Which mobile users will platforms harvest first?

When tallying up the race to a billion users, I noted that both iOS and Android seem to have the potential to reach that size of user base. However, that raises the question of where those users will come from. We have to note the fact that there aren’t a billion users to be captured today.

If not today, then how soon, and where are they?

The first question is who is addressable. If we stick with mobile cellular subscribers, there seem to be plenty of users (at least 5.3 billion as of October 2010 according to the ITU). However, the number of “mobile broadband” (i.e. 3+G network subs) is about 940 million. The chart to the left shows the difference and adds the subdivision between developed and developing economies.

Over half (51.1%) of developed nations’ populations have signed up for mobile broadband while only 5.4% of developing country populations are on 3G. And whereas developing countries have added 2.6 billion mobile subs in 5 years, they added only 293 million mobile broadband (MB) subs. Developed nations added 574 million MBs in the same time frame.

As a result, two thirds of mobile broadband subscribers reside in developed nations as of 2010. This number will decrease rapidly as MB penetration reaches saturation in developed countries, however the race to a billion is being run in these markets first.

Which leads back to the question of platform potential. Platforms that target developing nations have the challenge of low broadband availability in the near term in addition to the challenge of device pricing. There are still 800 million developed country subscribers who have yet to upgrade to mobile broadband.

At the time these statistics and knowing the platform sales histories, my estimate is that only 18% of mobile broadband subscribers were using either iOS or Android. 25% were not even using a smartphone and 29% were using Symbian. (See pie chart).

But existing smartphone users are not the most attractive market to target with a new platform device.

A new smartphone user could come from the following groups of users:

  1. Existing smartphone users:  700 million. This is tough head-to-head competition for every new user.
  2. Existing mobile broadband users who are not smartphone users: 240 million. The easiest group to switch to using smartphones.
  3. Developed nation mobile subs who don’t have mobile broadband or smartphones: 800 million. This seems very attractive since they can be mostly upgraded using subsidized phones into an available 3G network.
  4. Developing nation mobile subs who don’t have mobile broadband or smartphones: 3.5 billion. This is a very tough market because the availability of 3G will take time and until it appears, the buyers are unlikely to adopt devices that are useful only though a 3G data plan. They are also a difficult market to target with high ARPU phones/plans.

To assess the timing, one could assign some probability weights to these categories to create various scenarios for adoption. My own guess is that the next 500 million smartphone users are easily within reach in the next two years without a significant amount of inter-platform rivalry (See stacked bar chart to the left).

Only after two years will existing smartphone users become attractive for poaching and even that assumes that developing nation networks will still be largely unaddressable.

  • jaquin

    Where does China count on the 1st chart?? Most metrics should allow it to show in developed, and if its not, by itself China subscribers could skew the uptake rate.
    The original iPhone had edge only wireless data, if such a phone were available in India, it would not count as mobile broadband, but it would be a smartphone by every definition.
    Is it possible for these smartphone platforms to give value to the developing nations, without requiring network buildouts which will overtax the investment available. Is the cost of network buildout dropping fast enough to make such plans feasible??

    • I would consider China a developing country. It might have the second largest economy in the world, but it's median income per capita (MIPC) is still very low. (I haven't found a number for China's MIPC, but China's GDP per capita is around $4000, so I'd expect MIPC to be much lower.)

      I don't think a smartphone is very useful without the network component (See the Newton). Data input is a major weakness of smart phones, but they really excel at presenting data. The cost of building out these networks in developing countries is usually much cheaper than in the US because the populations are usually much more dense.

      I wouldn't worry too much about developing countries absorbing these technologies. (See the crazy prices India was able to sell their spectrum for). Capitalism will figure out a way. If you have a company, I would suggest focusing on the addressable market for two years out. If you are interested in human advancement, I would suggest having patience. There are plenty of companies out there trying to figure out the right recipe to bring mobile computing to the masses.

      • Charel

        Using average income in China to describe the marked leads one to the wrong conclusions. Of the 1.3 billion people at least 200 million are middle and upper class consumers which make this a huge market for smart phones. This middle class also happen to live in cities on the coast where cell towers can be profitably constructed.
        I would classify China as both a developing and developed economy.

      • When working with data you have to make decisions about categorization. For example, in any global economic study, California could be a relevant subclass since its GDP alone is in the world's top ten. But they don't because the point of a graph is to give a snap shot of the Forrest.

      • dms

        Yes, but the question is whether mobile broadband availability is a valid metric for potential smartphone users.

        For sure, GDP per capita is a BAD metric for how much luxury goods are consumed in a country. And yes, the iPhone is a luxury good.

        Case in point: BMW sold 183K cars in China in 2010, based on 83% growth. Even if you project a modest 30% growth in 2011, China will overtake the US (220K in 2010) as BMW's biggest market.

      • Morgan Stanley thinks 3G availability has historically been highly correlated to smartphone purchases (slide 8)

        Will this hold in the China market? We will see.

        I think it is limiting to think of the smartphone as a luxury device. This article isn't about the iPhone. In two years, the market is going to be flooded with low cost smartphones. People might think that those $150 smartphones are unusable right now, but they are going to get a lot better very quickly.

    • One more thing. I think a lot of developing countries in the future will skip the development of 3G (just like they are skipping landlines) and jump directly to LTE or WiMax. The key cost component to these technologies is "delivery cost per MB", or how much it costs the network to deliver data to your phone.

      For HSPA (3G) = $0.015 per MB
      For LTE = $0.005 per MB
      For WiMax = $0.003 per MB

      The cost of building the tower is insignificant in the long run compared to the cost of operation.

      • WaltFrench

        @David, a very interesting proposition, but it seems that LTE is at least currently more expensive of battery and handset hardware; hence, where 3G is good enough, the total system expense might actually be better for 3G. Smartphones only need a single generational jump over TXT to be attractive as an upgrade; in fact, given perceived value without an ecosystem built around graphics, the extra expense could be a hindrance.

      • We're definitely not there yet, but I'm thinking about two to four years down the road. These technologies usually start in the developed countries where we can shoulder the cost until the price points get pushed down. Remember when cell phones were suitcases? Look at how far we've come.

        As developed countries, we are the beta testers for the rest of the world.

    • asymco

      In this survey, China is considered developing:

      • Charel

        By relying on pre determined classifications you may come to the wrong answers. 200 million of affluent consumers amounts to more than half the population of the US. That should be a significant factor in your analysis of the potential market for smart phones.

      • asymco

        Affluence is certainly an important factor however the analysis above depends on the availability of 3G networks regardless of whether they are in developing countries or not. Wealth of a nation determines the likelihood of presence of 3G in the near future more than ability to purchase certain phones.

      • Charel

        I know that you used this qualification for 3G, but would not the same apply for high speed rail? In that case the wealth of a nation does not determine the likelihood of presence in the near future.
        All I am trying to say is that China is an odd case when it comes to implementation of high tech in the near future.

      • dms

        Your analysis singles out "mobile broadband" as the defining characteristic of smart phones, but in the case of China, "app phone" is the more relevant characteristic. I use my iPhone 4 on China Mobile's EDGE network, as do millions of other foreigners/locals in China. I'm not streaming music or making skype phone calls on a 3G network, but my usage is still plenty "smart" enough.

        Smartphones (led by Android and iOS) are catching on in China faster than you think. With/without mobile broadband. I suspect in a couple years, smartphones will make up the majority of phones that are sold.

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  • unhinged

    Your stacked chart to the left has a typo in the text description of the colour key: "Users sill [sic] available in 2 years"

  • Rob Scott

    Blackberry 8520 is a 2G device but still a smartphone and it is selling like hot cakes! 90% of our postpaid subscribers use smartphones, the adoption is miles faster than in the US. Android devices are hardly ever paired with data (the iPhone is) making devices here a lot cheaper than in most developed countries. Devices are heavily subsidized – for an example we have a voice device that we sell for the half the supplier cost and it's easily the cheapest in the world. In short cost is the only barrier to adoption, the carriers are addressing that with subsidies, the rumored cheaper iPhones can only help. While 3G is not available all over the country EDGE is and that is good enough, besides 95% of the population is covered with 3G. The carrier business model can be very different depending on the operator/country and that plays a huge role as to what devices (carrier strategies) will be pushed. Our overall mix is 50% smartphone and that should easily hit 60% this year.

    • kevin

      Are the Android phones (without data plans) also sold with subsidy?

      In the US, current iPhones have a large subsidy that can barely be covered profitably with just an entry-level voice plan, so carriers tack on a data plan. Then to increase profits even more, they tack on the same data plan for smartphones that have a smaller carrier subsidy.

  • jaquin

    As more people around the world move from rural areas into urban ones, the costs of covering that first billion will come down. The regions with the most urban areas, think China coast, India, Brazil, all these places will be the targets for this growth in platform.
    As English is not the main language of these developing nations, I wonder how well the platforms will handle the demand for customization. Android should do fine since it can be changed by the manufacturer, I wonder how well iOS is at making their platform feel natural to this market.

    • The problem of languages was solved long ago. In chinese, we actually have four different keyboards for traditional characters. (Canji, Pingyin, Writing and one more). So you can pick what is most familiar for you. To organize, we use the number of strokes a character has rather than an alphabet. I've asked lots of Chinese people if they have problems with their contacts app and they have said no.

      • WaltFrench

        For others not familiar with Chinese inputs, even dumbphones with only a numeric keypad offer a remarkably fast and easy method for people versed in handwriting: each number represents a particular stroke; since characters' parts are written in a particular order (just like Roman characters!), this results in comparable or better typing speed on a 12-key pad as you'd get with English words and the various schemes we suffered through just 5 years ago.

      • John

        Apropos of absolutely nothing, I started following a Japanese journalist on Twitter after the quake and belatedly realized the obvious: Twitter is much less constraining when using logographic writing systems. I was surprised at how wordy her tweets were when translated.

    • kevin

      iOS is well-adapted to other languages, just like Mac OS X is. A good number of Chinese-Americans set their iPhones to use Chinese.

      Culturally, iOS has more apps, by far, for non-English speakers and for non-Engliah speaking countries than Android. Spanish, Chinese, Japanese, Korean, Arabic, French, etc abound. There's a reason for having 350000 apps.

  • KenC

    When I was in China back in the Fall of 2007 with my EDGE iPhone, I found it very usable on China Mobile's 2G network. Certainly faster networks are preferable, but perspective is relative. I found landline China Telecom's DSL hookup to be slow, as I was trying to use my Slingbox, so I'm not sure that lack of 3G or 4G makes that great a difference in adoption. Chinese users are used to slower networking overall. It would be interesting to know how many unlocked iPhone 3, 3S and 4 are being used on China Mobile, since I'm assuming they would revert to EDGE, given that China Mobile uses TD-SCDMA as their 3G standard.

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