April 16, 2013

Mobile OS: It's not all Android and iOS (Part 1)

By Hisham Isa

A funny thing happened on the way to the mobile store . . .

While industry watchers were focusing on the growing dominance of smartphones and media reports highlighted the contest between Android and iPhones, another operating system has snuck into the picture.

Well it hasn't so much snuck in as it already had a 20% market share on the BuzzCity Network, but it's refused to go away and grown stronger. Not only that, this OS runs devices that are largely considered to be, get this, feature phones!

At the same time, carriers are beginning to shift away from a business model that has given a substantial boost to smartphone manufacturers: they're choosing to no longer give away costly handsets to customers.

More about that in a moment. First though, enough for being cryptic. Have you figured out which manufacturer is smiling big now and which OS is capturing an unexpectedly large market share?

The manufacturer is Nokia and the operating system is the Series 40, which is now used by more than one-quarter of all users on the BuzzCity Network.

A bit of history is needed to put this graph in perspective.

In February 2011, Nokia announced it was dropping Symbian in favour of a new partnership with Microsoft. The Windows Phone OS would be its primary platform for smartphones like the Lumia. The last Symbian-phone, the Nokia 808 PureView, was launched a year later at the Mobile World Congress. But you can see that Symbian peaked on our network in December 2011.

The Nokia S40 OS meanwhile has been around since 1999. But it powered feature phones and compared to Windows Phone OS seemed like the neglected half-brother. Then in October 2011, Nokia launched Asha, a series of feature phones named after the Sanskrit word for 'hope'. It took about seven months for consumers to really adopt the new phone line but since then, S40's market share has risen 7 percentage points and by late May 2012, it overtook Symbian to become the dominant operating system on our network.

Looking again at the graph, you can see that the Windows iPhone OS doesn't have a big enough market share to make the chart. Neither does iOS, which has about a 5 percent share. And while the S40 has profitted from Symbian's decline, so has Android, which has grown about 8 percentage points over the past 15 months.

Taking a closer look at the S40's performance, we see that it is not uniform.

Some of the most impressive growth has been in the US and Brazil, where the S40's market share has risen 11% and 7% respectively since December 2011. Granted, the US started from a relatively low base, but about 30% of mobile consumers on BuzzCity's US Network are now using handsets that run on the S40. Meanwhile, if you look closer, the growth rate over the past couple months in Brazil is about the same as that in the US.

Of the seven markets in this chart, the S40's market share rose everywhere over the past 26 months except in Kenya and Nigeria. (Of course, in Nigeria, despite the drop, one out of every two mobile consumers still has a handset running on S40.) If you believe that emerging markets will be the primary areas of mobile growth in the year ahead, then expect to see a strong uptake of phones that run on the S40 in these markets too.

Among the biggest surprises has been a very strong performance of the Nokia S40 in Europe.

What happened here? The S40's sharp growth occured soon after T-Mobile announced that it would eliminate subsidies for new phones in Germany. Consumers would either have to pay the full price of a handset upfront or choose a financing plan to purchase it in installments.

This switch in the business model is not limited to carriers in Germany. DTAC and TrueMove H have taken a similar approach in Thailand and T-Mobile just announced its new (no-giveaway) financing plan in the US. Essentially, carriers see that the subsidies are hurting their bottom line.

The purchase plan - which makes iPhones and other high-end devices significantly more expensive - is driving many consumers to opt for something different - feature phones, which by the way now offer a number of the same features as smart devices.

Meanwhile, there are a number of other mobile operating systems waiting in the wings – from Mozilla's Firefox to Jolla, Tizen and Ubuntu Touch – but we'll talk more about these in another post.

The takeaway here is that faced with paying full retail, many mobile consumers are price senstive. And that means it's time to look again at the new generation of cheaper, powerful feature phones. 

Note:  Nokia says that some of its Asha phones are smartphones, but at BuzzCity, we're still sticking to industry custom and counting the S40 OS as an operating system for feature phones

Post-Script: After we first published this article, government officials in Washington state in the US determined that T-Mobile's "no-contract" policy was deceptive, since consumers still needed to pay additional fees if they cancelled their contract within two years. T-Mobile is amending the terms of its deal for people who signed up between 26 March and 26 April so that they can cancel the policy without charge. More details here

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