Distilling market noise into market sense
The VisionMobile blog is a space where VisionMobile analysts and industry insiders exchange views on the fast-changing mobile market and the trends that define the future direction of telecoms.
The elusive long-tail of mobile shipments
[The era of smartphones is upon us, as penetration increases from 11% in 2008 to over 25% in 2011. But what of the remaining three quarters of the market? Marketing Manager Matos Kapetanakis talks smartphone numbers and takes a look at the elusive long-tail of feature phone shipments]
Dawn of the smartphone era
Smartphone penetration continues to accelerate, growing from a paltry 11% in 2008 to 20% in 2010 and climbing to 27% in H1 2011. Feature phones continue to make up the bulk of mobile shipments globally, but the revenue potential of each segment is a different matter altogether. As an example, the average selling price for Nokia’s feature phones was 39 Euros versus 144.5 Euros for their converged devices.
Another parameter, namely profitability is much in favour of smartphone vendors. HTC has comparable revenues to Nokia’s successful feature phone segment, with two times the profits and profit margin, despite having six times fewer shipments. The gap is even larger in the case of Apple, whose profits are nearly 20 times those of Nokia’s feature phone segment, despite having less than a third of Nokia’s shipments.
Smartphone platforms: Google vs. Apple
First, let’s take a look at the two leading players, Android and iOS. The vacuum left behind by Symbian’s timely demise has been filled primarily by Android and, to a lesser extend, Apple’s iOS. In H1 2011, Android gobbled up nearly 45% of the smartphone pie, leaving approximately 20% for Apple’s iOS and 12% for RIM’s BlackBerry OS.
Apple has enjoyed a healthy increase of iPhone shipments in 2011, already reaching past the 50M full-year figure for 2010 in the first three quarters of 2011. Despite the initial disappointment of not being a brand-new iPhone, the iPhone 4S managed to get 4 million sales in just one weekend – that’s more than Windows Phone manages in an entire quarter. However, in an increasingly price sensitive smartphone market, there is a limit to how many iPhones can be sold.
Despite being the number one smartphone platform, Android is not guaranteed a smooth sailing. Apple’s lawsuit barrage on Samsung, the biggest Android vendor in terms of sales, has exposed the platform’s Achilles’ heel, namely patents. The large arena of this high-stake drama will not be set in Germany or Australia, but the large smartphone markets, like the U.S. Google’s acquisition of Motorola (don’t miss our full analysis) has indeed armed Google with fresh patent ammunition, but might alienate the big Android vendors.
Smartphone platforms: The best of the rest
But what of the other platforms? Windows Phone continues to fail to impress users, with sales being disappointing, as Ballmer himself recently admitted. Nearly eight months after the much-vaunted Microsoft-Nokia deal, Windows Phone is faced with lukewarm results, being outsold even by Samsung’s bada platform. In H1 2011, Windows Phone barely reached 4M shipments, while bada shipments climbed to nearly 8M. WP7’s growth, after it replaces the zombified Symbian as Nokia’s main smartphone platform, is still uncertain, but the longer it takes for Nokia WP devices to hit the shelves, the more market share will Nokia lose. In H1, even if Nokia were to magically replace all Symbian handsets with Windows Phone handsets, Microsoft’s platform would still be far behind Android, with just half of Android’s shipments.
Windows Phone, however, should not be summarily disregarded, as Microsoft has managed to create a substantial ecosystem around the platform, which is the main ingredient to the success of Apple and Google. Windows Marketplace reached the 30 thousand apps milestone in just 10 months, while the platform has received positive reviews by developers. The platform is widely acknowledged as having the best developer tools in terms of features, based on our Developer Economics 2011 report (www.DeveloperEconomics.com).
Even though Stephen Elop described the smartphone market as a three-horse race, there is another important player to be considered, namely RIM. During the past year, RIM has suffered a number of blows, from declining market share and repeated drops in their share price to a total service blackout that lasted four days. RIM is starting to lag behind its competitors and their leaking market share is up for grabs. Despite a vibrant developer community, problems such as fragmentation issues and an aging platform have cost RIM the creation of a healthy ecosystem. A telling sign is how BlackBerry App World is lagging behind not only Apple and Google’s app stores in terms of available apps and downloads, but also Nokia’s Ovi Store. Now, the BlackBerry blackout fiasco has cost RIM the confidence of 70M subscribers. RIM is on the verge of relinquishing their last remaining competitive advantage, namely reliability. Even though RIM is trying to turn the situation around, with the introduction of the BBX platform, plus the carrot of Android apps compatibility in the second version of Playbook, it’s the RIM brand that has taken a beating, more than the BlackBerry brand. It remains to be seen whether users will flock to the notoriously unsafe Android platform or will opt to follow the safer, iPhone route. The iPhone route seems more suitable to RIM’s enterprise segment, as the segment’s disposable income is enough to carry the weight of expensive iPhones.
Smartphone vendor arena
In H1 2011, Apple and Samsung toppled Nokia as the undisputed king of smartphones. The top-5 smartphone vendor rankings also include RIM and HTC. It’s no surprise that 3 out of the top 5 players are purely smartphone vendors; but the old guard is catching up.
Although lagging behind, LG is finally on board the smartphone express, while Sony Ericsson has disowned their feature phone heritage and plan to become a smartphone-only vendor in 2012. As smartphone prices are dropping, ZTE and Huawei are also firmly in the game, extending well past their native home market.
It’s interesting to note that in a market of 208 million smartphones in H1 2011, there are very few dark horses. The top 10 players accounted for nearly all smartphone shipments in the first half of 2011, leaving just 3% of shipments in the ‘other’ category.
The elusive long-tail of mobile shipments
While Nokia has lost the pole position in the smartphone market, it continues to firmly hold the feature phone market in its grasp. Nokia accounted for over 27% of total feature phone shipments in H1 2011, followed by Samsung with 20% and LG with 7%.
However, the feature phone market is extremely fragmented, with the top 7 players accounting for just 64% of shipments. The remaining x% belongs to the generic ‘other’ category. But what is this dark, elusive gap in the market? The answer lies in the plethora of primarily Asian phone manufacturers out there (see a slightly out-of-date list here), taking off-the-shelf MediaTek hardware designs to create Shanzai handsets for the Chinese market or brand name handsets for India.
The long tail of feature phone manufacturers largely caters to local markets, in partnerships with local telcos. India and China are the obvious examples of low-volume feature phone manufacturers, with each country playing host to over 15 such companies. With tens of companies shipping low-end devices to local markets, it’s small wonder that the biggest bulk of feature phone shipments comes from the long-tail of handset OEMs.
The end of feature phones
While smartphone penetration continues to increase, just over 1 in 4 mobile phones are smartphones. The tipping point will come when handset OEMs manage to release low-cost smartphones into the market, in high volumes. Google is already attempting to sell cheap smartphones in the range of $100 unsubsidized, pre-tax. The rate of acceleration will increase even further if there is any truth to the rumors of cheaper iPhones, as consumers are still hesitant of the prices that Apple demands for its products.
Furthermore, most major handset OEMs are keen to lower the volume of feature phone offers in favor of smartphones, as the latter have a much higher profit margin and the market is slowly getting accustomed to the use of touch screens.
Questions or comments? Drop us a line on Twitter.
Download the full 100 Million Club watchlist.