement cycles, how prepay vs. postpay plays out, etc. But the end result will be the same: People will own smartphones like they own toasters or microwaves or shoes.
Quick messaging devices (QMDs), feature phones, and basic mobiles are the niche devices: A smaller segment of users willing to accept a constrained experience in exchange for… In exchange for what, exactly?
In the US, the $99 value menu is already dominated by late model smartphones such as the iPhone 3G and earlier Blackberries. In some other markets, the iPhone is already free with a subscription. Costs and prices will only go down from here.
Displays, memory, processing power, battery life, wireless broadband connectivity – all are getting cheaper by the day. The major barrier to smartphone adoption was the user experience. The smartphones of three years ago (think Symbian or Windows Mobile) could do lots of things but none of them very well. And the added capabilities would come at a steep price premium. Under those conditions, people chose a device with limited capabilities – a targeted device that worked well for the activities that a particular customer or segment cared about. A device that could be squeezed into a low enough price point to attract a wide enough audience to recover all the non-recurring engineering costs associated with the broad product line required in such a market.
But these conditions no longer apply. The smartphones of today and tomorrow (think iPhone, Android, Blackberry, WebOS) are joyfully easy to use, and can meet all of these customer requirements in just a few form factors. The functionality of a smartphone is as seemingly infinite as that of a PC – perhaps more so as many additional use cases are opened up by the anytime, anywhere availability of having a smartphone in your pocket. Costs will come relentlessly down. Performance and capabilities will improve. Late model and “pre-owned” smartphones will find their way to the bottom of half of the market, either shipped to developing markets or sold on Ebay or Craigslist.
How will the market be different with billions of smartphone users? How will the world be different? These are the fundamental questions facing our clients.
One of the key trends that we’ve been trackingclosely is the emergence of the smartphone as a handheld gaming platform:
the threat it poses to specialized handheld gaming platforms, such as the PSP and Ninetendo DS, which it rivals or surpasses in performance
how significant an opportunity this may become
Gameloft announced today that it has sold over 6 million paid games:
Gameloft(R), a leading publisher and developer of downloadable video games, today announced that it
has sold over 6 million [paid] games on the App Store.
From the distribution model to the types of games available, the App Store has completely revolutionized the way handheld games are played, perceived and received
The iPhone OS continues to be Gameloft’s number one platform
Clearly, as competition amongst smartphone platforms and smartphone vendors intensifies, one of the key factors that determines the outcome will be how good they are as gaming platforms, how attractive they are to games developers and the strength of their business ecosystem.
News today suggests that Palm wants to embrace Google Voice, even though Google may not be as keen to embrace Palm.
We’ve heard from a source close to Palm that the company plans to roll out deep integration with Google Voice on the Pre phones for users who want it. That could convert a lot of iPhone users to the Palm Pre fast.
This illustrates extraordinarily well the role that asymmetric competition plays in triggering ‘creative destruction’, and the transformations that high-tech undergoes periodically. One such transition underway at the moment is the move in several different arenas to ‘over-the-top’ services, in which insurgents (Google) and underdogs (Palm) leverage rich connectivity and smart devices to disenfranchise and disintermediate conventional telcos’ smart switches and dumb devices.
Google voice
It’s these underdogs, who have little or nothing to lose and much to gain from it, who creatively destroy established business models. Any share gain for Palm would be a big deal; without something that gives it much more impetus it’s not going to achieve escape velocity, and will likely crash and burn. If Google can provide this, then well and good; the opportunity cost to Palm of any revenues foregone is small.
It’s not yet clear how Sprint will respond; again as arguably the weakest of the fab four it may well perceive the potential market share gain as outweighing the ARPU downside.
And as far as Google goes, all of this is good news. It may not officially endorse Palm and the Web OS in this context, given its linkage to the Android OS ecosystem, and need to be seen to be continuing as a strong supporter, but it nevertheless benefits from this.
But should the strong players, such as Apple or the major MNOs be seriously concerned about this? It’s suggested that Apple should worry:
this could convert a lot of iPhone users to the Palm Pre fast
Frankly, I’m skeptical; good as Google Voice is, it’s already available on other platforms, and extending this to the Palm Pre is not going to make it a winner in the marketplace; at least at the moment despite the excellence of Web OS from a usability perspective, Palm has not yet demonstrated that it has the market momentum needed to build a strong and sustainable business ecosystem.
Palm’s major mistake was that it delayed the launch of the webOS SDK until April, allowing its new phone go the entire summer without a real ecosystem. Sure, Apple was able to launch the iPhone without any real developer support, and the company took its sweet time in releasing the iPhone SDK. But Apple wasn’t going up against competitors with software distribution platforms that were high volume or high profile. When the iPhone SDK was ready, it came with an app store that’s every bit as revolutionary as its music distribution platform was.
When the Pre launched, it was competing with the iPhone ecosystem from day one, but you wouldn’t guess it from the way Palm has handled things. The initial app store catalog was small and lackluster, but it could’ve been ramped up quickly with a range of apps showing what the Pre hardware can do. But here we are in August, and no one’s Pre has gained any new capabilities. There’s nothing new for the press to write about, nothing for any Pre owners to show off to their iPhone-using friends, and generally no reason to get excited all over again about Palm
It’s all about timing. If Palm had come out several months earlier, and got its act together on the SDK, the whole landscape would be very different.
There’s an interesting post on Lukas Mathis’ blog, ignorethecode.net on virtual keyboards, which drives home how important are small differences in size to usability.
This is a comparison of the virtual keyboards on the iPhone, and it brings out how small differences (<10%) in size make a big difference in usability:
However, the HTC Magic’s screen is only 90% as tall and wide as the iPhone’s. This doesn’t seem like a huge difference, but it actually has noticeable effects on usability. This is a comparison of the screens of the two devices, scaled to match the proportions of the real devices:
Virtual keyboards on iPhone and Android
This small difference is one of the ways in which the iPhone’s virtual keyboard outperforms the Android version.
Moreover, in a fascinating recent comparison, one of the surprising advantages of a virtual keyboard was driven home; in a recent discussion amongst some of my colleagues and contemporaries, and with my daughters, the perennial question of physical keyboard versus virtual keyboard came up. The BlackBerry guys insisted that (not least because of their years of experience) the BlackBerry’s physical keyboard could outperform the supposedly ‘error-prone’ virtual keyboard of the iPhone. In a head-to-head test, the young iPhone users won, however. Interestingly, they emphasized one particular aspect: a touch/virtual keyboard is faster because you don’t have to physically press the key down…
Posted by Michael A M Davies 
Michael A M Davies
Brad W Hagedorn
Moe Kelley
Amy Bullard Davies
