Smartphones ship a billion but usage becomes simpler
TMT Telecommunications Predictions 2013
In 2013, Deloitte predicts that global shipments of smartphones, defined as any device with a full touch screen or a QWERTY keyboard, should exceed one billion units for the first time 1. The installed base of all smartphones, per this definition, is likely to be close to two billion devices by year-end2.
As the base grows, usage is likely to stratify further3. The absolute number of those exploiting the full breadth of a smartphone’s capability is likely to increase, but the proportion and absolute number of those using only the basic functionality of a smartphone – voice, text and photos – is also likely to rise.
One significant example of the diversity in usage of smartphones relates to data. In 2013 Deloitte expects that about one in every five smartphone owners may never or rarely (less than once a week) connect to the Internet through cellular or Wi-Fi in 2013. Throughout the year, there are likely to be hundreds of millions of smartphone owners who are not on a data package. Deloitte’s research in multiple countries indicated that among those owning or with access to a smartphone more than one in five did not use their device to connect to the Internet (see Figure 1 and 2)4. The 400 million smartphones that never or rarely connect to the Internet in 2013 will not be idle, but their usage will resemble that of a feature phone.
Figure 1: Proportion of smartphones that are Internet-connected in developed markets (respondents who own a smartphone)
Note: The sample for developed markets is nationally representative.
Source: Deloitte Global Mobile Consumer Survey, May-June 20125. Sample: Respondents who own a smartphone (Belgium 249, Canada 933, Finland 405, France 791, Germany 846, Japan 598, UK 1063, U S 836)
Figure 2: Proportion of smartphones that are Internet-connected in developing markets among urban professionals (respondents who own a smartphone)
Note: The sample for emerging markets is representative of the online population.
Source: Deloitte Global Mobile Consumer Survey, May-June 20126. Sample: Respondents who own a smartphone (Argentina: 474, Brazil: 779, Croatia: 445, Mexico: 659, Russia: 591, South Africa: 1588, Turkey: 410)
The reasons for using these phones in such a basic way are multiple and often overlapping: the limited capability of new entry-level smartphones and older hand-me-down high-end smartphones; the lack of interest or ability among a proportion of smartphone owners to use their device’s smart capabilities; the lack of understanding or affordability of data tariffs, including understanding of metered charging; the lack of the required cellular and /or Wi-Fi infrastructure that would enable a user to exploit the full set of a phone’s smart functionality and multiple ownership of smartphones by individuals.
There is a significant variance in the technical capability in the smartphone base. While the capability of all smartphones at all price points is constantly rising, there is a massive difference in the specification of smartphones. A low-end smartphone can wholesale for as little as $50, particularly for soon-to-be-replaced models7. A high-end smartphone can retail for over $700 before tax. As Deloitte highlighted in the 2012 Predictions for the Telecommunications sector, as of the start of 2013, we estimate that half a billion of the global smartphone base will have retailed (prior to subsidy) for $100 or less8.
Further, in 2013, the installed base of hand-me-down smartphones is likely to continue to rise. Smartphones that are over two years old may struggle to deliver the applications that a high-end smartphone, costing up to $1,000 after tax, can.
Some games’ graphics may render flawlessly on a high-end device, but appear pixelated and jerky on a low-end or relatively old smartphone. Some applications may simply not open on a low-end phone due to insufficient processing power or memory, while some low-powered devices may simply be poor at rendering even mobile specific sites. Entry level devices may only have 2.5G networks which may prove annoying slow at downloading data. In some markets 3G networks are not yet available10.
Owners of entry-level or older smartphones may download and try out apps, or browse some sites soon after acquiring their devices, but if the experience is poor, they may never try it again11. According to Deloitte’s research, 16 percent of smartphone owners have never downloaded a single app. In the developed markets surveyed, 21 percent of smartphone owners and 13 percent of urban professional smartphone owners in emerging markets have never downloaded an app12. It may be that the only apps this category of owners will ever use are those that come pre-loaded onto the device.
A second reason for basic usage is simply because the phones’ owner is uninterested in using a smartphone for anything more than making calls and sending messages – even if the phone is capable of it13.
In a growing number of markets it is becoming ever harder to purchase feature phones, meaning that someone wanting to replace their feature phone may struggle to find an equivalent model to replace it with, and may settle for a smartphone through lack of alternatives14. That person may be reluctant or simply disinterested in using a smartphone’s breadth of functionality. The growing inability to find a feature to purchase is likely to lead to a growing gulf between smartphone and 3G/4G penetration across all markets. For example, in Vietnam as of Q1 2012 smartphone penetration was around 30 percent but only 11 percent of subscribers had a 3G subscription15.
The shrinking availability of feature phones is mostly due to the fact that manufacturers, especially those with smaller scale, may not find it viable to develop their own proprietary operating system (OS) and prefer to use the available open source OSs. Some smaller manufacturers may simply find it unviable to manufacture 2G feature phones and focus on entry level 3G smartphones instead: a third party OS could be used, and margins may be higher.
Some users – for examples those that inherit smartphones from others – may be grateful to receive the phone, but may not want to use the data services, often for reasons of affordability. Teenagers receiving these devices may not be able to afford the data costs. Some of these donated smartphones may end up being used principally as portable games consoles or as music players and occasionally connect to Wi-Fi. Older recipients may find the data tariffs difficult to interpret, or be put off by articles in the press about bill shock16. In some households, there may only be sufficient budget for one or two data plans, but not for the entire family to be on a data plan. So while the penetration of smartphones may rise in a household, the number of data plans may stay constant. To provide context, in the US, average household spend on cell phones was $1,226 in 2011 versus $1,110 in 200717. In that time, household spend for all items increased by $67: in other words, families reduced spend in other areas to accommodate rising spend on mobile telephony. The ability to afford a greater number of data plans per household may be limited.
In a few cases individuals may spend hundreds of dollars on a new high-end smartphone and just use it to make calls and send messages. This is similar to the way in which luxury kitchens may typically only be used to make toast or a sports car with a racing heritage may be used predominantly for the school run. Owners of high-end smartphones – as with owners of any high-end product – may purchase these devices because of their build quality, or because of the cachet that comes with ownership, rather than because they necessarily want to exploit the range of their functionality.
A further reason for smartphones under-utilization is because the owner’s underlying cellular network may have poor mobile data quality and coverage. While cities have ever improving 3G and LTE coverage, mobile broadband penetration in rural areas remains inconsistent. In emerging countries, fixed broadband infrastructure may be patchy and public Wi-Fi hotspots scarce.
A final reason for low or no usage of a smartphone’s data capability is multiple ownership – a growing proportion of individuals own several smartphones. Among 15 countries surveyed in a recent study, between eight to 52 percent of respondents own or have access to a smartphone18. Some owners that are provided a smartphone by their employer prefer to buy a personal device too. In some cases this is to separate work and private lives; in other cases it is because an individual wants to use different models of phone for different functions, e.g. a qwerty keyboard phone for e-mail, and a touch screen for browsing. In these cases one smartphone may be used predominantly for data, but the other little used.
Smartphones have been a phenomenal success and are likely to remain so in 2013. However while smartphones’ shipments and installed base should continue to grow, they are likely to be used in different ways by different users. Smartphone owners should not be considered homogenous. Even across the same model, usage is likely to vary considerably.
A key recommendation for operators is to encourage those currently refusing or reluctant to use data services to try them out. In some cases it may mean sponsoring the creation of content designed for lower-end phones that would provide an incentive to try out data. For others it may mean the creation of tariff schemes that are easier for the mobile data ‘refuseniks’ to understand – for example the offer of an all-you-can-eat per application tariff (see 2013 Prediction: “All-you-can-app offers predictable data pricing for mainstream smartphone users”). For those that have inherited smartphones and do not take as intuitively to mobile data usage as the phone’s first owner, in-store walk-throughs of how to browse or how to download apps may be useful.
Mobile operators should also note that failure to convince someone to use a smartphone’s data capability isn’t necessarily a failure. In one respect low data usage can be a good thing: metered voice usage remains a relatively high margin business in most markets, and they are much more likely to receive text messages through higher margin SMS tariffs than lower margin data messaging apps.
Understanding the diversity of smartphones and smartphone owners is critical to any company attempting a “mobile centric” strategy. This strategy needs to respect the diversity of the smartphone user base and also acknowledge the reluctance or financial inability of a large number of smartphone owners to use a smartphone for data19.
App developers should determine where they should best focus their development resources. Developing for all platforms and phones is unlikely to be feasible. Developers should note that owners of entry-level and older smartphones are unlikely to have significant personal budgets set aside for purchasing apps. This may cause a negative spiral: as owners of older phones have a declining range of apps compatible with their generation of smartphone, their appetite for accessing app stores will diminish.
Retailers and content companies should determine how their addressable market may vary by phone model or operating system20. Just because someone owns a smartphone does not necessarily mean that they will often or ever access a mobile website. Further, someone willing to purchase an app, such as a game, may not want do their weekly shop via their smartphone21. Similarly they should be careful to separate tablet users from smartphone users: while tablets and smartphones share an operating system, usage of a ten inch tablet may vary significantly from that of a four inch smartphone.
Smartphone vendors should determine how best to differentiate their products with target clients who are unlikely to use data services. One approach would be to preload a range of apps, such as games that can be played offline. For apps that require Internet connectivity, it may be that in order to gain app usage outside existing customer bases, content companies or businesses need to subsidise Wi-Fi or cellular connectivity costs22.
Also carriers should continue to build out data ready networks in the developing world: there may be hundreds of millions of data capable smartphones just looking for a signal – at the right tariff.
1 The definition of a smartphone for this prediction is based on consumer perceptions of what a smartphone is, rather than the standard industry definition, which pivots on the type of operating system (OS) used. Many consumers, particularly middle majority adopters, are likely to consider phones as smart if they have touch screens or full keyboards and they can use apps and not based on what intangible OS is under the hood.
2 In 2013, any full touch-screen based device, and in some markets, any device with a full QWERTY keyboard, might be described by manufacturers, presented by salespeople, or perceived by purchasers as a smartphone. However in marketing and in stores there is no enforceable rule on what can or cannot be promoted as a smartphone, and the smartphone moniker is likely to describe an increasingly diverse range of capabilities. Differences among smartphones are driven by their bill of materials and manifest most typically in: screen quality (which determines the quality of video and image playback); camera; processor speed (which will affect a whole range of multimedia applications, from games play to browsing and navigation); memory size and type (the larger the quantity of integral solid state storage, the faster applications can load up and data can be retrieved, plus more content can be stored) and generations of networks supported (high-end phones are more likely to support 3G networks, and are much more likely to have 4G LTE support).
3 The smartphone share of all phones may rise to 80 percent of the total. Source: At 50% the US smartphone market is not showing signs of saturation, Asymco, 3 July 2012. See: http://www.asymco.com/2012/07/03/us-smartphone-market-not-showing-signs-of-saturation/
4 However, some respondents may not perceive the use of online apps as using the Internet. The Deloitte Global Mobile Consumer Survey is a 15-country survey of mobile phone users around the world. All research has been undertaken via online research. Fieldwork took place between May to June 2012. In Belgium, Canada, Finland, France, Germany, Japan, the UK and the United States are nationally representative. In Argentina, Brazil, Croatia, Mexico, South Africa and Turkey, the online research approach used results in a high concentration of urban professionals. These are likely to be relatively high earners within their country. For more details, see: The state of the global mobile consumer, Deloitte Touche Tohmatsu Limited, December 2012. See: www.deloitte.com/mobileconsumer
5 Deloitte Global Mobile Consumer Survey is a 15-country survey of mobile phone users around the world. For more details, see: The state of the global mobile consumer, Deloitte Touche Tohmatsu Limited, December 2012. See: www.deloitte.com/mobileconsumer
6 Deloitte Global Mobile Consumer Survey is a 15-country survey of mobile phone users around the world. For more details, see: The state of the global mobile consumer, Deloitte Touche Tohmatsu Limited, December 2012. See: www.deloitte.com/mobileconsumer
7 There are initiatives to develop smartphones at a $50 price point for developing markets. Source: Developing-market carriers call for sub-$50 smartphone, PC World, 28 February 2012. See: http://www.pcworld.com/article/250863/developingmarket_carriers_call_for_sub50_smartphone.html; Several vendors are designing specifically for entry-level smartphones. Sources: Qualcomm plans to design chips for low-end smartphones, The Times of India, 1 December 2012. See: http://timesofindia.indiatimes.com/tech/enterprise-it/strategy/Qualcomm-plans-to-design-chips-for-low-end-smartphones/articleshow/17442039.cms; ARM planning for ultra low-cost smartphones, TechRadar, 6 September 2012. See: http://www.techradar.com/news/phone-and-communications/mobile-phones/arm-planning-for-ultra-low-cost-smartphones-1095175;; Broadcom’s Focus On Low-Cost Smartphone Market To Increase Its Share In Application Processors, Trefis, 27 August 2012. See: http://www.trefis.com/stock/brcm/articles/140442/broadcoms-focus-on-low-cost-smartphone-market-to-increase-its-share-in-application-processors/2012-08-27
8 For more information, see: The $100 “smartphone” reaches its first half billion, TMT Predictions 2012, Deloitte Global Service Limited, 17 January 2012: www.deloitte.com/tmtpredictions
9 For example, in Pakistan, Yemen and Algeria, 3G services have not been rolled-out yet. In Rwanda 3G is being rolled out. Source: At long last: Govt starts laying groundwork for 3G auction, Tribune, 21 September 2012. See: http://tribune.com.pk/story/440050/at-long-last-govt-starts-laying-groundwork-for-3g-auction/ ; Source: ITU, 2012. See: http://www.itu.int/net/newsroom/connect/arab/2012/reports/statistical_overview.aspx; Source: Airtel to roll out 3G services in Rwanda in next quarter, NDTV Profit, 27 May 2012. See: http://profit.ndtv.com/news/corporates/article-airtel-to-roll-out-3g-services-in-rwanda-in-next-quarter-305086
10 For a view on app issues on entry level smartphones: Source: Low-End Smartphones Mean More Testing, Mobile App Testing, 29 February 2012. See: http://www.mobileapptesting.com/low-end-smartphones-mean-more-testing/2012/02/
11 Deloitte Global Mobile Consumer Survey is a 15-country survey of mobile phone users around the world. All research has been undertaken via online research. Fieldwork took place between May to June 2012. In Belgium, Canada, Finland, France, Germany, Japan, the UK and the United States are nationally representative. In Argentina, Brazil, Croatia, Mexico, South Africa and Turkey, the online research approach used results in a high concentration of urban professionals. These are likely to be relatively high earners within their country. For more details, see: The state of the global mobile consumer, Deloitte Touche Tohmatsu Limited, December 2012. See: www.deloitte.com/mobileconsumer
12 In Africa, take up of 3G services remains modest, with one operator identifying price as being a barrier to adoption. Source: Kenya to roll out $500m 4G network, The East African, 24 November 2012. See: http://www.theeastafrican.co.ke/news/Kenya-to-roll-out-500m-US-dollars-4G-network-/-/2558/1628252/-/ue1dp7/-/index.html ; In India, in Q1 2012, 3G subscribers were four percent of the entire base. Source: India moves to kickstart 3G, Mobile World Live, 5 July 2012. See: http://www.mobileworldlive.com/india-moves-to-kickstart-3g/
13 In China a sweet spot for smartphones is 1,000 yuan ($157). Devices priced at 1,000 yuan are lower are driving the feature phone to smartphone replacement market in China. Source: The Battle for China's Low-End Smartphone Market, The Wall Street Journal, 22 June 2012. See: http://online.wsj.com/article/SB10001424052702304765304577482000321643104.html
14 Source: 3G growth stalls in Vietnam, Wireless Intelligence, 2012. See: https://wirelessintelligence.com/analysis/2012/04/3g-growth-stalls-in-vietnam/
15 Reading about those whose holidays have been blighted abroad by large data roaming charges can put some people off from any form of mobile data package. Often bill shock occurs from mobile data bills inadvertently run up when on holiday abroad. This affects very few individuals, and is relatively simple to address, for example through turning mobile data roaming off from the phone. Source: Don't let roaming phone charges wreck your holiday when you jet off abroad, This is Money, 24 July 2012. See: http://www.thisismoney.co.uk/money/holidays/article-2178395/Mobile-roaming-charges-How-avoid-shock-bill.html
16 Source: The Family Struggle Over Skyrocketing Smartphone Bills, Mobiledia, 3 October 2012. See: http://www.mobiledia.com/news/164520.html
17 The Deloitte Global Mobile Consumer Survey is a 15-country survey of mobile phone users around the world. All research has been undertaken via online research. Fieldwork took place between May to June 2012. In Belgium, Canada, Finland, France, Germany, Japan, the UK and the United States are nationally representative. In Argentina, Brazil, Croatia, Mexico, South Africa and Turkey, the online research approach used results in a high concentration of urban professionals. These are likely to be relatively high earners within their country. For more details, see: The state of the global mobile consumer, Deloitte Touche Tohmatsu Limited, December 2012. See: www.deloitte.com/mobileconsumer
18 According to one survey, ten percent of smartphone owners in the UK “cannot afford” to pay for apps. Source: One in 10 Brit smartphone owners 'can't afford' to pay for apps, The Register, 27 November 2012. See: http://www.theregister.co.uk/2012/11/27/app_payment/
19 For detail on how e-commerce varied between different mobile OSs; see: IBM 2012 Holiday Benchmark Reports, 2012; see: http://www-01.ibm.com/software/marketing-solutions/benchmark-reports/black-friday-2012.html?cm_mmc=holiday2012-benchmark-reports-_-press-release-_-wire-_-text-link
20 According to one UK study conducted by Mintel called Smartphone Purchasing Habits published in November 2012, about 30 percent of smartphone owners are unlikely to ever purchase through their smartphones.
21 Source: Free Wi-Fi for Facebook users?, Indian Express, 5 November 2012. See: http://www.indianexpress.com/news/free-wifi-for-facebook-users-/1027045