How Many Pieces of Pie Do You Want?
Michael Morgan, Industry Analyst, Mobile Devices, ABI Research
For years, the mobile device industry has strived to deliver a
portable magic black box to consumers. This box would allow
anyone to consume media, communicate with friends and
colleagues, surf the Web, take pictures, listen to music, produce and
deliver their latest report, direct them to the closest gallon of milk,
and watch movies from any location that offered Wi-Fi or cellular
coverage. Today, this magic black box is called a smartphone, and
its market share is rapidly taking over the mindshare of all other
cellular phones on the market. Smartphone vendors continue to
cram functionality, capabilities and services into their devices in the
hopes of adding value and stealing market share from adjacent device
segments.
Of the 1.2 billion cellular handsets sold in 2009, 183 million of
them were smartphones. By 2015, it is expected that 470 million of
the 1.5 billion handsets sold will be smartphones. This level of growth
and market size, coupled with high margins, has drawn the focus of
many players looking to compete in this increasingly crowded and
competitive market. From this point of view, it becomes readily
apparent that convergence in mobile devices will continue to occur
and that it will all revolve around the smartphone.
However, the key problem with the previously mentioned point
of view is that it does not take a holistic approach to the mobile
devices market as it is today and will be in the future. The mobile
devices market rests between the two bookends of cellular phones and
laptops. In between these bookends rests many device segments and
sub-segments such as cellular modems, ultra-mobile devices (UMDs),
netbooks and specialized mobile consumer electronics (MCEs) such
as eBook readers and personal media players. Vendors of these devices
have come to recognize the value that wireless connectivity brings to
their products today, and the future opportunities it will bring to
devices that have not yet been connected.
Figure 1. Mobile Device Shipments by Key Segment (2006 to 2015)
By the Numbers…
Figure 1 depicts the historical and forecasted number of annual
mobile device shipments from 2006 to 2015.
The cellular phone segment, which includes feature phones, low-cost
phones and ultra low-cost phones, accounted for 77.5 percent
(970 million) of mobile devices shipped in 2009. This segment will
grow at a compound annual growth rate (CAGR) of 1 percent from
2008 to 2015 as the next billion mobile subscribers move toward
low-cost handsets and as smartphones continue to eat into the feature
phone segment.
The smartphone segment represents cellular handsets that run
over a high-level operating system such as Symbian, Windows
Mobile, iPhone OS, Android and others. In 2009, smartphone
shipments totaled 183 million, representing 14.7 percent of total
mobile devices shipped. Smartphones will show a healthy CAGR of
18 percent through 2015 and represent 20 percent of mobile devices
shipped. The growth curve and interest in smartphones is already
evident in the market today, and it can be expected that improved
functionality and decreased pricing will keep this segment at the
forefront of mobile devices in the foreseeable future.
UMDs, which consist of mobile Internet devices (MIDs), ultra-mobile
PCs (UMPCs), netbooks and MCEs, began to show their
relevance in the mobile devices market in 2009 with 38 million
devices shipped and 3 percent market share. This segment will show
an overall CAGR of 112 percent from 2008 to 2015 and account for
14 percent of mobile device shipments. This segment is particularly
interesting due to the number of device segments that have appeared
over the last two years. In 2009, netbooks exploded onto the market
with their unique value proposition of being more portable than a
laptop and priced in a range that is competitive with some high-end
smartphones. Soon smartbooks, which are considered a sub-segment
of netbooks, will arrive and test their value proposition of instant-on
and ultra portability on consumers. Concerning tablets, Apple's iPad
is expected to lead a new media tablet segment and spur a new set of
market entrants seeking to capitalize on the distinct value proposition
of this segment.
In the MCE sub-segment of UMDs, e-readers have recently
gained popularity and are expected to maintain solid growth through
2015. Also included in this sub-segment are devices such as mobile
gaming consoles, personal media players, mobile digital camcorders
and cameras, and personal navigation devices. It is well known that
increased functionality in the smartphone has absorbed some MCE
sales, yet these devices still remain on the market and continue to
show future growth potential throughout the forecast period.
The cellular modem segment consists of PC Memory Card
International Association (PCMCIA) cards, embedded modems,
Universal Serial Bus (USB) modems and wireless wide area network
(WWAN)/Wi-Fi routers (e.g., portable hot spots). It also showed
industry potential in 2009 with 60 million shipments and 4.8 percent
market share. Looking to 2015, cellular modems will represent 16
percent of mobile device shipments. This segment's growth will be
driven by the increase in embedded modem demand, growing at a
CAGR of 80 percent from 2008 to 2015. Embedded modems will be
found in many different types of devices where vendors who do not
have explicit expertise in the mobile space are seeking to add value to
their product offerings.
What is Happening?
When looking at these numbers, there is obvious growth in various
mobile device segments, not only smartphones. This pattern runs
against what one would expect to see in a convergence situation.
Historically, innovation in the mobile space was driven by an
oligarchy of top-tier computer, handset and chipset manufacturers.
As such, many improvements in the technology were developed
along the technology paths of these vendors. Today, vendors who
previously had no ties to the mobile space are developing individual
strategies to leverage the power of mobile in devices or services that
were previously not on the roadmap or overlooked by the industry
at large. With this infusion of new players come new form factors,
use cases, price points and segments of mobile devices. Alongside the
new players, the founders of the mobile space are actively leveraging
their expertise in one segment to capture market share in adjacent
segments (e.g., computer manufacturers making smartphones or
netbooks, or chipmakers developing mobile chipsets that meet the
needs of new mobile device classes).
When wireless connectivity is added to a device, the original
functionality limits are removed, and the device now carries the
potential to evolve, change and communicate in real time at a
consumer's preferred location. This increased value is recognized by
consumers, and device vendors are excited to bring this added value
to their offerings. As the mobile industry continues to refine its value
propositions in new segments, so too do consumers. As consumers
continue to become more familiar with the mobile devices on the
market today and how these devices bring value to their lives, they
are also learning about the limitations of these devices.
Common questions that the industry used to ask include:
- If a laptop can do everything needed and be portable, why are
netbooks so popular?
- If a smartphone can give directions, why do personal navigation
devices continue to sell?
- If a smartphone can download and open Excel spreadsheets,
why add WWAN connectivity to a laptop or netbook?
- Who would ever own more than one mobile device and why?
With all these new options, consumers have begun to accept
some important realities about the mobile devices they own and
use. For instance, editing a spreadsheet on a mobile phone just plain
sucks, dedicated personal navigation devices offer a better navigation
experience than smartphones and many consumers can afford to have
a netbook as a secondary device to a laptop. In short, consumers and
vendors alike are discovering there is a rainbow of value propositions
in between smartphones and laptops that have yet to be met.
While the old guard of convergence states that someday a
smartphone could still be everything to everyone, today's consumers
are starting to realize that diluting the value of functionality in an
attempt to reduce the number of devices needed is not the ultimate
path in a mobile lifestyle. Innovative, low-cost, dedicated portable
devices are proving to consumers that mobile does not have to mean
a watered-down experience. This realization is driving new device
segments and growth as new device vendors race to grab their piece
of the mobility pie and serve it to hungry consumers.
For those industry players who are already familiar with the
advantages and pitfalls of cellular connectivity, expect to see new
participants looking for guidance on how to best incorporate
connectivity into their devices. These new players are often not
familiar with the particulars of cellular connectivity such as
intellectual property (IP), Federal Communications Commission
(FCC) compliance, form factor limitations and such. To grab the
largest share of this expanding pie, it would be prudent for a company
to position itself as an integration partner who will share some IP
risks for those willing to incorporate its embedded modems.
About the Author
As a member of ABI Research's mobile devices service team within its mobile
wireless practice, Michael Morgan brings his analytical skills to bear on
the penetration of technologies used in handsets and other mobile devices,
including smartphones, enhanced phones, low-cost phones, Wi-Fi handsets
and voice over Wi-Fi, mobile accessories, and mobile software and services.
Prior to joining ABI Research, Mike was an information technology (IT)
analyst and business consultant at Fletcher/CSI, where he managed and
executed multiple research and consulting projects for Microsoft, IBM, SAP
and AT&T. His most recent work with AT&T focused on competitive
pricing and sales strategies to help AT&T better penetrate the small- and
medium-sized business (SMB) market; he was also active in AT&T's
smartphone usability testing. He supported SAP corporate strategy teams in
determining sales strategies and tactics of key competitors (Oracle, IBM and
Microsoft), and advised SAP product development groups on competitor
software licensing practices. He also performed competitive and market
analysis to support IBM's launch of a telecom expense management business
process offering (BPO) service offering to Fortune 1000 companies. Mike
holds two Bachelor of Science degrees, one in computer science and the
other in business administration. For more information, contact Christine
Gallen at pr@abiresaerch.com or 516-624-2542.
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