There is a growing separation between two classes of cellphone users. On one side, we have the fully digitised, smartphone-equipped elite. And on the other, we have the feature-phone mass market. With the capabilities of smartphones steadily increasing, the divide between the smartphone elite and the masses is widening.
This class distinction was clearly illustrated at the recent Mobile World Congress, in Barcelona, Spain. The focus was so heavily on advanced smartphones and high-speed LTE networks that an outsider could have been forgiven for assuming that was the full picture of mobile communications today.
In the most developed Western Europe and American markets, smartphone penetration has passed the tipping point, with over 50% of market share. That is now growing faster, especially with low-cost smartphones now in the same price ballpark as midrange feature phones used to enjoy ($100 buys you a basic Android smartphone).
In SA, the difference is greater, but the acceleration is higher, too. “Twenty-one percent of South African cellphone users use smartphones, more than double the figure a year ago,” said Arthur Goldstuck, MD of World Wide Worx.
But where the assumption in Western, Euro-centric markets is that, over time, all users will migrate to smartphones and become data consumers, SA does not mirror that trend at all. “In SA, we live in both worlds. We have very different market segments. There's the digitised high-end user, the traditional prepaid voice user, and the aspirers somewhere between the two,” says Chris Ross, managing executive of commercial development for Vodacom. “That is very different to a Euro-centric view. We live in both markets.”
SA, then, is strongly divided into those with smartphones and those without, and the two groups are diverging further every day. Should that be a cause for concern? Do non-smartphone users risk being left behind or excluded from services?
Probably not. This is different from the classical digital divide, which separates users based on their ability to access empowering information services, and almost immediately translates into a lack of opportunity for the have-nots. Broadband outreach initiatives around the world are driven by governments and private sectors working to bridge that sort of divide to avoid that digital poverty.
In the mobile communication space, that is not the case. The smartphone elite does not have access to much the mass market does not (Angry Birds doesn't count). Both have access to the same telecoms networks, and the same fundamental modes of communication - voice and text. Both can interact with key services like banking and e-government, in part because the service providers know full well that they have to tailor those services to both camps, and have been working for years to do so.
The jump from no phone to any phone is enormous, opening the door to a world of communication. The step from feature phone to smartphone is much more modest.
Being part of the smartphone club may not mean you have access to services fundamentally different from your feature-phone neighbours, but it does mean you are a completely different customer to the networks, with completely different needs and business models.
All about the data
“Smartphones are all about data,” says Vodacom's Ross, “and data users use exponentially more: it's like a drug. You might start with WhatsApp but you're soon on to Facebook,” he says. “Although the margin per megabyte might be less than the margin per minute, the volume makes up for it.”
And that's another key difference between the classes. Smartphone users use apps. Lots of apps; the iPhone and Android app stores both boast over half-a-million apps - it's a market segment many analysts are watching with keen interest. App publishers stand to win - Rovio, the maker of Angry Birds, made more than $100 million from the game last year - but so do network operators. “Network operators love app stores because they drive bandwidth. We can find more reasons for you to use your phone and use data, all I have to do is introduce you to an app store,” says Ross. “We even launched our own app store to make it easier. You can just use your phone account to buy Android apps or Java apps for feature phones. We've done over a million downloads already. And we'll have BlackBerry apps shortly, too.”
Get on board
The smartphone elite is not a particularly exclusive club. It is clearly demarcated - visit any cellphone shop and you'll see a very clear distinction in the products advertised. Contracts, with smartphones, and prepaid feature phones. There is still the economic barrier, of course: even the most basic smartphone is an order of magnitude more expensive than a cheap feature phone. “Entry-level” means very different things in different markets. A cheap feature phone costs R79, an entry-level smartphone costs around R800.
Contract versus prepaid does not imply anything about the user, Ross notes. There are plenty of data-hungry smartphone users who prefer prepaid in order to manage their expenses more easily. And many contract users stick with a feature phone line. Their economic standing is entirely irrelevant, yet they will still, by and large, fall into the smartphone/non-smartphone classes. The distinction is about usage, not LSM.
The smartphone price range, from under R1 000 to many thousands for a high-end model, may still be out of reach of many aspirational users, but does broaden the target market.
In the workplace, a considerable barrier to entry was the resistance from IT departments, which is rapidly diminishing, with smartphones and tablets now commonplace around boardroom tables. Improved support for business features is helping drive adoption, such as remote wipe, encryption and integration with enterprise applications. Motorola's new Razr includes a neat hybrid storage approach, allowing personal data to be segregated from corporate data, and excluded from a remote wipe. Manufacturers are responding quickly to the changing wants and needs of professional users, as distinct from consumers.
Smartphones are going to dominate the mobile phone market abroad, but the divergent user groups in emerging markets are unlikely to change for the next several years. That poses challenges for operators and regulators, but also opens opportunities for service providers. Smart ideas like M-Pesa wouldn't have existed if everyone could do Internet banking from their smartphones.
In the end though, it's going to be smartphones everywhere. If you are already among the smartphone elite, welcome to the next generation.
Smartphones - winners and losers
Apple has its loyal iPhone followers. Android is growing rapidly. Microsoft and Nokia look set to save each other from their respective back-foot positions. RIM...well, BlackBerrys are still popular in SA, but diminishing everywhere.
Worldwide, Android phones account for more than half of all smartphone sales. The Android marketplace recently passed the half-million app count, closing what used to be a gulf between Android and the iPhone. But app publishers still complain that the apps published for Android net less revenue than the iPhone versions, and developers continue to laud the iOS tool-chain for app development. App availability is almost off the table as a discussion point though: most high-profile apps ship for multiple platforms.
Microsoft (with partner Nokia) is the dark horse to watch. Nokia was far behind in the smartphone race, and Microsoft's OS market share negligible. The tie-up is already paying dividends with the Windows Phone platform winning glowing reviews, and Windows 8 trying to unify PC and tablet experiences. Being merely good will not be enough to cement their place at the table. Can Microsoft offer compelling enough integration with its enterprise applications and productivity software to capture RIM's shrinking market share?
That brings us to RIM, the biggest loser, but one that surprised the pundits with a showstopper of a launch. RIM's market share has plummeted overseas, but in SA it's still very high despite a similar downward trend. From 75% of smartphone shipments a year ago, to 60% now, is a drop, but still dominant. The widely derided PlayBook, which completely failed to excite enterprise users at launch, received a v2.0 software upgrade and immediately started receiving applause for a fantastically improved interface and suite of applications. That sort of Hail Mary pass, applied to other products, could turn RIM's fortunes around.
Themes from MWC
New gadgets hogged the limelight, but several key themes came through strongly at Mobile World Congress.
LTE networks
Speed, speed, speed. Operators around the world are deploying or testing LTE networks, offering 100Mbps download speeds to keep up with the growing demand for fast data, and lots of it. All SA's networks have LTE tests in progress, but the spectrum licensing question, which has to be resolved before any commercial deployment can begin, is nowhere close to resolution.
But despite dozens of network deals, LTE is still years from widespread adoption. “There is still a hype-driven disconnect between what we're hearing and how much has actually happened,” says Will Hahn, principal research analyst at Gartner. “As of mid-2011, we were predicting that only 3% to 4% of all mobile connections or revenue would be LTE in 2015. Typically, new mobile infrastructures take 10 years to fully roll out and we're maybe in year three at best.”
Near field communication
NFC chips in mobile devices are becoming mainstream now - most vendors have NFC models on shelves or in the pipeline. Like contactless smartcards, NFC devices can initiate communication with each other by mere proximity, which can then kick off mobile payments, strong authentication, or other applications. SA is not lagging here at all: Absa demonstrated NFC payment tools, using BlackBerry handsets, last December.
Gartner expects mass NFC deployment in the near term, provided the networks see benefit. “This is a classic example of a technology that is ready to go and will be highly penetrated,” says Hahn. “We expect NFC in half of all handsets by 2014. But the technology is still seeking a business case, and for service providers, this issue is painfully sharp: where can a carrier add anything to the value chain? Or will NFC payment become just another channel for the incumbent credit issuers like MasterCard and Visa? If service providers can find a way to make money, then NFC will get a big push for adoption. But if it's just an alternate channel for the same guys to make money, I don't see why they would bother. We have examples in Japan where they've been pushing it hard for years - it couldn't be easier anywhere in the world to buy something with your handset - and yet cash is still king there.”
Smartphones, smartphones everywhere
It was all smartphones and smartphone apps at Mobile World Congress. Most of the new models were predictable recipes: four-inch screen, dual- or quad-core processors, and a focus on quality graphics and UI. A steady trend towards Android 4.0 ('Ice Cream Sandwich') was evident, and a groundswell of support for LTE is growing, too.
Some broke the mould and tried to capture users' imagination with something different.
Samsung Galaxy Beam
A fairly run-of-the-mill Android phone in other respects, the Beam includes a built-in DLP projector capable of projecting a 50-inch images on any handy flat surface. Although a separate micro-projector is more practical, this is squarely aimed at business users who absolutely must be able to give a presentation at the drop of a hat.
LG Optimus Vu
Like the Samsung Galaxy Note, the Vu is intended for users who want to maximise screen real estate and like the precision input of a stylus. It's a big five-inch phone in an unusually square (4:3) format. Like the Note, people will either love it or hate it. The Note range was upgraded at MWC with a 10.1-inch version, too.
Nokia 808 Pureview
Not an Android phone, for a change, and surprisingly not a Windows Phone either, given Nokia's close relationship with the software giant. Demonstrating the cutting-edge in optics and image processing, the Symbian-based 808 boasts a ridiculously large 41MP sensor, with software that compares and reduces the pixels in a 7:1 ratio to end up with spectacular-quality images, at a more conventional 5MP resolution.
ASUS Padfone
Tablets are becoming commonplace on boardroom tables, and Asus already has a strong showing with its Transformer and Transformer Prime. The company has extended that with the Padfone, which allows a smartphone to be docked inside the tablet, sharing data and network connections seamlessly. A removable keyboard dock evolves it again, into a netbook.
Citrix Receiver
Best Mobile App for Enterprise was Citrix Receiver, which pushes virtualised apps to mobile devices. This isn't just another remote desktop/VNC clone, but an app extender for your existing Citrix environment. Mobile devices are big on the radar for virtualisation and enterprise application management vendors - expect more of these to roll out in the year ahead.
Photoshop Touch
Adobe also demonstrated tight integration between tablet and PC with Photoshop Touch, an iPad/Android app that offers tablet-based photo editing, as well as an SDK that extends the desktop Photoshop environment to the tablet, with features such as colour mixers, tool palettes and so on. More app vendors will be looking for similar integration - obvious contenders are financial applications and information/infrastructure management tools.
New iPad
OK, it didn't launch at MWC, but immediately afterwards. The new iPad is an impressive multimedia tablet, improving the already dominant iPad 2 formula, and may catch the attention of enterprise IT users for one vital reason: it is the only tablet available with a screen resolution large enough (2 048x1 428) to present a full remote desktop natively. Try that argument to convince your boss to sign off the requisition.
First published in the 21 March issue of iWeek.
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