Despite positive quarterly results from Apple and Samsung, it is clear that smartphone sales growth in developed economies is leveling off. The next wave of growth will come from emerging markets, which is why Apple, for example, is as focused on developing a high quality, but lower cost device for Asia and Latin/South America as it is on the next wow-factor phone for the U.S. and other developed countries. We are in a new, market segmentation mode for smartphones: devices for different price points, and screen size choices to meet form factor preferences.
I'd argue that there has not been a "must have" new device for quite some time. Witness how sales of the iPhone 4/4S have held up so well despite the fact that the iPhone 5 (whose main distinguishing feature is LTE) has been available for nearly a year. There have been loads of other high-end devices launched over the past year, but none have been of the "change your life, pay the ETF, pawn your existing phone off on your spouse or kid" variety. Fact is, any mid-tier or better smartphone in the market today is pretty fabulous. It does just about anything you would want or need it to do. Nobody's running out to buy the S4 because of Air Gesture. The announcement yesterday of a trio of new Motorola Droid devices had, to me, a PC-like flavor to it -- solid design, faster processors, better battery life – which is why the reaction among handset enthusiasts and bloggers was somewhat of a yawn. I'd actually credit the Nokia Lumia series as among the best devices introduced over the past year, from the standpoint of innovative UI, form factor, and unique features (social network integration, fantastic map/navigation capability, and imaging advancements). Even so, it's been hard for Nokia (and the Windows platform) to gain substantial share, as consumers are wedded to their ecosystem and their apps. Most consumers think the phone they have today is pretty great. Ask them what more they want and they'd probably respond: "better, faster networks, improved battery life, and cheaper service."
So, what might re-invigorate the handset market? Innovation on the hardware side is getting tougher, since phones can't get much thinner, lighter, or even zippier than they are today, without making a sacrifice in another area. Gesture recognition is touted as one of the "next big things" but I think its utility on a small screen device is overstated, plus it will take awhile to really get it right.
There's 20 percent or so of the market who will always want and be willing to pay top dollar for the latest and greatest, just because. There are others who say that the "black slab" is what we've got, and the locus of innovation will be highly software-centric. For example, will iOS 7 be enough to drive an uptick in iPhone market share, even if there are no dramatic changes in hardware design (except perhaps more options in screen size)?
I believe the next device that really breaks out will focus on the totality of the user experience. This will include evolution in hardware design and UI, but will also be more reflective of the breadth of digital devices we own and the changes they've wrought on personal productivity and entertainment. The themes are:
- The need to be constantly connected
- Use of the cloud for services, storage, and applications
- Multi-device world – per person and per household
- The complexity of certain devices and software, despite best efforts
- The significant variability of the network experience – both WiFi and cellular, from one minute or location to the next – and the continued high price of cellular data
With this rather lengthy preamble, here are some thoughts on how to relieve handset ennui. Admittedly, some of these concepts might seem more software- or app-centric, but to me they all start with the phone as main anchor point.
1. Experiment with design form factor and look at the totality of PC/tablet/phone. Mid-tier smartphones bear a resemblance to the commoditized PC market. Plus, there has been a lot effort among OEMs to somehow combine the PC and tablet form factors. But there's an unnaturalness to that. There's actually a greater convergence between the phone and tablet (look at the relatively narrow difference between the large screen phone and the small screen tablet). Might there be a device that effectively combines the best of both? Perhaps we think of the future PC as the ultimate portable, fast, cloud-based content production tool, and the phablet as the communications/content consumption tool. They are symbiotic rather than competitive.
2. Smart connection manager. Just as we're seeing the buildout of LTE, we're also seeing densification of the cellular network and the growing role of WiFi in overall connectivity. There's a really interesting opportunity to more effectively and proactively manage the customer's network experience on the device – not only "always best connected", but also optimized for price, context, and what the customer actually wants to be doing at a given time. Even managing offline connectivity. This could be the foundation of some interesting OEM-operator partnerships to really pull this off.
3. Quantified self. Every major handset OEM is working feverishly on a "wearable" device. Again, they're thinking about handset saturation the next additional gadget with the potential to sell in the billions. But already, Fitbits and GPS watches have become a big new category, enabling the tracking of steps taken, hours slept, miles run or biked, and calories ingested. I think there's an opportunity to create a great marriage of device and app that becomes the individual's health, fitness, and nutrition tracker/vault. This is a fast-growing category but needs some vertical integration. C'mon, Apple, Nokia, Verizon, and Nike!
4. Lifestyle devices. Maybe we don't all want the black slab. This is not the PC business or the baggage business. I applaud Nokia, for example, which has thought through the notion of a best in class imaging device with the Lumia 1020. Some critics have said it's too nich-ey, not a mass-market product. But maybe there's a market for a series of "lifestyle" phones that focus on big categories such as imaging, health/fitness, video, games, etc. that might not be "home runs" on a global scale but are solid "doubles" that, added together, sell in meaningful numbers. The "ante" on these devices is that they are first and foremost good phones and productivity tools, but they add a strong "specialty" addressing a reasonably sized need and market segment.
5. Customer care. I'm thinking about the typical household today and all the various connected devices they have. Apple has a great franchise with AppleCare. But it's also frustrating because you have to purchase it for each device – it adds up quickly, expiration times are staggered, etc. Why not an AppleCare that is an annual contract and covers all Apple devices in the home, or a basic contract with a modest add-on per device? Best Buy could do the same thing with Geek Squad, but be better equipped in mobile and more effective at handling the quick "how to" in addition to the bigger problems that might occur.
6. Think differently about power management. The battery in the new Motorola devices really rocks, but there's only so much that can be done given the form factor. I think there's an opportunity to think more creatively about power management. For example, I love using my phone's GPS functionality for tracking my runs, but the battery doesn't last long enough to use it for any activity, such as biking, that lasts longer than about an hour (notwithstanding the data consumption). What about different power "modes", or better incorporation of a spare battery or spare power for different functions, rather than leaving matters to accessory makers like Mophie?
7. Social, contacts, and messaging. Dealing with the combination of email, SMS, OTT messaging, chat, Facebook, LinkedIn, calendar – and the contacts database surrounding all this – has become near un-manageable. Blackberry and NokiaSoft have made laudable efforts to provide a "hub" type overlay, but nobody has really cracked this one yet.
8. Vendor-based upgrade programs. Why is the latest "device financing", "early upgrade" trend the province of the operators? Well, naturally it's about NPV and churn reduction. If it wasn't for the subsidy issue, it would be more natural for the OEMs to develop a progressive upgrade policy and a vibrant market for pre-owned devices. As handset market gets frothier, expect the handset OEMs to get in the game too.
Mark Lowenstein, a leading industry analyst, consultant, and commentator, is Managing Director of Mobile Ecosystem. Click here to subscribe to his free Lens on Wireless monthly newsletter, or follow him on Twitter at @marklowenstein.