Apps, services to be differentiators for phonemakers

SINGAPORE--To better compete in the mobile market, smartphone makers will have to focus on applications and services as key differentiators because hardware alone today is no longer sufficient to attract users, according to an industry analyst.

Speaking at the 16th annual Gartner Asia-Pacific semiconductor roadshow here Thursday, Jon Erensen, research director of semiconductor research, said hardware is the "necessary foundation" for all smartphones but handset makers cannot rely on it as a key differentiator to grab market share.

Instead, phonemakers will need to focus on software, user interface and experience, services and content to attract users, Erensen said. Pointing to cell phone players such as Samsung and Nokia which were once recognized for their hardware designs, he noted that these players are now playing catch up with competitors that have focused on apps and services.

With its App Store, he said the Apple iPhone is "years ahead" of its competition in services and content, although Google Android is helping smartphone makers narrow the gap.

He noted that Google' mobile operating system (OS) is the platform of choice for handset makers that do not have the resources to build their own operating system. Motorola, for example, has found success after turning to the Google mobile OS, he said.

According to Gartner, Android's worldwide market share will grow from 18 percent this year to reach 30 percent in 2014.

However, Android's growing popularity can prove a challenge to its supporters.

As more smartphones running the same platform hit the market, Erensen pointed out that handset makers working on Android will find it increasingly difficult to differentiate their products.

Currently, he noted that Android-powered smartphone makers build a skin on top of the OS as a strategy to distinguish themselves but this will become much harder in the future. Google is reportedly contemplating plans to enforce a standard user interface for phone manufacturers that deploy Android.

As such, applications, services and content will play important role, the Gartner analyst said.

The smartphone industry can learn from game console makers that sell their hardware at a lower cost but work hard at attracting game developers to provide "killer services", he said.

This strategy can prove especially critical for smartphone vendors as prices of handsets are predicted to drop in the near future.

According to Erensen, smartphone market growth will shift from the current high-end devices to focus on low-price, entry-level handsets.

Driven by price pressures, he said the market will see aggressive reduction in smartphone retail prices. In fact, Gartner has predicted that by 2013, the price of unsubsidized Android-based phones will go down to as low as US$75, he noted.

7-inch best to combat iPad
At the semiconductor roadshow, Gartner principal analyst Christian Heidarson also noted that phonemakers and consumer electronic vendors can take aim at the tablet market. For PC vendors, though, he added that it is imperative they have a strategy to address this high-growth area.

Gartner's revised predictions noted that media tablets are expected to grow at a compound annual growth rate of 67.7 percent from 2007 to 2014. In contrast, the mobile phone market is predicted to grow at 16 percent, while the desktop PC and mini-notebook markets will both shrink by 2.1 and 4.6 percent, respectively.

Apple is currently leading the tablet sector, said Heidarson, adding that the Cupertino company has a two-year software advantage over its competitors in the 10-inch media tablet segment and will likely dominate this market until 2012.

Vendors interested in media tablets should instead focus on the 7-inch form factor to garner market share, he said.

With a smaller screensize, the 7-inch tablet will be useful for a limited number of functionality such as media and content consumption. However, it will have "no business value" for enterprise users in terms of office productivity.

Heidarson also noted that 7-inch tablet makers can work with telco operators by proving the mobile device can help drive their data service revenues.

With this in mind, though, Erensen noted that telcos will have to adapt their business models and offer modified data service packages so that users do not feel they are overcharged.