I've been doing some nasty blogs recently, very negative vibes. I wanted to do something positive for now, especially to celebrate our 1 millionth page view on this blog today. And as I've been doing so much of the segmentation thinking in mobile over the years, the industry's first segmentation book, Nokia's first Segmentation Manager, running segmentation workshops on all 6 continents and all that, I thought many of the readers of this blog would be interested to see my best effort to split the smartphone market into 8 segments (or actually 10) and give my best views on those segment sizes, what peculiar needs a given segment (ie its customers) may have, and obviously how the major smartphone makers fit into given segments. This is based on some current thinking I have for a cool project you guys will hear of later in the year, but this part has been ready for a while and I think it helps illuminate the smartphone 'bloodbath' opportunities.
(Long blog warning! This is one of Tomi's trademark long detailed fact-overloaded blogs. If you really are not very intersted in the finer points of smartphones, feel free to skip this blog. But if this is a passion of yours, I intend this to be one of the blog posts you will find most valuable on this site... Go get that cup of coffee first...)
Obviously this is based on some deep thinking and analysis and my statistics databases and normally this type of work would be several days of highly paid consulting. So consider this as a gift to you. A bit of very rare mobile phone segmentation thinking, out in the open domain. You don't see that every day haha. Fair?
So this is segmentation thinking about smartphones. Those who were here last year will probably remember one of my most referred and revisited blogs which I entitlted: 'Smartphone Realities Part 2 - what determines who wins in smartphones." That lengthy and detailed blog explained why the mobile phone market in general, and smartphones in particular are not an 'open' or 'fair' market where real market rules apply. That the best phone does not always win. That the game is severely stacked against newcomers. I roughly divided the global smartphone market into 3 major groupings in it. That blog very clearly explains why a newcomer like Google was very likely to disappoint inspite of all the big assets Google brought to the table and inspite of its Nexus One phone itself being a credible challenger. The smartphone race is not 'fair'. Similarly that same article explains well what we now witness with Lenovo complaining how much more expensive it was to launchg its smartphones - damaging Lenovo's profitability - than they had anticipated. Yes, many think its one of my most useful and insightful blogs about phones.
So this is a kind of follow up to that blog. Many thought of that as segmentation. That was not segmentation. But similar to that analysis of how the world has 3 major markets for smartphones, we can also analyze the world's smartphone markets - by customer types. Then as always in segmentation, it is a question of how much 'granularity' you want. The more granularity (detail) you want, the more complexity you get. And obviously this being a Tomi Ahonen blog, that means thousands of more words to wade through, haha.
So we need to balance the detail complexity with clarity and simplicity (and utility). So rather than a two day masterclass in segmentation, lets do this the 'light way' haha, and limit us to 8 segments (or in reality 8+1+1 segments ie 10). So we'll end up with 8 separate and unique market segments, where customers within one segment are homogenous within and heterogenous without. Or in other words, for at least some actionable marketing actions (handset design, advertising, pricing, etc), all members within one of the 8 segments should behave similarly - all will hate that design feature or love another (that means homogenous within) - and that segment population must differ in at least one meaningful way from at least one other discrete segment (that means heterogenous without). Ok, enough with the theory lesson. Lets plunge into actionable smartphone segmentation for 2010 !
Here is my main thinking. The smartphone market totalled 175 million handsets last year, and the current projections suggest roughly a smartphone market of 230 million. If your model assumes bigger or smaller global smartphone sales this year, please adjust the math proportionally.
Out of the 230 million, I am removing Japan. Their 'featurephones' often have smartphone operating systems, mostly Symbian or Linux Mobile, but tend to be tightly controlled by the mobile operators/carriers. The Japanese market is so darn advanced that this segmentation model I have is totally irrelevant to them. They now segment by waterproof phones etc haha.. The Japanse smartphone market also features no Western brands in meaningful numbers, it is dominated by Toshiba, Fujitsu, Sharp etc. A typical Japanese situation.
So in round numbers I removed 20 million. The market we are looking at, competed in the rest of the world except Japan, is for 210 million smartphones in 2010. In this market (growth of about 35% from 2009) we are seeing almost all of the growth in the lowest price points, not at the super premium phones that are all in the press, like the iPhone 4, Samsung Galaxy, Nokia N8, Blackberry Bold etc. Roughly speaking two thirds of the smartphones are sold to the 'Industrialized World (excepting Japan obviously) of Europe, North America, Oceania and Advanced countries of Asia. The rest are sold to the Emerging World markets in Africa, Latin America and poorer parts of Asia.
So all other things being equal, each of my segments should be growing at 35%. But some segments are likely to grow faster than others (I will explain my reasoning).
HOW BUILT MY MODEL
I have built a proprietary model of smartphone market performance according to this segmenation model I explain here. I used the best available data and my best understanding and lots of fuzzy assumptions and opinions and reason, to arrive at each segment size for 2009. For example, I decided that one segment is called 'app store' segment, where consumer users selected that smartphone primarily because they wanted access to apps in an app store. In this case, the obvious phones that did particularly well in this segment were the iPhone and Android phones. And equally obviously, the RIM Blackberry did not do well in this - remembering most Blackberry apps tended to be 'business' apps last year. Similarly another segment is the heavy texting youth segment, addicted to SMS. Its very clear to see, that the Blackberry would sell well in this segment, and any pure touch screen phone without a separate QWERTY screen would not sell well there. Same for the musicphone segment, an iPhone or SonyEricsson Walkman or a Nokia Comes with Music phone would sell particularly well here, while for those who prefer a camera, they would then select a SonyEricsson Cybershot rather than Walkman.
Trust me, its been a long journey to make the whole math work and it has tons of 'Tomi opinions' in it, that probably no other segmentation expert would totally agree with, but in the end, I arrived with a model which is consistent with all major smartphone models and brands, and their known shipments or publically speculated shipment numbers etc.
ENTERPRISE IS UNIQUE
So, the first 'real' segment apart from the Japanese market haha, is the 'Enterprise' market (including government and NGO customers obviously). I exclude the small businesses, where a boss or VP might buy any phone they fancy. I mean medium and large enterprises, who buy at least 100 phones and easily 1,000 or 10,000 phones per year. They have an IT department that decides what phones are authorized and connected to the corporate VPN and the IT department installs business apps like integration with their SAP and Oracle and other such systems, etc. This is not the one iPhone for the VP of Marketing.
These are obviously employee phones. I estimated that roughly speaking last year 26% of all smartphones went into the enterprise segment. Remember that not all employee phones are smartphones. But yes, how is this market for 2010? I do project growth but modest growth, far less than the smartphone market that grows 35%. Why? Because enterprises will have a budget for their telecoms. They have classifications of employees who qualify for an employee phone. And those are very tightly related to history and the economy. Yes, we emerged from a recession so its likely that there is some growth in this segment (some new hired employees for example), but no way is the total global employee phones market going to grow by a third in just one year. Ten percent maybe. Not a third. So roughly speaking for 2010, I model the total global enterprise market for smartphones to be 50 million handsets (plus some dumbphones).
Sanity check. For the industrialized world, there is my "20-30-40" rule of thumb, very widely accepted, that about 20% of all mobile phone subscriptions are employee phones (including small businesses, not just large and medium enterprises). If we take two thirds of that market ie 33 million - which is the allotment for the Industrialized World part, we can compare it with 80 million total employee phones sold in this market (according to my 20% rule). Thats a bit over 40% of all employee phones that are 'bulk purchase smartphones'. The small businesses are far larger in number and employ far more than the large corporations, but tend to have only a handful employee phones per company. But it includes millions and millions of single proprietorships where the owner and CEO has his or her private phone as a company phone of course. And remember a part of the market of employee phones are dumbphones. I believe the 50 million number is very reasonable. And as one more sanity check, RIM's total production of all Blackberries this year will be roughly in the 45 to 50 milllion range and roughly speaking half of all enterprise phones worldwide are Blackberries. Again, the math is reasonably sound.
Important notes on this segment. The end user has no say in the phone. They may select from a few options that the employer offers for that classification of employee, and within the few options there, the employee may select, but that decision of the thousands of bulk phones bought per year - that decision was done by the IT department, not Mr Middle Manager who wants an iPhone haha. These phones are often very heavily restricted, not allowed to install consumer apps like games, not allowed to access certain sevices and websites like say Playboy, and not to use the phones for personal gains like say paying for Coca Cola at the vending machine and putting that tab on the company phone bill.
So who fights for this segment. I already said half is owned by Blackberry. Not because its phones have the world's best wireless email, while that is true and it is indeed a factor. The far bigger needs large corporations have are security and remote control and IT integration and data costs. The Blackberry is not only Queen of England's phone and Nato security level cleared smartphone, it has the ultimate security endorsement as its personally demanded by the Blackberry President, ie Obama. You don't get more secure than the most powerful man on the planet, a guy who has two 747 Jumbo jets at his personal disposal just in case there is a nuclear attack and the guy needs to be quickly flown away from the mushroom clouds haha.
Then remote control. All Blackberries come with the total remote control utility that the IT department can disable the phone and erase all data on a Blackberry remotely, if its stolen or lost. The most secure also in this way. The integration effort - and maintenance effort - with large corporate CRM and ERP and other internal data systems are huge projects that run always in time measured in months and in costs measured in millions. When one system - like Blackberry - has been integrated, the IT department has to then maintain dozens of other systems and THEIR upgrades continuously now with the smartphone OS and thousands of phones. The integration and maintenance headache is why IT systems will resist all new OS's and why Apple and Android have no say in the enterprise segment for years and years to come (excepting some very tiny niche opportunities like the advertising industry for Apple obviously, but total advertising employees worldwide are something like 0.4% of all employed people globally, so that won't even register in the math)
And lastly Blackberries have the magic ace in their sleeve - they have the best data compression algorithms in their phones and services, so they cause the least amount of network traffic for the same actual data load, of any smartphone. So the corporations concerned about telecoms costs, especially with business travellers roaming data charges abroad, love the Blackberry. So while we can 'see' the QWERTY format of the phone, Blackberry's real magic is underneath the skin, in the software and the services.
Who else fights for this segment of 50 million. The big rival is Nokia E-Series in all markets except North America, where it is a very distant third place. The only other meaningful rival to get more than a million sales in this segment is Microsoft Windows Mobile/Phone 7 based smartphones, strong second in North America, strong third in Latin America and a distant third in the rest of the world. Thats the first 50 million.
THEN 7 (ACTUALLY 8) CONSUMER SEGMENTS
Ok so far that was the easy part and 'predictable' part. Now for the fun new stuff. I used my best understanding of what are the main distinctive uses of smartphones, and made a very simple model assuming that every person who bought a smartphone last year, did it with only one decision criterion. This is an oversimplification of course. What do I mean?
I mean, that if you selected 'camera' for your purchase decision, then there was no secondary consideration, not QWERTY, not touch screen, not app store, not fashion, nothing else. I know I know that is not how most people think, we almost always have several things we want - but also remember, almost all smartphones in 2009 did many things 'reasonably well'. All had a web browser and a media player so all could be used to surf the 'real' internet, not just an iPhone. All could play MP3 music and video clips, not just the iPhone, etc. But also, obviously, most phones were optimized for something, a few of those needs. The iPhone is clearly the world's best internet surfing smartphone, but it is nowhere near the best cameraphone. You see my point? Because all smartphones do several of these things 'reasonably' well, I can do the simplification, that I only considered the single most important decision criterion.
And do not worry, trust me, I am a trained segmentation professional haha, I am of course adjusting for it a bit later in the model, when we get to the 2010 data. I know most will make decisions on multiple features, not just one feature. I have it covered. But based on these needs, I have my model with 7 classes of features that characterize a given smartphone segment. They are:
Youth Texting (QWERTY) Smartphone
Internet Web Smartphone
App Store (Gaming) Smartphone
Don't Care At All Smartphone
Most are very obvious in their titles. The strangest beast is the last one, the Don't Care At All Smartphone category, so lets start there. Also note, that as we've removed 50 million enterprise smartphones, we have now a total accessable market of 160 million consumer smartphones to be sold in 2010.
DON'T CARE SMARTPHONE
All of us who visit this blog or are at all interested in smartphones will have preferences. For us there are real logical rational reasons why one smartphone is 'better' than another etc. It may seem anathema to us to think, that for some people a phone is just a phone and they could honestly not care less. But among the general public there is a large minority of consumers of any major consumer goods category, who are not bothered by that given good or service. The do buy it, but are simply not passionate enough to care about that thing. Not all things, that thing. Someone could not care which beer, any beer will do. Someone doesn't care which brand of blue jeans, any will do. For some there is no difference between Coca Cola and Pepsi. Are simply not bothered. And yes, someone doesn't care which phone, any phone is ok. Obviously there are degrees of indifference. Someone may honestly mean, liteally, whatever phone. Another will think - as long as its reasonably small and light, or has a nice screen, or a reasonable camera, or is the right color or whatever reason and logic. It used to be, that smartphones were so expensive, that this type of customers were rather rare in smartphones, and it was mostly the truly passionate early adopter types, often nerds and geeks, who knew all the details of every smartphone. But as the smartphones reached mass markets - about a third of all phones sold in the Industrialized World in 2010 are smartphones so its far past the 'early adopter' segment - this 'indifferent' segment has grown.
Who sits in this segment? Its sometimes children (more likely pre-puberty age), where parents decide what phone to give them. It is often gifts that husbands and wives give to their spouces, when one in the family is the 'techie' and the other is not - ie the 'clutz' husband could say to techie wife - "please get me a new phone honey, the old one is now really broken. You know what I want". And it is most often technically relatively naive or ignorant customers, who walk into a phone store, and know they need a new phone or are entitled to a new phone as their contract expires, and they will totally trust what the store sales clerk will sell them. What kind of phone do I want? I don't know, please tell me (and the sales clerk has a field day selling..)
I have no totally solid data on the size, but I have made projetions and assumptions from various sources from time to time, and now for 2010, out of the total consumer market for smartphones, I project 13% are currently sold to customers who 'really don't care' at least not enough to express a strong opinion for an alternate smartphone type.
Quick sanity check. How does this square with total phones sold in the Industrialized World? It means that 3% of all phones sold in 2010 in the Industrialized World, are smartphones sold to totally ignorant, 'I don't care enough to argue' phone users. A bigger percentage will certainly go for featurephones and basic phones, but I think this number is reasonable for smartphones.
Who fights for this segment? This is a numbers game. In China Apple has 15 retail stores to sell its iPhone. Lenovo has 10,000 retail stores that sell Lenovo Android based 'LePhone' iPhone clones. Obviously Lenovo will outsell iPhone in China with these scales. And Nokia? Has 100,000 retail stores in China. That is partly why Nokia is both the bestselling dumbphone and bestselling smartphone in China. Its a numbers game, in particular for this 'indifferent' segment.
So, if you really don't care, the numbers game rules. Nokia will capture far above its overall market share in this segment, in all markets except North America. Samsung is the strong second in all markets including North America. Motorola runs first in this segment in the USA, SonyEricsson does good business in Europe. Thats it. There will be no iPhones or Blackberries sold to the ignorants, they need to have some passion and desire to justify their premium costs and their more 'unconventional' design factors.
This segment size I estimate at 20 million smartphones globally for 2010 (13% of all consumer smartphones outside of Japan)
Then lets go in size, from smallest to largest. Six categories of stated preference, of what is the single most important feature for selecting that given brand or type of smartphone. Musicphones. This was a big category early in featurephones and smartphones. It has now stabilized, all smartphones do some kind of music reasonably well, and if you are truly a music fan, you probably already have an iPhone with iTunes, or Nokia Comes with Music, or a Sony Walkman. But as there is not much innovation and excitement in mobile music today (compared to say apps or ever more advanced cameras etc), I see the music market growing at far slower rate than all smartphones.
There is a vast range of modest music capable featurephones, including many Sony Walkman featurephones, which help address some of the music needs of those who don't want or perhaps can't afford a smartphone. That partly also diminishes the appeal of music in the smartphones category.
For a sanity check, in the Industrialized World, these types of music optimized smartphones would account for 1% of all mobile phones sold. Remember, these are the type of customer who thinks the music (or media) player is more important than the camera, more important than web surfing, more important than apps, etc. So they are 'serious' about having their music with them on their phones. Real music nuts, who almost definitely will also own an iPod (probably several). The ComScore stats for 2010 tell us that 20% of Europeans and 12% of Americans listen to music on their phones. Is it reasonable, that of this group, about one in 15 will be so fanatical, as to make music the primary decision for their smartphone? I think thats reasonable. I don't see it as one third for example out of this group haha.
Who is in the running. This is a three man race. Its the iPhone, its Nokia Comes with Music, and its SonyEricsson Walkman. Thats it. The others have no prayer to hit a million sales in this segment. Nokia is not a player in the US market and SonyEricsson will underperform in many Asian and Latin American markets but generally, its these three.
The total segment size of consumers who make music the primary criterion for picking a smartphone is 6 million globally. That is 4% of all consumer smartphones sold in the world in 2010 (excluding Japan).
Then we get the fashion segment. These are customers who want to have the coolest newest sexiest funkiest most awesome phone. They tend not to care much about how much it costs, willing to 'overspend' on the 'bling' factor of the phone. But in this segment, as in fashion overall, for these who consider themselves trendsetters, when even a great item is too popular and 'used by the masses' it rapidly loses its cool. So the exclusivity plays a big part in this segment and where the iPhone was very chic a few years ago, its now almost passe. But at least the iPhone 4 is superficially a significant redesign, the flat back etc.
These customers think form totally trumps function. (Engineering types tend to misunderstand them all the time). Its the style, the flair, the wow factor, not caring too much if that device happens to be technically the most advanced, as long as it looks good. Fashionistas. But they are very aware of trends. It cannot be known to be a faulty device. So for example right now the Death Grip antennagate for Apple could quickly eliminate the iPhone 4 from this segment. Why? Because the fashionistas know they are often accused of being superficial, if it is known that there is a design flaw in that gadget, ie walking around with it signals to others you have a bad device - that is totally a faux pax. Here again its the fashionista thinking - reality does not matter, its the perception. If you know that others think its a technically rubbish (faulty) phone, no matter how cool you think it looks you can't be seen dead using it. Fashionistas understand all about perception trumping reality. So for example as long as the Blackberry is perceived as a worker's tool, no matter how useful it might be, it cannot be sexy and cool. Its a tool. And cool people don't bother with tools.
Imagine the most vacuous, superficial and condescending snobs you know - that is the type I am talking about. Its only about 1% of the total population and you and I are obviously nothing like that (actually I have a bit of that fault haha). But they do strut around with their Fendi bags and Armani suits and Manolo pumps and go to the hairdresser and travel to the sun for maintaining their perfect tans. You know exactly who I am talking about. The true fashionistas. And yes, they know a good outfit is accessorized by just the right - expensive - smartphone and that phone is replaced often.
These customers shop at the premium counter and ask for the smartphone models not yet in the store, to try to be first to have it. And they will not care if it has 12 megapixels or 3 megapixels or 1 megapixel - as long as it is the phone that everybody will be impressed with. Preferrably one that signals by its mere presence on the table at the wine bar, that you are very successful and stylish, haha...
This segment often does not really know what 'is' a smartphone, but they do know price and perceived value and long before there was an iPhone, they knew that 'smartphone' equals 'expensive phone' which in turn meant that not everybody would have one. So they will want smartphones but won't necessarily even know that they are able to install apps to their gadget.
This segment size is relatively stable over time, growing only modestly. Why? They have already bought a smartphone last year and the year before, there is a small group of the total population who think like this and they have long ago already discovered the smartphone, so the growth is modest.
Sanity check - out of all phones sold in the Industrialized World, according to my model, 1% will be these fashion smartphones. One in a hundred of us is a total unbearable snob? I think that scale is about right.
The players in this space will change very rapidly as the prevailing fashions dictate. So for the new iPhone 4, for example, as the white model is rare, that is the one any self-respecting Fashionista would want, not the 'common' black one. But currently, Androids are hot. Most Nokias are not. A premium or exotic N-Series is the only possible Nokia, godforbid not a dull E-Series. The iPhone 4 may be but also suffers from years of similar form factor and the widespread visibility of iPhones. Blackberry is totally out of the question. Windows Mobile / Phone 7 phones might work in some cases, but any smartphone in this segment needs to be only weeks or at best two months old, cannot be a model from half a year ago. This segment will happily buy the most expensive model in any range of smartphones (which is why all major makers should have some superphone priced flagship phones, and I mean not 600 dollar phones like an unsubsidised iPhone 4, I mean smartphones costing 1,000 dollars and more. This is the class just below the Vertu jewelry style phones haha)
I model this fashion segment size at 7 million total smartphones sold worldwide (excluding Japan) and that accounts for 4% of all consumer smartphones sold in 2010.
Then we get the cameraphone smartphone segment. This segment keeps growing strongly, driven by ever more innovation in cameras on phones. Now we have 12 megapixel camera resolutions, Xenon flashes, HD video recording, tripod mounts, etc. So for those with serious camera interests (or video camera) the newer cameraphone models give an ever more compelling offering. Some semi-pro camera buffs will always carry their Canons or Nikons, but most other camera enthusiasts are finding that the modern smartphone top end camera is actually better than their last stand-alone digital camera, and as the camera feature is 'free' on their newest phone upgrade, there is actually no need to go buy that snapshot standalone digital camera (or camcorder) anymore. I know there are many 'serious' camera freaks who will feel this is stupid, but I report what I find in the real world. Yes, the wedding photograher will not show up with a Nokia N8 to take the official wedding pictures, don't worry. But for normal people, modern top end cameraphones are 'good enough'.
A sanity check. Out of all phones sold in the Industrialized World in 2010, this segment accounts for 2%. So I am not imagining a sudden onrush of camera fanatics to flood the market. There are also great featurephones with good cameras. But yes, is it reasonable that 2% of the total population will want a premium camera on a smartphone and prioritize that ahead of music or fashion or apps etc? I think thats fair. I don't see it at anything near 10%. But 2%, I think thats reasonable.
Who is in the running? This is a Nokia N-Series forte, thanks to their long-standing collaboration with Carl Zeiss. SonyEricsson Cybershots play well in this market but SonyEricsson's recent retreats from many markets limits their global sales. Both Koreans do well, Samsung overall with its own technologies, LG with its Viewty line and Schneider-Kreuznach optics. Blackberries and iPhones need not apply. Any WinMo and Android phones with under 12 megapixels are also out of the running. Nokia will take globally about half this market and SonyE and the Koreans split the rest with Samsung biggest of the three. As the US market is a serious laggard to cameraphones, here is a chance for Nokia to make some gains to the US market but in the USA in general its between Samsung and LG.
I measure this market at 10 million smartphones for 2010. That is 6% of all consumer smartphones.
APPS STORE SMARTPHONES
Then we get the category of smartphones where the buyer actually decides based on whose app store is best, whose apps are best, whose OS is best... for apps. Gamers will be a very big part of this category, and apart from gamers, this will be the nerdiest of all smartphone segments. This is as 'opposite' as is possible from the Fashionistas haha. By apps here, remember I am not talking of enterprise apps, I mean the consumer-installed apps that the consumer personally buys from the app store.
These buyers know intimately well what is the difference between Android and the iPhone (and know why one is better than the other). They know perfectly well why Symbian is not it anymore and why MeeGo won't be it for a long while. They know the differences in the various OS releases and will be doing OS updates to their smartphones in their lifetimes. Very many of these customers have had PDAs before, and tend to have several PCs, laptops, netbooks, tablets/iPads/kindles and their current smartphone is by no means their first one.
Reality check. I measure the total market of all phones sold in the Industrialized World to be this types of apps oriented smartphones to be 2%. Before you complain that it is far too small, remember that all iPhones sold in 2009 worldwide amounted to 2%. And by no means were all or even most iPhones sold because of the App store. Many iPhones were sold for example for music fans or fashionistas or web surfing needs (more than apps). Remember I am looking for the primary reason to buy the smartphone. Obviously most iPhone owners did download apps last year. I mean what is the primary reason to buy a smartphone.
But yes, what of users today? ComScore says that 33% of Europeans and 28% of Americans download apps to their phones (in both cases its higher than total penetration of smartphones, so this includes Java etc apps to featurephones too). Yes, I am calculating that only about 1 out of 15 current users of apps will make an app store the primary reason to buy their next phone - but this is driven by the constricting math. If 2% of all phones were iPhones last year (and under 1% were Androids) - there is simply no way that anywhere near all of those now would make the app store the primary reason. I can't see it. Not today. And bear in mind, we are excluding the iPod Touch and iPad out of this - so there is another installed base of several dozen million iOS users who also download iPhone apps to their Touch and iPad devices. There are more 'users' of apps but that won't push up the sales of smartphones. Those sales go to Touch and iPad, helping Apple yes, but I am not now modeling tablet PC or pocket media player market segments haha.
There are of course many cheaper featurephones which also allow apps to be installed from Java and Widgets on up. So some who are on a tight budget, dont' go the full smartphone route, and still will be able to enjoy some simpler apps on their phones. And definitely the line is blurring also between web surfing phones and app store phones, many apps are used to access a website like eBay's iPhone app etc. Touch screen phones are big in this segment.
Who plays in this race? This is strongly between the iPhone and Android. iPhone dominating with Android rising. Nokia is also a bit player with Ovi in some of Nokia's top markets, but seriously, even in many of Nokia's best markets, if you are a serious geek, Ovi and Symbian won't cut the mustard against iPhone and the Androids. Maybe one day in the future but not now in 2010. Symbian is ok and Ovi is improving but they are not a credible threat to the two masters, not if apps are the primary need. Ovi users will be far more 'light' app users, whose primary need was something else like a camera or music or web or something else. The only markets where Nokia will make a strong showing are those markets where iPhone and the Androids have not yet bothered to make a major entry - that is the poorer half of the Emerging World, meaning Africa, India etc. Even China, Russia, Brazil etc have enough iPhone and Android attention that they will not much tolerate Symbian now. RIM was never in it (their apps sell primarily in business apps) and WinMo is dead. Bada isn't even registering yet and Palm is way way way too small.
I measure the apps store smartphone market globally at 12 million units. Thats 8% of all consumer smartphones sold (outside of Japan).
WEB SURFING SMARTPHONES
A close cousin to the app store segment, but marginally bigger. This is primarily because Nokia's non-US presence in smartphones has made it the de-facto global leader in mobile web use. (Yes, thats true when including dumbphones, and obviously by counting users, not data traffic usage. By data traffic usage iPhone trounces all other smartphones simply because almost all iPhones are sold with some type of all-you-can-eat data plan that no other branded smartphone has on a comprehensive global level. But not counting usage, counting the number of individual users, Nokia mobile web browsing users outnumber any other web users including all PC brands on the internet ie HP, Dell, Lenovo, Acer etc)
But please don't misunderstand me. While Nokia has the quantitative edge in numbers of mobile web users, Apple totally rules the qualitative edge. And if your smartphone purchase is driven by your need to surf the internet, after you've seen an iPhone, that is what you want. Its the gold standard. Android is good, some Samsungs and LGs (often on Android or WinMo) with touch screens also good - both have more featurephone touch screens than smartphones. Nokia's touch screens have been miserable so far. And the heavy web user on a phone - on a smartphone - will want the mobile touch web. This market is almost exclusively touch screen surfing in 2010.
But this market is particularly price sensitive. Many who want web services on their phone also want Skype to skip on mobile phone calling costs, and expect to see all their content and services free like they are used to on the 'real' web on a PC. So many here will want WiFi connectivity and then expect to use free WiFi at some nearby free WiFi hotspot they've discovered etc. So the iPhone price tag is severe sticker shock here, and low end touch screen Androids should do particularly well.
Sanity check. So when we model it to the total phone population, I find 3% of all mobile phone buyers in the Industrialized World to select a web optimized smartphone for their purchase. Comscore said that 22% of Europeans and 30% of Americans surf the web on their phones today. Is it reasonable that roughly one in ten of those would be so obsessed with mobile web surfing, that it governs their next phone purchase? I think thats a fair guess. I don't see it as 1 in 5, so the rough magnitude seems fair.
Who is in this game? This is Android's strong suit because of a vast array of devices across multiple price points. Apple is the gold standard for those who can afford it. Samsung WinMo and LG WinMo will fight for some bit parts (both included in the Android numbers obviously with HTC and Moto etc). Nokia will be relevant in the emerging world markets mainly and there not with N-Series or E-Series premium phones, but the lower cost basic Symbian smartphones. RIM is out of it.
My math gives this segment a size of 15 million smartphones globally which is 9% of all consumer smartphones sold (excl Japan).
YOUTH TEXTING SMARTPHONES
Then the biggest segment is the youth texting (aka QWERTY) segment. This needs a bit of specifics. SMS text messaging is proven to be addictive in university studies. As addictive as cigarette smoking. Downloading apps or taking pictures or surfing the mobile web is NOT addictive. SMS is. SMS text messaging is the most used data application on the planet with 3.9 billion active users today - that 3 times the number of all personal computers on the planet including all desktops, notebooks, netbooks and tablets like iPad, The active user base of SMS is more than twice the size of the installed base of all televisions on the planet. SMS is already used by 64% of Americans, who are very late to the game, the world average is 78%. Compared to any other motivators here in this blog, SMS is different. It is proven to be as addictive as cigarette smoking!
That by itself does not explain this segment. But now the youth. One third of all youth from South Korea to the UK to the USA, send on average more than 100 SMS text messages every day. On average, each sent message for these heavy users results in a reply message. So one third of our teenagers on the planet, look at their phones once every 5 minutes of every waking hour of every day, because they are either sending or receiving a text message. Every 5 minutes. 42% of American youth already admit they can type text messages 'blindly' ie with their phone hidden in their pocket or out of view. Half of European youth do this. Half of British youth admit to sending SMS text messages while they are talking to someone else, like a parent or teacher. A third of the youth admit to sending SMS in school during class. A fifth send SMS from the movies while the movie is on. Half of the youth send SMS from the dining table. Many young people can text simultaneously two-handedly on two phones at the same time. 10% of UK youth think its totally ok to send SMS messages while having sex. And 40% of the youth will wake up from sleep at night to incoming SMS text messages from their friends and mates. Some parents use SMS wake-ups for their sleepy-headed kids in the morning.
SMS is different from all others in this model. Now, if you are so heavily into SMS that you can send SMS blindly, you will never consider as your primary phone, any pure touch screen phone. Sending SMS secretly is part of your persona, it is a near-telepathic ability to avoid detection by parents, teachers, the bully in school, the nosy older sibling, etc. You will never stop using it. Remember - SMS is proven to be as addictive as cigarette smoking. A touch screen phone with a QWERTY slider/folder keypad is fine. But a pure touch screen phone a la iPhone is never going to happen to this segment. Remember what I told you, even in America 42% of the youth already send SMS blindly.
This segment is growing very strongly as the SMS addicted youth are discovering QWERTY phones that previously were associated with 'business' phones - and after the cool kids in school start to use them, suddenly they are far more popular than the best SonyEricsson or iPhone models. Then at some point comes the Blackberry tipping point, where Blackberry's instant messenger reaches critical mass of users, and all kids need a Blackberry. The early youth stampede to Blackberries has been bizarre around the world, in no particular pattern at all, from Venezuela to Indonesia to Botswana to Thailand to India to South Africa to Brazil. After it reaches that critical tipping point, it explodes. In Indonesia, Blackberry outsells the iPhone at 50 to 1. In Venezuela Blackberry is not only the bestselling smartphone, its the bestselling phone period. In South Africa Nokia has lost the smartphone market lead now to Blackberry - the only African country where Nokia is not number 1 in both dumbphones and smartphones - and obviously Nokia has a wide range of cheaper Africa smartphones, but the more expensive Blackberries have overtaken Nokia there.
So now we understand this landscape. What is their preference? Its the Blackberry, hands down. Not because of the QWERTY keypad, there are countless QWERTY phones out there (more QWERTY phones are sold worldwide than touch screen phones and most QWERTY phones are featurephones, not smartphones). Its because of Blackberry's Instant Messenger service. If your mates have also Blackberries, you can send private messages, just like SMS, but for free, from any Blackberry to any Blackberry. This is why Blackberry is taking the youth market by storm. Its not just the world's best SMS texting phone with the best QWERTY keypad - itself a great reason - but 'free' messaging? If you send 100 SMS per day, even very generous SMS messaging 'buckets' can quickly be used up and top-ups are costly to a teenager. Free messaging is the crack cocaine to these SMS addicted youth.
After the Blackberry, far later, comes Nokia E-Series and various QWERTY models from various other makers. Any hybrid touch + QWERTY will also be of interest, but its a big drop from the Blackberry instant messenger to others. There are plenty of featurephones with QWERTY also, so if its not a Blackberry, it need not even be a smartphone for some youth who are addicted to messaging. Were it not for very expensive prices of Blackberries to this price-sensitive segment (remember the youth are skateboarding and snowboarding and mountain biking and all kinds of activities, where they inevitably drop their phones, or fall on them etc, often breaking them, so the replacement cycle is vicious too, adding to the costs), Blackberry would have more than half of this market. But as almost all rival QWERTY phones are far cheaper, Blackberry's only obstacle to dominating this segment is their ability to roll out cheaper Blackberries. Note that this model clearly suggest the Microsoft Kin with its launch pricing would have been a phenomenal flop in this - its intended segment. If you can't offer the youth Blackberry's messenger, you have to cut their price by a huge margin to be competitive.
Sanity check? I measure that in the Industrialized World in 2010, 5% of all phones sold, are youth texting smartphones. How does this square with reality? Remember those over 40% who can send SMS blindly? Take the total youth population of ages 16 to 24 in the Industrialized world (170 million), and take 40% of that? (68 million) Its exactly 5% of the total population! Is it reasonable that those who are super-addicted to SMS and are nearing 100 SMS sent per day, and already are able to send SMS blindly, will get a QWERTY smartphone? I think its a safe bet. They must have a phone. They will not get one that is not QWERTY. And for those who can't afford the smartphone QWERTY and get a featurephone instead, there are certainly at least as many kids who want to be as cool as the cool kids, and also have their own Blackberries to get to send messages for free etc, even if not sending 100 per day. I think 5% is a fair assmption, perhaps even a bit conservative for this addicted segment.
So how big? I estimate 30 million smartphones sold globally that are bought by SMS texting obsessed youth. Thats 19% of all consumer smartphones sold on the planet this year.
ONE MORE SEGMENT
So, if you were following along, doing the math in your head, you notice that I have only accounted for 62% of my target smartphones! Where's the remaining 38%? What happened to 60 million consumer smartphones? Haha, yes, you noticed? I have one more segment for you, and this is my 'trick' segment. This is the 'hybrid reason' segment. The 'all of the above' multiple responses segment. The undecided segment. The 'open for all to compete in' segment.
This is for 'all the marbles'. This remaining segment determines who ends up the winners and losers in the race this year. And potentially every player can fight for this segment, because here every buyer has multiple reasons, and no buyer has a 'passionate' need to pick one feature that they have to have. So these may be SMS users but not super-addicted, and perfectly happy to do SMS on a touch screen phone. Or wanting to surf the web from time to time but not needing a touch screen for it, etc.
In my model I used a passion level variable for each segment. So for example the mobile web surfing smartphone buyers were not very passionate about that need, when compared with the youth, addicted and obsessing about SMS and mobile messaging. With my passion measure, I now have a 'residual demand' for that particular feature, across the 6 main categories. And with that, I can offer my view, of which abilities will be more important than others, for this hybrid smartphones class. The fashion attribute ended up so small, it won't move the numbers by even one million, so we can eliminate it. That leaves us with 5 attributes. They are in declining order of importance as:
But there is one very important point to add. This segment is not passionate about mobile. The passionate ones were already caught. These are not 'disinterested' but these are perhaps 'lukewarm' to these abilities. That means that price is far more important to this segment than to the previous 6. Here there will be no super premium phone sales (a few from time to time yes, but not in the millions). The iPhone and all top line Android superphones and Nokia N-series and Blackberry Bolds are out. The unsubsidised prices would be capped well below 300 dollars perhaps at the 250 dollar or 200 dollar level for this segment. Remember, these users want several abilities but are not passionate about it.
What of a sanity check for this group? This is a big number of handsets, so this is 10% of all phones sold in the Industrial World. Compared to the six segments of passion interests - 17% of all phones sold were passion based driven to buy a smartphone - and remember, 3% were totally not interested. I think its fair to assume the moderately interested lies between the strong passions and the totally un-interested? Makes sense to me. And can we expect that these 10% are more price sensitive than the heavily passionate, I guess yes, but remember, these are not the real 'penny pinchers', as in the Industrialized World we have 70% more of the phones sold to consumers, that are dumbphones, ranging from featurephones to ultra-cheap basic phones. So 'price sensitive' smartphone buyer is still a smartphone buyer, willing to pay 100 dollars or twice that (in unsubsidised prices). But not willing to pay 600 dollars like the prices of a Nokia N97 or Google Nexus One or iPhone 4 in unsubsidised form. Those types of premium phones are not in this race.
Who is in it? Almost everyone. Apple is out because they only have one model at the top of the price range. You have to find a passion for Apple, in this group there is no real passion for phones. But most Android makers have premium and more basic smartphones, so Samsung, LG, SonyEricsson, Motorola, HTC, ZTE, Lenovo etc are in it. Same for some Windows Mobile phones but those often tend to be business-oriented and bit more premium mid-range smartphones, so WinMo won't be shining in this segment. RIM will bring all low priced Blackberries to the table. Nokia's total non E-Series and non N-Series smartphone family on Symbian is in play. Samsung's Bada phones will find plenty of acceptance here as the passion is not strong about iPhone or Android apps and OS.
What types of phones are particularly well suited. Lets go in order of the 5 preferences. Most of all touch screens are desirable here for web use, but they need not be perfect. Apps are good, an Ovi store will sound just fine for this group, they won't really care enough to bother to learn why Apple's App Store might be better. When apps are particularly of interest here, it would likely be a given 'known' hit app, like the Angry Birds game, but these buyers won't be particularly locked into one app store or another. In case their current phone has some OS and apps, and assuming the user likes that phone, then yes, that phone brand and OS would be the preferred next phone, but remember, these are not passionate buyers. They can easily go with an alternate which is reasonably good. Here in this segment 'good enough' trumps totally 'the best'. This segment is why VHS won over Betamax and why the Mac always lagged against Windows based PCs. This segment won't bother to seek the absolute best, they factor in price and value and acceptable level of performance. They are happy to buy a Toyota Corolla, they don't need a Ferrari.
Then comes the camera. 5 megapixels works just fine here, 8 is better and yes a bigger number suggests ever better cameras, but this segment isn't passionate enough about photography to care about Xenon vs LED flash etc. Macro or autofocus etc abilities will not retain their interest and won't sway the deal here. With SMS texting, they will appreciate a QWERTY but don't send enough SMS to demand it. They can be perfectly happy with the touch screen virtual keyboard, or the old-fashioned T9 if that is on the phone in a slider form factor for example. And the same with music. Yes its a nice to have, but can't add much to price.
Who fits that wishy-washy lackluster lukewarm target market? As low price and many features and abilites are called for, this tends to be Nokia and Samsung territory. Samsung can bring this to all markets, Nokia to all but the USA. Samsung would do on both Bada and Android but remember, the low end of their phones. Nokia's Symbian woes won't be critical here and Ovi store will seem like any other app store to these custoemrs. LG plays here too, good with prices and value, pretty well globally on Android. ZTE brings good value on Android in particular the emerging world markets. HTC would probably barely fit in with its cheapest Android models into the US and European markets. RIM struggles most of all with web use, but skip that part, the others will work ok for RIM from apps to camera to music, and with QWERTY obviously RIM's strong suit. I don't see Blackberry running away with this market, not even in the USA, but they'll show, pick up some millions here and there, mostly in those Emerging World markets where the youth has already jumped on the bandwagon (Venezuela, Indonesia etc). These could be the parents and teachers and cousins and older siblings of the heavily addicted Blackberry users, who also recognize the value of the free messaging. It would only work with the cheapest Blackberry models. Motorola's Androids are rather pricey and Moto may not get much even in its home market out of this segment. Windows mobile won't play strongly here but can have some isolated successes. Palm isn't in it.
How big? 60 million smartphones. Thats 37% of all consumer smartphones sold in 2010.
There you go. Ten segments in all. I removed Japan, 20 million, and split the remaining 210 million smartphone market into one enterprise group and a consumer group with 8 segments. Previously in the above, I calculated the proportion among 'consumer smartphones'. Now lets summarize by all (non Japan) smartphones.
Enterprise smartphones 50 million = 24%
Totally un-interested smartphones 20 million = 10%
Somewhat interested price conscious 60 million = 29%
Passionately decisive 80 million = 38%
Total market (excluding Japan) 210 million = 100%
Of the passionately decisive (80 million/38%), split into 6 sub-groups:
Music 6 million = 3%
Fashion 7 million = 3%
Camera 10 million = 5%
Apps 12 million = 6%
Web 15 million = 7%
Youth 30 million = 14%
Thats how I see the segmentation of smartphones in 2010. I hope this essay bought some value and insights to you. I am most interested in any opinions.