The Smartphone Wars: Bricks and Battiness
<p>After the high drama of the last couple of weeks in the smartphone arena, it&#8217;s refreshing to encounter some good old-fashioned low comedy.  We&#8217;ll get to more serious fare, but let&#8217;s take a look first at <a href="http://arstechnica.com/microsoft/news/2011/02/everything-that-can-go-wrong-with-windows-phone-7-update-does.ars">how astonishingly Microsoft just screwed the pooch</a>.  </p>
<p>Microsoft&#8217;s very first update to WP7, adding no features but intended &#8220;to improve the update process&#8221;, fails on some phones (requiring a manual reboot) and irrecoverably bricks others.  Oh, yeah.  Let&#8217;s just take as read the cheap jokes about very few users being affected because who bought a WP7 phone in the first place?  I&#8217;m thinking those 50%-to-80% return rates we heard rumors of are about to go up, big-time.  I&#8217;m also thinking that if I were a Microsoft stockholder I&#8217;d be eyeing the exits, and that if I were a <em>Nokia</em> shareholder I&#8217;d be running for them at full panic speed.  <em>This</em> is what&#8217;s supposed to save Nokia&#8217;s bacon sometime in the future indefinite?</p>
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<p>Anyone want to bet against the <a href="http://twitter.com/googlenexus/status/40221838743179264">upcoming Android 2.3 update</a> going smoothly?  &#8230;.No?  I didn&#8217;t think so.  There&#8217;s a lot more trust in Google&#8217;s cluefulness going around than in Microsoft&#8217;s here in the 21st century. My hot-spare phone, the Nexus One, sits on my desk awaiting its OTA with languid confidence. I think my G-2 is feeling jealous&#8230;</p>
<p>There&#8217;s little comfort for either Microsoft or Nokia in comScore&#8217;s <cite>Mobile Year In Review</cite>, which gives us a fact- and statistic-stuffed take on the state of the smartphone market at the end of 2010.  That&#8217;s nearly two months ago, which is quite a while at the frantic pace this market has been evolving.  Still, if you pay attention to the measurements (and less to the forecasts) there&#8217;s much to be gleaned here.</p>
<p>Start with raw population sizes.  Bearing in mind that comScore&#8217;s survey population covers only the U.S., Europe and Japan, they report 63.2M smartphone subscribers in the U.S. and 72.6M in Europe.  That&#8217;s a 15% gap, shrunk from 25% last year.  On the other hand, unlimited data plans are much more common in the U.S.: &#8220;Nearly one-third of mobile users in the U.S. have unlimited data plans compared with just 8 percent of mobile users in Europe.&#8221; There&#8217;s also much more 3G and 4G penetration in the U.S.  </p>
<p>Yes, that&#8217;s right, according to this report U.S. users have faster and more widely-available data access than Europeans! This contradicts a widespread urban myth that state-owned telecomms companies and GSM standardization have added up to cellular Nirvana in Europe.  Seems our messy competitive free markets have been doing a better job of deployment after all.  Imagine that&#8230; </p>
<p>In other news, <a href="http://en.wikipedia.org/wiki/Wireless_Application_Protocol">WAP</a> is dead.  Remember WAP?  It, and special &#8220;mobile&#8221; presentations of websites, have been rendered effectively obsolete by smartphones running capable browsers.  The report tells us the trend is, unsurprisingly, towards full HTML everywhere.  This, of course, is tied with the almost dizzying speed with which smartphones have found their way into consumers&#8217; pockets.  The report&#8217;s lists of top-selling phones in 4Q suggests that, though Europe got a bit of a head start on this, U.S. consumers abandoned dumb phones more rapidly during 2010.</p>
<p>Smartphone penetration remains higher than the U.S. in certain European markets (Germany, Spain, Italy) but in general the U.S. and European markets seem to be converging. I&#8217;ve noted <a href="http://esr.ibiblio.org/?p=2528">before</a> that Europe and the rest of the world seem to lag smartphone tends in the U.S. market by about six months, and the numbers in this report (especially the smartphone OS share numbers) support that.  </p>
<p>The single most serious defect in this report is that comScore&#8217;s OS market share numbers look somewhat stale relative to those being published by Canalys &#8211; this makes Android look a bit weaker than it probably is and its competitors look a bit stronger. (For a correction from reality see <a href="http://www.dailymail.co.uk/sciencetech/article-1359689/Apple-iPhone-knocked-Trails-budget-rivals-UK.html">this report from Great Britain</a>.)  Nevertheless, comparing the U.S. and European market share graphs reveals interesting differences.</p>
<p>One major difference is the position of Nokia.  It was the top-selling OEM in Europe through 2010 but barely on the radar in the U.S. market. Some unwelcome news for Nokia shareholders is that both markets are converging on the American pattern.  The news from Britain and elsewhere  makes it clear that Nokia is bleeding European market share to Android phones, as Stephen Elop acknowledged in the infamous &#8220;burning platform&#8221; memo.  Ironically, Nokia&#8217;s miniscule market share in the U.S. <em>isn&#8217;t</em> crashing &#8211; perhaps because in this country the market has segmented in such a way that Nokia handsets are only competing with dumbphones.</p>
<p>Android looks to be gaining market share at about the same (rapid) rate in the U.S. and Europe, but in Europe the effective launch date was later so share there is lagging the U.S. figures somewhat.  Other smartphone lines are maintaining pretty much the same relative positions in the U.S. and Europe, all except Apple losing share to Android at comparable rates.  In both the U.S. and Europe, Apple managed a just barely perceptible gain in share, but spent the year eating Android&#8217;s dust.</p>
<p>This pattern is interesting because, along with the overall convergence in scale and smartphone penetration, it suggests that the underlying drivers acting on consumer demand and preferences are quite similar in the U.S. and Europe.  comScore ventures to this conclusion from a slightly different reasoning.  It also notes that the Japanese market is quite different from either.</p>
<p>Here&#8217;s a surprise about a trend in both markets: &#8220;Even though applications received much more attention by the media throughout 2010, our analysis in the U.S. and the EU5 region showed that by a small margin, application usage is still second to browser usage when it comes to the mobile web.&#8221;  I&#8217;ve voiced suspicions here that apps are less important to phone users, and less valuable as discriminators, than the smartphone OS pushers think they are; this seems to confirm that.</p>
<p>Since I&#8217;m mainly interested in reporting on and analyzing the smartphone market&#8217;s competitive dynamics, I&#8217;m not going to dive into comScore&#8217;s material on mobile device usage patterns and how they vary by market.  There are in any case few real surprises there &#8211; social networking is exploding in popularity, the advertising market is vigorous, etc.  One pattern they half-illuminate is that smartphones are not yet replacing browsing on PCs; smartphone consumers show a strong pattern, sorted by time of day, of preferentially using PCs (and their large displays) when those are available.</p>
<p>Circling back to NoWin &#8211; is the comScore report revealing a market in which there is any hope for them?  I&#8217;d have to have said &#8220;no&#8221; even before the update fiasco.  Android is kicking the living crap out of competition that&#8217;s here <em>now</em>; unless current trends in both the U.S. and Europe reverse dramatically it will have cemented a solid majority market share well before the earliest date Nokia thinks it might ship a WP7 phone.  The best recent bet for a reversal of trend would have been for the Verizon iPhone to take off like a rocket rather than fizzling on the launchpad, but it&#8217;s probable that would have helped NoWin not at all.</p>
<p>And it would have to be some really dramatic reversal.  The comScore numbers show that there&#8217;s nothing noisy or jittery about the trends in Android market penetration, neither in the U.S. nor Europe.  What we&#8217;re seeing in both markets is an inexorable rise that hasn&#8217;t even been measurably affected by competitive countermoves.  The iPhone 4 and iPhone V failed to even speed-bump it, let alone stop it, and the handful of WP7 phones are now an even sadder joke than they looked when I predicted on launch day that they would flop.</p>
<p>Apple has strategic problems; it&#8217;s being badly disrupted from below in the smartphone market, and I think will begin to experience the same in tablets towards the end of 2011  But I don&#8217;t see these challenges becoming acute for a couple of years yet; Apple can maintain a profitable high-margin business for a while even with drastically lower market share than it has now.  In fact that&#8217;s what it <em>wants</em> to do culturally speaking.</p>
<p>The major unknowns of the near future concern companies without Apple&#8217;s maneuvering room or brand strength. In particular: Will Nokia bail out of the disastrous NoWin alliance? And, what&#8217;s RIM going to do?  But those, dear readers, are topics for another time.</p>
