With the exception of Microsoft, most tech companies are posting somewhat disappointing results. Particularly when it comes to sales of tablets and smartphones. Now to some extent I think this is the result of overly aggressive projections by analysts. Or it could be some temporary fatigue amongst technology buyers. But it also feels like there are other factors at play and there is change in the wind.
The first factor at play is that the market for high-end smartphones is pretty saturated and it has largely turned into a replacement market. This impacts Apple more than anyone else, but on the positive side the “iPhone 6″ is going to launch to a very large base of customers who have come off contract. One financial analyst I heard the other day gave numbers that suggested at least 50% more off-contract iPhone users will be out there when the 6 launches than there were when the 5S launched. So good times for Apple in the $ sense, but no market share growth as a result.
Even the mid-range smartphone market is beginning to feel pretty saturated. The unit growth is in the low-end, but this doesn’t help Apple and probably hurts Samsung. Another dynamic in the U.S. is the move away from the subsidy model. For a few people this will let them update devices more rapidly, but for the majority it may lead to them holding on to their devices for longer periods of time. So assume replacement cycles will stretch out. That argues for even more attention to markets such as China and India where vast numbers of low-end smartphones will be sold.
Anyway the basic point is that Smartphones are yesterday’s story. They will continue to take over from basic and feature phones, and that will be good mostly for smaller players. Including perhaps Microsoft. And there are a bunch of interesting strategies one could imagine going forward. For example, how do you turn today’s low-end buyer into tomorrow’s mid-range buyer, and mid-range into high-end?
Tablet growth also slowed surprisingly last quarter. Are tablets like netbooks, a device category that actually had a built-in market share limit? Recall that at one point it was thought that netbooks would take over the world, but eventually they topped out (before tablets then came along and decimated them). Basically is there a natural limit on devices above phones but below full powered and sized PCs? Perhaps. And if there is then the big winner is Microsoft, because attention will turn from tablets to notebook and desktop replacement cycles.
But I think there may be a more interesting change afoot. As we settle into smartphone screen sizes in the 4.5-5″ range, and see an explosion of Phablets in the 5.5-6+” range, are many consumers deciding that they can buy one device that covers their Phone and Tablet needs? If so that cuts total mobile device sales potential way down! And again it plays into Microsoft’s hand because while a 6″ Phablet may eliminate the need to carry an 8″ Tablet (for watching video or moderate email, for example), it is far less suitable as a notebook replacement than 8-10″ tablets can be. This again leads to a notebook refresh cycle, or a heavier emphasis on 2-in-1 type devices over pure tablets.
My change of heart on Phablets is the result of observations over this last year. For one thing, mainstream smartphone screen sizes are already bumping up to 5″, making the leap to Phablet realm more of a hop. Another factor is the rise, and potentially impending explosion, in the smartwatch category. If I can leave the Phablet in my pocket, bag, or briefcase much of the time then its size becomes somewhat less of a factor for phone use yet it is handy for more tablet-like use. Samsung is already leading the charge here. Lastly come the stories I’ve gotten from people who actually are using Phablets.
The most recent story I heard was from a Microsoft employee who was carrying a Lumia 1520. He’d borrowed one to play with and fell in love with it to the point he found himself no longer taking his tablet with him. Yes it doesn’t fit his pocket that well, but eliminating the need to carry a tablet was something he found worth the tradeoff. Is he unique? I don’t think so. Is this a small niche, large niche, or significant trend? While it is too early to make that call I suspect it is at least a large niche and, when 5″ smartphones are included, a significant trend.
Does this mean that Tablets are “over”? No. It just means that they are going to settle into a space where the form factor makes the most sense rather than become the defacto computing device. It also means that the greatest potential market over the next few years will become the Enterprise, rather than Consumer. (Something I’m not going to explore here, but might address in a future post.) Again something that plays into Microsoft’s hand.
Of course I think Apple, Samsung, and virtually every large consumer electronics firm understands this. And understands that the next wave of consumer excitement is around wearables. I also think this is where we find out if Apple still has the magic. When I look at the Smartwatch space, for example, I see plenty of options all of which don’t quite cut it as mainstream products. It looks a lot like the pre-iPod MP3 world. Apple came in with a solution that just nailed the experience, completely dominated the market, and leveraged that position into high-end consumer smartphone domination as well. Can they do it again?
Wearables is also the place where Microsoft could either boost or sink its ability to succeed in the smartphone/Phablet market. Wearables are largely a peripheral for the smartphone or Phablet, and as consumer focus shifts to them it will also alter phone/Phablet buying behavior. Today’s startup solutions large ignore Windows and Windows Phone while supporting IOS and Android. Strike One for Microsoft. If we assume Apple does a great job on a watch and its linkage to IOS and their overall ecosystem that’s Strike Two. Microsoft has to hit a home run with their own smartwatch and its ties to Windows, Windows Phone, and the overall ecosystem or else the strikeout won’t just be on wearables. It will be on their smartphone/Phablet ambitions as well.
Over the next year the changes in the market should go from speculation to obvious direction. I could be right, completely wrong, or things could go in a totally different direction. But we shouldn’t have too long to wait to figure out which it is.
Hard to imagine smartwatches in a world where nobody wears watches. Perhaps I’m biased as I don’t wear one, but it’s a common issue with friends.
“Nobody”? Granted the numbers seem to have shrunk, because people now use their phone to get the time. But a truly successful smartwatch would swing the pendulum back.
Okay, not nobody, but “nobody” in the American English figurative sense. But like I said, my perspective may be skewed. Hard to see the forest from my little patch of it.
Pure subjective observation, but few people under a certain age bother wearing a watch of any kind. SOME of that age do, though my perception of the tendency is that it is isolated to those with certain aspirations to management (which might lead them down the tassled shoe and chino route…a style clearly designed to emulate “older” fashion).
But, like I said, my perception may be tainted. I don’t wear a watch, and use the clock on my (Windows) phone as a replacement.
Phones are weird. I have spoken in blogs of phones as a fashion accessory. Turned up collars can become fashionable, and so can watches (or smartwatches). But, if given a choice between a large-ish screen and a tiny one that fits on a wrist, what will most choose? Price matters, and for many, choosing both seems an unnecessary expense..
Try from different angle: smartphone = hand watch, smart watch = wrist watch.
Besides which it isn’t a prerequisite, just part of a new trend towards wearables of all kinds.
My guess is you don’t hang out with people who are into water sports. They wear waterproof watches. If they take any kind of phone with them, it goes into a waterproof container/bag of some sort.
The above post was in response to John’s reply, not Hal’s.
I’m one of the people who replaced a phone and a tablet with a phablet. In my case it was a Galaxy Nexus and a 2012 Nexus 7, replaced by a Sony Xperia Z Ultra. (Had I known there were plans for a Google Play Edition I would have held out for that instead.) I tested a 2013 Nexus 7 with LTE as an upgrade from the 2012 WiFi version, but then I cracked my phone screen and was looking to replace that. Carrying just one device was appealing, and paying for one data plan instead of two sweetened the deal. (And to top it off, T-Mobile will sell you 5GB of data + 100 minutes of voice for a phone for less money than 5GB alone for a tablet. Go figure.) I don’t talk on the phone much – that’s for emergencies and dealing with parents and bureaucracies – so holding a big slab to my head isn’t a big deal.
I think the amount of actual talking on phones has dropped dramatically. Certainly younger generations don’t talk much, and I think even boomers substitute a lot more texting and other messaging technologies for what used to be phone calls. So that makes something like a Phablet more acceptable.
That T-Mobile deal is pretty cool. It’s only available for a new pre-paid account if I remember correctly, and excludes tethering. Based on historical data (which my anecdotal data supports) T-Mobile knows ACTUAL data usage for a smartphone is way lower than for a tablet and prices based on expected actual usage. Of course if a Phablet is replacing a tablet then they are probably underestimating, but they’ll adjust over time.
“Another dynamic in the U.S. is the move away from the subsidy model.”
I wonder what is going to happen to people like me and my wife when this happens and the batteries in our Lumias will no longer hold a charge. I really doubt the network providers will lower their monthly service rates by the amount of their phone subsidies, so neither of us will be upgrading to the latest and greatest and will be upset that we can’t just replace the batteries in our Lumias. I suspect that we represent the majority of baby boomer phone users who are not, for lack of a better term, gadget nuts, nor Apple fanboys. Perhaps there won’t be a complete shift away from subsidies phones.
If you are concerned about that just pen the phone and find out what battery is being used and replace it. Opening the phone can’t be a concern as the warranty should have run out by then.
This is how easy it is to open up a 925 (a lot quicker than shown here) http://youtu.be/Uc-o8qQBPSg
Yes, I had better be out of warrantee before the battery is unable to hold a charge for a day. And thanks for the link to the video.
Two things. AT&T reduced the per-line service plan rate for a non-subsidized phone by $15 a month. Over two years that’s $360. Chuck in the $100-$200 (or more) you already had to spend on a subsidized high-end phone and you’d have to spend more than $500 before the subsidy was really to your benefit. Stretch your purchases from 24 months to 30 months and you either are pocketing the difference or have a bigger budget for a new phone. Go for a mid-range or low-end phone and you are making money over the subsidy model!
The net looks like super premium phones will cost you a little more that under the subsidized model, high-end phones roughly break even, and you make money on mid-range and low-end phones compared to the subsidy model.
Second, AT&T will finance your phone purchase by spreading it out over 15-24 months (I think that’s the effective range). So if you don’t want to drop $500 all at once you can end up with monthly payments about the same as where you are today. Again, if you stretch out your replacement cycle just a bit then you are pocketing money compared to the subsidy plan.
That would work as long as I don’t lose my unlimited data plan.
No, you and the 10 other people with a legacy unlimited plan are screwed. But I expect AT&T to kill off your plan entirely at some point.
Hopefully by that time, I won’t care 🙂
I thought you also had an unlimited data plan.
I used to but ditched it because I wanted to tether. As it turns out the march towards family share plans has also increased data amounts while saving me lots of money. The new AT&T plans that came out this weekend cut my monthly bill another $45 while upping data from 6GB to 10GB! Basically you buy data, 10GB or more, and then pay $15/month per phone ($10/month for data only devices like tablets). That gets you shared access to the 10GB plus unlimited calling and texting.
Thanks! I may have to look at that at some point in time.
Hi Hal, love your work, my thoughts on your latest entry….
o difference of opinion but I think you are stretching it a bit when you state….”If I can leave the Phablet in my pocket, bag, or briefcase much of the time then its size becomes somewhat less of a factor for phone use yet it is handy for more tablet-like use.”
If you look at what folks do with their smartphones and especially the big screened phones there is very little of that time that can be consumed by using a smart watch.
The very reason for the large screen demand is the same reason I believe that smart watch use will not significantly reduce Smart phone use. Smart watches may bring new habits that are better served through a small screen but they will not replace current larger screened behaviour. For one the category hasn’t found the killer app, be it email, or social networking as it has become on smart phones.
Until that killer application or applications are discovered for smart watches they can only be supplementary to the smartphone. There are some very good smart watch solutions out there already e.g. the Sony offering, it kicks the pebble watch into the dark ages. However Apple don’t need to do it better than anyone else they just need to advertise it well (which they are prone to do). But dont get me wrong smart phones whilst in themselves may not be a killer go to device the sexiness of a watch connected to your smart phone will be enough of a draw in itself until someone develops something really innovative for it. I don’t suspect that will take long. I also think it is an error to compare the likelyhood of wearing a smart watch to watch wearing trends today. They don’t serve the same purpose.
It is however an interesting proposition that you table about phablets perhps eating some of the tablet market. I find that is mainly to the lack of a decent sized screen for the mini tablets. People went from a full sized ipad to the ipad mini because they wanted portability. The phablet does this better but full sized tablets will in my opinion remain. I think the more interesting dynamic that should be posed is whill the tablet/pc cross over that is being driven by Windows 8 ever going to take off?
MS came up with a good idea but as usual executed it quite poorly even though the hardware was quite stunning for a version 1 product.
I think the answer to whether this category of device will be successful will depend on two main things:
Whether the pure play tablet players move up the ladder and try to do this
Whether MS can undo the poor OS and software execution of the surface and very importantly get rid of the stigma that has generated
If tablets and laptops (aka Surface or Venue pro 11) can be executed well then the attack on tablets will come from both ends of the spectrum and both the mini tablets (8 inches or less) and the standard (10 inch) devices will have very little going for them other than price and we know that prices are moveable.
My comment about leaving your Phablet in your pocket was based on a few usage scenarios that aren’t really screen based. For example, checking the time. Or, mostly, making a phone call. Aside from the “it doesn’t fit in my pocket” concerns, putting a brick-sized phone to your ear is the biggest knock on Phablets.
carrying a phablet is one way of discovering how few calls you make; I found I just use the speakerphone mode 😉
I think so many people would find that the case!
The smartwatch doesn’t fix the call problem. It has the exact same issues the phablet does; you can’t hold it to your head comfortably so you’re left with speaker and are broadcasting your call to everyone around you, and you look semi ridiculous talking into your wrist. If you use a bluetooth headset you don’t get much benefit over the solution with the phablet, though you do have a slightly better form factor for quickly answering the call.
Smartwatches bring very little to the table unless they’re also biometric devices like fitbit bands. They’re mostly good for notifications, but you still need to fish your phone out to do much useful with that, which makes them a little redundant. The math on that could change dramatically if they’re coupled with a bluetooth headset and some really powerful voice commands, but something more like google glass probably works better for that kind of setup.
I make very few outgoing calls and probably answer less than 50% of the time my phone is called. And of those I do answer probably half can be done on speaker (and I will often go sit in the parking lot in my car for long calls). But the important thing for me is the Caller ID. I do have to get my hands on the phone to see who it is before deciding if I will answer now or call back later (or, as I usually discover, the person sends me text or email when I don’t answer the phone). The watch addresses that problem.
Getting the phone out of my pocket is a problem under many scenarios and I often don’t answer simply because I didn’t get it out in time. I watch the same thing happen with my wife and the phone in her bag. Even being able to answer on the watch and say “hold on” while you retrieve the phone and transfer to it would be a big plus.
But generally I agree with your points. Most smartwatches are going to contain sensors of various types that lend themselves to new applications like you have with fitness bands. And other applications that have yet to be written. And there are scenarios where glasses will be a better choice, which is why I generalize to the future focus being on wearables not necessarily watches.
Uh, for checking the time, my rather traditional Seiko watch works just fine. I still haven’t quite figured out what I’d use a “smart watch” for. That was the problem with the first generation of these (the ones the Microsoft sold as “Spot” watches 5 or 10 years ago).
I agree with this post, but would like to add a couple comments/questions/rants.
I know an increasing growing number of people decreasing their Facebook use. Not eliminating it entirely, but just using it for the basics. Logging on every other day, but only reading updates from the true ‘friends’. How does this impact the market for wearables?
These same folks are also tired of being connected 24/7. Phone, phablet, or tablet — these are tools that are supposed to improve our lives. At a certain point, they become distractions. When do we hit the point of pushback on being always online? Not for everyone, but for a reasonable portion of the market?
I think Apple may be planning for this with their mobile payment announcement. We’re about to hit the saturation point for these devices in the US.
Personally, I am completely turned off when a person I am speaking with looks at their phone. I’m sure Google Glass will infuriate me, the same with folks looking at their watches every time they hear a beap.
There is certainly some fatigue amongst some technology users, but there is increased interest and usage from others. I’ve cut back on FB use, for example, both because it is such a time sync and also because they still don’t have the proper tools for protecting privacy. But my Twitter usage is up (though I keep its usage mostly focused on technology topics). I’d say my technology use overall continues to rise, which is really saying something given I’m pretty saturated 🙂 But then Fitbit takes more of my attention both in the physical and social networking (forums) world. A data point on the wearables are the next big thing discussion.
The social acceptability of these devices, and how we adapt to them, is a very interesting topic and one that I think continues to evolve. Today, for example, if I walk into a meeting everyone has their cell phones on the table and picks them up to check on things periodically. The most important one being to see the time and their next scheduled meeting. And it is, or at least was, funny when 15 minutes before the end of the meeting everyone’s phone started beeping the notification of their next appointment. Will it be less annoying for them to glance at their watch instead? I would think so.
The cultural acceptability also varies dramatically based on country and other factors. In the U.S. it is considered rude to conduct a long phone call in a restaurant (fast food places and coffee houses aside). Most people who answer either have a very short (“I’ll call you back”) conversation or take the phone outside if they must talk. In Israel half the diners, even in rather high-end restaurants, will conduct a phone call during their meal. It’s kind of a shock to the system and makes you realize how polite Americans actually are about it despite our protestations to the contrary.
Getting someone’s full attention while interacting with them has become increasingly difficult in most societies, sometimes for the better but certainly one can argue often not. I don’t think that trend is going to reverse anytime soon.
At least, there are plenty of options for everyone.Thanks for the post.