In recent years, the titans of the handset industry have been surprised by the success of newcomers. First, Apple – a computer vendor – shook up the smartphone market by storm, taking Nokia’s profit crown in the process. Then, Google – an advertising/search firm – brought to market a new mobile operating system, quickly overshadowing historic leaders RIM and Microsoft. Now, Google’s Android has also become the fastest-growing major smartphone platform, having shipped more than twice as many handsets in the first eight quarters.

Cumulative Shipments, First 8 Quarters

Google’s successful growth has been enabled by strong support from its many partner vendors. As the first Android handset maker, HTC long enjoyed top market share, steadily broadening its portfolio across protocols (including hot “4G” technologies like HSPA+ and WiMAX), global carriers, and retail price points, staying ahead of Android competitors Motorola and Samsung. Historically, Samsung’s smartphone share had been disproportionate to its successful position in the overall market, and we had long commented on the matter. However, starting in Q3 2010, Samsung became the world’s largest Android vendor. Samsung accomplished this by launching an all-out assault across the globe with its Galaxy S family of handsets. For example, in the fickle US market, where each carrier has demanding compliance and customization requirements, Samsung launched a Galaxy S phone with each major carrier. Samsung’s share of the global handset market has tripled since 2001, when it was already a third-ranked player. Given that historic show of determination, the vendor’s leap to first place in Android smartphones should not at all be surprising. Expect Samsung to expand this leadership position in 2011 and beyond, riding Android’s coattails to huge smartphone volumes. -Alex Spektor Samsung Overtakes HTC to Become World's Largest Android Vendor in Q3 2010 Global Smartphone OS Market Share by Region: Q3 2010

At CTIA in San Francisco last week, away from the fanfare around LTE rollouts and the next dozen tablet devices (ok, I exaggerate a little), Sprint had an announcement which will have significantly higher impact on mobile broadband adoption and revenues: Sprint ID. 

Sprint ID promises to up the ante on personalization and ease current feature phone users into the smart phone ranks.

Sprint ID offers instant personalization along key themes/packs where the operator has done the heavy lifting of identifying and group related applications of interest to different persona from wallpaper to ringtones to apps. While the one click marketing line is not quite matched by reality given pesky little things like accepting terms and conditions etc, Sprint ID is a significant breakthrough in my opinion as:

• it broadens the market appeal of Smart phones to current feature phones users with a simple to understand offer in a range of device price points including the critical $49 and $99 levels.
• it tackles one of the biggest weakness of all app stores: discoverability of content and simple personalization.

Three handsets were featured at launch of Sprint ID: Sanyo Zio™, Samsung Transform™, LG Optimus S™. These three devices cover key price points in the Sprint portfolio and provide customers with a range of form factors, industrial design and brand to meet their tastes. Interesting to note that both LG and Sanyo retain the right to put their own packs on their handsets as well. This is a big win for LG as its Optimus S™ will be available for under $50 with contract giving the vendor a much needed boost in the smartphone space. Samsung meanwhile continues to shine at Sprint occupying the lucrative $149 spot with its Transform™. All three devices of course require a Sprint Everything Data plan.

However, for me the more significant impact is that operators and oems are finally realizing that customers don’t buy phones or services or apps… what they really want are positive experiences

… be that socially connected, sports, education, health and fitness, fashion etc. This is something that our User Experience team has been evangelizing for the last 7+ years. Whether its 80k apps on Android or 250k on Apple store or 10K on RIM, one common experience has been exasperation at the huge waste of time, energy and emotions in finding ANYTHING!!! Which happens first, eyes glazing over or fingers cramping with so much scrolling? Either way the net result is often a disappointing experience which the early smart phone coolaid drinkers have learned to live with.

Newbies to the smart phone arena, will certainly have less tolerance and spend less time to personalize their device and enable applications. Sprint ID is well tailored to the next wave who are taking tentative steps into the smart phone space

 

David Kerr

dkerr@strategyanalytics.com

It may be the exclusive iPhone carrier in the US, but AT&T is also becoming an attractive option for consumers looking to buy an Android handset. Though things weren’t always as they are today. If T-Mobile was the clear early leader in Android adoption among tier-one US carriers, then AT&T was the clear laggard. Let us quickly recap highlights from the US Android timeline:

• T-Mobile launched the first Android phone in the world in late 2008.
• It took approximately one year for Verizon Wireless and Sprint to bring to market their own models, in time for the 2009 holiday season.
• AT&T began selling its first Android handset quite recently: in March 2010.

Less than six months later, AT&T will have as many as five Android phones in its portfolio. This won’t be quite as many as Verizon Wireless and T-Mobile, but it will put AT&T roughly on par with Sprint. AT&T will also be a leader from a variety standpoint, offering smartphones from vendors Motorola, HTC, Samsung, Sony Ericsson, and Dell.

So, what are the key drivers for the ramp-up?

• Catering to consumer tastes. Despite what Apple might tell you, not everyone wants an iPhone. Consumers looking for alternative features, such as a bigger screen, memory expansion, a more customizable UI, HDMI, etc., can find them among Android handsets.
• Lower subsidy levels. Now that AT&T has lowered its monthly data plan rates, there is less revenue to offset the subsidy burden. Paying $200-$300 subsidy for an Android handset seems more attractive than Apple’s $400+ subsidy.
• End of iPhone exclusivity? The Internet is always abuzz with rumors, and AT&T shifting its focus to other platforms is yet another sign that a Verizon Wireless iPhone is potentially in the works. The carrier may be strengthening its portfolio to offset potential losses once the exclusivity ends.

Regardless of AT&T’s underlying reasons, broadening the options available to consumers is a good thing for many of the involved parties. For example, shoppers get a wider selection of handsets and emerging vendors like Dell get exposure to a growing market. However, AT&T will need to be careful in managing the persistent issue of fragmentation. While developers and content providers will be happy to have a larger Android installed base for which to create applications and services, they will also be faced with the cost of addressing multiple models/processors/resolutions/etc. -Alex Spektor

Bluetooth profile implementation in handsets is a pretty dry subject. But with Bluetooth capability available in six out of every ten handsets sold worldwide this year, the subject is an important one for product planners. Even the savviest consumers likely only know to look for a few key profiles when buying a phone. A2DP is one that has received some attention, as it allow the delivery of stereo music to Bluetooth headphones or Bluetooth-capable vehicles. According to our latest forecast, A2DP support will be found in three-quarters of all Bluetooth phones sold this year. Another profile, AVRCP, was designed to allow Bluetooth devices to remotely control each other. The Bluetooth SIG’s example is an outdated scenario, where a PC controls a supposedly Bluetooth-capable VCR. However, where AVRCP really shines is as a companion to A2DP. A common usage scenario is in the vehicle, where a consumer can listen to music through the speakers (A2DP) and change tracks via the car’s controls (AVRCP). I can say from personal experience that at least one user was delighted to learn that he could advance tracks streaming to his BlackBerry’s Pandora client via the car’s steering wheel. The potential impact on stickiness is quite powerful when a handset feature can delight a user. PBAP is a profile that still has fairly low penetration around the globe (the highest is in Western Europe, by the way), but it will experience strong growth in the coming years. The profile allows the transfer of phonebook data to other devices (e.g., to an in-vehicle display). Carmakers, such as BMW, Ford, and Nissan, are increasingly supporting PBAP in their vehicles, and this trend should give long-term uplift to the profile’s penetration in handsets. Not all profile implementations were “created equal,” however, and simply having a profile does not necessarily mean that it will work as expected. Apple, for example, supports AVRCP on its iPhone, but it does not support audio track advancement, which is surprising for such a media-capable device. The inconsistency of implementation among vendors can be a disappointment and a point of frustration to users. The lack of consumer awareness of Bluetooth profiles and their benefits remains an issue for the technology, largely because of cryptic, unmarketable names. Perhaps key industry players could rally toward using more intuitive names (e.g., “In-Car Audio Control”) to help illustrate use cases and engage consumers. Ultimately, we expect handset vendors to prioritize the profiles that drive stickiness and can be directly associated with carrier ARPU. This can mean simply enabling in-vehicle calling with profiles like HFP or even, ultimately, helping to link the phone to a multi-platform connected device framework. Bluetooth Phone Sales by Profile -Alex Spektor

The big two Chinese vendors, Huawei and ZTE, have initially focused their handset activities on emerging markets, such as ChIndia, Africa and Latin America. Enabled by MediaTek, Qualcomm and Via chipsets, the two handset brands have achieved solid shipment growth in GSM and CDMA since 2007. Both vendors will ship tens of millions of units in emerging markets this year, mostly for low-end prepaid users, giving them a base for scale and buying power. This is phase 1.

Phase 2 of their growth targets mature regions, such as Western Europe and the US. ZTE and Huawei are using their success in emerging markets as a springboard to attack developed markets. The Chinese rightly believe carriers are king in developed countries, and they are quietly partnering with a growing number of the biggest players to deliver carrier-branded hardware. Vodafone recently unveiled 8 new Vodafone-branded models across low-, mid- and high-tiers for its European markets, 6 of which are manufactured by ZTE and Huawei. For example, the Vodafone 845 3G touch-smartphone with Android 2.1 is built by Huawei. The Vodafone 547 EDGE touchphone is made by ZTE. In the US, Huawei made the popular mid-tier Tap touchphone for T Mobile. Carriers like the cost-competitiveness and flexible customization offered by the Chinese brands, and they are useful alternatives to the European, American and Asian vendors such as HTC.

Phase 3 will eventually require a more-complex five-pronged strategy to defend against existing or potential new competitors in the operator-branded handset industry such as Sagem or  Foxconn. Huawei and ZTE will need to upgrade their companies’ competences in:

1. branding;

2. industrial design;

3. portfolio management for build-to-plan products;

4. software usability;

5. content and services.

For now, both Chinese vendors are happy to provide 3G handsets mostly as a delivery tool for operator services. For example, the Vodafone 845 from Huawei is optimized for Vodafone 360 services. But ZTE and Huawei will arguably struggle to sustainably differentiate their own brands on pricing and hardware alone. Developing a software and services (S&S) strategy beyond hardware will therefore become an important value-add for Chinese vendors to attract and retain affluent users in mature regions. An S&S strategy will subsequently open up opportunities for Chinese services brands to partner with ZTE and Huawei to showcase their products in new markets abroad. We have a Google phone and a Microsoft phone; how about a Baidu phone?

After months of industry-wide speculation about Microsoft’s “Project Pink,” the software giant recently unveiled two phones: Kin One and Kin Two. Manufactured by Sharp (the maker of most T-Mobile Sidekick phones, in partnership with Danger, whom Microsoft purchased in late 2008), the phones will ship with specs found on many of today’s smartphones: capacitive touchscreens, QWERTY, high-megapixel cameras, gigabytes of flash memory, Bluetooth, GPS, accelerometers – the list goes on. Yet, the Kins are not true smartphones, as there is no application support. Rather, the Kin family of products consists of cleverly targeted feature phones.

While the smartphone segment is growing steadily, the wireless industry is certainly not done with feature phones, which we expect to account for approximately two-thirds of handsets sold in North America this year. Earlier this year, AT&T announced intentions to give significant attention to the mid-range, messaging-centric feature phone category, which the operator calls Quick Messaging Devices (QMD).

At Verizon Wireless (who, along with Vodafone in Europe, will soon carry the Microsoft phones), the Kin will make an interesting replacement to aging handsets like LG’s enV series. In a way, the Kin family is part of VZW’s answer to AT&T’s QMD category. Expect VZW and Microsoft to back a heavy advertising campaign when the phones come out, promoting the novel user experience and social networking functions. With a low retail price and some innovation on data plan pricing (see the Nokia Nuron smartphone, which requires just US$10/month for unlimited data at T-Mobile USA), the two Kin models could drive strong volumes for the carrier.

 

For Microsoft, who recently painted themselves into a high-end corner with hefty hardware requirements on Windows Phone 7, the Kin family represents an interesting platform framework to get closer to the youth segment.

The high-tier Windows Phone 7 will be a natural handset upgrade path for today’s Kin user, as both platforms are forming common elements. While the short-term goal with the Kin family is to expand the addressable market by bringing messaging/social networking services through a robust framework, the long term goal is to own the consumer by highlighting the Microsoft value proposition to him/her early on.

Either way, Kin provides an interesting glimpse into Microsoft’s understanding of the future handset market, where feature phones will rely heavily on the cloud. (Like its Sidekick predecessors, the Kins store user data and content on company servers.) Add to that Windows Live service and Zune content integration, and Microsoft can be seen as gradually ramping up its strength on the multi-screen index.

-Alex Spektor

Verizon Wireless in the US is pressing hard to get its hands on the Apple iPhone. Its CEO, Ivan Seidenberg, has reportedly told Apple that it wants to stock the iPhone sooner rather than later. Why would Verizon Wireless want the iPhone? Well, it would surely love to break AT&T’s exclusive for the iconic device. Verizon would be keen to solidify its data ARPU and improve the company’s churn outlook by stocking the popular iPhone. And with next-gen models like the HTC EVO 4G WiMAX starting to appear at Sprint, Verizon needs to remain at the cutting-edge of data-centric handsets and services. If (if) Verizon Wireless were to stock the iPhone in 2010 to 2012, should it be optimized for CDMA or LTE connectivity? Of course, timing is king. Should a Verizon iPhone be launched in the second half of 2010, then it would definitely be a CDMA-only version, because Verizon’s LTE network will not be fully commercialized. How about an LTE version in mid-2011? Well, our Wireless Device Strategies (WDS) service forecasts LTE handsets will make up just 1% of total shipments in the United States next year. Launching an LTE iPhone in 2011 would be a huge marketing coup for Verizon, but it would be entering a niche immature market, so we think this approach is too high a risk for Apple -- as a historical benchmark, Apple’s first WCDMA iPhone in 2008 did not launch until WCDMA volumes were approaching some 10% of the nationwide total. Therefore, we believe a launch-date of 2012 or even 2013, when LTE will be more established, is a more realistic option for a Verizon Apple LTE iPhone. If an iPhone arrives at Verizon before those dates, then it will almost certainly be a CDMA-only version. - Neil Shah

High-end mobile handsets have more in common with the consumer electronics industry than they used to. Music, camera and GPS segments are some of the early examples that have lost increasing ground to the mobile industry. As the industry converges further, more use-cases and functions will be bundled on high-end handsets and crimp the growth of other consumer-electronic segments such as portable gaming. Retailers are closely watching the evolution of cellular devices and treading the waters carefully. Connectivity will of course be common across multiple device categories, whether it is your 65-inch Plasma TV or internet-enabled table clock – and for the most part, this is a new learning experience for major main-street retailers. Connectivity adds another dimension and requires additional training for their customer representatives – initial set up, configuration, billing, activation, rebates and contract obligations are areas where retailers need to climb up the experience ladder. Some interesting trends from the buoyant US market: Best Buy is betting its future growth on high-end smartphones and emerging connected devices such as 3G laptops. Smartphones are just the launch pad for Best Buy’s broader strategy in taking an early position in the evolving connected terminals space. Wal-Mart is embracing a different route that is aligned with their low-cost mass-market philosophy. The no-frills service plan StraightTalk, developed in conjunction with TracFone, was a big success during the last holiday season. The business is changing in the online channels as well; Amazon launched is beta program last year and connected devices are often sold at significant discounts than through carrier-direct channels. On one hand, third-party specialist retail channels will expand operators' addressable markets to new segments. Operators do not have all the necessary assets to tap the long tail of emerging 3G device segments or new service plans that are aligned more with the consumer electronics industry. In this scenario, retailers are the operators' friend. On the other hand, dilution of operators' direct channels will be a threat for operators' control, and without proper checks in place, the thousands of existing operator stores in the US will soon become much less important. In this scenario, retailers will gain more distribution power and become the operators' foe. - Bonny Joy

No, I did not misplace my BlackBerry. This blog post is not about the “Find My iPhone” feature or any other innovations in device recovery. Rather, I would like to lament my disappointment with the general lack of true intelligence in so-called smartphones. Named so for their advanced (PC-like, Wikipedia suggests) capabilities, smartphones trump ordinary phones with their ability to tie in new services, run applications, and browse the real Web. But should being PC-like be the ultimate aspiration for handsets? After all, phones have a key advantage that not even the lightest of netbooks can have – phones are always with their users and, as such, they know a lot about them.

• Using GPS and accelerometers, the phone can know where you are and whether you are moving.
• With knowledge of your calendar, the phone can know if you are busy and whether it should interrupt you.
• By monitoring your behavior, the phone can guess how you will behave next time a similar situation arises.

Privacy advocates and conspiracy theorists will have a field day with this one, of course. But their fears can be assuaged with feature opt-in and with clear, published documentation of what data are stored and shared. Mobile context awareness is nothing new. Academics have been talking about it for over a decade. But, outside of downloadable (i.e., not truly integrated) apps and some barebones functionality (such as the “Automatic” ringtone profile on some WinMo phones, which goes to vibrate during scheduled meetings), there still is not a whole lot of context awareness in smartphones. Platforms like Android allow you arrange your widgets across multiple home screens. Powerful? Yes. You then have to flip through the home screens until you find the one with the right widgets. Smart? Not really. Why can’t your phone – knowing whether you are at work, on a train, or at home – give you the right home screen on its own? And switch wallpapers. And change the vibrate settings.

This example only scratches the surface of the possibilities out there. Vendors looking to differentiate on open platforms such as Android or Symbian have a terrific opportunity in building a robust context-aware user experience. Tomorrow, this stuff will be table stakes. But today, we are still waiting for somebody to lead the way. Handsets are loaded with power: processors, sensors, round-the-clock connection to services. But where is the intelligence to tie all of this power together? Maybe we should call them powerphones until they start doing something smart. -Alex Spektor

…Continued from part 1 PC vendors should be worried. It will be impossible to recreate the iPhone’s success. Furthermore the engineering-centric technology and design resources they currently rely on for their legacy products put them at a distinct disadvantage in today’s smartphone market, which is largely driven by engaging user experiences and a complementary set of compelling applications and services. Still, the operator smartphone craze means there is still plenty of room for good devices. Specialists like Dell and Acer can succeed if they prioritize the following issues. · User Experience – The importance of a top-notch user experience cannot be overemphasized. Be it stock Android with top-shelf hardware, highly customized Android with decent hardware, or something in-between, handsets that provide an engaging experience will eventually make their way into consumers’ hands. · Content and Services – Technology and design will get you noticed, but content and services will get you used by consumers. This is where PC vendors are weakest. They should be proactively forging relationships with content/service providers. Working directly with carriers on on-portal offerings should not be ruled out. In fact, as operators look to drive on-portal usage, PC maker’s willingness to play is a potential differentiator from traditional handset vendors. · Platform Selection – Small vendors should focus on winning platforms. Samsung, with a huge distribution network, strong R&D resources, deep pockets, and dozens of SKUs can afford to support multiple open platforms and develop their own. Inexperienced vendors do not have this luxury. Indeed, platform selection is at the core of the PC-smartphone vendor’s issues, as it dictates the user experience and services capability. The experiences of HP, Asus, Palm and Motorola have shown that Windows Mobile has not been driving vendor success in the consumer smartphone market. Like its European rival Symbian, WinMo failed to evolve to address consumer demands for touchscreen-driven, Web-oriented user experiences. WinMo 7 and Symbian^4 will address these issues, though handsets based on these platforms won’t hit en masse until 2011. If PC vendors want to see meaningful smartphone sales, they need to expand beyond their familiar relationship with Microsoft and consider Android as their primary alternative. Dell has recently re-focused on Android to have a better shot at being consumer-relevant in the broad global market. This focus is necessary to allow PC vendors to concentrate on building the resources and relationships for content and services that are so critical in the mobile world. -Alex Spektor