Nalini Muppala

Analysis, observations, perspectives on mobile space

Smartphone Ecosystem (Part 1) : Market Share

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Smartphones have been the handset market’s savior in the market slump of 2009. Although the overall handset market shrunk nearly 7%, the smartphone market grew at a healthy 15%. The significance is clear, and every company in the phone business – hardware, software, carriers – wants to be part of this lucrative, growing market and is making every effort to get it right. Over a series of posts, I will express my observations and opinions on this dynamic ecosystem.

A note on the numbers: Data for this series of posts is sourced from company data, ABI Research, Forward Concepts, Gartner, iSuppli, Linley Gwennap, and Tomi Ahonen.

To put things in perspective, let’s look at the overall handset market for 2009.

Source: iSuppli

In spite of losing some ground, Nokia still leads by a big margin. Samsung and LG gained while Motorola and Sony-Ericsson lost a lot of ground that they hope to recover this year.

To understand the smartphone ecosystem, let’s begin with the market share. Despite all the media frenzy around Apple and its flagship device, the iPhone, Nokia is far ahead of the rest of the pack in the worldwide market.

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Source: IDC

Smartphones made up 15% of all phones sold in 2009 and 13% of the total installed base. On a y-o-y basis smartphone shipments increased 15% in 2009 to a total of 175 million units. Even though the top five vendors taking took a bigger combined share than the previous year, 2009 saw many new entrants who hope to see their fortunes improve this year.

Notice how Nokia dominates both tables above. Although it has had less traction in the U.S. market, Nokia is the elephant and no one else comes close to the complete dominance and success it has had in the overall global handset market worldwide. We saw how the handset silicon vendor market reshaped as Nokia announced, in 2007, its plan to diversify its suppliers. Such is the power of this mammoth. Still, Nokia has been quick to form alliances in an effort to retain its market leadership.

Nokia recently teamed with Microsoft for applications – it plans to offer Office tools on its smartphones this year – and Intel for OS – going forward, Nokia’s premium smartphones will be powered by Maemo OS while the rest will continue to be powered by Symbian OS. This power of the big guns is not to be underestimated. Nokia has the momentum and has these new alliances in place to keep it up. However, the sheer size of its market share puts its dominance at risk. There is competition from every PC maker that wants to enter the smartphone market and every phone maker that wants to strengthen its smartphone position.

RIM’s strategy to cater to consumers and go beyond business users has paid off immensely, and it hopes that this trend continues. Its QWERTY phones are popular with consumers –- instant messaging fans have an additional attraction in the BlackBerry instant messaging program, which offers free messaging among BlackBerry users. Business will be as usual for business users.

While Apple has had tremendous success in winning consumers’ hearts with its elegant devices, it has faced an uphill task in making inroads among business and corporate users. In cracking business users, Apple is facing an obstacle in the smartphone market similar to the one it has encountered in personal computer market – a dominant incumbent and the inertia of corporate IT divisions. While Microsoft has entrenched its products in personal computers, RIM, with its flagship BlackBerry, dominates business phones. IT divisions, understandably, want to keep support issues to a minimum. Adding devices powered by different operating systems definitely requires more support infrastructure and investment.

Apple’s success with iPhones has, so far, been limited to rich economies. By Apple’s own account, it has not made many inroads into the Chinese market, where the entry was carefully planned. With the smartphone market set to expand this year and prices set to come down, Apple’s lack of models at various price points to cater to various regions and markets looks to be a big disadvantage. In markets where buyers have to pay the full price of a phone and there are no carrier subsidies, the current price point of the iPhone means that the device is losing to competition from the likes of Nokia’s N series and E series.

When Apple introduced the iPhone in 2007, the phone was touted as a product that would revolutionize the market. It sure did: the unique advantage Apple had at that time is no more. Now many other companies have emulated Apple, and there is a lot of choice and competition.

HTC has gained a lot of attention and good press as the manufacturer of Google’s much-touted Nexus One. HTC was generally considered a contract manufacturer of Windows Mobile phones. However, recently it has recently moved to the Android platform. With the momentum of Android behind it, HTC is poised to make big gains. There will be more on the OS wars in a later post.

It is clear that smartphone features are migrating down to mid- level phones. What, then, will happen to the innovation and ubercool factor of the smartphones of yesteryear? Who will bear the cost of breakthrough innovation and pay to have the latest technology in their gadgets? I think smartphones will be categorized as those at the high end and those aimed at the cost-conscious mass market. The classification terminology might be super phones and smarterphones or something else, but there will be a distinction.

Major players are promising exciting growth in 2010. For instance, Samsung aims to triple its smartphone shipments, LG plans to launch more than 20 smartphones, and Acer aims to more than triple sales, from 3 million in 2009 to more than 10 million in 2011. It is indeed an exciting time for smartphones.

In the next post, we will delve into the profitability aspect of the smartphone business.

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Written by Nalini Kumar Muppala

April 9, 2010 at 10:04 pm

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