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 Smart phone adoption in the U.S. has lagged that of other developed areas, such as Japan or Europe, where consumer demand for cutting edge technology and better telecommunications infrastructure have spurred adoption.[2] However, as corporate America has seen the advantage of supplying workers with 24/7 office email, and consumers have gravitated towards the rich media offered by Apple (AAPL) iPhones, the North American smart phone market is picking up. Analysts predict growth in the double-digits for unit sales in 2008.[3] [edit] Companies InvolvedThere are 3 primary groups of companies in the smart phone market. These are the Hardware Manufacturers, Operating System Providers, and the Carriers. Cooperation and partnerships between the various parts of the value chain allow delivery of the final product and the associated data service to the end-user. Analysis primarily concerns the North American market, although differences with the worldwide and other specific markets will be outlined where appropriate. [edit] Hardware ManufacturersIn the Smart Phone segment, the largest domestic producer is RIMM, with approximately 44.5% market share in Q1 2008. In second and third place are AAPL and PALM, respectively. [4] RIMM's lead results from its strong hold on the corporate market and that market's dominance of the U.S. smart phone market at large. Blackberry's data plan is especially appealing to corporations because it guarantees data delivery to information-sensitive enterprises. The U.S. market contrasts with the worldwide market, where Nokia is estimated to have over 50% of total smart-phone type sales by Canalys in CY 2007.[5] Nokia doesn't have the same success in North America as the rest of the world because the American market has not adopted the Operating System Symbian, nearly 50% owned by Nokia and the primary operating system on Nokia smart phones.[6] U.S. telecommunication carriers have resisted the Symbian OS, preventing Nokia from gaining market share domestically.[7] [edit] OS Providers
The main suppliers of operating system software for smart phones are Microsoft (MSFT) and Nokia (NOK). Research in Motion (RIMM), Palm (PALM), and Apple (AAPL) also create their own software for integration into their devices. There are advantages and disadvantages to choosing Windows Mobile, Symbian, or some other proprietary software. For example, Windows Mobile benefits from a low barrier to entry for third-party developers to write new applications for the platform, as Microsoft has made development tools available for the system. Symbian benefits from the wide install base of Nokia (NOK) and other allied partners. According to Canalys research estimates for CY 2007, Symbian had a 65% share of worldwide OS installs, ahead of Microsoft on 12% and RIM on 11%. By region, Symbian led in Asia and Europe with 85% and 80% shares respectively, while in North America RIMM was the clear leader on 42%, ahead of Apple on 27% and Microsoft at 21%.[9] [edit] Carriers In the domestic U.S. market, the primary carriers are AT&T (T) (formerly Cingular), Verizon Communications (VZ), Sprint Nextel (S), and T-Mobile as the national carriers, with some regional competition in limited markets by smaller carriers. In this industry, which phones are sold is dictated on the terms of the carriers, as they sell phones along with service plans to the consumer, and offer discounts and rebates on phones in exchange for a service contract. Each agreement between hardware provider and carrier has beneficial sales impact for the hardware company. On the other hand, landing a contract for a "hot" piece of hardware, such as the iPhone can have major benefits for a carrier, as it can use demand for the device to lock in subscriptions to its service. Apple (AAPL) attempted to challenge this subsidy-based cell phone revenue model with its 1st generation iPhone, demanding that AT&T (T) sell it with no subsidies (at price points of $499 and $599 at launch), and also earned a share of the recurring revenues.[10] But this arrangement led to widespread tampering with the iPhone as customers tried to unlock the device to use on other, cheaper plans. Apple and AT&T have come to a new agreement with the 3G iPhone, where revenue sharing ceases. Instead, AT&T (T) has resumed the subsidy practice, paying Apple the full price from each phone sale but earning all revenues from subscriptions.[11] [edit] Domestic Hardware Market Share IDC Market Survey Data, Smartphone 2008[12]  Change Wave IT survey[13] There are two critical markets when it comes to considering Market Share for Smart phone devices. These include the "general" smart phone population, which includes home-use, and the Corporate market, which has long favored Research in Motion (RIMM) due to BlackBerry enterprise service for corporate email.[14]
According to the data service IDC, which tabulates sales by units, the domestic Smart phone market is 44.5% in BlackBerry hands, with competition from the IPhone. Motorola, and HTC are all second-tier players in this field. Palm has share at 13.4%, largely due to many Centro sales during FY 2008.[16]
In the corporate arena, due to access requirements and security demands, as well as a general corporate aversion to Apple (AAPL) due to closed standards, BlackBerry and Palm are the primary competitors. Even as such, BlackBerry leads Palm 76% to 18%, according to ChangeWave, which conducted a survey among corporate IT groups. The number tabulates % of adoption among 2,000 different enterprises.[18] The release of the 3G iPhone, which is more corporate email friendly, will likely have an impact on these shares going into H2CY2008.[19] [edit] International Hardware Market Share Nokia has the largest share in the international smart phone market.[20]
According to estimates by Canalys, Nokia had slightly more than 50% world market share for smart phone units sold in Q4 of 2007 and almost 19MM units sold.[22] In second place was competitor Research in Motion (RIMM), with 4MM units.[23] No other single competitor commanded more than 10% share in that quarter. This documents why the Symbian O.S. does so well internationally. [edit] Trends/ForcesThe many forces at play in this market are magnified due to the fact that the dust has not yet settled; the market is young and growing at double-digit rates, and therefore market leadership and associated consumer preferences have not yet been cemented.[24] [edit] The carrier/hardware provider relationship will determine future winnersTelecoms such as AT&T (T), Sprint Nextel (S), and Verizon Communications (VZ) set the conditions in which the Hardware vendors (such as BlackBerry, Samsung, and now AAPL) have their handsets sold. The telecoms have traditionally subsidized handsets that they supported, pushing down the price and creating demand from the consumers. In exchange, the consumer signs a service contract for a year or two. As a result of this, customers have come to expect cheaper phones than what the handset companies actually received in revenues. For example, in the iPhone 3G launch, priced at $199/$299 with contract, 1MM phones were sold over the first weekend, compared with 74 days for the 1G iPhone priced at $499/$599.[25] This suggests that consumers were truly price sensitive to the more expensive machines, but are eager to jump on at lower price levels. Each one of these contracts is worth a lot to the Hardware Vendors. When Palm announced that it had landed a contract for the Centro on Verizon Communications (VZ) network (June 12, 2008), the company's stock jumped 13%.[26] As such, the cooperation and partnership is important to earn both unit sales for the hardware vendors, as well as subscription plans for the carriers. [edit] Going Corporate: Apple (AAPL) IPhone and the Research in Motion (RIMM) BlackBerryThe launch of the 3G IPhone began AAPL's assault on RIMM's traditional captive market: the corporate enterprise email. A more mature market than the consumer segment, corporate users demand more in the way of security and seamless email synch.[27] The Blackberry's primary draw is the Blackberry Data plan - which offers Enterprise on top of whatever the carrier's data plan offers.[28] The new 3G iPhone offers Microsoft Exchange ActiveSync, which delivers PUSH emails for Outlook-compatible email systems, but this only addresses one type of enterprise email server.[29] Other alternatives include Lotus and Novell softwares.[30] All this being said, AAPL's hand lies in high user satisfaction. According to a ChangeWave survey, AAPL iPhone corporate users report the highest satisfaction, with 79% of users reporting "very satisfied" compared with 54% for RIMM.[31] Possibly as a result, 35% of respondents reported plans to purchase iPhones for the corporate system, as opposed to 29% BlackBerrys in the March 2008 survey.[32] [edit] Operating Systems: The Google (GOOG) Android wildcardOn November 5, 2007, Google unveiled Android, developed primarily by Google (GOOG) and the Open-Handset-Alliance it set up to develop a new open-source operating system for mobile devices.[33][34] Despite the fact that no device has been released as of mid 2008, the alliance has secured the support of Carriers Sprint Nextel (S) and T-Mobile, as well as the hardware manufacturers HTC, LG, Samsung, and Motorola (MOT).[35] Many carriers and hardware manufacturers are adopting a "wait-and-see" approach to see how the Android OS will be demanded and adopted by consumers. In the same way that Linux and other Open Source software disrupted Microsoft's OS monopoly on the personal computer, Android could provide an open-source alternative to the closed platforms of the many other OS's. [edit] Business Model Change: Consumer demand and 1G iPhone's revenue sharing modelThe sales for the first generation AAPL iPhone suggest there was in fact some sort of market out there for $200 phones, selling 270,000 units in its first 30 hours in the United States.[36] The pricing was consistent with AAPL's perceived image as a manufacturer of luxury and fashion technology items. At the same time, it mounted the first significant challenge to the carrier's subsidies-for-subscription model. While the 3G phone appears to have moved back towards the traditional model, Apple continues to have significant leverage in its relationship with AT&T. If demand for wireless plans becomes driven by hardware, rather than the phone service, this will have significant impact on the future relationship between telecoms and hardware manufacturers. Companies like PALM and RIMM will find themselves in a stronger negotiating position, with more control over pricing and distribution. [edit] References
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