Endeavour Partners - Blog

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.

For Sony Ericsson’s forthcoming X10:

[youtube=http://www.youtube.com/watch?v=BPw-yKyxAuU&color1=0xb1b1b1&color2=0xcfcfcf&hl=en&feature=player_embedded&fs=1]

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:

[youtube=http://www.youtube.com/watch?v=biBHJvGx3s8&hl=en&fs=1&]

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:

• Apple’s iPhone
• all current Android ‘phones
• most modern BlackBerrys – post Curve
• Palm’s Pre
• 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.

This morning at 4G World in Chicago, Bill Morrow, CEO of Clearwire, described the need for 4G networks to support bandwidth hungry applications on smartphones, and we can’t agree more.

He demonstrated the difference between an iPhone’s performance using AT&T’s 3G network and an iPhone using WiFi to connect to Clearwire’s 4G WiMax network.  The difference was impressive:  Clearwire’s network performed beautifully for both streaming video and Google Earth, while AT&T’s network was sluggish.

Unfortunately, it is exactly this need of 4G smartphones for data capacity that will likely spell the downfall of WiMax.  By our estimates, smartphones will be responsible for roughly 50% of mobile data traffic within the next five years.  But the iPhone is not available with WiMax – and neither are any other mainstream smartphones.

Yesterday Kris Rinne opened the 4G World conference by laying out AT&T’s plan to forego HSPA+ and move directly to LTE, with commercial rollouts beginning in 2011.  This is slightly behind Verizon’s aggressive LTE deployment across 20-30 markets planned for late 2010.  The iPhone, RIM’s BlackBerry, Windows Mobile devices, and a wide variety of Android devices will all be available to run on these LTE networks.

WiMAX is a great technology, but the window of opportunity is short.  Ultimately, the availability of leading smartphones, apps, and content will determine 4G winners and losers.

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…

As executives, analysts, and advisors we spend a lot of time arguing about metrics and data, and where we need to be to survive and thrive in the market place.  An old joke reminds us that relative performance is all that really matters:

Two hikers are cornered by a bear and climb a tree.  One of the hikers reaches into his backpack, pulls out a pair of running sneakers and starts lacing up.  The other says, “What are you doing?”

“I figure we will have to jump down from here eventually.” says the first.

“But you will never be able to outrun the bear,” says the second.

“True.  But I figure all I really have to do is out run you.”

We are bombarded with random statistics on companies and products and financial performance, but it is important to realize that context matters:

• who are the key competitors?
• what is the real playing field on which we are competing?

Getting the right basis for comparison is critical to both understanding current performance, and to deciding what to do to improve future performance.

There is currently a great deal of interest in Apple’s iPhone and the Palm Pre and comparisons abound regarding sales and usage figures.  Most of these comparisons are confusing and not terribly helpful.

For instance, the Palm Pre sold around 370,000 units in its first month of sales while the new iPhone 3GS sold roughly 1 million units in its first weekend.  iPhone users have downloaded over 1 billion applications while Palm Pre users have only downloaded about 1 million.  Clearly the iPhone 3GS is outperforming the Palm Pre on an absolute basis, but does this make the Palm Pre a failure?  What are the right measures to make an ‘apples-to-apples’ comparison?

Some additional information and framing can help us decide:

• the Palm Pre is supported by Sprint (49M subscribers) in the US while the iPhone is supported by AT&T (62M subscribers) – and Sprint has been losing subscribers while AT&T has been growing them
• the iPhone is available in 88 countries while the Palm Pre is available in only one (although it will soon launch in several others)
• the iPhone 3GS is a third generation product while the Palm Pre is a first generation product

While looking at raw recent sales statistics the iPhone 3GS has nearly a 30x advantage over the Palm Pre, but comparing the Pre against the first generation iPhone and viewing these statistics on a cumulative basis since launch, the Pre looks much better:

Palm Pre on track for strong growth

Even more compelling, however, is a comparison of one quarter of projected Palm Pre sales vs. Sprint’s prior quarter subscriber net losses.  The Palm Pre represents a radical change in outlook for Sprint, perhaps singlehandedly moving them back into subscriber growth:

The Palm Pre has the chance to singlehandedly move Sprint back into positive growth

Roughly 34% of Palm Pre buyers have been new customers to Sprint, similar to the iPhone’s 30-40% new to AT&T numbers reported at this stage.  But much more importantly, the other 66% of Pre buyers stayed with Sprint while upgrading devices rather than switching away from Sprint to other networks for an iPhone (AT&T), Blackberry Storm or Tour (Verizon), or Android G1 (T-Mobile).

It’s early days, but at least so far the Pre is doing better for Sprint than the iPhone was for AT&T at the same time. Longer term, Palm faces significant strategic challenges in building its ecosystem and attracting application developers.

With the dawn of the superphone, where is Microsoft? – FierceWireless

In a post on FierceWireless about smartphones (which he tags superphones), Stephen Drake poses the question that many of us are wondering about – what is Microsoft going to do?

It seems to me, however, that although it’s the right question, he’s missing the point, focusing on aesthetics and hardware, rather than on ease of use and software.

He characterizes these smartphones (or ’superphones’) as a:

“…high-end device class characterized by its ‘wow factor,’ a real or perceived buying frenzy, or an otherwise stylish, functional and pretty-to-look-at device…”.

While aesthetics matter, as hardware features, functions and form factor continue to be difficult but do not any longer differentiate, he completely misses the single most important factor: the user experience.

Talking about the Pre, he focuses on its: “…multi-touch capabilities and beautiful interface…”, hardware and aesthetics, when what matters about the Pre is WebOS. And the apps. Or lack of them.

When he comes to Microsoft, he asks where is “… the iconic, shiny device that users have coveted….” There are iconic, shiny devices: Sony Ericsson’s Xperia X1 for example, but WinMo just isn’t there.

Yes, aesthetics matter, but much less so than first ease of use, then the ecosystem (apps and content), both of which outweigh elegance.

Unless and until Microsoft can deliver the usability that customers are coming to expect from Apple, Android and Palm, it will remain uncompetitive.

Tragically, although this should have been apparent since before the launch of the iPhone, as Andy Lees put it at the announcement in Barcelona in February of the forthcoming 6.5 release:

“…[the user interface] seemed less important…”