DQ Top 20: Smartphones - Twist in the Smart Tale

Smarter, quicker, more efficient and increasingly affordable. These were few
things that defined the smartphone market in the previous year. But, there was a
big twist in the tale. The smartphone market which undoubtedly is one of the
segments with the maximum hype around it, took everyone by surprise last year.

Contrary to all expectations (including ours), the smartphone market recorded
a sharp dip in FY10. The sales took the downward plunge and apparently, a lot of
people compromised on their handsets thanks to the slowdown. Come to think of
it, the executive classthat is the biggest buyer of smartphones in Indiawas
indeed the one that suffered the most during the slowdown. With pink slips and
salary revisions being the order of the day, fancy phones werent on the
priority list for a lot of people.

Another reason for the steep dip was the erratic VAT hike across a few
states, including Maharashtra and Madhya Pradesh, which affected sales and
diverted several purchases to the grey channel. Also, FY10 was a year marked by
the excitement wave around Apples iPhone. Maximum purchases of the iPhone
happened through illegitimate channels. That also, to some extent, would have
affected the official retail sales.

All these factors resulted in a shocking dip of almost Rs 1,500 crore in the
overall smartphone market. The overall market stood at Rs 4,465 crore in FY10,
down by 23% from Rs 5,800 crore in 2008-09. However, enthusiasm around the
segment managed to retain its all time high with OEMs getting innovative,
service providers getting collaborative and consumers getting educated.

Definition Dilemma

Define a smartphone? That was the question that we at Dataquesttogether
with a lot of industry players including a gamut of OEMs, analysts and
expertsdelved upon for several days. The conflict here is that there is no
single, unanimously accepted definition of the termsmartphone. Almost all
manufacturers define it differently and analysts have a different story to tell.

While some go by the definition of push email and online integration
features, other simply include all platform based phones in the category.
Whatever said and done, there seems to be no clear demarcation between
smartphones and feature phones.

In order to bring more clarity in the segment, for this analysis Dataquest
defines smartphones as phones capable of running sophisticated consumer or
enterprise applications which are installable on the device after purchase. The
degree of application sophistication required to justify a device being
positioned as a smartphone rather than a feature phone is governed by a number
of factors, many of which relate to the operating system (OS) the device runs.
The OS must be fully featured, including the support for an extensive set of
APIs and have application capabilities beyond those of the basic run-time
environments like Java ME which is present on most phones, either through
extensive run-time environment extensions or through the ability to run native
code. It must be possible to store data and execute some applications locally,
that is without the need for a live network connection. The OS must be open to
and be supported by a coherent third party developer community which has access
to tools, documentation and support needed to create these applications and
exploit hardware capabilities of the device. Applications must be able to
provide configurable two way synchronization to the users main PC or web based
information store (including personal and business email, contacts, tasks and
calendars) and rich web browsing.

That definition makes the classification less complex. We have thus included
all OS phones, including Symbian, Windows, RIM, Apple, etc. In the Indian
landscape, Symbian has the strongest footprint with a lot of OEMs adopting it as
a platform. For clarification purposes, we have considered all S60 OS phones as
smartphones.

Also, for calculation ease, Dataquest does not take into account the grey
market for smartphones as putting a number to that is nearly impossible.

Screen-tamers

When it comes to vendor play-out in the smartphones domain, there are
several opinions. While the stance is pretty clear on some vendors like RIM and
Apple who are present only in the smartphone space, the problem arises when it
comes to cross category vendors like Nokia and LG. In fact, even LG has only a
couple of phones that it labels as smart. Nokia, however, is more of a complex
case with hundreds of phones in the market.

However, in the circumference of our definition, some forty-three phones of
Nokia qualify for this category. This basically includes its Symbian60 (S60)
phones. Symbian, as we mentioned, has the lions share of the OS market in
India, and Nokia uses only Symbian as a platform for its devices.

Nokia is the obvious leader in this segment. While it has lost substantial
market share to competitors like Micromax and Samsung in the overall mobile
market, it has managed to hold tightly to its position in the smartphones
domain. In FY10 however, Nokia too saw plunging sales through its official
channels and also lost some ground to BlackBerry, its closest competitor in the
Indian market.

Nokia reinforced its focus on the high-end category by launching ten new
smartphones this year including N97, E72 and 6700 Classic. It is also
aggressively transforming itself into a services company rather than just an
equipment manufacturer. Given the dip in units sold last year, Nokia pushed its
embedded services like Ovi Life tools, E-messaging and IM. It also tied up with
various service providers for providing special tariffs and bundled SIM cards at
the point of purchase.

FY10 thus saw the Finnish giant actively pursuing its motto of massifying
smartphones. The most successful models were perhaps the E series (E63, E71)
that increasingly made it to the hands of business executives and travelling
personnels.

It was RIM, Nokias distant second competitor, that saw immense action in the
year gone by. RIM moved beyond the enterprise domain and for the first time
actually targeted individuals by launching personalized, varied colored
BlackBerries in its Curve range which is also its least priced series. A big
move on part of RIM was the appointment of Redington as a national distributora
strategy that ramped up sales significantly. As a result, RIM moved beyond the
metros and penetrated into over seventy odd cities.

Keeping in mind the mobile landscape in India, RIM went ahead and launched
its prepaid services as well. It also made available the access to more than
1,000 applications including popular ones like Cricinfo, MoneyControl, Hungama
Music, etc. RIM saw around 1 lakh downloads a day on an average in the last
year.

However, it was mostly the enterprise focus that worked wonders for RIM and
made the last year a phenomenal one for the company. RIM bagged some impressive
deals last year including mobilizing (or should we say smartening) the police
forces of Bengaluru and Pune that have deployed 650 and 100 BlackBerry devices
respectively so far. It also did an implementation for Nanavati Hospital in
Mumbai and is actively pursuing healthcare as a potential vertical for big
deployments.

Other enterprise deals were a mobile SAP deployment for Adani Group, sales
force mobilization for Coca Cola and a deployment for the faculty of IIM
Bangalore.

Apart from these two players, the other partakers of the pie were Apple,
Samsung and HTC. In case of Apple, the figure of its share would have been much
higher if the grey market had been taken into account as most of the iPhone
sales happened through that channel. Its organized retail sales, however, are
miniscule.

Samsung became serious about its mobile business only during the last year
and ended up gaining a lot of traction, thanks to some offerings like the Corby
series. Its standing also improved in the smartphones space. Unlike Nokia,
Samsung has no strict loyalties and has been experimenting with its OS. Samsung
handsets are based on Bada, Symbian, Windows and Android OS.

HTC, again a player that deals only in smartphones, has so far been unable to
make deep inroads into the Indian market. However, it has charted out some
aggressive marketing plans, the results of which shall perhaps have an impact
next year.

The other players like Motorola and Sony Ericsson, with limited offerings,
form a small part of the overall market though smartphones is one category where
every vendor is expected to come alive sooner than later and make it a stiffly
competitive market.

Smartricks

The smartphone numbers are expected to double in FY11. And, if we are to
compensate for this years low crest, the boom is more than required. However,
there were some trends that defined the smartphones market this year.

One apparent phenomenon was the emergence of smartphone as a service device
rather than a browsing/emergency pocket tablet. FY10 was truly the year that saw
businesses being run on phones. The application push was the other trend that
was visible amongst the OEMs. While RIM pressed a number of applications, Nokia
embarked on a reaching out drive through its Ovi apps.

Also, the push email that BlackBerry evangelized saw some mass adoption in
the last year, with Nokia beginning similar services.

But, there is one trend that a lot of us have missed. Despite the variety
available in the smartphone devices space, there is almost a monopoly when it
comes to operating systems. Symbian Foundation in the Indian market is more than
72%; and other OS like Windows, Android, Bada have failed to perform as compared
to Symbian.

Its a pull-push relationship that Symbian and Nokia share, each is the
biggest by virtue of the other.

The smartphones landscape however might look very different next year. What
with the huge debate on BlackBerry services gathering heat and a biggie like
Google bringing its Android phones into the market.

Mehak Chawla

mehakc@cybermedia.co.in