Editor’s Note: Welcome to our weekly Reality Check column. We’ve gathered a group of visionaries and veterans in the mobile industry to give their insights into the marketplace.
Having just returned from the Rutberg Wireless Influencers conference this past week, the top question on everyone’s mind was, “what impact will the economic crisis have on your business?” And while there is no question that fewer dollars in consumers’ pockets and retirement accounts will negatively impact the broader holiday season, there are plenty of reasons to believe that smartphone and content growth will continue to thrive.
New devices
With the exception of the iPhone there have not been any major introductions of new smartphones into the market this year. The Curve, Pearl, Q and Nokia N95 are all getting a little long in the tooth having launched in 2007 or earlier.
However, between now and the end of the year, there is going to be an explosion of devices into the market. The G1,Omnia, Xperia, Storm, Bold, Touch, Diamond, Kickstart, N96 and E71. Oh, and that iPhone has some legs left too. There are plenty of new toys in the market with lots of marketing energy expected from the operators and manufacturers to ensure customers are aware of all of these devices.
Subsidies
Historically, the carrier has taken a fixed-cost approach to the end-user handset price. For example, if the device costs $200 to buy, it would retail for $100 and if it was purchased for $100, it would retail for free. Carriers are now realizing that smartphone customers generate lower churn and higher ARPUs.
If the smartphone customer hits an average $70 per month ARPU (average revenue per user) compared with a non-smartphone customer generating $50 per month, that is $480 incremental revenue for the operator over the course of a 24-month contract. Thus, the carrier is now willing to retail that $300 smartphone for $99 or even $49 to the customer.
Upgrades
With mobile phone penetration rates now approaching full saturation, more and more customers are becoming eligible for a new device in exchange for signing another contract with their carrier.
In addition to the promotional price mentioned above, the customer is often eligible for an additional $100 or $150 credit. So even if the consumer does not have as many dollars in their wallet this holiday season, the prospect of picking up one of those dozen new smartphones coming out as a gift increases significantly if they do not have to open their wallet.
Apple and Google building awareness
Historically, customers were not even aware of the ability to add third-party applications to their device. The iPhone App Store and Android Marketplace have built awareness that did not exist previously.
Therefore, even if some consumers are saying they will not purchase or purchase less due to economic concerns, there is now a greater absolute number of smartphone users compared to a year ago, who are aware they can download third-party apps on their device. Instead of spending dollars for a new device when they do not yet qualify for an upgrade, smartphone owners now understand they can simply and inexpensively personalize their device with third-party content.
Spontaneous vs. calculated purchasing
One of the interesting dynamics we are witnessing at Handango is the “calculated” vs. “spontaneous” purchase. On the fixed Web store, purchases are more calculated and customers do more comparative shopping before buying.
However, purchases made on the device are more spontaneous, often made when the customer is “on the go” and looking for an application to “save time” or “kill time” in real time. As the macro-economic crisis has become more pronounced, we are actually seeing an increase in on-device purchasing, but increased price elasticity on the fixed web.
Entertainment and productivity
Entertainment has long been one of the “recession proof” industries as people look for an escape during tough times. With entertainment now passing productivity as the top application category for smartphones, look for games, music and video to continue to grow as the smartphone is with us all the time to help us escape from the daily grind.
Many smartphone games cost about the same as a couple of lattes (and significantly less than traditional console games) and can almost serve as “disposable” entertainment.
Similarly, during periods of economic hardship, employers are going to ask employees to do more with less. The smartphone bridges that gap between the PC and traditional cellphone. Apps that make your device more productive will help eliminate extra cost and create more efficiency for the business user.
Freeware
Customers will increasingly look towards free apps. With the demographic profile of smartphone users and the targeting capability of mobile advertising, this revenue stream is a natural fit and a growing area.
Also, look for the proliferation of “freemium” content where customers can try before they buy and use an app or part of an app to determine if there is value for them as they upgrade to a paid subscription of the app.
Think global
Seventy-five percent of smartphones are sold outside the US – lots of opportunity on all continents and markets.
Forecasts
And last but not least, smartphone distribution is forecasted to grow from over 100 million today to over 500 million by 2010. Even with downward revised forecasts, analysts are still expecting 50 million new smartphones in the marketplace during the fourth quarter. Pretty impressive growth in a short period of time.
Who knows what will happen in the broader economic climate but there are lots of reasons to believe that both smartphones and smartphone content will continue to thrive.
Write to RCR Wireless News at [email protected].
