The Race to the Middle


So I'm sort of mulling over the recent announcements and product launches from Symbian and trying to take a step back to size up the smartphone market. If you think about how Symbian has "only" sold about 15 million units worldwide to date and compare that to the total numbers of handsets being sold, you realize what a niche market the smartphone market really is. Right now, that is. This could change drastically over the next year.

What came out of the Symbian Exposium was mostly news about UIQ3 (which I'm skeptical of until I hold it my hand) but there's a lot more actually happening with the core OS as well. Sony Ericsson and Nokia are making concerted efforts to push Symbian to the middle tier, and as I learned earlier this year, every tier sells about 10 times the numbers of handsets than that above it. So that'll mean 150 million phones sold, instead of just 15. The question is how long will it take them to get there.

What I've heard is that SonyEricsson is going to roll out UIQ3 across all of its offerings. Where the K700i has a proprietary OS right now, a similar phone launched soon will have Symbian and UIQ3 instead. Nokia is also starting to push out more and more Series 60 phones (including their first flip) and in addition to Siemens and Sendo, Samsung will launch their SGH-D710 and Panasonic will launch their X700 S60 flip phone in December. The sheer number of models will start to push the costs down, if nothing else, and land these phones in the middle tier through sheer market forces.

But the spoiler is still Microsoft, IMHO. From a macro point of view it seems that Microsoft is going to be a niche player. But from a consumer point of view - especially here in the U.S. - they are on equal terms with Nokia for example. And because of the familiarity of the UI to Windows, Microsoft may even be on better footing. Look at the Motorola MPx220. It's a 1.2 megapixel camera with SD card support, syncing to Outlook, Bluetooth, and Windows Mobile OS with integrated features like MSN Messenger and Pocket Outlook and Pocket Internet Explorer. This might be easy to ignore as an anomoly - just one good phone from Microsoft compared to all those other smartphones out there - but to someone perusing only AT&T Wireless' phones for sale right now, there's no comparision except to the Nokia 6620, which except for EDGE, is lagging behind the Motorola phone feature for feature.

The MPx220, like the 6620 still are considered High End Handsets. Both will cost around $500 without contracts and with contracts about half that. The vast majority of mobile consumers pay $100 or less for their phones - most looking for free models instead. And notice that I'm not putting PalmOne Treos or Blackberry's in the mix - I don't know if these guys are going to *ever* want to go to the mid-tier, but they just don't have the manufacturering capacity I think, even if they wanted to. PalmSource may pop up as a contender next year with their white-label phones based on Cobalt, but right now I'm just judging what I could go buy right now.

As I'm developing business plans and thinking of interesting products and services for the mobile market, I'm pretty much centering on the middle tier - which is actually pretty hard to define at the moment, but mostly means color camera phones. This is great for the stuff I'm working on now, because it means I can do a bit more than just SMS and still reach a decent sized market. How long will this last though? Smartphones are coming and there's not a developer or business person that I've met yet that hasn't run into the limitations of the middle and lower tier phones and thought of all the things they could do by moving up to a phone with a real OS.

So there's pressure both from the manufacturers and the developers to get more capable phones out there. But the consumers are taking their time. Tom Hume I think said that all phones are going to be smart phones sooner or later, it just depends on how much of that smartness is actually shown to the end user. This is interesting, if you consider that the FOMA phones based on Symbian from DoCoMo don't allow third party apps to be installed. This could be a real model for carriers in the rest of the world to help "protect" consumers from the complexity inherent in a device with a multi-tasking operating system.

I was too soon on my predictions of 2004 being the year of the smart phone. When the 3650 came out in February 2003, I thought that by this time in 2004 the tipping point would have been reached. It seems that this is another year away. Remember, the big buying season is still Christmas - even in the mobile world. Last Christmas the camera phone was a big seller, and it'll be the more advanced camera phones this year as well (not smartphones as I originally had hoped), but I can almost guarantee that next Christmas, it'll be the smartphones that are the hot products to buy.

The only question will be whether the consumers will be buying these phones next year because they are smart, or whether they are buying them for the features. This does go hand-in-hand though it seems obvious at first that features come first for consumers. The idea is that by *being* smart, phones can have more features. You've all heard of the insane stuff my phone can do because it's a platform for developers, right? But consumers will need to grok being able to install stuff is a good idea. I'd say the vast majority of 3650s out there are completely devoid of third party software. And look at all the features in the Danger HipTop for example - but it's not a smartphone. At some point these two paths are going to meet.

It could be that if consumers buy smartphones because of the platform - i.e. because of the software they run on it - then Symbian could be in serious trouble because it's still easier to write for Microsoft's OS and Palm's than it is for Symbian. (And there's a lot more Palm apps out there). However if the trend continues of consumers buying phones based on price and features, then Symbian phones will rule as they are being sold by the big manufacturers who know how to do that sort of selling. By pushing the price down and slowly ratcheting up the features, these guys will blanket the market and suck the air out of all the other platforms so when the shift does come that people buy for features, it'd be silly for developers not to have already created a ton of native apps waiting for them to buy. The point I've always made about Microsoft (and maybe Palm) is that they could go to the Enterprises first and try to sell them hundreds of thousands of programmable handsets for their mobile workforce. Symbian is working with IBM to try to prevent that with Websphere on Symbian, but that'll be a while before we see that and .NetCF is already here. If Microsoft succeeds in taking the high-ground of that lucrative market out of Nokia's grasp, that would be a real blow. But we're not there yet.

It's sort of a race: Who will get to the maturity level first, consumers or enterprises? If consumers get their first, Nokia and others and use that as leverage to go from the bottom up. If Enterprises get their first - which you could say is already happening with the popularity of the Blackberry - then there could be real shakeups in the near future and those five-year IDC predictions are as worthless as the ones written in 1999 are.

Just my thoughts for today...


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