Smartphone Market Is in the Midst of a Total Transformation

Mobility: How It’s Changing Our Lives

Lots of decisions will impact a device manufacturer’s success. For example, sometimes the pull of outside conditions is stronger than at other times. In the case of smartphones and tablets, the saturation of markets in developed countries and the migration of the focal point to developing economies will be the biggest influence during the foreseeable future.

The New York Times published a feature this week that profiles the telecommunications landscape in Myanmar. It’s an interesting story from a number of angles. In terms of vendors and service providers, the key is that the nation has minimal wired infrastructure and as of now, extremely poor wireless and cellular services. It also has a population with far less disposable income than the west. This nation and others like it will skip the wired stage and build its telecommunications structure on wireless:

Limited telephone and Internet infrastructure, and decreasing smartphone costs, mean most of Myanmar’s 60 million people will experience the Internet for the first time through cellphones. The biggest growth potential, Mr. Kyaw says, is for mobile and web services relating to tourism, transportation and e-commerce.

It has been clear for a few years that the real action is in developing economies, and that just about everything is different in such landscapes. A key, of course, is low-cost end user equipment. The Wall Street Journal offers a story on Asustek Computer, which is introducing smartphones that cost as little as $100 (5,999 rupees) in India. The Zenfone will be far from the only cheap device available:

Asustek’s smartphone pricing puts the company in the scramble for emerging-market consumers, alongside rivals like Motorola Mobility’s Moto G and Chinese brand Xiaomi’s Mi3. With the increasing saturation of smartphone markets in developing countries, major players are rushing to stake a claim. Last month, Google Inc. GOOGL -0.16% said it would build sub-$100 smartphones and Mozilla promises devices later this year—powered by its own software—that will be as cheap as $25.

Google’s entry is the Android One. Nasdaq reports that the company’s plan is to share “basic design building blocks with manufacturers in developing countries.” The company is well positioned for this change. The story says that more than 75 percent of smartphones shipped this year use the Android operating system (OS). Thus, the market is commoditizing on Android and moving away from higher-priced OSes, such as Apple’s iOS.

The scene is a bit different for tablets. Mobile News reported on a study by CCS Insight that points to a worldwide slowdown in shipments. The news will be worst for vendors in Western Europe, which actually will see a reduction in shipments in the tablet area of 6 percent.

Elsewhere, increases will be far more modest than in past years. CCS cites delayed adoption in nations with emerging economies as part of the current dynamic. However, CCS sees a strong potential for rebound in subsequent years, and identifies sales of replacement devices in developing markets as one of the reasons.

The bottom line is that the transition to developing markets is inexorable and will continue for decades. It will be far different than the evolution of telecommunications in North America, Western Europe and other developed economies, which started with robust wired infrastructures.

But the market beckons: In developed markets, decades of trench warfare will be fought over small bits of market share. Far bigger gains, albeit in much smaller increments, are possible in developing countries. To take advantage, however, manufacturers must adjust their strategies and in some cases do so radically.