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Tuesday, September 09, 2008

Where is the asymptote for smartphone penetration?

Despite the hoopla about the iPhone and the upcoming launch of Google Android-based devices, there seems to have been a sudden bout of queasiness among the smartphone market participants (and their investors). As a share of total phone shipments, there seems to have been a bit of a stall at around 11%.

Various commentators are scratching their heads, and blaming the economy and a range of other factors. In recent months I've noticed an almost religious fervour based on the notion that "soon, all phones will be smartphones"... and now we're seeing the first cracks emerging amongst the faithful.

Much of the recent enthusiasm has come from the US, where there has undoubtedly been a sudden leap in the sales and profile of high-end devices, driven by the iPhone and continued acceptance of BlackBerries among a wider group of users. All operators now have 3G networks up-and-running, there are some sensible data plans, and everyone has WiFi at home and wants to "take their Internet with them". In addition, the various carriers have suddenly started stumbling over each other in an effort to be seen as the most "open".

In many ways, certain user groups in the US seems to have leapfrogged the high-end featurephone phenomenon seen in Europe and elsewhere. There haven't been that many midrange phones with 3MP+ cameras, memory cards, full Bluetooth, decent MP3 capability (with side-loading) and so on. Device have suddenly jumped from being locked-down, carrier-centric products to new ecosystems like Apple's.

This seems to have led some American observers (and some European smartphone enthusiasts) to assume the same trend has been mirrored elsewhere, and that consistent meteoric sales growth and penetration of smartphone OS's was inevitable globally.

In my view, the truth is rather different when taken at a global level, and explains what will probably just be a temporary plateau in smartphone penetration.

What's happened is that the growth statistics in recent years have been driven not so much by people wanting smartphones, as being given them without choice or (often) awareness. I posted in length about this last year. In recent years, Nokia Symbian S60 and NTT DoCoMo shipments have hugely inflated overall smartphone sales numbers, and Nokia and NTT have selected smart OS's largely for their own benefit, rather than because of specific demand by customers for "smartness".

The US market has long been different. Most US consumers buy smartphones because they actually want smart devices, rather than because they want a high-end Nokia, or a contract with DoCoMo. Yes, there have been plenty of "real", conscious, buyers of smartphones in Europe and Asia, but they have been swamped by a flood of other customers who haven't really cared, but have taken what they've been given.

What we're seeing now is this blip in the statistics being worked through. We're no longer seeing huge growth in high-end Nokia shipments (as last week's warning highlighted), and the Japanese market is pretty saturated too. None of the other major manufacturers has really shifted wholesale to smart OS's as a default platform, to carry on the S60-led growth in "under the hood" smartness.

There have also been some other statistical shifts - huge growth in low-end devices in emerging markets, for example. This is what's boosting the overall market to 1.2bn-odd devices, but dropping the average sales price to well below the entry point for smart OS's. And although it's changing, most phones are still not sold with data plans being available (or certainly affordable), especially on the basic prepay tariffs used by 70% of the planet.

My take is that it's going to take several more years to get smartphone penetration to above 15% of global shipments, and that for the forseeable future (lets say 2013) we should probably treat 20% as the asymptote. In developed markets, that figure will be considerably higher - perhaps 50% or above in places like the US or Scandinavia, or maybe 30-40% in markets like the UK, especially if mobile Internet access takes off further. But the notion that someone in Mozambique or Bolivia or Laos,buying a $20 handsets and with a $2 monthly spend, will be buying a 2013-equivalent of an iPhone is unrealistic.

It's very easy to plot hockey-stick charts - but observers from North America shouldn't leap to the assumption that the majority of people follow their specific local habits. Globally, more people play hockey on grass than ice. And most people who buy phones still don't actually care about smarts.

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