Smartphones Get No Respect
By Joachim Bamrud, Tue May 14 00:00:00 GMT 2002

Even though smartphones are by far the best way to access the wireless Internet, they still sell much less than regular phones. Are they the Rodney Dangerfield of the mobile world?

These days, the majority of new mobile phones released on the market are wireless web-enabled. However, few are necessarily ideal for actually using the wireless web due to factors such as small screens and small keypads.

The clear exception is the smartphone, a device that combines wireless phone capability with the functions of a personal digital assistant (PDA).

"Smartphones are very important to the success of the Mobile Internet because they can generally offer what most end-users want when surfing the mobile Web - a large color display and unrestricted Web access," says Neil Mawston, a UK-based wireless analyst with Strategy Analytics Ltd.

Smartphones also typically come a screen-based keyboard with more buttons for text and numbers and a toothpick-like stick that makes it easier to type text quickly. Prominent smartphones include the Ericsson R380, the Nokia 9210 (or 9290 in the Americas), the Kyocera QCP-6035 and the Samsung SPH-I300. Coming up: The much-anticipated Sendo Z100 and a Microsoft-branded prototype known as Avenger.

Increasingly also traditional PDA producers are getting in on the action, releasing PDA's with wireless modems. Recent examples include the Palm i705 and the Handspring Treo. Upcoming models include the HP Jornada 928, the Audiovox Thera and the xda (a PDA with GPRS connection distributed by British operator mm02).

The new releases come as research shows that smartphones only account for a fraction of the mobile phone market. Last year, only 3.3 million smartphones were shipped globally, according to Strategy Analytics. That's a small percentage of the 399.5 million mobile phones and 13 million PDA's sold last year, according to Gartner statistics.

That seems to make the smartphone the Rodney Dangerfield of the mobile world. Despite all its hard efforts, it just doesn't get the respect it deserves.

"It's important to remember that smartphones are still at the very early stages of the 'Diffusion of Innovation Curve' - very similar in shape to the Product Life Cycle - and we are still in the innovator/early adopter stage, which means there is plenty of growth to come in the smartphone segment," says Mawston.

The relatively low sales of smartphones is due to a combination of factors, including price, device size and weight, limited offer of different models, insufficient battery performance and inter-operability standards, analysts say.

Smartphones typically cost the same as the most expensive "regular" mobile phones, but weigh significantly more as well. The Samsung SPH-I300 and the Kyocera QCP-6035, for example, were both introduced at a retail price of $499 and weighing 208 grams and 470 grams, respectively. By comparison, the Motorola V70 - one of the most popular web-enabled phones worldwide these days - costs around $400 and weighs 83.1 grams.

Producers of smartphones hope the product will appeal to both individuals that currently carry around two devices (a phone and a PDA) as well as the broader market of consumers looking for a mobile phone with more capability and functions.

However, it's unclear how much appeal the smartphone has to the two-device segment. While logic would say that it's better to have one device that weighs less than two devices combined, many two-device supporters argue that no smartphone can fully replace all the applications offered by a separate mobile phone and a PDA.

That leaves the mass market and there price and weight are major stumbling blocs. However, if producers and operators are able to lower the price down somewhat, they can likely eat into the mid-segment of phones with much success. After all, if you're thinking of spending around $80-$100 for a phone and you can suddenly find a smartphone for $100-$120, you'll likely opt for the latter.

To be sure, most of the smartphones won't appeal to the fashion crowd. Although the Nokia 9210, for example, looks cool to device geeks, it won't necessarily appeal to the youth market due to its steep price and bulky size.

While enterprise users should be a logical market for smartphones, the decline in IT spending among companies worldwide has been a major hurdle for smartphone sales, says Instat/MDR analyst Neil Strother. "I haven't really heard of any examples of giant corporations that are going to buy smartphones this year and put them in the hands of their sales force," he says.

Both carriers and producers have a clear stake in getting smartphone sales up, analysts say. "Smartphone users are more inclined to use wireless data than regular phone users," says Strother.

That is particularly key as operators - especially in Europe - are trying to get a return on the billions of dollars invested in upgrading to more advanced GPRS and UMTS networks.

However, the quick solution to helping smartphone sales - subsidizing the retail prize - is an option many carriers cannot afford these days as they struggle under huge debt burdens and capital market difficulties. But while operators may be reluctant to subsidize the smartphones, producers such as Kyocera and Samsung are now starting to offer steep discounts on their smartphone models.

Smartphones should start seeing significant growth the next couple of years, analysts say. According to Strategy forecasts, shipments of smartphones will grow to 7.9 million this year. Instat/MDR is even more optimistic, forecasting that there will be 9.9 million shipments. Asia will be the top market, according to both forecasts.

In 2006, smartphone shipments will have grown dramatically, analysts predict. Instat/MDR predicts that global smartphone shipments will reach 16 million in 2006, a 61.6 percent increase over the expected shipments this year. Strategy is even more bullish, forecasting 80 million shipments that year.

Japan will continue to be the top market, according to Instat/MDR, but its overall share will decline, while Europe and the Americas will boost their shares. "Japan is going to reach saturation soon and taper off, so we look at the Americas and Europe as the two regions where smartphones will over the next few years go up," says Strother.

Strategy also forecasts that Asia-Pacific will keep its lead position, accounting for 39 percent of shipments in 2006, but ranks North America as the second-largest market that year, accounting for 18 percent and Western Europe at 17 percent.

While Microsoft has a stake in the smartphone market - through its smartphone software solution and minority ownership in Sendo - analysts are not sure what effect the software giant can have on the overall smartphone market.

"Sendo's biggest problem is its brand - Sendo is a little-known brand in all regions of the world, says Mawston. Instead, Microsoft should consider placing the Avenger into full-scale production using an Xbox-type production model, he advises.

Gartner expects smartphones to increasingly eat into the PDA market, starting late this year, with the significant impact from 2004 onward. At the same time, the differences between smartphones and regular phones will gradually disappear, according to Strother. In the future, he says, "A new phone will by definition be smart. Even the dumbest phone will be fairly smart."

Which means the smartphone will finally get some respect.

Joachim Bamrud is an award-winning journalist with 17 years experience as a writer and editor in the United States, Europe and Latin America. Bamrud has worked for various print, broadcast and online media, including Latin Trade, Reuters and UPI.