Smartphone Unit Sales to Surpass Laptops in Five Years

Carl Weinschenk

Carl Weinschenk spoke with Bill Hughes, principal analyst for In-Stat. Hughes recently released research that predicts smartphones will enjoy a global compound annual growth rate of 30 percent during the next five years.


Weinschenk: What struck you about the research results?
Hughes: One of the things that stuck out is that Windows Mobile is gaining traction. It had been doing nicely and made great strides in the last year. One factor is that they had a fair number of glitches in the operating system and now have addressed them. The Palm OS as a platform now is on its third owners. A lot of people were very hesitant about Microsoft dominating the mobile space. As far as I can tell, that animosity has evaporated. I can't really put a finger on why it has.


Perhaps people are believing in mobile Linux as a counterweight eventually. RIM historically has been dominant, but they are going more consumer, as opposed to sticking with business users. Microsoft Windows Mobile does very well through the carriers, while historically BlackBerry has done well through carriers' enterprise sales forces. That has shifted. Blackberry is doing better in retail. But the other side of that is, all Microsoft has to do is rev up its sales force. Now that carriers' knee jerk reaction is not to fight against Microsoft, Microsoft is in a very good position.


Weinschenk: You also refer to "feature phones" in the study. What are these?
Hughes: I've been watching this intently for the last couple of years, and I do believe smartphones are such a flexible platform that there are going to be a lot of sales as a convenience for manufacturers. For example, if I have a GE dishwasher, the electronics on the inside are the same on every dishwasher. They charge a premium for different buttons on the front. Everything from entry level to highest and fanciest [basically are] changes in the panel and buttons. That's because it is more expedient from the manufacturing standpoint to build it that way than to have a million different components.


Likewise, with smartphones the cost of components are a little more, but if the third party manufacturers can get their hands on them, they will be able to provide niche phones much more cheaply and expediently than if they have to go through the design process. Linux lends itself to that environment, but so far it is not far enough along to have impact in that way.


Weinschenk: I find it interesting that smartphones are seen as laptop replacements. Can you elaborate?
Hughes: It is hard to communicate to an American audience how computer-centric we are compared to other regions. [We focus on] big screens, full keyboards. Frankly, a PC is not necessary in a lot of parts of the world. The net result is that we have a hard time getting our heads around the notion of using a smartphone as a laptop replacement. At the same time, [my research shows] that if it could be done well, a lot of people would be very interested in that solution. But they consider the keyboard too small and the screen too small (on current smartphones).


Weinschenk: How is Linux doing in the smartphone sector?
Hughes: The most recent announcement concerning a relationship with Linux on smartphones was Google's Android announcement. My concern is there are so many different flavors of Linux out there that it is very difficult to have the interoperability of applications that is expected from Linux. There are four organizations that exist aimed at an open standard, two of which are focused on Linux. One third of the participants of the Open Handset Alliance already are members of these organizations. Being part of multiple organizations doesn't imply there will be inconsistency, but it is necessary to be conscious to avoid it. More importantly, it creates market confusion.


I have seen alliances like this eventually combine. Frankly, it's a lot of fun to have a big press release - and not very exciting to have a company join an existing alliance. What I'd like to see is the necessity of multiple alliances going away. That would mean success. My hope is they will all be successful, but that they realize there is a significant overlap and combine initiatives.


Weinschenk: Discuss the ramifications of your assessment that the established identities - Microsoft aimed at consumers and Research in Motion at professionals - are blurring.
Hughes: Research in Motion is looking to expand their presence by pursuing consumers. Actually, they call them prosumers, people who use devices for business but buy them from a retail store. Ultimately, the vision is to get into the consumer business. That makes me nervous because there are a lot of organizations that are already serving a heavily saturated market. Business customers aren't as fully saturated. Microsoft, for one, is well positioned in that area and they have a lot of resources. Microsoft has established itself in consumer, but hasn't really turned on its direct sales force. Steve Ballmer's announcement at CTIA that the tool used to manage remote laptops now is capable of controlling Windows Mobile smartphones says that they are going after the business market.


Weinschenk: You also seem a bit frustrated at how businesses treat wireless and cellular. Can you explain?
Hughes: I believe the way the companies treat business wireless is stupid. I'll be blunt about it. Forty-four percent of companies do it in what I call the right way. You give a phone to an employee and tell them it's for business and perhaps incidental personal use and pay for it. Fifty-six percent of companies do it some other way.


To my way of thinking, if a boss comes to you and says he has decided to save money and is getting rid of a photocopier, if you need to make a copy go to Kinkos, you'd be nervous. If he said we are going to save some money, go to trade shows and pick up paperclips, you'd think something is seriously wrong. But (the same companies are telling employees that) if you want wireless go down to the mall and see what kind of deal you can get. It would be one thing if wireless was a minor expense compared to wireline, but wireless is going to exceed wireless I forecast in 2010.


Weinschenk: Is this changing?
Hughes: I see companies having to transition to treating smartphones and wireless in general more like the business expense it is. We're moving in the right direction.


Weinschenk: Are more business people using smartphones?
Hughes: There are still many people who passionately believe they need just a (plain cell phone). I would like to see them keep an open mind. Realistically over time people will come to see their peers with smartphones and they will just want a phone - but they also will want to have navigation and real time traffic, e-mail, etcetera. Before they know it, they will have a smartphone.

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