An Act of Folly: Smartphones in Five Years

by Steve Wildstrom   |   April 25th, 2012

BlackBerry Curve 8300

2007's hot smartphone

Let’s take a quick trip in our time machine to survey the smartphone market in the spring of 2007, five years ago. The iPhone had been announced but not yet shipped, and many were skeptical about its success. Android was still mostly a gleam in Andy Rubin’s eye. The hot smartphones of the day included the consumer-oriented BlackBerry Curve and the Windows Mobile-based Samsung BlackJack. The general expectation of forecasters was that Symbian’s dominant market share would shrink, but stay strong, Windows Phone would at least hold its own, while BlackBerry surged and Palm shriveled.

Fast forward to the present. Smartphone unit sales have nearly quadrupled, but the market has become jumbled in ways that few expected. Apple sells nearly one in five of all smartphones, but is the standard against all else is judged. Symbian is disappearing and BlackBerry is hanging on for dear life, especially in developed markets. Android has gone from nothing to a nearly 40% share, while Microsoft, having replaced Windows Mobile with the snazzier Windows Phone continues to bleed market share.

Smartphone Market Share

Operating system 2007 2011
Symbian 63.5 19.2
BlackBerry 9.6 13.4
Microsoft Windows Mobile/ Windows Phone 12.0 10.8
Apple iOS 2.7 18.9
Linux 9.6
PalmOS 1.4
Android 38.5
Other 1.1 3.4
Data: Gartner

Given this background, talking about what the smartphone market might look like in 2017 seems like a fool’s errand, but I’m going to take my chances. To some extent, smartphones are beginning to look like a mature market, at least in North America, Europe, and Japan. One characteristic of mature markets is consolidation of producers. And in the case of smartphones, this trend is complicated by the delicate interplay of handset makers and operating system providers.

The hot issue of the moment is the pressure toward combining hardware and software into vertically integrated producers. This thinking has been inspired by the staggering success of Apple, though it requires overlooking the struggles of vertically integrated Research In Motion and the implosion of Hewlett-Packard/webOS.

Ingtegration and consolidation. The industry seems well on its way to more integration and more consolidation. My colleague Tim Bajarin thinks that despite its demurrals, Google will make an integrated Motorola the prime producer of Android products. There’s a lot of reason to believe that if Microsoft doesn’t buy Nokia outright, it will formalize an arrangement in which Nokia becomes its official premier Windows Phone partner. I think both Nokia and Motorola will end up as the official flagships of their operating systems.

Apple should be able to fly above this storm. As demonstrated by its latest blowout quarter, there is every sign that it will be able to hold on to the high end of the business for some years to come. The iPhone has lost some market share, and this trend will continue because much of the growth over the next few years will come as low-end smartphones displace feature phones in markets and geographies that are not Apple’s métier. But Apple doesn’t much care about market share; it will dominate the much more important categories of mind share and profit share.

The company most threatened by MicroNokia and MotoGoogle is Samsung, which has just displaced Nokia as the leading phone maker by worldwide unit volume. Samsung is highly integrated on the hardware side. It makes its own processors, displays, and flash memory, among other components. But it has never been a leader in software. It has its own operating system, but Badu has gotten little traction and for its high-end phones, Samsung depends on Android and Windows Phone. Samsung is not going to be happy as a second-class manufacturer for either Microsoft or Google.

Samsung’s tough choices. Samsung’s options, however, are limited. It could buy RIM, which seems destined to fade away unless it can team up with someone. But given RIM’s struggles trying to bring a new BlackBerry operating system to market, this might not offer Samsung much of a solution. A more promising course might be for Samsung to claim an open-source operating system as its own. It’s partnering with Intel on a mobile OS called Tizen, but this seems headed for the same ash heap as Intel’s other OS efforts. (Meego, anyone?)

webOS offers a more intriguing possibility. HP owns it, but has open-sourced the code and made it freely available. It’s a sophisticated modern OS that needs work, but one that Samsung might be able to use as its own platform for phones and tablets. Another possibility would be simply to grab Android and definitively strike out with its own fork without regard to Google’s development path. Either course would require Samsung to get deeply into software development, developer relations, and everything else that goes along with being a full-service provider. This has not been a Samsung strength, but the alternatives may be far worse.

One way or another, I expect Samsung to be a significant player in the 2017 phone market. I’m much less sure about the smaller Android and Windows Phone manufacturers. HTC, with a foot in each camp, has stumbled of late and could have difficulty getting its mojo back. I would not be at all surprised to see Sony, which recently became the sole owner of what had been Sony Ericsson, exit the phone business after struggling, successively, with Symbian, Windows Mobile, and Android. LG, which has never quite gotten the hang of smartphones, could also leave the market. ZTE, Huawei, and Lenovo can trade on their strength in the Chinese market, but may make little impact elsewhere.

The market in 2017. In unit volumes, the 2017 smartphone market will be dominated by low-end phones sold in emerging markets. If Nokia can survive the stormy present, either in partnership with Microsoft or as part of it, the combination of Nokia’s strength in these markets and Windows Phone’s ability to perform well on modest hardware , could again make it a formidable player. Android may be a big force in two flavors, the official one and a Samsung variant. Many of the smaller phone makers will be out of the market. RIM will hang on in some form, perhaps as a supplier of back-end enterprise services and specialized secure phones. And Apple will be Apple.

The biggest question mark is MotoGoogle. Left as it is, it seems doomed to become a second-tier Android handset maker, some thing of little use to Google. Integrated and turned into an Android flagship, it puts Google head to head with Apple and possibly Microsoft. It would probably forsake the current Android licensing model, which is not working very well anyway, and would have to develop new talents such as supply chain manage, channel strategy, and carrier relations. Google has the money and the brains to do all this, but I’m not sure it has the desire, patience, and discipline to pull it off.

 

 

 

Steve Wildstrom

Steve Wildstrom is veteran technology reporter, writer, and analyst based in the Washington, D.C. area. He created and wrote BusinessWeek’s Technology & You column for 15 years. Since leaving BusinessWeek in the fall of 2009, he has written his own blog, Wildstrom on Tech and has contributed to corporate blogs, including those of Cisco and AMD and also consults for major technology companies.
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  • Recision

    Interesting article – pity about ALL the typo’s.

  • jfutral

    Assuming, of course, someone hasn’t come up with something to disrupt the industry in the intervening years.

    I’m not trying to be contentious or otherwise argumentative. But the reason we are having this discussion now is because that is exactly what happened with the iPhone.

    Of course you can’t be faulted for the unknowable. I have just been thinking lately what is the next revolution to make all this irrelevant and change the comparison from “2007-11 vs 2012-17″ to “2006-12 vs 2012-18″ or even just “2006-07 vs ??”?

    Joe

    • melgross

      The question for you then is to figure out who has the resources and ability to come out with a new OS and hardware system that will roil the market the way Apple did. I can’t think of anyone. Jobs was right when he said, in a response to a question about Japanese manufacturers, that these companies could build great hardware, but they stunk in writing software. He’s right.

      Software is the big issue. Who is left that can do this? Apple, Google and Microsoft. There’s really no one left other than those three.

      Microsoft has a system that’s pretty different from the other two, but there’s no evidence that people like it. If it doesn’t pick up soon in a big way, no matter how much Microsoft wants it to, it may never go anywhere.

      That would leave Apple and Google. But Android is very fragmented, and the most popular versions of the OS by far, are over a year old. That isn’t changing much yet. It might get worse.

      • steve_wildstrom

        It’s very hard to predict disruption, whichis why I said I had assigned myself a fool’s errand. But disruption has to cme from somewhere and it gets much, much harder as an industry matures. (Not impossible, though. Note how the Japanese disrupted a mature U.S. auto industry.) Where I have trouble is figuring out who the disrupter might be. At one point–a decade or so back–Microsoft had the potential to disrupt the handset business but fumbled repeatedly. BlackBerry had its moment of glory, but wasn’t really a disrupter. Apple worked onthe iPhone for years, and while many doubted its success, at least everyone saw it coming. I just don’t see a new entrant on the horizon.

      • jfutral

        You are probably correct, but from my perspective that is still thinking in terms of who the current player are. Apple was not a player in the cell phone (much less smart phone) industry when they entered. that’s what allowed them to upset the hardware/OS players of the time—Nokia, RIM, MS Windows Mobile.

        But there is no need to think that is where the innovation that makes all that irrelevant will come from that sector. I mean, really, we all are just trying to find the best way to deal with… carriers.

        I don’t know what the change will be, but I don’t think anyone believes this is as good as it gets. I don’t know anyone that can’t find something about their smartphone they wish were better. As long as that is the case, and as long as the big players are distracted with trying to “out Apple” Apple, something new has to be just around the corner, and from someone no one was expecting to come from (and I don’t mean Facebook). Especially at the accelerated pace technology is flying these days.

        I’ve said it before, I’ll say it again, the only way to beat Apple at their own game is to come up with a new game. That is what Apple does.

        Joe

        • melgross

          The problem is that something new doesn’t have to be around the corner. It doesn’t work that way. There are times when we reach a certain point where the best we can hope for is incremental improvement.

          Look ar cars. Despite all the new technologies we’ve seen over the decades, and those coming out now in fuels, there’s nothing that revolutionized the industry. Everything for many decades had just been an improving technology and product lines.

          And while all the major players change places as to who is the biggest, the actual companies haven’t changed much. The ones from 60 years ago are still here.

          It doesn’t always have to remain that way, but it likely will.

      • Recision

        ” Software is the big issue. Who is left that can do this? Apple, Google and Microsoft. There’s really no one left other than those three. ”

        Yes and no. Not exactly, and not yet. But there is a huge amount of expertise out there and it is growing. All the App developers, all the Game developers, all the specialty houses (e.g. Adobe).
        Some, or a combination of those, could step up.

        Zuckerberg made a whole ecosystem out of ‘nothing’, it is just a matter of spotting the opportunity and then bringing all the pre-existing elements together. Indeed Google did that with Android too.
        There are plenty of smart people, and for the right opportunity there will be plenty of money too.

        I expect that five years from now there will be a new wunderkind on the block.

    • benbajarin

      A couple thoughts. When the iPhone launched it ushered in the true consumer smartphone era. To FalKirk’s point above there are areas where smartphones are mature/maturing and others where this is still maturity which needs to happen. Until the market is post mature I don’t see an opportunity for something else / new. The smartphone market just isn’t quite ready for disruption as I think post market maturity and lazy entrenched incumbents are some of the ingredients necessary for disruption. Smartphone markets just aren’t there yet.

      The real thought exercise with all of this is how many more (if any) new categories can exist. Just using cars as an example again, we don’t really see new classes / categories of cars popping up to often that completely change things. So to what extent will that be similar in computing? I’m not sure but as I said it is worth a thought exercise.

  • http://kaizenity.blogspot.com/ FalKirk

    “…talking about what the smartphone market might look like in 2017 seems like a fool’s errand…”

    Probably. The iPod was the ground breaking product that kick-started Apple’s resurgence. Yet, after only 11 years (2001-2012), it’s an afterthought. The iPhone is already five years old. How long will its run last?

    “…smartphones are beginning to look like a mature market…”

    Agree and disagree. The smart phone is not just iterating, it’s evolving. While I agree that the operating systems and the hardware and even the App economies are becoming mature, I think the new growth will come from the Cloud. Having your data and your content with you on whatever device you have is just in its infancy. The company or companies that can put everything you own or create at your beck and call wherever your are and whenever you want it (and that includes your television set) are going to be the companies that drive tech for the next five years.

    “The hot issue of the moment is the pressure toward combining hardware and software into vertically integrated producers…”

    No it’s not. Apple has already won that war. Everyone else is just trying to ape Apple and pick up the scraps.

    “The iPhone has lost some market share, and this trend will continue because much of the growth over the next few years will come as low-end smartphones displace feature phones…”

    Disagree and agree. The iPhone’s market share is actually on a roll. The majority of Sprint, Verizon and AT&T smart phones sold are iPhones. Heck, the majority (60%) of ALL phones sold at AT&T are iPhones.

    We should really take a step back and think about that for a second. Verizon kicked off the Android revolution with its $100 million advertising campaign for their brand named Droid. Yet after only 13 months on Verizon, the iPhone outsells all Droid, RIM and Windows Phone 7 phones combined.

    That is a mind shattering market share reversal.

    There is every reason to believe that iPhones are going to surge to market share domination on every carrier where it is subsidized. In markets where phones are unsubsidized, Android will continue to enjoy the majority of the market share but the iPhone’s continued domination of profit share will starve Android manufacturers and developers of profits.

    The smart phone wars are over. Apple has won. Let the Cloud wars begin!

    • Gsparkman

      “The iPod was the ground breaking product that kick-started Apple’s resurgence. Yet, after only 11 years (2001-2012), it’s an afterthought.”

      True, but let’s not forget that there is an iPod in every iPhone and iPad sold. Otherwise, your post is right on.

      • benbajarin

        Yes very true. In fact you could argue ( and I think you would be right) that every product Apple makes today benefits directly because of their investments in the iPod since 2001.

        What is perhaps more interesting is that no comparison can be made of leveraging an 10+ plus investment for success by anyone competing with Apple. Therefore, it is perhaps logical, that Apple significant multi-year advantage on any competitors because of it.

      • http://kaizenity.blogspot.com/ FalKirk

        “… there is an iPod in every iPhone and iPad sold…”-Gsparkman

        Very true. The iPhone may be the best example there is of a company “disrupting” itself.

    • steve_wildstrom

      iPhone’s market share is growing in the U.S., but appears to be falling worldwide. It’s going to have a very tough time competing with chep Android and mybe Windows Mobile phones in emerging markets, but Apple won’t cheapen the product and they shouldn’t.

      • TheEternalEmperor

        Is this not just a case of the market growing faster than Apple’s share?

        • steve_wildstrom

          Essentially that is what is happening and that is why a decline in share is not a source of concern for Apple. I think Apple’s share will be relatively small in emerging markets because of cost. The iPhone is gangbusters in china because the total market is so vast, but I suspect Apple’s long term share of the Chinese market will lag. But a, say, 10% share of a market that big is still an awful lot of units.

        • mhikl

          EE, could it not also be a case supply and of one company’s ability to build enough of one product fast enough to meet demand? Are there not many Androids using different parts that can be filled by suppliers?

      • rattyuk

        I think the world lags 2-3 years behind what happens in the US. The market is changing faster than the Android supporters would like to think and the percentage of smartphone sales at AT&T and Verizon this last quarter seems to belie the fact that Android is “winning”.

        The interesting thing is that it appears when iPhone users upgrade they upgrade to an iPhone when others upgrade it is up for grabs.

        Yes, I know there will be some people who have moved away from the iPhone but that appears to be an insignificant percentage. I am sure there could be a lot of people responding to this point with the words “well, this user wouldn’t go back” and such but the majority of the iPhone purchasers are pleased with the technology and have invested sufficient time and money over the last few years to stick with it.

        As to Fal’s point above:

        “The iPod was the ground breaking product that kick-started Apple’s resurgence. Yet, after only 11 years (2001-2012), it’s an afterthought.”

        An afterthought maybe but remember every touch sold is both a gateway drug to the ecosystem and another notch in iOS’s belt.

        • http://kaizenity.blogspot.com/ FalKirk

          The iPod Touch is Apple’s stealth weapon. it brings in a couple of billion (?) dollars a year, has virtually no competition and introduces kids to the iOS ecosystems year after year after year after year after year…

          • Marvin Nakajima

            You bring up an interesting point. A friend gave me an iPod Touch for use and I tend to use it mostly for games but I can see how it would be a good entry point. I still use my Palm TX however since it does everything I need it to do and I still prefer using a stylus over a finger to write stuff with. Android really does not have anything I am aware of that fits in the same category as the iPod Touch but if they did I would expect it to be something closer to the Samsung Note but w/o phone capabilities. I’d pick up one of those in an instant (still prefer stylus, yes I know you can buy one for iPxd but there is no convenient storage on the device for it). With its larger screen it would probably a fitting competitor to the Touch should Samsung consider releasing it that way.

      • http://kaizenity.blogspot.com/ FalKirk

        “It’s going to have a very tough time competing with chep Android and mybe Windows Mobile phones in emerging markets…”-steve_wildstrom

        Define “competing”. Does the NFL compete with high school football? Does real jewelry compete with costume jewelry?

        There are a lot more high school football games than NFL games and there is a lot more costume jewelry than there is real jewelry. Do you think that the NFL or the Jewelers care? No. Profits are what matter and the NFL, the jewelers and Apple have all the profits.

        Market share means nothing unless there are margins and the margins on most Android phones are pitiful. In emerging countries, Apple will be happy to let Android live in the large market share, low profit share ghetto. A helpful side effect is that it will keep the regulators off their back.

        The iPhone is aspirational. People will buy cheap Android phones. But when they can afford it, they’ll step up to an iPhone. Honestly. What more could Apple want?

        • steve_wildstrom

          Right on. Apple can’t win the market share game in emerging markets. Much of the world of tech commentary is obsessed by market share and acts as though the end is near for Apple when Android gains a point. Apple does not care. They’ll happily take 10% of the market if they can get 80% of the profit.

      • jfutral

        Maybe not quite so tough. So far the only real Android competition and the only Android maker making money is Samsung. Everyone else is tanking faster than Apple in the 90s. Competition seems to be handled by attrition. That could certainly help Windows more than hurt Apple.

        Joe

      • Brianopeterson

        “iPhone’s market share is growing in the U.S.,”

        Yes, but Android’s share is growing faster. That is the salient observation.

      • http://pulse.yahoo.com/_RKS56BXI5SF2II2YTQD6MBE54A Hosni

        Evidently you only skimmed the article, which addressed your concerns :::

        “The iPhone has lost some market share, and this trend will continue because much of the growth … will come as low-end smartphones displace feature phones in markets and geographies that are not Apple’s métier.”

        Apple doesn’t want to compete for the low-quality, low-margin segment of the smartphone market which is only slightly differentiated from feature phones. Samsung/HTC/Moto do want this market — I guess because they emphasize unit volume rather than profit.

        This explains the occasional articles describing how Apple has only a 10% market share but captures 70% of industry profits.

    • Brianopeterson

      “The iPhone’s market share is actually on a roll. The majority of Sprint, Verizon and AT&T smart phones sold are iPhones. Heck, the majority (60%) of ALL phones sold at AT&T are iPhones.”

      That can’t possibly be true if Android is not only well ahead of IoS, but increasing it’s lead every day.

      No higher mathematics needed to understand those facts.

      • http://kaizenity.blogspot.com/ FalKirk

        “That can’t possibly be true if Android is not only well ahead of IoS, but increasing it’s lead every day.”

        Maybe you should shape your arguments around the facts instead of trying to bend the facts to conform to your arguments.

        Source: Apple Q1 U.S. Smartphone Mkt Shr 59%, Vs. 36% Year Earlier – Forbes

        Source: 78% of all smartphones sold by AT&T last quarter were Apple iPhones – MacDailyNews

        Source: iPhone Again Represents Over Half of Verizon’s Smartphone Sales in 1Q 2012 – Mac Rumors

  • http://twitter.com/eonicman eonicman

    I would like to see location aware profiles so that apps that one uses in the home are swapped out of storage either at a certain time or by arriving to the wifi spot. Also, if you are at a retail location that provides it’s own app and wifi, then it would load automatically upon arriving there. This would be great for stores allowing easy viewing of featured products or for cafes and eateries. As HTML5 apps mature, it should help to standardize usability on the low cost phones as that would be their primary app market.

    • Marvin Nakajima

      I would sure hope that there is a way to turn it off or set-up a ‘location exclude’ list if it is implemented. I don’t like the feeling that my phone is being updated w/o my knowledge.

  • Gsparkman

    This presupposes that Android survives the onslaught of litigation by Oracle and Apple.

    • steve_wildstrom

      Yes, it does. The Oracle suit is about pride and ego and money and is not an existential threat to Android. The Apple cases, which do not target Android directly, are more complicated, but I believe they to will end up being resolved by cash payments and cross-licensing. I think Google’s poor stewardship of Android is a bigger threat than the lawsuits.