Thursday 23 December 2010

2010: The Year (in Mobile) That Was Part 1 - The Smartphone Race

If I had a pound for every time that I heard someone say "if I had a pound every time someone said that this is the year of mobile, I'd be a rich man", I'd be a rich man...  Denying that there was, or will be, or even should be, a "Year of Mobile" has become more annoying to me than claiming that any given year was it.  So given that, I will try and phrase the following very carefully:

2010 has been a year in which we have seen an unprecedented growth and evolution of the mobile market.  In the last 12 months, we have seen record and increasing spend within the mobile channel as well as a slew of brands executing campaigns with an, often tactical rather than strategic, mobile element.  Record display and search spending and the increasing visibility of mobile above-the-line and use of it as a below-the-line comms channel, facilitated by the pace of development of mobile technology and the consumer uptake of this, mean that Mobile is as prominent as it has ever been.

Compared to the wider digital channel, Mobile still needs to be considered as an emerging medium, if only in terms of spend, but the increasing penetration of mobile into every part of our everyday life mean that it holds a unique position.  It is not just an ethereal channel such as a Social Network – in part it is a physical device, with a tactile interface, meaning that user experience is more than just a site map or user journey; and it is more than a piece of hardware used to access content – consumers carry it almost all the time; it is often the first and last thing that people look at each day; and it is used for communicating, browsing, engaging with a Social Network, playing games, finding a location and navigating to it, redeeming coupons or voucher and increasingly for making purchases.

So it is in this context, and with 2010 nearing its end, that I have taken a (UK focussed) look at some of the important events that in my opinion have occurred in the last 12 months and helped to shape and define the market in 2010 and beyond.  In further posts, I’ll look at how 2010 saw technology develop and brand/agency adoption increase, and what I think may happen in 2011 and beyond but this first post will focus on what is probably the most eagerly fought and exciting area of the market: smartphones.

The smartphone race

Although some commentators may say that the smartphone has been around for many years, the reality of it is that the early Nokia N-series devices such as the N70 and N95 would not go many rounds against their modern day descendents.  Perhaps we should consider these the missing-link of the mobile device world – the phones that bridged the gap between those that were used only for voice, SMS, maybe some MMS and more rarely a bit of WAP browsing, and the current mini-computers-with-voice-and-messaging that are achieving increasing market penetration.  In that case, Nokia does deserve some credit (don’t worry, I’ll make up for that later) but in truth, as I’ve mentioned before, the major catalyst of the smartphone era is undoubtedly the iPhone.  Its first incarnation had significant limitations and is very different from the current iPhone 4, but its impact on the market is undeniable.  The smartphone market is increasingly where the consumers, brands, developers and, most significantly, margins exist.  And so it is this battleground that is so keenly fought over (notably from all directions like a game of Risk) by the carriers, device manufacturers and OS/service providers (I’m mainly thinking about Google here of course) – and where some companies occupy more than one of these roles.

So what has happened then?  Well, where to start......?

1.     The iPhone 4 and iPad was released

The original iPhone was released back in 2007 and, as I’ve mentioned, redefined the smartphone paradigm in such as way that it took until this year for its competitors to really get into a position where some of them could argue that that they are truly competitive.

I’ve commented about the release of both the iPhone 4 and iPad previously so won’t dwell on that here, but as far as the iPhone 4 is concerned, although iOS had been through a couple of updates, by this year the hardware was in need of a refresh and boy does the iPhone 4 look and feel good.  My main worry about the iPhone is that now, as they are undeniably being caught-up by competitors, there is a need for iOS to be updated or they risk being left with an outdated UI.  Will this be one of the stories of 2011?

As for the iPad, Apple are again redefining the rules of the game.  As I’ve said, they haven’t targeted an under-exploited market opportunity with the iPad, they’ve created one - a beautiful, portable, touchscreen device for the consumption (and enjoyment) of content.  This time round, however, the competition are already on the case and a following swiftly – they do not want to be left standing as they did with the iPhone.

2.     Android achieved critical (and competitive) mass

Probably the most credible competition to Apple comes in the form of Google’s Android operating system.  They have taken a different tack to Apple in that the OS is to a certain extent device-agnostic.  This has seen a number of traditional feature-phone manufacturers (e.g. Samsung and Sony Ericsson) and emerging players (e.g. HTC) focus on producing a device and allow Google to ship their OS and, of course, services (I still find it fascinating that the strategy behind an entire OS and mobile services (such as Goggles, Translate etc.) is so finely focussed on one thing – advertising revenue).  This means that Android does not solely focus on the high-end smartphone market alongside the iPhone, but reaches the mid- and lower-tier smartphone markets and in doing so addresses a larger (and typically less tech-savvy) market.  Their market share (UK/all devices) as shown by comScore rose from 0.7% in Jan 2010 to 4.3% in Oct 2010*, that's a x6 rise (for reference, in that same period iPhone penetration increased from 4.7% to 8.8% and Blackberry from 4.7% to 5.2%, whilst both Windows and Symbian suffered reduced market share*).

2010 has seen the number and, importantly, the quality of apps in the Android Marketplace rise.  They are still way behind the App Store, and the iPhone is still the default option for a mobile app in the majority of cases but the comparative ease of deploying an Android app and the broader nature of the market that can be addressed make it an increasingly viable option.

3.     Nokia failed again to produce worthy smartphone

As I mentioned above, Nokia can probably be credited with producing the first ‘recognised’ smartphone.  However, also as I’ve mentioned, Symbian (the “Woolly Mammoth of operating systems”) has lost market share.  There is an argument that Nokia knows exactly what it is doing and is executing its smartphone strategy very well.  Unfortunately this argument somehow fails to recognise the obvious truth – that Nokia is in no small amount of turmoil.  With a change of CEO and followed by a number of other high profile departures, including the EVP and Head of their Mobile Solutions business and the Chief of MeeGo (their fabled new Linux-based OS in joint partnership with Intel), and their market share and profits in decline, I cannot imagine a great amount of cheer at their Board’s Christmas party this year. 

Nokia cannot be compared directly with their traditional feature phone competitors, not just because of the scale and breadth of their operation but because of the position that they are trying to move themselves into.  Equally, they cannot really be compared to Apple or Google as, again, their positioning and focus is different.  And so they need to be considered solely on their results and forecasts based on current position and strategy. 

They are trying to utilise their significant market share (across all devices) to drive uptake of their smartphones, and in doing so driving use of, and revenue from, their services.  Put simply, the money to be made a manufacturer is limited - you need large volumes to deliver this given the low margins.  Nokia has that scale, but the opportunity for growth in a saturated market of which they already had the major market share is negligible and in an increasingly smartphone focussed market, this would only be eroded.

But the smartphone market does bring opportunity if you can either focus on the high end (low volume, high margin) like Apple or services (i.e. advertising) like Google.  So this is where Nokia want to be, whilst not neglecting the still-massive feature phone market (hence their restructuring of the business to separate and distinct units).

But they’re failing. 

The N8 was supposed to be their break-though device that re-established them as a serious contender.  Unfortunately it suffered from similar issues as its predecessors such as the N97: the hardware, although not in the same class as the iPhone, is strong; the device capabilities are also good; and, although it suffers from too few quality apps and too much content, the Ovi store is nicely integrated given the need to support so many devices in so many markets. 

The issue is the operating system and the UI that is presents.  Unfortunately Symbian is not up to the job of supporting a modern smartphone and Symbian ^3 is, if you pardon the expression, just the latest polishing of that turd**.

Release of their latest device, the E7, which is basically an N8 with a slide-out keyboard has been delayed until next year, capping a dreadful year for what was only a few years ago (and in many ways still is) one of the most respected, trusted and admired brands.

In my opinion, Nokia needs to take a leaf out of Microsoft’s book and start from scratch.  Now that may be what they are doing with MeeGo but if the N900 (running Maemo) is anything to go by then Nokia haven’t yet learnt that they need to understand what users want and then deliver it.  It unfortunately feels like many of the decisions that they make are based on false or incorrect premises and (I can say this having worked in the business for over a year) are hindered by the time it takes internally to both make a decision and then execute on it.  I want Nokia to succeed.  The market could do with a European business in the upper-echelons.  I’m sure that they can, but I’m not really convinced that they will...

4.     Windows Phone 7 was released

I have a confession - having owned a Palm Treo back in 2007, I actually quite liked Windows Mobile.  The only possible explanation that I can find for this (you may consider this a convenient bit of post-rationalisation) is that it was a familiar interface.  Having always been a Windows desktop owner, and wanting to browse and use email from my device, it was one of the few viable options.  As a phone it was awful and the OS wasn’t great – but I kinda liked it.

That said, I was in a very small minority.

And so, following rounded criticism of their latest upgrade/release, Windows Mobile 6.5, Microsoft took the approach of starting from scratch with Windows Phone 7 (WP7).  It could be said that 6.5 was very much a compromise, trying to appear to be in the game and fill some of the inevitable void caused by the revamp.  In any event, 2010 has seen WP7 launched to general approval.  There was not necessarily whooping from the rooftops but Microsoft is never going to generate that kind of fervour is it?  It is not a perfect mobile OS and there are certinaly improvements that can be made, but there are similarly some nice features such as the live tiles, a smart look & feel, XBox Live integration and Silverlight support meaning app development is a smooth process.

Given the years of monopoly/duopoly in the smartphone space (ok a triumvirate if you include Blackberry), it is at least good to see a credible alternative from Microsoft that I hope will evolve in the coming months.  It will no doubt take time for the industry to come on board but, as do Apple and Google, Microsoft see mobile as a key plank in their future strategy and so they will certainly be putting their effort behind it.  And consumer uptake should grow, recent reports of 1.5 million being “shipped” should not be confused with “sales”, but are a relatively good sign nonetheless.

The good news for us all is that in any such market with competition amongst a number of serious players, innovation and capabilities are driven upwards whilst prices are driven in the other direction.  I hope...

5.     Blackberry shifted focus towards the consumer market

Given all the other moving and shaking that has gone on elsewhere, you could think that it’s been a quiet year for RIM but that isn’t really the case.  Their UK market share remained pretty flat, but their year has been marked by challenges in international markets regarding the access to the encrypted transmissions sent via their Messenger (BBM) and email services, and a change of approach to move away from their comfort-zone of the Enterprise market to focus on the consumer market.

Blackberrys have been the business device of choice for a number of years.  Whilst other manufacturers have made some inroads, and will probably continue to do so with Exchange integration via ActiveSync so straight-forward, the security controls that RIM has created around communications via/from/to their devices mean that for many large corporates, it is the only real option.  This encryption has caused some issues with a number of Nations (such as Saudi Arabia) wanting to gain access to the details of and, in some cases, the content of communications for National Security reasons.  Such issues rarely come to head as there is always a solution to be found but I don’t doubt that some headaches have been and will continue to be felt at BB Towers for a while.

However, more interesting to me is the way in which, seemingly almost by accident, Blackberrys became a device of choice for the younger generation of mobile owner.  Blackberry Messenger (BBM) is an instant messaging/chat functionality in their devices that is free to users.  Given this, it’s easy to see why it gained traction with younger users.  This gave RIM a nice challenge to make their devices, pricing and marketing more consumer focussed – one that they addressed this year.  Their devices certainly still have issues: the browser, for example, is in real need of improvement and the available apps are lagging well behind. 

But you can’t argue that they typically occupy a top-3 position in the smartphone market, and so have to be considered – probably more than they usually are...

What it all means

Well, it means that next year will be exciting.  There is still a lot to play for and whilst my next post will look at other activity in the world of Mobile in 2010 (such as the technological developments and agency/brand uptake of the medium) I will also, probably in the New Year, have a look at the future of the eco-system in 2011 and beyond and you can be sure that the smartphone arena will be a massive part of this.

comScore MobiLens data – 3 month ave. month ending as stated
** Please note that I think Symbian is without doubt the OS of choice for feature phones