The $100 “smartphone” reaches its first half billion
In 2012, Deloitte predicts that by year-end over 500 million184 smartphones with a retail price185 of $100 or less will likely be in use worldwide186.
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 not what intangible OS is under the hood187. Consumers may regard $100 smartphones as superior to feature phones from the same manufacturer, even though the two form factors might well share many components.
The $100 smartphone could be considered analogous to the netbook – a lower priced, less powerful version of the PC, which has served the needs of tens of millions of individuals who want a computer, but do not necessarily require the computing power, memory, graphics capability or broad functionality of a standard laptop.
Deloitte predicts that the $100 smartphone will sell at least 300 million units in 2012, representing about 20 percent of all mobile phone shipments in 2012, and about a third of all smartphone production (based on our broader definition of smartphones). Deloitte estimates that the installed base of $100 smartphones stood at roughly 200 million at the end of 2011188.
As for connectivity, most $100 smartphones that ship in 2012 are likely to have GPRS and EDGE. Few $100 smartphones are expected to have 3G, unless the cost of an integrated 2G and 3G chipset falls to that of an EDGE chipset, whose cost should be well under $10 in 2012189. A key upgrade in the $100 smartphone between 2011 and 2012 will be the incorporation of Wi-Fi as a standard part of the feature set.
The devices are likely to support e-mail and instant messaging (IM) services, and to feature a selection of pre-loaded apps and widgets including a Web browser that works best with, but is not restricted to, mobilespecific sites and apps. In many $100 smartphones, the OS may be closed, curtailing the ability to download apps; however, this may not matter to customers interested in low-end smartphones. What is possible on these devices is still far superior to what most feature phones offer. Further, a closed OS has lower processing requirements, enabling lower-cost CPUs190.
At the start of the year, the processor in a $100 smartphone is likely to be about 200-600 MHz, well below the processing power of high-end smartphones, some of which will have multiple cores and clock speeds of over 1.5GHz191.
The $100 smartphone will also likely include a basic camera with at least 2 megapixel resolution that is good enough for basic snapshots in natural light and ad hoc videos.
Due to the lack of widespread 3G data network coverage in some target markets, $100 smartphones will often come preloaded with a suite of apps and features that a typical user would be most likely to use and value. Mapping and navigation features may also be included to drive sales, but weaker digital mapping data in the developing world may limit utility in those markets.
The $100 smartphone is likely to appeal to many different market segments.
The largest of these is likely to be the hundreds of millions of mobile phone users that have not yet acquired a smartphone192. In developing markets, consumers may consider the $100 smartphone as their first trade-up, having previously owned a feature phone. In those countries, penetration of personal computers and home Internet access is also relatively low: often less than 20 percent of households. But with demand for communication and information rising everywhere, the $100 smartphone may offer the easiest, most affordable way to satisfy communication and information needs in the developing world, even if $100 for a device will still remain an inaccessible price for hundreds of millions in emerging countries.
In developed countries with stagnant economies the device might offer a way of retaining the smartphone look, but at much lower cost.
The price may also appeal to parents looking for the perfect teenage ‘starter’ phone.
The $100 smartphone is also likely to appeal in markets where the cost of devices is not subsidized, and to pre-paid customers who want to upgrade from their existing feature phones.
Operators should consider how best to ease these customers into using data; to that end, predictability of the data bill will be absolutely key. With voice service there is a relatively simple relationship between time spent and cost, but with data the bill for watching a few minutes of video could deliver a “bill shock” to a new data user – causing them to shy away from all future data services. Data offerings that are more appropriate for people with constrained budgets, such as apps with bundled connectivity, may entice more customers to use data.
Handset vendors should constantly revise their $100 smartphone offering; a specification that was perceived as market leading at the start of 2012 may well be considered market trailing by year-end. The price of many components is steadily falling – for example the cost of touch screens has dropped by about 30 percent annually in the recent past. This will enable the specification of the $100 smartphone to continue rising for years to come.
App developers should note that $100 smartphone users might not download very much content and may be even less likely to pay for it. Some users will have less technical ability than existing smartphone owners and could find downloading apps over the air more mystifying than magical. And some may not have data network access. Also, many $100 smartphone owners will not have credit cards. In some cases operator billing might be the answer; in others, sales of pre-paid cards might be a better solution.
In addition, app developers may need to create variants of their apps that are suitable for lower priced smartphones that come with relatively low-powered processors.
Growing sales of $100 smartphones are likely to cause downward pressure on prices for the whole supply chain. Component manufacturers may come under growing pressure to lower their prices193; this could give component suppliers from emerging markets an opportunity to break into the smartphone market194.
Deloitte Canada, as referenced in videos, podcasts, or online materials related to TMT Predictions 2012, refers to Deloitte & Touche LLP, the Canadian member firm of Deloitte Touche Tohmatsu Limited.
184The figures for $100 smartphone shipments and total smartphone and mobile phone market volume for 2011 and 2012 are Deloitte estimates based on existing knowledge, industry conversations, and published industry estimates and forecasts, including: Cellphone Shipments on Pace to Set New Record High in 2011, IC Insights, 14 June 2011: http://www.icinsights.com/news/bulletins/Cellphone-Shipments-On-Pace-To-Set-New-Record-High-In-2011/ ; Gartner Says Android to Command Nearly Half of Worldwide Smartphone Operating System Market by Year-End 2012, Gartner, 7 April 2011: http://www.gartner.com/it/page.jsp?id=1622614;$100 Smartphone to Shake Up Asia Telco Sector in 2012, CNBC, 25 November 2011: http://www.cnbc.com/id/45433194; Full-Year Handset Sales May Miss Forecast, Gartner Reports, Bloomberg, 19 May 2011: http://www.bloomberg.com/news/2011-05-19/full-year-handset-salesmay-be-lower-than-expected-gartner-says.html
185Prices refer to advertised, unsubsidized prices to customers before sales tax or VAT.
186The $100 price point compares to an average selling price in 2012 of between $130-170 across all phones, $600 for high-end smart phones, and a few tens of dollars for basic entry-level phones.
187One definition of a smartphone is if a manufacturer makes a software developer kit (SDK) available to developers, who can use native application programming interfaces (APIs) to write applications. Source: Gartner Says Android to Command Nearly Half of Worldwide Smartphone Operating System Market by Year-End 2012, Gartner, 7 April 2011: http://www.gartner.com/it/page.jsp?id=1622614
188In 2009, netbook sales recorded 40 million representing around 20% of all laptop sales.
189In-Stat: 339 million low-cost Android smartphones to ship worldwide in 2015, In-Stat, 26 October 2011: http://www.intomobile.com/2011/10/26/instat-339-million-lowcost-android-smartphones-ship-worldwide-2015/
190Not-As-Smart Phones to Drive Sales and Data Revenue, iSuppli, 2 September 2011: http://www.isuppli.com/mobile-and-wireless-communications/marketwatch/pages/not-as-smart-phones-to-drive-sales-and-data-revenue.aspx
191In-Stat: 339 million low-cost Android smartphones to ship worldwide in 2015, In-Stat, 26 October 2011: http://www.intomobile.com/2011/10/26/instat-339-million-lowcost-android-smartphones-ship-worldwide-2015/; for a view of comparison of processor speed among the fastest smartphones as of September 2011, see: ARM’s Mali-400 MP4 is the Fastest Smartphone GPU...for Now, AnandTech, 9 November, 2011: http://www.anandtech.com/show/4760/arms-mali400-mp4-is-the-fastest-smartphone-gpufor-now
192According to research undertaken in January and February 2011 with 30,000 respondents across 15 countries, about 35 percent of the respondents owned, or had access to, at least one smart phone. For more information, see: Perspectives on the global mobile consumer, 2011 , Deloitte Global Services Limited, 14 February 2011: http://www.deloitte.com/tmt/mobile
193Mediatek to drop their chipset prices by 20 percent. Source: $100 Smartphone to Shake Up Asia Telco Sector in 2012, CNBC, 25 November 2011: http://www.cnbc.com/id/45433194/100_Smartphone_to_Shake_Up_Asia_Telco_Sector_in_2012
194Chip design firms such as MediaTek, Infomax, Rockchip and Leadcore launched solutions for low-priced Android handsets. Source: Low-priced Android handset shipments to boom in 2011, Digitimes, 26 April 2011, http://www.digitimes.com/Reports/Report.asp?datepublish=2011/4/26&pages=PR&seq=201