2012 was a milestone year for smartphones--for the first time more than half of all U.S. subscribers owned one. Yet it was also a year in which more and more smartphones seemed to blur together: Most smartphones, from mid-range to high-end devices, are now roughly on par with each other in terms of technical capabilities.
Thus, the question facing handset makers and their chipset partners is: now what? How can they differentiate their products not in terms of technical specifications but in the consumer experience? Can they, and will it work?
Chipset companies "really don't have a distinctive way to differentiate their products from the other," said Tirias Research analyst Jim McGregor. It's clear this issue is shaping up as the main chipset and device battle of 2013 and beyond.
I wrote about this theme ahead of the Consumer Electronics Show earlier this month, and I saw it borne out in Las Vegas, particularly from the top silicon vendors. Qualcomm (NASDAQ:QCOM) used its at times all-over-the-place keynote to underscore that it is a company that enables unique mobile experiences, especially with its latest Snapdragon chips, from augmented reality to Ultra HD video, which offers with four times the pixels of 1080p video.
"I think there's no question that experiences are going to drive how we think about smartphones," Qualcomm's Rob Chandok told me at CES. "And those experiences will be driven by quality of the camera, display, battery and so forth."
Chandok, senior vice president of software strategy for Qualcomm CDMA Technologies and president of Qualcomm Internet Services, is deeply enmeshed in technologies like the company's Vuforia augmented reality service and Gimbal context-aware application program. "We don't see them as peripheral. We do see them as core," he said, noting that the power and chipset tuning requirements for new smartphones "is at such a level that we have to deeply understand the applications."
Likewise, Nvidia is also focusing on experiences and not specifications. In introducing the company's Tegra 4 chipset at CES, CEO Jen-Hsun Huang talked about enabling not only super-fast load times for web pages, but the ability to use computational photography to improve imaging capabilities on phones by allowing users to take high-quality HDR images faster. Nvidia also introduced its Project Shield Android-based mobile gaming device, scheduled to go on sale in the U.S. market in the second quarter.
The fact that Nvidia is taking Shield directly to consumers is important because it demonstrates the company's commitment to explaining the benefits of its chips. Qualcomm is also trying a more direct-to-consumer approach this year, with CMO Anand Chandrasekher talking up the company's efforts to market its Snapdragon brand. Qualcomm even produced a clever commercial for Snapdragon that it showed at CES.
Can the chip makers do this effectively, though? Should they even be trying? I'm all for the focus on the consumer experience as a way to differentiate products, but maybe the chipset companies need to more tightly partner with their hardware customers and then get out of the way. Consumers walk into carrier stores wanting to buy a phone from HTC, LG, Nokia (NYSE:NOK) or Samsung, not a chip. "The onus really does fall on the OEM to create higher-performance applications and user interfaces that they can use to differentiate themselves," McGregor said. "The processor is only part of the equation."
Informa Telecoms & Media analyst Andy Castonguay said he expects the chipset companies to tweak and tailor their chipsets--without changing the actual architecture--to fit the needs of what the OEM is trying to highlight, whether that is in audio, gaming, imaging or video. "What I suspect we're going to see is, to a large extent, brands trying to highlight those elements of differentiation," he told me. The chipset firms will work to "optimize the performance of whatever it is the OEM is trying to get across."
That seems like a balanced and necessary approach; it helps OEMs offer unique experiences and lets the silicon vendors tout their prowess as partners. It won't be easy. McGregor said that "communicating the consumer experience to the user is the hardest thing to do." Chipset companies can throw money at increasing their brand awareness among consumers, but at the end of the day, I think people will care more about what they can experience with their mobile devices than what is inside of them.--Phil