Lets have some Realism to the Smartphone Hysteria, part 1: Scale

The past days have seen a a lot of hysteria about smartphones, with some on the fringes already predicting the end of Nokia. Yeah, right. Lets inject some realism to the issue of smartphones. I will post a series of shorter blogs (well, shorter by my standards ha-ha) and cover a few of the main issues. Lets start with scale today.

In 2008 the world sold 160 million smartphones, that was up 33% from the year before. While the overall economy is suffering, smartphone sales continue strong and will grow again this year. For all the hype about Android and the iPhone 3GS and Palm Pre etc, lets observe the big picture. Nokia sold 67 million smartphones. That was three times as many as total combined sales of all Apple iPhones, all Palm smartphones and all Android smartphones, put together. Even if we assumed each of those three operating systems would grow 50% annually, it would take three years for these three operating systems combined, to match Nokia's volume (in smartphones). With the rapid replacement cycles of phones (was down to 14 months last year before the economic crisis hit) and constant new models released, the picture one year is very different the next in mobile. Anyone remember the Razr? And obviously as we can see from the buzz, Android and Palm will also challenge the iPhone, not just Nokia, so these three will partly compete for the same customers, and thus cannibalize each other.

NOKIA IS NOT DOOMED

Now, before we go further, lets point out that smartphones are a small sub-sector of the mobile phone industry. Less than one in six phones sold worldwide is a smartphone. And the big giant of the industry truly is Nokia. Nokia could lose totally its market share in smartphones (literally to zero sold) and with its non-smartphone sales, it would still sell more than 2 phones for every smartphone sold in the world. Yes, Nokia sells more than a million non-smartphones every day. Most of those are cameraphones with color screens, browsers, media players, FM radio etc. (and obviously I am not suggesging that Nokia would stop selling smartphones)

So anyone who looks at today's smartphone gossip, and then extrapolates that Nokia is dying soon, is pretty silly. Nokia has massive market shares in the best growing markets like India, China, Brazil, Russia, Indonesia etc and a very powerful brand name. In less-developed countries there are customers who want to show how rich they are, and come to the phones store and say, "give me the most expensvie Nokia". They don't need its features, they want to show the world, they have "the" phone. Its a bit like the Mercedes Benz S-Class. Simply for the masses, the most expensive (semi-normal) car. The world's most expensive phone among consumer brands has usually been the Nokia Communicator and the latest model E90 last year cost almost twice the unsubsidised cost of the iPhone 3G - six times the cost of the subsidised iPhone; yet the Communicator has been the best-selling Nokia model many months in Indonesia, a developing world country. The most expensive (mass market branded) phone in the world..

So before all the techno-nerds get all glossy-eyed about the iPhone 3GS, remember, there are plenty of "ignorant" mass market customers who will buy a top-end Nokia, regardless of its exact feature set or how much better some other might be. Think about that when you read the review of the N97. I can promise you, the N97 will sell well in the world, simply because of Nokia's reach and existing customer base, regardless at all whether it happens to be, or not, technically a "better phone". Just like the next Mercedes-Benz S Class will sell well, regardless of how competitive it is against the BWM 7 class or Audi A8 etc.

But the battle is not going to be fought in the top-end of the smartphone market. The battle is won at the lowest end of the smartphone price range. Here we get Nokia scale and a wide range of products in the N-Series, the E-Series and increasingly the numbered mainstream phone models by Nokia like 5800 Xpress Music and the brand new Nokia Surge. Nokia has kept aggressively expanding its portfolio of Symbian operating system based phones from the top end to the mainstream down in the price range, and today has a wide range of devices - dozens - running it today. The battle is not one Nokia model N97 vs one Apple model iPhone 3GS. The battle is a swarm of Nokia Symbian phones vs iPhone, if you want to consider that match-up. A totally mis-matched battle, even before we look at other factors like operator/carrier relationships. Nokia will have several Symiban powered smartphone models which will outsell the iPhone.

NOBODY IS SAFE

Now, does this mean that Nokia is safe. No, of course not. I've said many times that this is the most competitive industry. But Nokia's biggest threats currently are not Palm or Android or the iPhone. Its rivals are Samsung, LG and RIM. Yes, RIM, the Blackberry. All three of those Top 6 handset makers grew sales volume, sales revenues and two of the three also profits last year. These three are the threat to Nokia.

Why not Apple? The iPhone 3GS is supremely loved by the (mostly US based) IT press and tech bloggers and sold a massive amount in the first days right after it was released. Sure. Its a great phone now, finally, in its third edition, after it fixed the massive faults we chronicled here at this blog even before the original 2G iPhone had launched. Yes, its a great phone, now in July 2009. But the mobile phone industry moves very fast. 3 megapixels may seem hot for most Americans, but Koreans have had 12 megapixel cameraphones for several years and they have already been brought to Europe. The most common camera resolution for new phone models last year in the UK was not 3 megapixels, it was 5 megapixels. Last year! So even the 3GS is starting to appear mediocre by its camera now, in Europe where they have far more advanced smartphones and where next year half of all phones sold will be smartphones according to the European Commission. The specs of a hot phone become very boring in six months and nearly obsolete in 12 months. Just compare the 3G iPhone and the iPhone 3GS. Big difference in just one year. And yes, nearly half of all smartphones sold in the world, are sold in Europe, far more than in the US, where smaretphones sell roughly on par with Asia. european also buy far more expensive smartphones on average than Americans.

So, lesson to Apple: You have to expand your product range from one model to several. The 3GS is a hot phone now, it is an ok phone for the Christmas sales, and then a boring last year's phone in February. You have a horribly inefficient sales cycle right now, big spike in the summer and a second spike for Xmas, but its down hill ever since. Very bad. You need more models, Apple, if you want to climb past 10% of smartphones sold (ie 1% of total mobile phones sold) per year.

That is what RIM did. They expanded their Blackberry model line and now have essentially a model per quarter per year. Very good. They have been able to attract new customer segments, going from enterprise/business phone to consumer/youth phone, without losing the core business cusomers. Very smart and astute strategy, executed brilliantly. What RIM now needs is to ensure customer satisfaction with the new segments whose loyalties are more ficle. Also managing a product line is different from supporting one model, so RIM need to ensure each device meets their brand expectations.

Android? Its a hot new grouping of smartphones, which like any devices, is easy to love before you've used one. The total number of handsets is still not that many but is expanding fast. There is much hope and hype around Android. Lets see how it develops. But they are coming form a tiny base. No sense in speculating about their relevance until Android devices pass about 1% of global phones (near 10% of smartphones). If they don't reach that level, they will be mostly irrelevant to the industry. To all in the Android camp: Good luck and work hard. We need new blood in the industry and right now, you are it. But to all others, don't hold your breath. Android will not have more 1% of the installed base this time next year, they have to fight for their market share and they won't be as successful as Appple was with the iPhone, which only after 2 years sells 1% of the world's phones. Give Android time. I mean years, not months.

Palm, is really fighting back, on the brink of oblivion. They say bravely that the Palm Pre is not a hail-mary pass, but seriously, there are that many smartphone operaing systems, that all can't continue. If Palm wants to remain, they need to break out of the tiny US market (the world market is 12x biggger, ("Palm-ahoy, anyone listening?"), like RIM managed to do the past two years with the Blackberry models. To succeed with that, it means learning what the rest of the world want. It was a lesson that Apple has learned and RIM has learned (but Motorola and Microsoft mostly have not)

Talking of Microsoft. What of Windows Mobile. I don't see any promising signs for this player. Certainly I don't see any reason why they should grow global market share. If one OS is destined to suffer in the next months, I think the Microsoft OS based phones are most at risk, much more so than Symbian. Not because Windows Mobile would be somehow inherently worse than Symbian (or Palm) which are all smartphone OS software which is showing its age; its because Nokia and Palm are fighting hard, while Microsoft seems lost.

So Nokia? They rushed really fast to extinguish that rumor that there was an Android smartphone in Nokia's future. I think this signals how strongly Nokia is committed to Symbian (the categorical denial came within 4 hours from the rumor starting.) Last year 2008 they had 38% of the worlds' phones, but 42% of the world's smartphones. For all that Nokia-basing we're reading, last year Nokia outperformed in smartphones, compared to its total corporate performance. This is a very powerful rival. Don't count them out if one quarter goes badly. This is an industry where carrier/operator relationships are very important and in most markets Nokia has those all solidly in place.

And yes, the Symbian operating system is not only exclusively Nokia, it is even bigger. last year over half of all smartpones sold had an OS by Symbian.

The industry is also peculiarly split where a North American smartphone concept is quite different from that of the rest of the world. It is nearly true, that what works in America, will hinder success elsewhere, and vice versa. Today the smartphone market is being shaken by the sudden fad of apps stores. Yet truth be told, most smartphone buyers worldwide will never probably not in the near future install an application onto their phones. Not even the majority A littie more than half of iPhone users (59% in US, 55% in UK according to ComScore) install apps vs about 1 in 5 globally for smartphones; and remember the iPhone users are the most fanatical lot of all apps users. I think its a bit like the big 4-wheel-drive SUV vehicles, where most SUV owners never drive one into the off-road environment, and have the vehicle for other reasons such as size, power, status, ride-height, safety etc. Similarly most smartphone users will not particularly use the "smartness" of their phones. But these matters wil be discussed in the next installments of Realism into the Hysteria of Smartphones. This first installment was about the scale.

All data in this blog that is not otherwise credited, is source: Tomi Ahonen Almanac 2009. You may freely reference this blog and quote it and link to it.

Update July 14: I heard from Colin Crawford and Johan Ragnevad who pointed out that my original statement "majority of iPhone users don't download apps" was not what they had seen. I went digging for the facts and found rather clear ComScore data from this Spring, so I corrected the story. I wanted to leave the original so you can see what I had said, and see the corrections. But apps stores were not the point of this blog, so at least not a very big harm done, I hope. I'm sorry for the error. Thanks Colin and Johan for noticing it.

FURTHER READING

Part 2 in this series of Realism has been released on July 24: The biggest factor to smartphone success globally is..

Comparison of Smarpthones vs Netbooks

The effect of the iPhone - Two Eras, Before iPhone and After iPhone (note this was written a month before original iPhone was launched, back in May of 2007)

Comments

[Colin Crawford]

>> Today the smartphone market is being shaken by the sudden fad of apps stores Yet truth be told, most smartphone buyers worldwide will never install an application onto their phones. Not even the majority of iPhone users install apps, and they're the most fanatical lot of all apps users.

Tomi - where is the data to support that ?

I'm working with several mobile analytics firms and I think you are incorrect - it's hard to find an iPhone or iTouch user who has NOT installed an app. Today's smartphone are software platforms - the ability to view well formatted web pages via mobile browsers, via native applications and via hybrid apps is defining the new world of mobility. But, I think the volume of apps has to be winnowed down if developers are to make serious money and users can find the gems See http://bit.ly/q9jIb

[Johan Ragnevad]

I also disagree specifically with that statement and have similarly yet to meet an iPhone or iPod Touch user who has not installed an app. I indeed believe that a majority of iPhone users install apps, whereas the opposite is true for Symbian users - a result of scale and user friendliness.

With regards to data, Compete published research in November 2008 stating that "iPhone users are more likely to have added a number of different applications to their device: 72% had more than five applications on their phones, compared to only 23% of other Smartphone owners". Of course, iPhone volumes have changed significantly since then but so has the number of downloaded apps.

[Tomi Ahonen]

Hi Colin and Johan

Thanks for the comments. I'm surprised, I thought this (my claim that majority of iPhone users didn't download apps) was very "consistent" data with the industry. I saw it in an article earlier this spring and didn't think for a moment to store it, as I felt it was relatively consistent with the industry and also as the Apps store was so new and trivial in size at the time.

I hear you guys, and respect your views. I am now unsure of the numbers myself, and will try to go find the article I had seen, or other independent validation of that position. Thanks. Obviously if I don't find it (or facts prove opposite) then I'll correct the story.

My only comments now, remember it is global data throughout my blog and this story, except where specifically mentioning given countries or reginons, so I meant obviously iPhone users globally not just US, and that means all the legacy 2G and 3G iPhone users not just 3GS users, but yes, if both of you think that is off base, I'll go dig and see if I find any "truth" ha-ha, and ajust the story accordingly.

Thank you both for writing. Will go for a stats search ha-ha (I wish every stat I ever saw, was automatically collected, including all analog resources too, ha-ha..)

Tomi Ahonen :-)

[Tomi Ahonen]

I'm back

Yeah, the ComScore data was rather easy to find, you guys were right, thanks. Sorry about that. If there had been some "conflicting" data that I seem to recall, it was not obvious and easy to find, and regardless, ComScore is a good source, have no reason not to trust that finding. So I corrected the story. Luckily apps stores were not the actual point of this blog, so at least the error was in the - shall I say - "advertisement" part referring to future blog ha-ha, but yeah, I had been under the impression it was about a quarter. Maybe I had seen some "paid download" data or maybe it was early Apps store data or maybe I've just been too caffeinated to correctly absorb the info. Anyway, the ComScore data is good, have it in the blog. Thank you to both of you.

Tomi :-)

[Johan Ragnevad]

Great, Tomi,

Agree that app stores were not the actual point of the blog. Scale was, and I agree with your main points, e.g. Nokia is definitely not going to die because of N97 mishaps. However, as it is a posting about scale I am surprised that you single out a detail such as the number of camera pixels as the illustration of how smartphone competitiveness evolves and ages. Hasn't the iPhone, among other things, shown that feature specs are being pushed aside by matters such as brand, "coolness factors" and user friendliness?

Anyway, with regards to scale - What about the price? I agree that the lower end of the smartphone market is more important, and interesting, than the higher end. So, what's then the implication of Apple pushing last year's iPhone user experience at a lowered price? Do you see an impact on the bigger picture when the iPhone competes in the USD 79 & 99 brackets (US, AT&T, refurbished & new 8GB)?

Maybe these are topics for your next installments in this series? :-)

Johan

[Jerome Brussee]

The 'big picture' of Nokia selling 67 million smartphones does not seem to be very valid to put the iPhone/Pre/Android platforms into perspective.
Nokia S60 platform may technically be considered a smartphone OS (open OS, advanced messaging etc) but judging the spike in iPhone originated mobile data and Flickr uploads I'm pretty sure the majority of the handsets have hardly been used as such.

Most people I know just bought S60 phones because they looked nice and had a camera in them. The 'smart' features were too much hidden away behind the one-hand-operation interface.

[Jason Bowers]

I want to like your blog but the willful ignorance of software on the smartphone platform is hard to swallow. The gist of your position is that scale of hardware manufacturing is the measure to judge phones on but there's no analysis of profit margin or software. It's windows that makes all the money in PC's not DELL....

[Tomi Ahonen]

Hi Johan, Jerome and Jason

Thank you all for the comments, will respond to each individually

Johan, ha-ha, no reading ahead! Yeah, I'll cover those issues in the next editions. Thanks.

Jerome - I am not arguing usage of a smartphone here, it is not the point of the blog. I am using the commonly used definition of what is a smartphone, and you know that. If you argue that not all users of Symbian phones don't use their "smartness" then neither do iPhone users according to the ComScore stats. Its only a matter of degree. And please do note that smartphones and specifically Symbian existed for nearly a decade before the iPhone and Android, so if today you observe some peculiar behavior that is not typical of Symbian (an original smartphone) but is typical of iPhone and Android, then YOUR reasoning means THEY are NOT smartphones. You can't say that the original concept is not valid. Then the iPhone and Android are something else, perhaps "beyond" a smartphone. I'm ok with that. But you can't bring in a new device and then say it invalidates the previously existing category.

But I'll discuss usage of smartphones in an upcoming edition to the realism into the smartphone discussion. This first edition was only about scale. Usually my followers complain that my blogs are too long, so am trying to cut it down into parts that are easier to digest..

Jason - I hear you, thank you for the comment and yes, this first part of the series did not discuss the apps or software at all.

Please note that your argument "willful ignorance of software" .. and "your position is that hardware manufacturing" suggests that my blog posting should rather focus on the software side of the handset making industry. Data vs Hardware? I find it rather amusing, as I wrote the book on mobile data, literally, first book on services for mobile telecoms; and most of my postings about mobile are not about handsets, but about the data and services. But obviously you are not a regular reader, and could not know that. But it does strike me as funny that now I'm accused of not discussing the data side..

Note the blog title was realism to smartphone hysteria. PHONE hysteria. Not "applications hysteria" or "mobile data hysteria" or "wireless apps hysteria". I can discuss all those, but this blog kind of HAS to mention the hardware, if it is to focus on the "phone".

But you are not wrong, software is an important consideration. I promise I will discuss it in an upcoming part to this series.

Separately, you also say you are unhappy I didn't discuss the profit margins. Again, you make a good point, but its something I've discussed at lenght, my second book is still the only book in teh world to discuss how the mobile industry earns its money (M-Profits) and again, I do this regularly. I did not want to repeat the usual stuff for regular readers. Furthermore, it was not hte aim of this first installment. I'll get to the profits later in the series.

Thank you all for writing

Tomi Ahonen :-)

[Troed Sångberg]

(posting an exchange me and Tomi had on Twitter since it seems quite on topic judging by the discussion - Tomi, feel free to edit the post if you want)

***
troed @tomiahonen I would not immideately put Symbian smartphones in the same category as iPhone/Android. Some, but not all. Used differently.

tomiahonen @troed if that is your argument, then u cannot count iPhone, Android at all, because Symbian is 1 of original smartphone OS's ha-ha..

troed @tomiahonen ;) True - "Internet windows" describes iPhone/Android better. Not focused at being "phones", smart or not. Different use case.
***

I'm trying quite hard to separate "phones" from "mobiles" when doing talks myself. The iPhone is clearly a MID. Trying to group all "non dumb-phones" into the "smartphone" category makes a mess of statistics.

/Troed

[Tomi Ahonen]

Hi Troed

Thanks for repeating that Twitter discussion ! Yeah, very relevant to this thread here and yeah, thats very accurately what we discussed ha-ha.

We do seem to be witnessing the birth of a "next generation" of smartphones perhaps, all while Nokia now sells more mid-range consumer smartphones than N-Series, signalling the downward migration of more basic (and older OS based) smartphones.

Lets see how this plays out. Thanks for your comment and really, thanks for reposting that discussion here for our readers, Troed.

Tomi Ahonen :-)

[Rockstar Sid]

All I can say is this is one heck of an exhaustive research. I would always go with Nokia Phones.. NOKIA FTW!

[Tomi Ahonen]

Thanks Rockstar Sid

Tomi :-)

[orangeman]

Thank You Tomi for your - as always - insightful views!

I agree that Nokia won't die. the same way IBM did't die because of the personal computer.

>> But the battle is not going to be fought in the top-end of the smartphone market. The battle is won at the lowest end of the smartphone price range. > Similarly most smartphone users will not particularly use the "smartness" of their phones. > Android will not have more 1% of the installed base this time next year, they have to fight for their market share and they won't be as successful as Appple was with the iPhone, which only after 2 years sells 1% of the world's phones. Give Android time. I mean years, not months. > I've said many times that this is the most competitive industry. <<

[orangeman]

sorry for double posting
somehow misformated the first try

Thank You Tomi for your - as always - insightful views!

I agree that Nokia won't die. the same way IBM did't die because of the personal computer.

"But the battle is not going to be fought in the top-end of the smartphone market. The battle is won at the lowest end of the smartphone price range."

Very true. After all the masses go for cost-effectiveness. MacOS/WebOS/Android devices out so far (try to) compete in the top-end. Budgetphones are yet to be seen. Maybe marketshare should be compared to Nokia top-end devices like the E90.

"Similarly most smartphone users will not particularly use the "smartness" of their phones."

The 'smartness' is much needed and appreciated as smartphones take over tasks of the more expensive laptops. But it has to be easy to use and easy to develop...

"Android will not have more 1% of the installed base this time next year, they have to fight for their market share and they won't be as successful as Appple was with the iPhone, which only after 2 years sells 1% of the world's phones. Give Android time. I mean years, not months."

Yes it needs time
but does two thing already very well:

* "ease-of-development"
available apps make the platform
people will! download and install
that's what apple showed the world
and that's the problem with symbian

* "allowing anyone to build cheap hardware"
every manufacturer (except nokia) experimenting
900% growth prognosis (not 50%)

"I've said many times that this is the most competitive industry."

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