Analyst Angle: Smartphone growth highlights aging definitions, shifting propositions

Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry. In the coming weeks look for columns from Current Analysis’ Peter Jarich, IDC’s Shiv K. Bakhshi, Ph.D., and Enderle Group’s Rob Enderle.
The term “smartphone” has come under fire for excluding highly functional phones that lack a standard operating system, one that enables native third-party development. Take for example LG’s Voyager, which boasts 3G-delivered media via Verizon’s Vcast service, live television via MediaFLO and GPS capability enabling turn-by-turn directions. Input is performed using a large touchscreen offering haptic feedback and a generous QWERTY keyboard that Verizon has flaunted in television commercials.
Curiously, this showcase for advanced carrier services isn’t allowed in the smartphone club, because consumers can’t install native software for its operating system. Neither is Garmin’s nuvifone, slated for release later in 2008, and poised to deliver leading-edge integration of location-based services. While Garmin notes that developing an SDK for the nuvifone is technically possible, it has no plans to do so. In contrast, the Palm Centro — a compact, inexpensive handset lacking most of these features and using an operating system all but abandoned by developers, as Palm slates it for extinction — is counted proudly.
According to NPD’s Mobile Phone Track, in the fourth quarter of 2006, smartphone market share jumped to 6% of the U.S. handset market. Sales were driven by slim QWERTY handsets such as the Motorola Q and Samsung BlackJack, both of which run Windows Mobile. Yet their fortunes rose, precisely because they delivered solid Web functionality, messaging, and media features in a more affordable slim QWERTY package — not because consumers loved the operating system’s rigid user interface or extensive (but obscure) third-party application selection.
Manufacturers soon took notice of the success of these devices, and introduced more affordable, media-savvy QWERTY handsets that eschewed smartphone operating systems, such as the popular Samsung SCH-U740 and LG enV. The enV was the third best-selling handset model in the fourth quarter of 2007, according to NPD.
Apple’s influence
Smartphone market share doubled to 12% of the U.S. handset market in the fourth quarter of 2007, fueled in part by a certain Apple entry that lacks a physical keyboard. Despite the iPhone’s success, which slowed adoption of such other features it lacked such as GPS and removable memory, QWERTY-enabled handset sales have outpaced even smartphones, accounting for 16% of U.S. handsets purchased by U.S. consumers in the fourth quarter of 2007.
Now smartphone operating systems, with their rich application programming interfaces and driver support, are being pursued as shortcuts to glitzy user-interface overlays, all in the name of improving the user experience. Examples include the HTC Touch, with its animated finger-optimized touchscreen, and the T-Mobile USA Shadow (also produced by HTC), which has been optimized by the operator to include its myFaves calling plan — as well as key communication and media tasks — front and center. The killer application driving development of these Windows Mobile devices has been the application of lipstick.
And the gloss will glisten even brighter in 2008 with the introduction of the Sony Ericsson Xperia X1, which was recently announced at Mobile World Congress. This prestige handset’s stainless-steel body and alluring, sliding-keyboard form factor are matched by slick, panel-based navigation that, at least on the surface, provides more visual appeal and direct access than does the iPhone. Dig a bit deeper, however, and one soon encounters the same drab applications found in other Windows Mobile devices. These applications are mostly unaware of their tantalizing new surroundings. Their failure to live up to expectations set by the welcoming, engaging and customized user interface leaves them humbled or ignored.
Opening the toy chest
The iPhone, which Apple has not yet opened up to native third-party development, was the best-selling smartphone in the U.S. in the fourth quarter of 2007, according to NPD. All eyes will be on Apple’s software development kit to see how much access the company is ready to offer. If it truly opens its toy chest, third-party iPhone applications will be able to share fluid discoverability with the iPhone’s bundled, polished programs. The next key is exposing these applications to consumers and enabling painless installation. In iTunes, Apple clearly has at least one ready method to enable this process.
But other companies also have an opportunity to resurrect the promise of an application ecosystem. Microsoft has also shown it can reinvigorate a third-party software market with its Games for Windows initiative, but that campaign was launched in a mature retail environment on a platform with dominant market share, which made the job easier.
Even if this transformation occurs, it is unlikely that smartphones will actually become truly “smart” for the foreseeable future. They still won’t intelligently use experience learned from consumers to help them proactively throughout the day. The “smartphone” misnomer will then parallel the experiences of Palm and Pocket PC devices, which developed a handheld market that the Newton could not. These PDAs were personal and digital, but ultimately not assistants.
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