The smartphone is a mass market product

We’ve been taking for granted what I think may be a central insight:

The smartphone is for the masses, not a high-end niche of techno-geeks and status seekers.

Within 5 years, smartphones will represent roughly 50% of mobile device shipments, 75% of device market revenues, and 90% of industry gross margin potential.  In developed economies, smartphones will represent 40-50% of the installed base of users.  In 7-10 years, virtually all mobile phone subscribers will carry a smartphone.  Different markets will develop at slightly different rates based on replacement cycles, how prepay vs. postpay plays out, etc.  But the end result will be the same:  People will own smartphones like they own toasters or microwaves or shoes.

Quick messaging devices (QMDs), feature phones, and basic mobiles are the niche devices:  A smaller segment of users willing to accept a constrained experience in exchange for…  In exchange for what, exactly?

In the US, the $99 value menu is already dominated by late model smartphones such as the iPhone 3G and earlier Blackberries.  In some other markets, the iPhone is already free with a subscription.  Costs and prices will only go down from here.

Displays, memory, processing power, battery life, wireless broadband connectivity – all are getting cheaper by the day.  The major barrier to smartphone adoption was the user experience.  The smartphones of three years ago (think Symbian or Windows Mobile) could do lots of things but none of them very well.  And the added capabilities would come at a steep price premium.  Under those conditions, people chose a device with limited capabilities – a targeted device that worked well for the activities that a particular customer or segment cared about.   A device that could be squeezed into a low enough price point to attract a wide enough audience to recover all the non-recurring engineering costs associated with the broad product line required in such a market.

But these conditions no longer apply.  The smartphones of today and tomorrow (think iPhone, Android, Blackberry, WebOS) are joyfully easy to use, and can meet all of these customer requirements in just a few form factors.  The functionality of a smartphone is as seemingly infinite as that of a PC – perhaps more so as many additional use cases are opened up by the anytime, anywhere availability of having a smartphone in your pocket.  Costs will come relentlessly down.  Performance and capabilities will improve.  Late model and “pre-owned” smartphones will find their way to the bottom of half of the market, either shipped to developing markets or sold on Ebay or Craigslist.

How will the market be different with billions of smartphone users?  How will the world be different?  These are the fundamental questions facing our clients.