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Device Trends Cross Pacific

The changes in consumer behavior and rapid uptake of advance smartphone features that have found their strongest expression in Japan are poised to migrate eastward and westward and take hold in Europe and North America, driving big gains for the smartphone industry in the next few years, according to Symbian Ltd. CEO Nigel Clifford.

Speaking at the "Smartphone Summit" preceding the CTIA Wireless IT and Entertainment convention here at the Los Angeles Convention Center, Clifford said, "There's a profound difference in the way smartphones have been embraced in Japan than in other parts of the world." He noted that 38 different device models running on the Symbian operating system are now sold in Japan, all them operating over 3G networks.

Saying these trends will inevitably radiate to the developed economies of the West, Clifford touted the emergence of a "smartphone lifestyle" in which converged voice, data, and multimedia services running over handheld devices will profoundly affect the way people communicate, work, and play.

The U.S. in particular, says Clifford, is "underdeveloped" in terms of smartphone adoption compared to the rest of the world. While the market for enterprise-focused devices like BlackBerries and Treos is dominated by American users, the wider market for consumer and "prosumer" devices is much healthier elsewhere. The Symbian OS has fared relatively poorly in the U.S., but worldwide the London-based company dominates the smartphone platform market, shipping as much as 70 percent of smartphones sold today.

"The question, then, is: Why hasn't [the smartphone groundswell] happened here?" Clifford asked.

The answers: Smartphones -- generally defined as handheld voice-data devices that have an operating system -- are still seen as high-end business devices primarily designed for executives; wireless networks in the U.S. remain underdeveloped compared to Europe and East Asia; and wireless carriers are still focused on adding subscribers rather than providing more sophisticated data services and applications.

That last tactic is a dead end, says Clifford.

"Service providers are finding access to new consumers ever more challenging," he explains. "As the market becomes saturated, with few new subscribers out there, they have moved to offering cheaper phones in order to steal consumers from their rivals. But that's a zero-sum game for the industry."

The results: reduced revenue per user, less brand loyalty among consumers, and rising costs for acquiring new customers. Along with the rollout of 3G networks in the U.S., those trends will inexorably drive carriers to offer more feature-rich, data-centric phones and consumers to look for more sophisticated devices that can replace an array of other portable devices, including PDAs, MP3 players, digital cameras, and even laptop computers. Already, the smartphone market outstrips sales of other small consumer electronics devices by wide margins.

Meanwhile, vendors like Palm Inc. and BlackBerry , which both sell smartphones that run on in-house operating systems (Palm also offers devices that run on Windows Mobile), have run into hurdles that cloud the future of their proprietary platforms. Palm, for example, doesn't even own the system on which its devices run; PalmSource Inc. (Nasdaq: PSRC), a separate company, controls the OS and is currently in a deadline dispute with Palm that could force the Treo maker to look elsewhere for the software that undergirds its products. (See RIM to Go Symbian? and Palm Platform in Doubt.)

Palm's share price dropped 12 percent last week after it forecast slowing sales for its popular Treo smartphones.

"Symbian shipments alone outsold the global sales of iPods by 45 percent last year," points out Clifford. "The scale of the opportunity is becoming very large indeed."

Some observers, however, discern trends in the smartphone market that don't bode so well for Symbian. The increasing adoption of Linux as a smartphone platform, for instance, could spell trouble in the future for both the Symbian OS and Microsoft Corp. (Nasdaq: MSFT)'s Windows Mobile.

Founded in 1998, Symbian enjoyed its first profitable year in 2005.

— Richard Martin, Senior Editor, Unstrung

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