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The last frontier

Tracking the mobile phone market hasn’t been getting any easier. The lack of published data from many incumbents (including the largest) is compounded by the lack of visibility into entrants. It’s not just ZTE and Huawei which are up-and-coming, but companies such as Lenovo, Xiaomi and Yulong make up an increasingly large part of the overall market. (Not to mention BBK, Meizu, OPPO and TCL).

Canalys suggests that China’s top five vendors make up 20% of the world’s smartphone shipments. This is mostly due to the rapid rise of the category in China and the advantages local vendors have in that market. Absent this large segment, a complete picture of the market is simply not possible. Nevertheless a fuzzy picture of the entire market can be still be painted.

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What I see in this graph is that competition with smartphone non-consumption is still fierce. Non-smart phones are still shipping at the rate of about 200 million per quarter. Not as many as the smartphone units, which are nearly 225 million, but their numbers have not so much plummeted as not risen. Smartphones meanwhile have expanded greatly.

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The other observation is that these non-smart units are increasingly being made by no-name brands and sell in emerging markets through grey markets. Nokia’s non-smart business is contracting and Samsung, the only other branded vendor with any material non-smart volumes is fleeing upmarket.

Consider that India, a market of 700 million users purchased barely 9 million smartphones last quarter. Contrast that with the Chinese market where 1.1 billion users purchased 88 million. The preference in India is for super low cost products of dubious progeny.

In other words, the preference in India is about what it used to be in China two years ago.

Will India follow China out of non-consumption? It’s hard to say. There are many factors beyond market forces at work. Although that’s true in most phone markets, India is particularly byzantine. Not only is distribution different (retail only and very fragmented and multi-level distributed) but there are few 3G users and networks are notoriously difficult to scale. For a vendor trying to apply a global strategy in India the odds are very poor indeed. And there are few vendors more uniform in their approach than Apple.

The Indian market is not yet “cracked” as Tim Cook would say.  One wonders if it ever will be.

  • David A

    I think you mean provenance rather than “progeny”?

    • http://www.asymco.com Horace Dediu

      I actually meant progeny but I also meant India not China.

  • obarthelemy

    Maybe there are 2 very distinct cases, or three:
    1- Data networks not available. Neither 3G nor Wifi. That kinda kills smartphones’ usefulness: though you can still use their “computer” persona, tablets or laptops are a lot more pertinent. In India, as far as I can tell, only “tier 1″ cities are fully covered, “tier 2/3″ cities are work in progress, and countryside is a black hole. I’m fairly sure Africa is the same.
    2- Too expensive, either the terminals or the service. “OK” smartphones are down to $150, “barely usable” ones can be had for $75 (http://www.geekbuying.com/item/B930-4-3-Inch-Capacitive–Screen-Smart-Phone-MTK6515-1-0GHz–Android-2-3–OS-with-WIFI-Bluetooth—Black-312897.html ), duties and taxes notwithstanding. IIRC, that’s still around 3 months of income at the international poverty threshold, and service costs on top of that. I guess getting fed trumps getting 3G, though the extra cost for getting a smartphone+data over a dumbphone+voice/texts has plummeted.
    3- Choice. A few people with both access to data networks and the means to pay for hardware and service still don’t want smartphones. Not a major phenomenon.

    • The Silver Fox

      “I’m fairly sure Africa is the same.”

      Mesh wifi networks are currently being looked at in certain African countries as an altmative to expensive cellular networks. These could easily be used for smartphones with wifi capability

      • Tatil_S

        What is technically possible is not always economically feasible. If mesh WiFi was easier, faster or cheaper to roll out than 3G networks, the rich world would be using them, too.

      • The Silver Fox
      • Tatil_S

        “tens of thousands [...] in high-traffic areas”

      • The Silver Fox

        I don’t understand your comment?

      • Tatil_S

        I meant to say it does not seem like WiFi will be used to cover a large part of the continent or to serve a large population across the day. Diverting wireless traffic to WiFi in congested cellular spots has been planned by carriers for a long while. It is not specific to Africa or as a an alternative to a 3G roll out.

        In the past, the problem were the headsets that usually did not have WiFi. With the advent of smartphones, this problem went away and iOS is pretty good at hopping on to WiFi automatically, so I am not sure why carriers are not rushing to relieve bottlenecks in congested cells through WiFi. I’ve seen it done in Hong Kong at various spots. The local carrier placed WiFi base stations into its old phone booths where it already has the “right of way” and it can connect to the backbone through the existing phone line.

      • The Silver Fox

        Thanks for the input. I just hope that some kind of affordable wireless solution can be found in Africa and India as the benefits for society could be huge.

    • peter

      Also, let’s not forget that a feature phone can run for more than a week on a single charge when used for texting and short calls. A smart phone will need to be charged much more frequently and needs reliable access to electricity. (Wikipedia: Over one third of India’s rural population lacked electricity… Of those who did have access to electricity in India, the supply was intermittent and unreliable.)

  • charlie

    I suspect you’re a bit wrong about iphone and India.

    Yes, global uniformity isn’t going to help in India.

    But you’ve got a few advantages:

    1. Middle class Indians — the ones who can buy smartphones — are familiar with english and latin characters. Far more so than the Chinese. You don’t need larger screen sizes (Samsung).

    2. You’ve got again far more integration with the rest of the world. What does that mean — facetime and imessage suddenly becomes very important. Although to be honest the outgoing SMS doesn’t cost much.

    3. I suspect the media markets in India are the key to “cracking” it, although it is unclear where Apple is on that.

    The big barriers in India are the lack of Apple stores, and the cost. The 5(c) won’t cut it, you need something in the US 99 range as a high end phone.

    • Walt French

      Two points here:
      • Chinese language script (华文, pronounced “huáwén”) is pretty information-dense — two characters do the job of 6 or 23 latin characters/spaces.
      • Middle-class Indians are NOT middle-class by world standards; they are abjectly poor by world standards. Only the top 1% or 2% of Indians are up to world “middle class” incomes.

      • marcoselmalo

        I think you mean Western middle class standards rather than world middle class standards. I am pretty sure that even if these middle classes are still relatively small in their respective countries, they still outnumber the middle classes of the West. (Since moving to Mexico, I’ve had to adjust my notion of middle class.)

      • Walt French

        Good point. I’d like to compare the “median” income by country, since they all have some income inequality. Average percapita product will have to serve for that we want:

        $50K USA
        $47K Japan
        $39K UK
        $42K Germany
        $33K Italy
        $11K Brazil
        $10K Mexico
        $ 6K China
        $ 3.5K Indonesia
        $ 1.4K India

        On a ratio/log scale, a middle-income Mexican is more like a middle-income American than s/he is like the counterpart in India. I *was* thinking a bit higher than the average world citizen, but Indians really are at the far end of the scale.

      • marcoselmalo

        OK, I’ll buy that. The middle class Mexicans I know don’t seem all that different from their counterparts in the U.S. (Keep in mind that I’ve only lived in one part of Mexico for a short time — two and a half years.)

        Materially they live more modestly, but the basic cost of living is cheaper. Electronics and appliances are much more expensive than in the U.S., due to high tariffs and a 16% VAT. (A free trade agreement with China might or might not be coming).

    • 1sthand

      I don’t see how language affect purchase of smartphones. The iPhone can display Chinese. The Chinese middle class is huge and I am sure many know English.
      And as Walt French said, you would get more into the same screen size in Chinese characters anyway…

  • peter

    Some numbers/facts from CIA factbook (sections on Economy and Communication):
    1) urbanisation India 31% vs China 50% (customers harder to reach)
    2) GDP (PPP) per capita India $3,900 vs. China $9,300 (bias towards ultra cheap phones)
    3) ‘India has many long-term challenges that it has yet to fully address, including poverty, corruption, … an inefficient power generation and distribution system, ineffective enforcement of intellectual property rights, decades-long civil litigation dockets, inadequate transport and agricultural infrastructure, limited non-agricultural employment opportunities, inadequate availability of quality basic and higher education, and accommodating rural-to-urban migration.’ (China if anything invests too much in infrastructure)

    Add to that the economic turmoil in India this month, the past mess in handing out mobile licenses (also the Vodafone tax case in India), and stifling bureaucracy (with various states, national ministries and others claiming jurisdiction over the same things).

    While India may be one of the fastest growing telecom markets in the world (CIA factbook), it is probably better not to think of it as the next China.

    • StevenDrost

      Maybe, but China’s economic growth over the last 30 years was fueled by people moving from the farm to the much more efficient factory in the city, much the way it happened in America and Europe a century ago. China’s economic growth could very well stagnate over the next few decades as they have to look elsewhere for growth. But, India has yet to experience the benefits of urbanization and has the potential for stronger economic growth.

      • peter

        True, but this will take a few decades to play out, as it did for China.

  • http://www.twitter.com/dbkahn Dan Kahn

    To the extent that the China market is “cracked”, it seems that India will be as well Horace. Smartphone sales, which were barely a blip in 2012 (http://www.nextbigwhat.com/mobile-sales-in-india-q1-2012-report-297), have increased nearly 300% year on year. Even with slowing acceleration, India will pass 100 million smartphones sold in 2014 and likely reach today’s Chinese volumes in late 2015.

    Of course, the path from there is less certain and depends on both India’s economic development (how rapidly is the lower middle class expanding?) as well as manufacturer’s preferences (will ‘featurephones’ still be sold in 2015?).

  • Walt French

    India is also one of the world’s poorest large countries. (It has mostly watched as China escaped the “honor.”)

    95% of Indians have less income than the mark of the poorest 5% of Americans. If those hundreds of millions of people are to have phones, they will be as inexpensive as possible. Still, few will actually afford them.

    China still has half its population in rural poverty, too. But there is a swelling middle class for whom a phone is not an impossibility, not a luxury, but a nicety. Many people can afford computers attached (smartphones), which are out of the grasp of all but the richest slice of poorer nations.

    • Chaka10

      I would add … the swelling, largely urbanized middle class in China is sizable (some compare it in sheer numbers to the entire population of the USA).

  • Chaka10

    I would offer 3 thoughts:

    “smart vs non-smart” — is the distinction underlying the data meaningful? For example, is the Nokia Asha smart or non-smart, and what functionally is the distinction based upon? As the mobileindian.com website puts it: “[Nokia] called the Asha series of phones ‘smart feature phones,’ and the devices had all the features needed to connect with the online world at an affordable price….” That’s accurate.

    “a complete picture of the market is simply not possible …” I think this highlights that meaningful market analysis must be done (a) separately for different geographic markets and (b) on a comparative basis between markets. An analysis of a single conflated market is not only difficult, but any results highly dubious and, at worst, potentially very misleading because there are so many factors that may apply differently to different markets.

    3. “… India, a market of 700 million users purchased barely 9 million smartphones last quarter.” As Obarthalemy’s comment also highlights, much of the EM is simply not part of the addressable market for smartphones (Apple smartphones in particular).

    • http://www.asymco.com Horace Dediu

      A smartphone has never been defined by its features for the reasons you cite. The feature phones can expand features to exceed even recent smartphones. So what makes a phone _smart_ is not the same as what makes a phone _good_ or is a measure of performance. Broadly smart is defined by having an operating system that can host third party apps written using a native API. This means the smartness is its general purpose nature and extensibility beyond the features it was originally intended to have. Specifically smartphones have come to mean phones operating a specific set of operating systems.

      • Chaka10

        I guess I would still ask, is that technical distinction meaningful, for purpose of the market analysis? Does Nokia care that the Asha is not a “smartphone” it is outselling it’s main low-end Android competition (or not)?

      • Kizedek

        Externally, probably not — they wouldn’t be selling it if it didn’t sell. But how long can that continue as technology moves on and becomes cheaper, and as consumers have higher expectations?

        If no TV manufacturer ever sold another analog TV, then those who currently sell them as a significant part of their portfolio are going to struggle for a while. If no camera manufacturer ever sold another film camera, then those who still sell them are going to struggle for a little while.

        This has nothing to do with whether or not a certain clientele would in fact be better off with the digital products, even if they initially cost that customer a little more. It has everything to do with the *future of the product* and the industry.

        So, internally, the distinction must be meaningful (and as Horace noted, their divisional structure reflects this) — In as much as Nokia famously ditched its own smartphone OS effort as not adequate going forward, in favor of MS; and yet Nokia still currently develop other phones with their older OS’s. This has altered the course of the whole company. So, there there must be something meaningful about the distinction.

        If there was no distinction, then why wouldn’t Nokia go all in on Windows Phone right now? Why wouldn’t everyone else be all in on Android with phones that took advantage of it? Because they would then have to compete directly with Apple: and despite all the complaints about Apple’s “premium” and “luxury”, the OEM’s would still find it hard to compete (as the tablet market shows).

      • obarthelemy

        Actually, it seems that Asha is a smartphone. There’s a devkit for it, which seems to have OK access to the phone’s hardware. I’m sure that hardware is very limited by today’s standards, but probably not that far (hardware notwithstanding) from early iPhones and ‘droids.

        Anything that does web, email, IM (skybe, hangouts, whatsapp…) and allows for installation of 3rd-party apps is a smartphone. Same as a 640k 8086 PC would still be a PC today.

        Edit: caveat: I haven’t look in depth into the API/OS at all.

      • obarthelemy

        What do you mean by “native API”, and how is that a condition to be a smartphone ? To me anything that can run 3rd-party apps is a computer, hence a smartphone. I don’t see what the nativeness of the API has to do with it ?

      • Kizedek

        Well, everything is an “app” now, isn’t it? Widgets, webapps, drivers, a bit of code I can stick in a module on my website to interact with my facebook acct., whatever. (We are even told now that Samsung is abstracting features out of Android and making them “apps”, so that there is no longer an OS update “issue”.)

        The distinction that Horace is making is that to be a third-party app worthy of the name, it ought to be able to match the sophistication and power and potential of the apps provided by the OS’s creator as a showcase for the OS.

        That seems pretty logical and straightforward. Your not seeing it has nothing to do with it. It’s like the difference between using your TV as a computer monitor, or using a monitor as a monitor. You *can* use a TV, but it wasn’t made to replace the native solution.

      • obarthelemy

        what’s the oppositie of a native api ?

      • Kizedek

        Not sure what you are asking. You often frame arguments in terms of polarities and false dichotomies, so I think that is what you are doing here. It doesn’t have to be “opposite”, just “non-native”.

        Usually, something that is “non-native” has LESS capability or efficiency than “native” — it is something that the OS creator “allows” because it opens up more possibilities for a broader developer base and app ecosystem; and it is used out of convenience by the developer because he already knows Java, .net, HTML, Flash or whatever, and he can reuse some resources he already has. Thus, “non-native” represents, and is epitomized by, a “lowest common-denominator” approach to app development.

        Now, if you can show that Google provides for and encourages non-native app development because that generally makes for a SUPERIOR result in terms of app capability and experience, then we are all ears!

      • obarthelemy

        it just seems that any sandboxed or managed API would be deemed “non native”, but pretty much all mobile APIs are either, or both, especially the modern ones: iOS, Android, WinPhone, Firefox OS…
        you’re listing languages, not APIs, so it doesn’t really clarifiy anything, especially since what makes an API is the downstream OS, not the upstream app: Windows’ (to choose a neutral ground) API is not “native” when I call it in C and “non-native” when I call it in C#

    • http://www.asymco.com Horace Dediu

      As a footnote: although Nokia markets the Asha series as a smartphone they don’t place it in the internal division called Smart Devices but in the Mobile Phones group which is responsible for non-smart devices. This is because Asha does not run a smartphone OS and relies on the ancient Series 40 embedded Nokia OS.

  • willo

    Having spent some time in India, I find it completely unrealistic that “smartphones” will be common in the next few years. Maybe it´s hard to imagine someone living on less than $2-3 per day. But we are talking wood fires for cooking food, sleeping without a house and no clean water or soap. Not until the middle class start growing rapidly will there be huge growth in smartphones in this country.

    A feature-phone would be considered luxury by many means, and it has a real effect on life. People able to call and check local prices for food,products allows them to get a better understand of the local market selling whatever product/foods they do for a living. It increases their wealth and empowers their lives more.

    Smartphones or mini computers does not enrich their life in the same manner, surfing google/youtube/facebook or using apps is much less of a benefit than being able to call people.

    It will of course continue to growth at huge % – simply because such a tiny minority currently has a smartphone, but it won´t “catch on” anytime soon.

    • handleym

      You are thinking of phone as a personal accessory. You should think of it as essential business tool. Our tour guide in Indonesia, for example (yes, obviously a wealthier country) ran his business through his Blackberry — through email, SMS, calls and various web sites he arranged meeting clients, hiring cars, checking the weather, etc etc.

      Obviously not everyone is at that level. But a village as a whole needs to know weather, prices, general news. One could imagine, for example, a model whereby some entrepreneur in the village buys an iPad (or more likely cheap Chinese equivalent) and people pay him occasionally to do whatever they need to do.

      This is not a market segment where Apple will ever have much traction; but that is different from what you are saying. Just because, eg, a village can’t afford personal phones doesn’t mean that a payphone for the village doesn’t make sense.

      • marcoselmalo

        It is interesting that your tour guide was using his blackberry in place of a PC. Maybe this isn’t news, but this is part of why PC penetration/growth has peaked. MS’s cash cow, the Windows desktop OS, is being sold into a stagnant or even shrinking market. Their strategy of protecting that franchise at all costs is already failing.

        Of course, this isn’t news to any Asymco readers, but it bears repeating: Smartphones are a bigger disrupter to the PC space than they are to the dumb phone sector.

      • Walt French

        I’ve also hired tourguides recently, in Indonesia and elsewhere. They were uniformly well-educated (a luxury), often entrepreneurial (maybe backed by the same sponsors of their education) young people who could afford phones, had friends who could buy cars, etc.

        They took us to towns where TVs were a shared luxury and people worked fields with hand tools.

        The econ stats for these countries are much more like those people’s lives than the guides’.

  • r.d

    Most of the time phone is not even used for voice
    even though it is only Rs 1 /min for the caller.
    Indians use “Missed Call” feature to communicate.

    So even humble non smart phone is not used as intended.
    so why talk about smart phone.

    Now most of the international call to family are going thru Skype and Facetime
    bypassing government monopoly.

    2G Licensing was fraud ridden. 3G was a disaster of epic proportion.

    40 million passenger vehicle as of 2010. 3.7 million produced in a year.

    Indian middle class may not match the consumption of US
    but they do have disposable income of generations. all saved up
    without any taxing. Any professional level job is considered middle class in India.
    They can afford the iphone just as they can afford a computer.
    It is just a matter of which one.

    So most of the commented worried about how poor India is poor
    can save your tears. fxzaukabbeasdf.

    • StevenDrost

      In this thread, we are not so much feeling bad for their economic situation as wondering if/when they will be able to afford a few hundred dollar phone. Interesting point on the use case for the phone though. In America it’s just another (debatable unneeded) accessory. We have other options for our computing needs, smartphones just make it easier. These folks clearly do not, so rather than thinking of them as being willing to accept substandard hardware/software because of the price, they may in fact be much more demanding customers. In the absence of any other computing device that phone will take on a much larger role for the owner and they may be willing to part with a larger percentage of their income to obtain one.

      • handleym

        “We have other options for our computing needs, smartphones just make it easier.”

        Apropos of this point, do we know how different screen sizes break down in popularity in India?
        I’ve long claimed that the primary market for really large screen phones is precisely poor countries where you can afford to buy only one computing device, so you get the best compromise you can (which is a 6″ or so screen for tablet-y type use, maybe made less clumsy to use as phone through a cheap BT or wired headset).

        This matters because it suggests alternative means by which Apple could do well in the India market. What about an iPad mini equipped with a bare minimum phone chip (maybe a rel 5 WCDMA chip from Mediatek, but nothing fancier) and sold packaged with a bluetooth headset — the whole point being “yes we know you’re going to use this as a phone, and we’re going to make that experience work for you as well as possible”?

      • obarthelemy

        If you want to make claims, maybe you should look for data to back them up *before* making them ?

      • Mark Jones

        Didn’t handleym’s post begin by asking for data? By doing so, he implicitly acknowledges that his “claim” is just an hypothesis that he is still trying to confirm.

      • StevenDrost

        I’m all for backing up your comments with research, but seeing as the biggest and most others don’t publish any meaningful statistics, its rather challenging. Also if you have the info in hand, then why not publish?

      • obarthelemy

        I don’t have statistical data. I do have anecdotal data and logics:
        - all budget-constrained people I know go for cheaper (= smaller) phones
        - with good-enough 7″ tablets at $100 (Ainol Venus), a large-screen phone’s extra cost quickly ends up being more than a small phone + a 7″, hence the “one single large device because it saves money” doesn’t hold water.

        I’ve told him that already, hence my irritated shortness that he keeps spewing his unsubstantiated and illogical theory.

      • marcoselmalo

        Cost and availability of the ongoing data service is probably a bigger factor than the price of the phone, which makes screen size moot until this changes.

      • davek

        While India as a country is poorer than the west like many places it is split. The cities in particular may not be so poor. There are many areas where home prices are comparable to the USA. So think $500k, etc. So a $200 smartphone for someone able to live in a 1/2 million dollar home is not too much.I know people who tell me they cannot afford to move back home because the prices are so high.

      • StevenDrost

        It’s a country with a billion people, but only the 1% can afford a top of the line smart phone. This is important because ignoring the mass market could lead to another OS becoming dominant there. A booming real estate market does not prove anything, heck, I can easily afford any phone, but can’t afford to move to Manhattan.

  • Vinay Nayak K

    The biggest factor that effects India is cost over and above everything. Just today Samsung beat Nokia to emerge as No.1 in Indian market sheerly because of the wide range of phones they bring to Indian market, right from $20 to probably $800. Earlier Nokia was known for its battery life and people were paying premium inspite of better features in Samsung / Motorola. Today, Asha to a large extend bridged the gap between owning a smart phone vs. low cost feature phone. But with Samsung bringing in Android smarphones in same range as Asha it is giving a tough fight to Nokia and undoubtedly is now No1.
    http://economictimes.indiatimes.com/tech/hardware/samsung-beats-nokia-to-emerge-no-1-in-india-report/articleshow/21942464.cms

    Having said that if iPhone 5C is priced sub $400, it will capture a large segment of users in India and may actually erode a lot of Samsung’s market in that range. People want Apple quality at Samsungs price points, so if Apple provides a phone at Samsung price why not?

    @vinaynk

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  • ss

    As has been stated several times market data for India is weak but following are some anecdotes I think that are very interesting in the context of this conversation (most of my experiences are in an urban setting so its skewed) :

    The used phone market: I have several times noticed smart phones in the hands of people you would not generally associate as tech savvy (e.g. Drivers). Apparently these folks see value in buying a used smart phone over a brand new feature phone.
    Content distribution: The most common use of phones I have observed in India besides calling and texting is music. data costs are still not affordable so Indians have worked out a unique way of overcoming this. share music and videos over microSD cards (there are shops which actually sell such card with content pre-loaded. and sharing this content via Bluetooth/IR