February 24, 2014

Falling Smartphone Prices Means Greater Penetration

By Hisham Isa, Vice President (Marketing)

Where can you buy the world's cheapest smartphones?

I'll share that answer in a moment. First, though, it seems that most discussions about smartphones have been about iPhones, Android or Android vs iPhones. A host of new producers, though - some of whom have been building other brands' smartphones for years - are driving down handset prices. And the story set to dominate this week's Mobile World Congress is the advent of inexpensive smartphones.

For many consumers, smartphones are finally becoming affordable!

By the Numbers

Globally, feature phones still dominate most markets -- notable exceptions being Oman, Kuwait, Saudi Arabia and Spain, where upwards of 89% of consumers have smartphones -- but smartphone use is on the rise.

Last year we saw global smartphone penetration jump from 26% in July to 43% by year's-end.

This is good news for Android, which is now almost six year's old. In the second half of last year, the percentage of phones running on Android jumped from 4 to nearly 16%.

Going Shopping

Price is clearly a defining factor for many consumers. So where can you get the best deals?

In South Africa, where just over half of all mobile users have smartphones, MTN's Steppa retails for 499 rand (about US$46).

You won't find a new smartphone that cheap in India. Anything below 5000 rupees (US$80) is seen to be a pretty good deal. A Nokia Asha 305 costs about US$65 (3999 rupees) and India's Magicon, which started selling mobile phones in 2008, prices the M3 Atom at about US$52 (3250 rupees). We wouldn't compare the Atom to an iPhone or Galaxy, but it does have a 3.5 inch display, front and rear cameras, 1GHz processor and support for popular apps like Facebook and Skype.

The best deals on smartphones that we've seen so far are in The Philippines, where a host of local brands - companies like Cherry Mobile, Cloudfone, MyPhone, O+, Star Mobile and Torque - have brought the price down to about US$30. The Philipines also has one of the fastest growing mobile markets in Asia and analysts note that the smartphone segment - which accounts for 58% of all mobile devices - is growing faster than the overall market.

The US$25 Smartphone

At this week's World Mobile Congress, Mozilla has announced a deal with Chinese chip-maker Spreadtrum Communications that should drive low-end smartphone prices even lower. Mozilla expects its partners will soon sell US$25 handsets that run on a Firefox operating system.

This price point "pushes Firefox OS into feature-phone territory, potentially signalling the beginning of the end for the category," writes Ovum senior analyst Nick Dillon.

The first country where these new Firefox phones will be on offer is likely to be Indonesia -- a market of 247 million people with nearly 100% mobile penetration -- where Mozilla already has tie-ups with an electronics company and major carriers.

Don't Forget Why Consumers Buy Phones

As handset makers push to sell cheaper and cheaper smartphones, they should keep in mind that content is more important than features and functionalities.

Yes, it's nice to brush your fingers across the screen to make an image bigger or change the page. But what drives consumers to buy and use phones is content, particularly access to good local content: Commuters want to check their email, social media and the weather as well as listen to music and watch videos. Shoppers want to be able to compare prices, read product reviews and make online purchases. Before heading out for the evening, couples and friends expect that they can buy movie tickets, while migrants across the globe see phones as a way to transfer money.

To meet this demand for content, we believe manufacturers should work more closely with content providers, much in the way that Nokia and Yahoo! partnered several years ago to bundle services like chat, email and maps. Perhaps the new Samsung - Google partnership will work this way, though at the moment, it appears to be more focused on patent sharing.