The evolution of the smartphone

As demand for smartphones in Australia continues to rise, vendors must provide new product innovations to compete for customer interest. Brad Reed, Senior Marketing Manager at LG Electronics, explains how he expects the arenas of mobile hardware, operating systems and application ecosystems to evolve in the coming year.

The mobile phone market in Australia continues to evolve at a rapid pace, with sales predictions this year again expected to exceed 8 million units.

The handset market some time ago entered a ‘mature’ phase in its development with penetration rates now above 100%, bringing with it a variety of new dynamics for consumers, retailers and network operators. 2011 promises to be dynamic and characterised by the commoditisation of the ‘smartphone’.

Device vendors are experiencing the most rapid impact of the change as the local market undergoes a transition from the traditional ‘feature phone’ to the more powerful and internet-capable smart device.

Mobiles are now seen not simply as communications tools, but also entertainment hubs and powerful devices for business and personal applications, data recording and content sharing.

Both business and personal users now have the resources, via their mobile, to be constantly connected and up to date with the latest news, and have access to tailored content and services via a huge selection of mobile apps.

Based on the happenings of 2010 and feedback from customers, we predict that in Australia in 2011, almost 100% of the handsets sold as a ‘post-paid’ device will be smartphones and more than 50% of the handsets sold as either outright or ‘pre-paid’ models will also be smartphones.

That equates to around 5 million new smartphones sold this year - all internet enabled and all capable of running a myriad of applications that require mobile data capacity.

This is a significant market shift and will have a huge impact on handset vendors and network operators in particular, as they struggle to keep up with the added network infrastructure required to handle this new type of device. This will become particularly pertinent as smartphones move into all market segments across low-end price driven offerings, mid-range value driven handsets and high-end technology orientated super smartphones.

The benefits to the industry however are plain to see with a predicted short-term increase in average revenue per user (ARPU) of 53% for each smartphone customer connected to the network, and a similar average selling price (ASP) uplift for device vendors.

The evolution of the smartphone is taking shape as a result of new breakthrough hardware technologies - as well as through software innovation.

The most dramatic change is happening in the areas of new operating systems, hardware innovation and third-party content ecosystems.

Operating systems (OS)

The more established smartphone players such as Symbian, Apple (iOS) and RIM are going to come under increasing pressure as new entrants such as Google’s Android and Microsoft’s WP7 platforms vie for a place in the market in 2011.

The ability of each operating system to meet consumers’ demands for usability, evolve and support new hardware, and develop a vibrant application ecosystem to bring global scale will determine the winners and losers over the next five years.

Recent rapid inroads by Android (now the global number two and fastest growing smartphone OS), the expense of Symbian and the recently announced Nokia/Microsoft alliance are going to ensure a dynamic and robust competitive environment - with no clear winner right now.

Hardware innovation

As operating systems standardise, more focus will shift to hardware innovation in terms of design, evolution of key device features such as battery life, and screen technologies. Additionally, as applications become more demanding, the inbuilt processing capabilities of devices will become a clear differentiator.

Leading the way from a technology perspective in 2011 will be the introduction of new ‘dual core’ processors for faster and more efficient data processing.

Screen technology is also quickly changing as size, clarity and brightness improvements become more commonplace. The big news this year in screen technology however will be the release of the first 3D screen capable of being viewed in full 3D without glasses.

With the recent announcement by global operators to trial 4G in 2011, we can expect further developments in chipsets and technology that support 4G for even faster mobile data speeds. This in turn will lead to growing requirements for new devices to support high-speed data across new radio frequencies.

Content ecosystem

With each passing month, more applications are being built by developers for the growing smartphone user base. Already online apps stores have many hundreds of thousands of apps developed by typically small developers looking to cash in on the growing demand for both the trivial and the practical.

The attractiveness of a smartphone operating system to the developer community, and its ability to reward developers and create a monetised marketplace, is going to be the difference between survival and extinction in the smartphone OS game.

With all these developments in mind, handset manufacturers need to be able to deliver a comprehensive range of fully featured and technology-driven hardware to keep pace with the rapid rate of change in software.

Stepping up the game for business users

In terms of hardware technology innovation, the introduction of dual core processors this year will deliver far more powerful devices that support faster web browsing and smooth running of data-heavy applications.

2011 also promises to be a watershed year for the IT industry and technology in general, as a new generation of tablets floods the market. Recent trade events in the USA and Europe have revealed in excess of 30 new tablets from more than 10 vendors - with the overwhelming majority using the Android OS.

What this means for the traditional laptop industry is yet to become clear but on the face of it the low-spec ‘netbook’ looks like a thing of the past, and the more common portable computing software looks like coming under pressure as Google and Apple take mindshare and marketshare through the sheer weight of numbers of new devices.

As this segment matures, and when tablets span price points from sub $300 to over $1000, the consumer will have enormous choice.

A range of screen sizes will be on offer from 7-inch to 10-inch, running the very latest OSs, with dual core chipsets and breakthrough camera technology to allow 3D recording via dual rear-mounted cameras.

Analysts are predicting sales of tablet devices in Australia in 2011 to reach 1 million units. While this number may be bullish the category will definitely be one to watch, and if the combination of the right device, right local content partnerships plus the right mobile data offering hit the market, uptake will expand well beyond the current iPad popularity.

The logical position for most tablets is as a mobile ‘rich media’ consumption device – however, the full consumer offering is not yet in place, for the most part, to support rapid uptake. Perhaps tablets will eventually be the vehicle media content owners have been looking for to sell their web-based content subscription services.

Without a doubt the mobile market will continue to evolve and intrigue - that’s what makes it such a fascinating business.

*Brad Reed is the senior marketing manager for LG Electronics Australia - Mobile Communications, and has 10 years of experience in the enterprise mobile marketplace. He has a degree in Business Management (Marketing Major) - University of New South Wales and has previously held positions at Nokia, Shell Australia, Mobil UK, Bridgestone and Wesfarmers in Australia.