Apple is arguably driving  the smartphone category ascent and if we look down the proverbial rabbit hole of 2010, two things are clear; weak competition and accelerating buyer coverage.

Weak Competition

Here is what we know. All Tier I OEM’s are grappling with legacy, limited functionality platforms that will never deliver an iPhone-esque experience. All realize this and are shifting to Android en masse as the platform that will. Fair enough. However, what gets lost in all the buzz is the reality of a relatively immature platform being thrust into the bating arms of a waiting-to-be fractured ecosystem. This means inevitable delays and glitches.

First, immature platform. Samsung announced the release of their first Android handset Moment at CTIA this fall and according to Phonescoop.com, “what’s curious is how little customization they’ve done…there’s no TouchWiz, no fancy widgets…just standard Android”. In OEM parlance, this means immature platform. They had their hands full simply making the handset work; never mind enhancing the software. Motorola sacrificed ½ of their global volume, re-allocated serious resources to get to-market this year with Blur their custom UI layer. Ironically, Blur was used for Cliq and incomprehensibly dropped for Droid. In any event, all freshly baked code. The hardening process for V2.0 and dot releases will occur throughout 2010 as it continues to go through the ringer of supporting multiple OEM’s, UI layers, devices types, operator requirements etc. 

Second, fractured ecosystem. Android apps are ramping, no question. According to Flurry, “they reported a 94% increase in application project starts between Sept-Oct.” Likewise, as device deployments equally ramp over the next few quarters, the real question is will the app ecosystem fracture? With Samsung, Moto, LG, HTC and SEMC all hell bent on creating their own UI layer, will an app work from one OEM device to the next? It appears that we are already on a painful fracturing path to no. Indeed, CNET News, has already reported, “Android developers are frustrated over having to support multiple code bases to cover the diverse handsets on which Android runs, which is indeed a problem.” Gartner also commented that, “Android already demonstrates this (fragmentation) trend.” If anything can choke the life out of Android app developer enthusiasm, it is porting the same app 20 times for 20 different device models, ask anyone that has developed J2ME or S60 apps. The devil is in the detail, and may ultimately bottleneck app economics. Android will seriously ramp in 2010, however competitiveness will be constrained due to maturity and unification issues. Takeaway for corporate marketers? Pass on Android apps in 2010, wait for volume to build and a technical shakeout on maturity and unification issues. 

Now, let’s turn to the big daddy, Nokia. There is no question serving a global, mature market for low-to-mid range phones  is an enormous proposition and makes it difficult to respond quickly to market shifts. However, the sad reality is that the iPhone has been in market for two plus years and all they have mustered in return is a weak set of incremental Symbian devices; 5800, N97, the upcoming X6 (finally capacitive!) and what will amount to a continuing series of underwhelming product. Nokia’s self-inflicted inertia will be compounded by the open-source transition with the Symbian Foundation. They fully understand their predicament. They are throwing Symbian under the high-end bus turning to the Maemo platform; N900 and follow-on devices to deliver a near-term competitive product.  According to UBS analyst Maynard Um, “Nokia plans to release a…Maemo smartphone to compete with Apple’s iPhone in the second half of 2010… we believe (this) is a recognition that the ability to rely solely on the more standardized Symbian to compete is limited.”

The Nokia app ecosystem will continue to stagnant. They are fixing the go-to market merchandising channel with Ovi, however this was clearly rushed to-market as evidenced by the initial teething pains upon launch and subsequent news that they will spend 2010 re-writing the Ovi store from scratch. In addition, the Symbian development environment grab bag policy hasn’t worked. Instead of 8 possible ways to build an app, that may or may not work on any given handset depending on the platform, how about one that does the job for all Nokia phones? They’ve now added to the fun by adding yet another platform into the handset mix with Maemo. Moreover, the complexity and cost of development environments are absurd in comparison to the iPhone SDK. Any real resolution here won’t happen until Symbian 4 (or should I say to power of). In particular, ditching the problematic native S60 API for QT. Nokia will continue to deliver reasonable smartphone volume, however any serious spike is unlikely to happen in 2010. Takeaway for corporate marketers? Pass on Nokia apps in 2010. Wait for them to find their killer set of devices, resolve their development environment and complete their Ovi re-write.    

Accelerating Buyer Coverage

So, with the 2010 competitive window open, Apple will drive the stake into the heart of the smartphone segment, or in less over-the-top terms, will increase buyer coverage, penetration and emerge the market leader in 2010. They are in the midst of accelerating a familiar consumer electronics journey delivering more variants targeted to more market segments, network technologies, price points and countries ASAP. This is already well underway delivering 7.3 million units this quarter, 15% of the smartphone segment, penetration increasing from 10.7% to 18% YoY.  Unit shipments will get a further kick as they drop exclusive operator deals. According to Morgan Stanley, “in the top six iPhone markets that are still exclusive…(Apple) sales could more than double.”

Forecast

Let’s indulge ourselves with a pseudo forecasting from Gartner based on their super-duper black-box formula’s. The following chart includes the Gartner actuals from 2008, forecast for 2012 and I’ve added the linear extrapolation for 2009-11. They project Apple will ship 71 million units in 2012 and place 3^rd in the smartphone category. Assuming a linear growth trajectory this puts Apple on track to ship 25 million units in 2009, which looks about right based on actuals to-date. There is no way Android will hit 19 million this year, however with an explosion of devices next year Android will seriously ramp and according to a generous linear iteration of a Gartner projection is just shy of 40M in 2010.

 Note: A linear extrapolation doesn’t work particularly well for Android. There is no way Android will deliver 19M units in 2009; however the 38M units in 2010 is a reasonable forecast.

Now, let’s have a little simple fun with Alice falling down the rabbit hole. Nokia metaphorically flat lines in 2010. They continue to produce uninteresting incrementalism, Ovi remains limited whilst they execute their rewrite and finally, they can’t get their app hodge-podge mix of platform and development environments ironed out. Nokia look to hit approx. 70M for 2009, so let’s boldly assume 2010 is the same. Let’s also use the straight-up 38M for Android in 2010. Apple accelerates market penetration and comes in a little better than projected and hits 28.5 million units in 2009. This translates to 150% YoY growth. Alice now gets hopped up and we apply the same growth to 2010 and voila 71 million units. Effectively, we pull-in 2011 projections into 2010.

Apple becomes the smartphone category leader in 2010! Ridiculous? Perhaps. Takeaway for marketers? Hitch your wagon to iPhone apps and ride the user base up in 2010.

 Note: A linear extrapolation doesn’t work particularly well for Android. There is no way Android will deliver 19M units in 2009; however the 38M units in 2010 is a reasonable forecast.