The Battle for Smartphone Intenders

Ben Bajarin is the director of consumer-technology analysis and research at Creative Strategies Inc., a technology industry analysis and market intelligence firm in Silicon Valley.

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Believe it or not, not everyone in the world has a cell phone. Furthermore, not everyone who has a cell phone has a smartphone. Recent data suggests smartphones only represent approximately 10% of the global handset market. Currently there are just over 5 billion people in the world with a cell phone of some type. However, myself and others in my firm agree that someday everyone who has a cell phone will have a smartphone.

This is why as we analyze the market, we look at it in terms of those who have smartphones and those don’t; those who don’t we call smartphone intenders. In developed countries like the U.S., Europe and parts of Asia, the smartphone intender presents an immediate opportunity. However, in developing parts of the world, the smartphone intender opportunity is still a little ways off.

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The current smartphone intender market is one I am very interested in. It’s up for grabs. In the U.S., for example, this group presents a sizable opportunity. Nielsen has recently published some data suggesting that 44% of U.S. mobile subscribers now own smartphones. So more than half of the U.S. population falls into what we call smartphone intenders; the range of opportunity is between 155-170 million people in the U.S. alone. Of course, globally, the opportunity is much larger.

Apple, Google with Android and its partners, and Microsoft with Windows Phone and its partners all seek to compete heavily for the smartphone intender segment. For some, they will compete purely on price. Nokia’s re-entry into the U.S. market with the Lumia 710 on T-Mobile is an example of this. Nokia along with T-Mobile is offering the Lumia 710 for $49 with a contract. Although this is an amazing price, prices in general are coming down for a range of devices. Many carriers offer flavors of Android devices for $99 and below, and Apple offers the 3GS for free, along with the iPhone 4 for $99 with a contract. Price alone, in my opinion, is not enough.

I actually think that the smartphone intender market may be a much harder market to sell to. They are very different than the early adopter audience, who will buy almost anything shiny and new that works (I’m exaggerating, slightly). In fact, our time spent in consumer interviews with the smartphone intender audience indicate that they heavily research technology before they buy, and they in fact shop with a more value (not price) conscious mindset. These consumers, we find, are willing to spend and invest in technology that they believe will add value to their lives, are hassle free, and last long. They are also very heavily influenced by sources they trust, like friends and family, as well as brands they trust. Believe it or not, the majority of these consumers don’t read tech blogs nor are they influenced by them.

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This group would not consider themselves tech experts, but they feel that they have a general comprehension of technology, which is why they purposefully seek out products that have features they value.

Ultimately, I believe this battle will become an ecosystem battle, meaning consumers will begin to invest in devices based upon whose ecosystem they want to be in. If we believe that today there are three primary ecosystems for personal computing–Apple, Google and Microsoft–then the question consumers need to ask themselves is whether they want to be in Apple’s, Google’s, or Microsoft’s ecosystem.

I say this because committing to one over the other is, I believe, going to be more convenient in the long run. Although possible, having a household where Google, Microsoft, and Apple ecosystems exist may become more of a hassle due to the lack of consistency of experience or software and services across all three platforms. This is especially true as all three companies invest more in their personal cloud services.

As Apple, Google, and Microsoft evolve their cloud services, they will inevitably add specific elements of those services that only work in their respective ecosystems. Of course, it’s possible that one (or all three) buck this trend, but it doesn’t appear that we’re heading in that direction at the moment.

The ecosystem is what will drive consumer loyalty. It is one of the most strategic elements of this battle. Once consumers commit to an ecosystem, it’s doubtful that they will switch platforms or ecosystems on a regular basis–if ever. For a quick example of this, think to yourself how often you switch cable TV providers. If you have, how inconvenient was it? This inconvenience would be multiplied as a consumer tries to switch all their personal or family digital media from one ecosystem to another and from one cloud service to another. This is why the ecosystem becomes sticky and creates loyalty–and perhaps dependencies.

The best way to go after smartphone intenders is to focus on the whole solution, not just the end product. In an ecosystem, no device is an island; it’s a part of a comprehensive whole. The better and more tightly integrated the hardware, software and services are together, the better the overall solution–the ecosystem.

Consumers don’t buy products, they buy experiences. Thus, they are buying into a digital ecosystem whether or not they know it yet.

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Ben Bajarin is the director of consumer-technology analysis and research at Creative Strategies Inc., a technology industry analysis and market intelligence firm in Silicon Valley.

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