Lets Understand Phones: Market is Shifting from Dumbphones to Smartphones

The smartphone story is buzzing in the world. But the line between a 'featurephone' and a smartphone is blurring too. Did you know most featurephones have full web browses, accept apps and often have advanced inputs like touch screens or QWERTY keyboards? So lets examine the phone market a bit.

TOTAL MARKET SIZE

The year 2010 established a new record for new mobile phones sold, at about 1.37 Billion units sold. Bear in mind, that the world has only about 1.2 Billion personal computers and about 1.6 Billion television sets. But mobile phones sold almost 1.4 Billion new handsets just during the 12 months of 2010.

SMARTPHONES

Smartphones sold more than a fifth of the phones (22% for the full year) and the rate of smartphones is accelerating, it reached 25% in Q4 of 2010, so this year 2011 we'll be looking at something like 30% of all phones sold and over 450 million units of smartphones. Of those smartphones, 33% were Nokia branded, about 15%-16% were RIM and Apple branded (each) and HTC and Samsung both sold about 8% of all smartphones. Motorola, SonyEricsson, ZTE, Sharp, Fujitsu and several dozen others sold the rest.

The more relevant issue is of course the operating system battle. Nokia's Symbian ends the year well leading the market, as it was on 38% of all smartphones sold in the year (in addition to Nokia there were small numbers of Samsung and SonyEricsson smartphones with Symbian sold in 2010, both have since ended their Symbian support - and today still Japan uses Symbian on most premium phones sold on the biggest domestic network, NTT DoCoMo). That used to be an overpowering lead, but it is now threatened. For the full year, the upstart Android by Google achieved about 22% market share - but by Q4, the two were running neck-to-neck and by early 2011, Android is expected to pass Symbian (the recent news story by Canalys that Android had already passed Symbian was premature). After Symbian and Android, the two other major OS platforms for 2010 were RIM and iPhone, both with about 15%-16% market share. Then the small operating systems were Microsoft's Windows Mobile at 4% (this OS has been discontinued), Samsung's Bada at 2% and Microsoft's Phone 7 at 1%. Others are in smaller numbers than those.

DUMBPHONES

The year 2010 was the first year where half of all mobile handset revenues were generated by smartphones. So individual smartphones generated 3.5x more revenue per handset, than dumbphones. The industry's average sales price is at 120 dollars - which splits so that smartphones had an average sales price of about 330 dollars, and about 60 dollars for the 'dumbphones'.

If we examine the biggest 'dumbphone' makers - which accounted for 78% of all phones sold but included phones as cheap at 25 dollars each aiming for Africa etc - and at the top end run into the 200 dollar range of premium 'featurephones' with touch screens and quite advanced features. In this dumbphone category, the market is divided so, that the big 4 now are Nokia which has 32%, Samsung has 23%, LG has 10%, ZTE has 6%. The small players are Huawei and SonyEricsson both with about 3%, and then Motorola and Sharp both of which have about 2%. Then there are some 50 tiny manufacturers.

INSTALLED BASE

The world has passed 5.2 Billion total mobile phone subscriptions. That is not 'phones' as many people have multiple subscriptions while using only one phone, and switch the little SIM cards to select which network to use. The number of actual mobile phones in use today is 4.2 Billion. And the number of unique phone owners is 3.7 Billion. Lets look at that installed base a little bit more.

Only about 750 million of the 4.2 Billion mobile phones in use, are smartphones or about 18% of all phones it the world. Most smartphones are also 3G phones and have full internet capability and accept user-installed applications.

Of the remaining 3.45 Billion 'dumbphones' - most of those also have a full web browser (so they can do the 'real' internet. And practically all remaining simple phones can still do the simpler WAP style web browsing). What probably surprises many readers, is that today half of all dumbphones in use are also fully 'application-capable' ie they support apps designed using Java or Brew.

Of all phones in the world, 77% are cameraphones which is 3.3 Billion mobile phone handsets - this is more than twice the number of television sets and nearly 3 times the number of all personal computers in use including desktops, laptops and tablet PCs like the iPad. Note that all cameraphones will have a color screen as well. And how are they used? You might be surprised to find that the world has already 2.1 Billion active users of MMS picture messaging. That is 65% of the total installed base of cameraphones. And yes, MMS is 50% bigger in the number of users than email is on the internet. The only data service bigger than MMS is SMS (which has now 4.2 Billion users worldwide or 81% of all mobile phone subscribers).

APPS VS SERVICES

So we get to the smartphone apps. The hot story last year was app stores, and Apple just celebrated its 10 Billionth app download (where the word 'app' is a bit misleading, obivously, where the second biggest category of paid downloads are ebooks, but thats nitpicking). As Apple had seen 3 Billion downloads by the start of 2010, that meant that the calendar year 2010 saw a total download number of about 7 Billion apps from Apple's iPhone App Store. That was clearly the biggest app store, all other app stores produced roughly speaking as many downloads as Apple alone.

We don't have the full numbers yet for 2010, but roughly speaking the Apple App Store produced app revenues of about 1.5 Billion dollars (it did half a Billion in the first half of the year). If we double that, the global global market for user-installed apps bought from all the app stores worth somewhat less than 3 Billion dollars.

There is a bigger smartphone app paid market than that. The total app market in 2010 was worth about 6 Billion dollars. What is the variance? It is enterprise/corporate applications ie business apps, that are sold by IT integrators for typically Blackberries, or Windows Mobile or Nokia E-Series phones sold by the thousands to enterprise/corporate customers. So while yes, 'apps' are worth about 6 Billion dollars - that number is not available for those who design iPhone or Android apps (or Symbian or bada or whatever else) that are sold to individual consumers through app stores. The app store global market size is under 3 Billion dollars - but it is growing strongly.

Now, before you get excited, the value of MMS multimedia messaging globally - which delivers all sorts of media content from videos and sounds to pictures, news, coupons, ads and text - was worth... 32 Billion dollars in 2010 (yes, 10x bigger than total app store market). The total 'value-add' services opportunity for mobile was worth 100 Billion dollars (yes 30x bigger than the app store opportunity) and the total mobile data opportunity including SMS was worth 300 Billion dollars in 2010. Before you say, thats teenager chat, no, SMS can also be used to deliver news, ads, marketing, coupons; enable payments; and deliver massive consumer interaction for other media such as television voting like American Idol. Yes, total mobile data is 100x bigger than smartphone apps that are sold through app stores.

One more relevant comparison. The total market of new smartphones sold in 2010 was about 300 million handsets. Not all of those are or will be used to download apps. But the active user base of SMS text messaging grew by.... 600 million new users in just one year! Do you understand why I keep reminding readers, that while yes, smartphones are big, the app store opportunity is in its infancy, and the real money of mobile today is made on SMS, MMS and other simpler services that work on most phones.

Thats a quick look at the mobile phone market and installed base in the world at the end of 2010. You may freely quote these stats in any use, feel free to link to this blog, or you may say the source is TomiAhonen Phone Book 2010, from which the stats have been taken. If you need deeper stats on the phone industry, please see the ebook TomiAhonen Phone Book for more. The 171 page ebook has 98 charts and tables all fresh with December 31, 2010 statistics on phones, features, average prices, markets, installed bases, regional splits, etc.

Comments

[Brandon]

I'm glad my hero wasnt in the dumbphones category. Even though it does suck lol

[Brian]

Nice article Tomi! Is it possible to breakdown the numbers for SMS/MMS - how much of that revenue is operator revenue (e.g the 10p they typically get for sending a text on paygo) and how much is for value-add services either provided by third-parties or the the operators themselves?

[Yuri]

Hi Tomi,

Its always interesting reading your articles! The SMS/MMS numbers are impressive, but to continue Brian's thought - those are mostly big money for the operators, and popular TV shows. It seems to me that emails, chat applications, and in-app purchases are going to erase that market in the coming years. Why would users and advertisers / content providers, the two end-points of those services, continue to pay tons of money to the middle-man (the operator)? In my opinion the charge per SMS/MMS is a plain robbery. Imagine having to pay per email or chat message you send...
Not that micro-payments through PayPal, Google Checkout, or the operator are not going to have a fee, it will still be minute compared to the SMS/MMS cost.

[Yuri]

Actually, I didn't think that through... A 70/30 percent split for in-app purchases is everything but minute. PayPal's micro-payment charges are more reasonable, but are not going to be as convenient as in-app purchases...

[plantronics headsets]

Dimensions of communication opportunities in the wireless SMS was a value of 300 billion U.S. dollars in 2010. Before you say, thats a teen chat, no, SMS can also be used to produce news, advertising, marketing, coupons, and contribute to a massive consumption of interaction with other media such as television voting in American Idol. Yes, the whole 100x mobile data smartphone app more applications that are sold in stores.

[Arun]

I remember that Apple announced paying out $1 billion to developers in 2009, over a download count of 1 billion or so. That means total revenues for 2009 itself is about $1.4 billion. Given that they clocked another 7billion this year, don't you think the revenues would be quite larger than 3billion for apple itself?

[Bob]

yes Arun, but itunes money pales in significance with the hardware revenues of Apple.

[Arun]

@Bob:
Perhaps I should ve been more clearer.
I was referring to Apple's App Store revenues.

[Maukka]

I think Baron95 is right on the money, at least in terms of what's moving inside Elop's head. On Friday, Nokia will most likely get deeply involved in the Windows ecosystem, in one way or another. So I guess it's ByeBye to MeeGo.

[kevin]

@Baron95: Agree that Stephen Elop got it right about the war of ecosystems, where companies try to profit on devices, OSs, content retailing, or advertising, with all trying to commoditize all the other elements in the ecosystem chain.

Here's the ecosystem simplified (to 2-dimensions), depicted as a chain:

Content creator - Content distributor/retailer - Pipe - OS - Device User($)/Ad viewer

Any element on the left side of the can also have an "Ad provider - advertiser($)" pointing to it, where the advertiser totally or partially replaces the user as the monetization source for the elements in the ecosystem.

Content can be apps, music, film, tv, books, magazines, messaging, payments/money, etc. Anything that can be digitized is content that can be converged into the ecosystem. Pipe can be cellular, broadband, cable, wifi, etc.

So for example, Apple profits from selling devices. It's aim is to commoditize the other elements, in other words, make it so a user's decision to purchase its device won't be dependent on a particular pipe, OS, or content creator. Apple became a content retailer, but did so at break-even, so no one else could become profitable as a content retailer, It develops a customer base, tools and marketing so that content creators want to use its retail store, and defend itself from being locked out of content (like it was on PCs).

Microsoft profits from selling its OS. It wants users to want and pay for its OS, not a particular brand of device (so devices get commoditized like they were for PCs). It will try to use its Xbox content as a draw, in the same way that Sony is starting to use its Playstation content as the draw.

Google profits from providing ads, and it uses that revenue to pay all the other elements, so they can charge the user less, thus giving Google-aligned elements an edge. Google provided Android OS so that it could commoditize OSes and defend itself from being locked out of providing ads.

Amazon profits from content retailing (books, music, etc), and it now provides the Kindle device so it won't be locked out from the user. And on it goes.

All these players want the pipe to be a commodity, i.e., neutral or dumb. The cell carriers, though, want additional revenue from content retailing or advertising or even branded device sales. But they have been slow to make their part of the ecosystem not a commodity. (In the US, one can argue now that Verizon Wireless has tried hardest and succeeded in differentiating its pipe from the others.)

So the paradigm is changing and it is fascinating. The "mobile industry" will include more and more larger players from other industries. And device makers have to be careful not to think that they're only competing against other device makers, lest they become dumb devices controlled by another industry altogether.

[kevin]

The chain should be as follows:

Content creator - Content distributor/retailer - Pipe - OS - Device -----User($)/Ad viewer

Somehow the dashes disappeared.

[Tomi T Ahonen]

Hi Gang

Am a bit busy this week but will try to get to all replies. Lets do the first 5 to start with

Hi Brandon, Brian, Yuri, plantonics and Aron

Brandon - haha..

Brian - good question. I have it in the Almanac for 2010 and am in the process of calculating it for the 2011 edition. In rough terms, on revenues, about 10% of SMS revenues is premium SMS, and MMS at 32B dollars and SMS at 105B dollars, obviously MMS is about a quarter of the messaging as you asked. Meanwhile the average price of an SMS is down to under 2 cents and and more than half of MMS revenues are premium MMS (content) so the volume of SMS is far far greater than that of MMS.

Oh, I'm sorry, was too fast. Yes, you asked for operator revenues - well, out of SMS, more than 90% goes to the operators (all of person-to-person and a miniority of premium SMS revenues). In MMS its far more than half.

Yuri - you make a compelling argument. We had this argument more than ten years ago with my consulting department when I was still employed at Nokia and we came to the conclusion that by mid-decade (around year 2005) the majority of mobile phone messaging traffic would be the free types, instant messaging and email. That didn't happen. We now know why - they are NOT replacements. An email cannot replace an SMS, neither can IM. They can do part of the job of SMS but cannot do all of it. Theoretically MMS could replace SMS (but won't either, for other reasons).

So lets just take some evidence. SMS passed email in total users worldwide in 2002. Today, the total number of SMS users is literally 3x bigger than email. Last year the number of users of SMS grew by...17% - in one year! The growth in email has nearly stalled - and in ALL advanced 'industrialized world' countries the number of email users is in decline - the only growth now is in the 'emerging world' countries, where first-time email users are still adding to the count, often when they get to use a PC at work for the first time, or join the PC lab at the university etc.

I will leave it at that. You make a good point, we've debated this for years and the evidence is utterly against your view. I would urge you to read the messaging chapter in my free ebook The Insider's Guide to Mobile - which you can download right now at Lulu.com for free - just search for Ahonen and its the first book you'll see haha.

On Paypal, its a great idea, which is suffering from the reach of only 10% of internet users. Its a nice concept, but its not even used by the majority of PC owners haha.. And mobile is 5 times bigger than the total population of PCs. I know Paypal is rushing to go mobile, I do think the mobile giants will crush Paypal in this race - witness NTT DoCoMo, China Mobile, Vodafone, Nokia, SK Telecom, Globe, Telefonica etc. Even US players, Apple and Google are going mobile and one or two of their big carriers announced mobile money initiatives late last year to join the races.

And yes, there is a whole chapter on mobile money in that free book too, so read that as well haha.. 25% of the whole national economy of Kenya is already transiting mobile phones - that's Vodafone mobile money for you in just one of their countries haha.. When do you think Paypal can claim that 1% of any country's total economy transits Paypal. Not for many many years to come haha, who gets their paycheck paid via Paypal, who pays their taxes via Paypal, who pays their car payments or their mortgage via Paypal - not for years to come haha..

plantronics - your numbers are off by probably a magnitude of 10. The US market for SMS could not have been 300 Billion dollars - the total global value of all non-voice services was about that. SMS alone is worth a little over 100 Billion and if you want to say 30B was US SMS, that is roughly in the ballpark. If you don't believe me, check out Chetan Sharma's regular US market analysis, or the CTIA numbers or FCC numbers. All available at free sources.

Arun - the 1B paid by Apple was analyzed here on my blog quite thoroughly when the number was announced last summer. It is cumulative sales since 2008 and extended through 2Q of 2010. I remember roughly speaking that about half a Billion dollars was the value of the latest half - ie from Jan 1, 2010 to June 30 2010. Since then we've seen a big jump in iPhone App Store downloads - which I attribute to two factors (but have not seen evidence on it yet) - first, that the various game developers learned that you can't expect to be another Angry Birds, and sell 4 million copies at 99 cents each - the better way to make money is through freemium apps, give the app for free, make the money on virtual properties. So we've seen a shift to more free apps in games, which generate far more downloads than paid apps.

The other factor I believe was the iPad, with many high-profile launches of iPad services, media, newspapers, etc, both paid and free - and thus the iPad has probably achieved far more downloads per iOS device last Autumn, than iPhones and iPod Touches in the first 2 years since summer 2008. Thats how I see it, but we'll find out when the numbers start to come out in the near weeks and months.

Thank you all for writing, please post more comments, I'll return to answer to all

Tomi Ahonen :-)

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