The smartphone market is on the verge of disruption again and not for the first time in recent history. What's different this time is that today's market leaders are better positioned to take advantage of their momentum to strengthen their position in the market. Not unlike 12 years ago, what it will take to compete will shift dramatically again.
Let's look back in time quickly. In 2007, Apple disrupted the incumbents Nokia, RIM (BlackBerry), and the wireless carriers globally. At that time, the carriers had a virtual lock on the mobile phone ecosystem of services, distribution, and pricing. Carriers stifled innovation with closed ecosystems and onerous processes that offered access to consumers for only a privileged and wealthy few.
Apple broke their collective chokehold on user experiences and a year later opened up the smartphone platform to developers. Apple served as a gatekeeper to its ecosystem, but it shifted power to those capable of delivering great experiences. Google wasn't too far behind with Android. Since then, Samsung, Amazon, and others have embraced a new model of giving consumers choice and control over their mobile experiences.
Over the past 12 years, consumers have selected smartphones based on price, size, screen resolution, quality of the camera, storage, and familiarity with the interface. Other than the camera, the selection criteria are not very different from that of a computer.
Competitive differentiators are shifting. Smartphones are more expensive. Prices now rival those of laptops. And perhaps more importantly, what differentiates smartphones from one another is less tangible and discernible to consumers. Convincing consumers to upgrade has never been more challenging. Moreover, smartphone manufacturers are returning to an environment where they will have less and less control over their destiny or success.
Future success in mobile will depend on smartphone manufacturers' ability to:
- Deliver a strong services portfolio that operates throughout consumers' ecosystems. Services need to go beyond a manufacturer's devices. They need to work across the devices a consumer owns, whether video, music, podcasts, or otherwise. Or in the case of payments, the functionality should both persist across devices and everywhere in the physical world where they shop, order food, or buy passage on buses, trains, boats, taxis, and planes.
- Offer a family of devices and convince consumers to buy within their ecosystem. Global smartphone adoption is plateauing. Consumer upgrade cycles are slowing. Tablets gained reasonable traction years ago, but they have since faded in terms of units sold annually. New products from smartwatches to smart speakers remain niche products for early adopters. Owning multiple products from within a single manufacturer's family not only increases the switching costs for consumers but also serves as net-new revenue. Ten years ago, Apple made its money on computers -- today, 52% is smartphones and Macs are only 11%. Services is 19.5% and $12.5 billion, and wearables, home, and accessories are at over 10% at $6.5 billion in Apple's fiscal Q4, ending in late September.
- Own customers' moments. Consumers expect unprecedented relevancy. They are getting so demanding that they even expect brands to anticipate what they need and push out services or content to them proactively. Brands — including smartphone manufacturers -- can't do this without data or context. Data-driven insights are crucial to curating and improving services for individual consumers.
- Use AI to simplify consumers' experiences. AI is already prevalent on smartphones today. However, most consumers can't tell you how AI is used or why it makes experiences better. They just like that their photos are sorted, spellcheck is improving, and they are magically becoming better photographers. Consumers won't notice the small or incremental leaps forward here. They'll simply look back two years from now and think, "Wow, this smartphone experience is so much better than it was back then." However, they won't be able to articulate why. This makes selling them on an upgrade tough.
- Generate revenue from services. To continue revenue growth, traditional smartphone manufacturers like Apple, Google, and Samsung must develop a robust services revenue stream from media, games, applications, analytics, payments, and more. Apple now offers subscription services for storage (iCloud at $1 to $10 per month), music (Apple Music at $15 per month), video (TV+ at $5 per month), news (News+ at $10 per month), and games (Apple Arcade at $5 per month). All in, consumers could pay Apple more than $500 annually -- and that is before hardware, Apple Care, and other products. And services revenue is a stickier, recurring revenue stream. Services revenue in the full fiscal year ending on September 29, 2019, was nearly $46.3 billion -- up more than $6.6 billion from the previous year. That helped Apple backfill the $22 billion decline in iPhone sales for the year.
Consumer expectations, however, are not standing still. Neither should the role of smartphones. Smartphones will evolve from computerlike devices full of apps to orchestrators of experiences in a consumer's ecosystem. Experiences will become more immersive, proactive, and blended.
In the future, smartphones must:
- Support strong conversational interfaces. Conversations, whether with humans or bots, will be one core element in the portfolio of experiences that brands offer consumers. Voice will dominate when consumers are hands-free or when connected devices lack an interface. Consumers will adopt text-based conversational interfaces to discover new products, book travel, get customer support, and more. Today, 29% of decision-makers at enterprises surveyed by Forrester are using chatbots on third-party platforms, while 17% are piloting or planning to pilot them. Smartphone manufacturers that want to play will need strong AI fundamentals to support languages -- understanding, generation, and more -- and a messaging platform used by consumers.
- Offer rich mobile messaging. Future experiences will be more proactive and right-sized. Notifications may just be text, images, and beeps today, but they will deliver more interactive content, services, and app fragments in the future. Rich mobile messaging depends on the presence of an app today, but it will be more independent in the future. Google and Samsung are backing RCS in partnership with the carriers. Meanwhile, Apple and Facebook continue to build out feature sets for businesses on their platforms.
- Leverage web technologies to support porting experiences. We no longer live in a binary world of online versus offline or app versus browser on smartphones. Consumers want to engage with brands seamlessly where they already are, whether it is virtually within a map, social media app, or the homepage of their smartphone or physically in a store, car, or home. Brands can't support developing one-off experiences for dozens of channels, such as progressive web apps, instant apps, or web pop-ups, on third-party platforms, let alone the device menagerie.
- Generate more insights from analytics while protecting consumer privacy. Proactive, contextual experiences delivered to consumers in their moments by brands depend on access to data. Not only do consumers value their privacy, but new regulations are now in place that gives consumers unprecedented control. Smartphone manufacturers and their associated operating system partners who have access to this data must find ways to balance the needs of consumers and ecosystem partners who depend on it.
- Enable more immersive experiences. Consumers depend on smartphones today for more immersive experiences supported by augmented-, mixed-, and virtual reality technologies. While improvements in cameras, GPUs, and processors have improved the quality of these experiences, true hockey-stick adoption will depend on headsets -- another device to add to the portfolio. Today, 11% of decision-makers at enterprises surveyed by Forrester are developing or piloting experiences for virtual reality headsets, and 9% are doing so for augmented reality headsets.
This post was written by Vice President, Principal Analyst Julie Ask, and originally appeared here.