Hanyang University, University of Texas at Dallas1
Business Administration, Philosophy
Tel: (214) 635-8148
The author would like to acknowledge and thank the valuable assistance of UT Dallas in the preparation of this manuscript, in particular the assistance of Professor Lee at management department in UT Dallas. He always offered positive feedback and suggestions for the improvement during the whole processes of this paper.
1. Definition of the smart phone
2. Effect of the smart phone popularization
3. Radical transformation of IT industry and changed competitive situation
ABSTRACT The smart phone has opened up a new generation of mobile internet. A small smart phone of four inches allows the sharing of real-time information and knowledge, and can transform life styles. By using smart phones, people obtain, share and exchange information whenever they desire. The speed of information processing is accelerating, and real-time communication is universalizing without hindrance of time and space. A ripple effect of the smart phone makes it possible for contemporary people to realize a genuine ubiquitous life in a variety of areas such as business, education, society, and leisure. In this paper, I will illustrate the global smart phone market through analysis of market growth, industry and competitive situation. Based on these analyses, I will discuss the possible strategy of each player on the market.
INTRODUCTION 1. Definition of the smart phone A smart phone is a new form of mobile internet device that combines the traditional features of a phone and PDA.2 Another noticeable definition about a smart phone is that it is a mobile phone which offers more advanced computing ability and connectivity than a contemporary basic mobile phone.3 The common aspect of two definitions above is that a smart phone is an integrated device with mobile telephone technology and the ability to access the internet. It is the smart phone that achieved both the functionality of traditional phone and technology of PC (see Figure 1). Different from traditional phone produced as finished goods, a smart phone enables users to install, add and delete hundreds of various applications. Through various applications, users can personalize the interface as well. Hence, with the introduction of smart phones realizing free access to the internet regardless of time and place, users of smart phones are reaching a genuine ubiquitous era.
The concept of the smart phone
2. Effect of the smart phone popularization The continuous progress and expansion of applications allow people to obtain particular information that they want. Users can acquire almost all types of information such as weather, location, food, attraction spot, transportation, medicine, education, game, fashion, sports, and scientific research, without difficulty of time and place. Users can also create a new form of social community, take the lead in public opinion, and significantly improve the infrastructure and speed of social communication. Due to such a mobile generation having strong information power and networking capabilities, the consumption pattern is rapidly changing from the producer-driven pattern to the consumer-based pattern. Accordingly, the need for customized information is expected to keep pace with the changing IT environment.
3. Radical transformation of IT industry and changed competitive situation The overall structure in the IT industry is reorganized, and the competition is expanded and diversified. The introduction of smart phones creates boundless IT-related markets such as e-book, tablet PC, and net book. New entrants struggling to penetrate a market are faced with an urgent problem to overcome functional and technical conversance. On the other hand, new competitive structure is formed to gain leadership by cell phone manufacturer, operating system provider, telecommunication distributer, and new application developer. New business models are imperative for existing companies to survive in the reorganized IT industry and its new competitive structure.
1.1 History Since Nokia launched its groundbreaking product, Nokia 9000 which was the first type of smart phone introduced in 1996, the smart phone market has been rapidly growing. Nokia 9000 Communicator is a combination of HP-made PDA and Nokia-made traditional phone. Consecutively, Nokia released the Communicator 9210 equipped with the first color screen and open operating system. The 9500 model is the first camera phone by Nokia and genuine form of mobile internet phone with access to internet via WIFI4. Since then, Nokia has led the global mobile phone market by combining its competitive cell phone and Symbian which is an operating system5 developed by Nokia.
The first catalyst of the expansion of the smart phone market is the release of RIM’s Blackberry series in 2001. With a self-developed Blackberry Internet System, the Blackberry series gained sensational popularity in the North American business world by offering business-related services such as pushing e-mail system, internet faxing, web browsing, and navigation. The Blackberry series launched in 2002 began an epoch of the convergent phone. Since then, it has led the market with Nokia, attracting 800 million customers until in 2007.
The second historical spark of the smart phone is the release of Apple’s innovative I-phone in July, 2008. Apple led an innovative transformation of smart phones with the cutting-edge technology of multitasking, high resolution, wide screen, and customized web browsing based on its own software technology. It is an enormous progress for the mobile internet device. Later, Google introduced its operating system named Android to companies such as HTC, Motorola, and Samsung electronics.
1.2 Market growth While the global traditional phone market is faced with a continuous recession due to the global economic downturn, the smart phone market continues its rapid growth. Since 2007, a portion of the smart phone market for the global cell phone industry is becoming larger in terms of sales volume as well as sales price. According to research conducted by Credit Suisse in Dec. 2007, while a rate of global cell phone market growth will repeat slight up and down cycle during four years, the smart phone market will record a huge growth. A striking point is that a portion of the smart phone market will consume nearly 50% of the entire cell phone market in terms of sales price in 2010.
The prospects of global smart phone market
(Unit : Million, Currency : One hundred million US dollar)
(Unit: Million, Currency: One hundred million US dollar)
2007 ~ 2010 CAGR
* The ratio of smart phone sales (unit) to the entire phone market sales
** The ratio of smart phone sales (price) to the entire phone market sales
-Source: Credit Suisse
In the first fiscal quarter of(Q1) 2010, the latest research of sales volume of smart phones reaches from 56% to 67% growth with variance depending on research institutes. An IDC report indicates that 54 million units are sold, and a Canalys report presents 55 million units sold in Q1 2010. According to Coda Research Consultancy, total sales volume of the smart phone is expected to be 234 million units in 2010 and 619 units in 2015 (see Chart 1).
The smart phone market sales flow (Unit : Million)
-Source: Coda Research Consultancy
Popularized WIFI configuration and 3G telecommunication are considered the largest components behind an optimistic forecast of growth in the smart phone market. The disadvantage of previous smart phones is limited due to unstable wireless internet environment, slow mobile internet connection, and limited content. However, as WIFI mobile internet is widely constructed, and a variety of operating systems and software are developed, a genuine mobile internet environment is realized.
2.1 Shift of Core value in IT industry: Hardware Software Hardware technology was a major competitive factor in the traditional phone market, and telecommunication companies offered content service through their own portal service. However, it is not profitable because there is no stable route to expose contents. Nokia was the only operating system developer involved in the software market, but still not enough to make a sensation (see Figure 2). For this reason, the demand of the smart phone is unmarketable. Customers’ desire laying emphasis on sound quality, camera quality, display, and external design was determined by hardware technology itself rather than contents in the traditional phone market. Naturally, Nokia, Motorola, Samsung, LG, and Sony Ericson who have accumulated hardware competitiveness lead the traditional phone market. Based on IDC research in 2006, before the smart phone was noticeably popularized, Nokia sold 347 million units, Motorola sold 217 million units, and Samsung sold 118 million units. On the contrary, only 10% of units sold were smart phones.
The traditional cell phone market
However, as the level of hardware technology is standardized, and stable wireless internet configuration is developed, the market structure of cell phones encounters an extensive shift. First of all, the core value to success in the cell phone industry has moved from hardware-oriented competitiveness to software-oriented competitiveness. Compared with the existing traditional phone, which is operated in limited and fixed interfaces, the smart phone allows its users to make their own interface. Customers are now able to get a customized service based on their own needs. Hence, operating system and high-quality contents become vital part of smart phone.