Mobile Device Adoption: Targeting the Next 50 Percent

Fifty-five percent of American mobile users now own a smartphone. That’s about 130 million people, which is a big pool of potential customers for your app. But what if that addressable market doubled?

It won’t happen easily or soon. The low-hanging fruit -- techies, prosumers, business people -- has been picked. Meanwhile, T-Mobile USA is among the mobile operators scrapping the tradition of handset subsidies. If that becomes a trend, then feature phone owners who want to upgrade tomorrow will have to shell out at least twice the amount they would today.

“One way or another, you’re going to have to pay some significant cost at some point, whether it’s up front -- $500 or $600 for the smartphone -- or $200 up front and $20 every month,” says Ramon Llamas, IDC research manager.

That’s one barrier. Another is the cost of a data plan, although that’s becoming less of a hurdle thanks to the growing selection of cut-rate, unlimited-data plans, such as those from Straight Talk and T-Mobile. The roll-out of Long-Term Evolution (LTE) could enable even more aggressive pricing strategies because the technology significantly lowers an operator’s cost of delivering data service.

“Carriers are interested in smartphone growth since they can compensate drops in voice and SMS revenue with data flat rates,” says Brent McMicking, who manages Intel’s phone launches worldwide. [Disclosure: Intel is the sponsor of this content.]

Who’s Using -- and Not Using -- Smartphones
The analyst firm iGR recently asked over 1,000 U.S. consumers about their plans to buy a phone in the next 30 days.

“The majority of those who were likely to buy [a phone] say they would probably buy a smartphone,” says Matthew Vartabedian, iGR vice president. “Not surprising. What I did find interesting was that older respondents (35+) with feature phones were about 10 to 20 percent more likely to buy a smartphone than younger respondents. Younger respondents (18-34) were more likely to buy multiple smartphones (two or more), which is also interesting. The survey data suggests that older consumers are already choosing smartphones.”

The catch is that not every first-time smartphone owner uses many -- or any -- apps. “[After] six months, my father-in-law has yet to use his iPhone 4 for anything except voice and text,” Vartabedian says. “He uses the preloaded weather and stock apps, but that's it. Maybe some Web browsing. I think he generates about 20 MB of 3G data in a month. I don't think he's even opened the App Store.” 

Smartphones Take Off in Developing Markets
There are a couple of reasons why it’s worth looking at smartphone adoption outside of the U.S. The first is that there are big potential markets, at least for those developers willing to localize their apps, such as in terms of language.

The second is because the strategies that vendors are using to upsell foreign consumers could be applied in the U.S., too. One example is the Yolo smartphone, which Intel and Safaricom recently launched in Kenya. It’s noteworthy because it’s the first smartphone to feature a processor and reference design created to reduce manufacturing costs without cutting corners such as performance. For example, the Yolo smartphone has 1.2 GHz processor, a 5 megapixel camera and support for 21 Mbps HSPA+ service.

That feature set is a break from tradition: In both developed and developing markets, affordable has been synonymous with pokey processors, limited memory and other shortcomings. Those undermine the app user experience.

“In India, Indonesia and China, they’re cutting corners left and right,” Llamas says. The device build [quality] is rather cheap, so people are replacing their phones every six to eight months.”

The Yolo smartphone sold out within two weeks of its debut. That suggests that a lot of people in developing countries who don't own a smartphone already understand the benefits of owning one, such as the selection of apps. Translation: There’s pent-up demand not only for smartphones, but also for apps.

“In emerging markets, smartphones will be the first computer device for many people and provide a deeper Internet experience versus feature phones,” McMicking says. “Pent-up demand for smartphones is a function of perceived value and the overall experience, of which apps are a part. The opportunity for developers is to reach a new set of customers.”

Upcoming Devices from CES

Last month’s 2013 International Consumer Electronics Show let consumers and enterprises glimpse the shape of the future hardware market.

Make that shapes. The variations on display included small tablets rivaling Apple’s iPad Mini, Windows 8-based tablets, enormous tablets exceeding the screen real estate of most notebooks, and large-display smartphones that edge into the tablet territory. The show also pointed to the future direction of Ultrabooks and underscored speech recognition as an increasingly prominent feature for a range of hardware types.

Hardware Options

In the tablet space, a number of products debuted with 7- or 8-inch displays and prices below the $329 iPad Mini. Another trend: the arrival of new Windows 8 tablets. Acer’s Iconia W510 and Asus VivoTab, both present at CES, come with 10.1 and 11.6 screen, respectively, and both have keyboard docks.

At the other end of the tablet spectrum, Lenovo introduced its, well, brobdingnagian IdeaCentre Horizon, a 27-inch tablet. Lenovo describes the device, which uses Windows 8 touch capabilities, as a table PC. The company says the IdeaCentre Horizon will support “touch screen game-play among several players” but can also serve as a desktop PC.

The hardware options shown at CES also included convertibles, devices that can shift from one form factor to another. One example: Lenovo’s IdeaPad Yoga 11S, a Windows 8 convertible that users can operate like a laptop and then flip the screen and deploy as a 11.6-inch tablet.

The “phablet” form factor, a smartphone/tablet hybrid, also grabbed some attention at the show. Lenovo, for instance, announced the K900, a smartphone with a 5.5-inch screen, which employs Intel’s Atom processor. [Disclosure: Intel is the sponsor of this content.]

The Ultrabook category -- the subject of numerous product announcements during CES 2012 -- continued to have a presence at this year’s show. Convertibles such as Dell’s XPS 12 and the touch screen-based HP Envy TouchSmart were among the Ultrabook products on the floor.

What Developers Need to Know

The range of form factors is an important consideration for developers targeting mobile devices. But from the user perspective, size and weight aren’t the only importnat variables. For enterprise customers, in particular, the form factor becomes an issue only after other requirements are met, says David Berg, vice president of product strategy at Shunra Software, which provides network virtualization solutions for testing mobile apps and other software.

“Essentially, [employees] want to be able to do their jobs with as few impediments as possible,” Berg says.

The critical components for accomplishing that objective boil down to enterprise connectivity -- the ability to remotely tap corporate IT assets in a secure fashion -- and the ability to both create and consume content, according to Berg. After customers feel they have addressed those two items, they will then think about a smaller and more efficient form factor, he adds.

Mobile Plans

Companies such as Intel, meanwhile, outlined their plans for the mobile market at CES. The company’s rollout includes a smartphone platform, based on the Atom processor, for emerging markets. Safaricom Ltd., a communications provider in Kenya, recently announced Yolo, a smartphone based on Intel’s platform.

Intel also discussed its “North Cape” specification, an Ultrabook detachable reference design. The design calls for an Ultrabook form factor that can convert into a 10mm tablet. Intel launched the Ultrabook-branded device market in mid 2011. The new Ultrabooks will employ the company’s 4th generation Intel Core processor line, formerly known as Haswell.

In another glance at the future, Intel suggested that more Ultrabooks and all-in-one systems will begin to offer applications for voice control, citing Dragon Assistant. The voice assistant application was launched in September and stems from collaborative work between Intel and Nuance Communications.

Nuance, for its part, provided a look at its Wintermute technology at CES. The company, which provides voice recognition technology for personal assistant applications, describes Wintermute as a cross-device persona project.

The Femtocell Market: Big or Small?

Femtocells are cellular base stations roughly the size of a Wi-Fi router. Their diminutive size belies the market opportunity for apps that use femtos to enable services that otherwise would be difficult or impossible with other technologies.

Mobile operators such as AT&T and Sprint have spent the past couple of years offering femtocells to consumers and enterprises as a way to improve coverage, capacity and performance around a home or office. Part of the “small cell” category, femtos complement big, outdoor sites known as “macrocells.” Many mobile operators, analysts and vendors believe that small cells will be key for delivering the multi-megabit speeds that customers expect from 4G/LTE while reducing traffic loads on the outdoor sites.

But femtos also can facilitate moblie apps, particularly those that provide location-based services. One example is a child-location service: When a latchkey kid steps inside her home, her cell phone automatically switches its connection from the macrocell to the femtocell. That change triggers a text message to her parent that she’s home.

Why wouldn’t an app just use a traditional location technology such as GPS to facilitate that service? One reason is because a femto can be tuned to cover an area much smaller than GPS can pinpoint. That granularity is a potential market differentiator versus GPS-based child-locator apps.

“If we were relying on location-based services and an accuracy of plus or minus X meters, it might send the SMS when the user is still outside the house,” says Malek Shahid, joint chairman of the LTE SIG of the Small Cell Forum. “Small-cells-based apps can cater to legacy UEs [and feature phones], as well as for smartphones with GPS enabled. Another major drawback of GPS-based services is that GPS might not function as well inside building."

Femtocells are Nascent and Niche -- for Now

The market opportunity for femto apps depends partly on the installed base of femtos. Currently there are more than 6 million femtos and other small cells installed worldwide. Although that’s already more than the number of macrocells, collectively it’s still a tiny addressable market because each small cell serves only a handful of potential mobile app customers.

That will change as small cell deployments continue to mushroom, according to analyst predictions. In the meantime, finding the market opportunities for app development means focusing on what specific operators are doing.

“What the developers want to see is individual operators with large volumes,” says Andy Germano, Small Cell Forum vice chairman. “Sprint, for example, has more than 1 million deployed. That’s a pretty good-sized market for an app. AT&T is estimated to have over 600,000. Vodafone has hundreds of thousands.”

The Small Cell Forum is creating APIs that help app developers create femto apps. There are multiple options for implementing a femto app, and they don’t all require a smartphone. For example, virtually every smartphone and feature phone sold over the past five years supports SMS. So in the case of the child-locator example, one way to cater to all phones is to have the message sent from the cloud rather than relying on an app on the device to trigger that.

“These are all Web-based REST APIs that application logic would consume,” says Tom Lismer, vice chair of the forum’s services group. “This logic could easily reside on smartphones, cloud-based servers or any other client that can send and receive HTTP requests with JSON payloads.”

The forum also offers a portal -- -- where app developers can access an emulator for testing femto apps virtually instead of buying the necessary hardware and software. That’s because the forum wants to seed the market now so that when the installed base of femtos tips into mass-market adoption, app developers will already have the experience necessary to start cranking out apps. Currently there’s a limited selection.

“I’d say maybe half a dozen to a dozen commercial apps today,” Germano says. “We’re at the early stage of the market where what we’ll see is a little more mobile operator involvement in new small-cell-based applications. Some of these applications will be unique to specific operators or for specific enterprise customers.”

For now, the scarcity of femto apps could be a way for a developer to make its app stand out in a crowded category, such as by presence-enabling a popular social networking service that already has dozens or hundreds of coattail apps. Operators, meanwhile, could use femto apps to create additional revenue-generating services.

“Almost all [operators] that have launched femtocell services -- including most of the 10 largest mobile operators in the world -- are interested in such applications,” says Richard Webb, an Infonetics Research directing analyst who tracks the femto market.

“Femtocells give those operators [opportunities] to deliver a ‘home network’ product, which had previously been the domain of DSL/cable broadband providers selling a fixed-line service with a Wi-Fi router so that multiple users in a home can share that connection. A femtocell offers mobile operators an opportunity to go further. It can provide a small group of users -- in a home, in a shared apartment, student house, small business, etcetera -- with a shared mobile broadband connection but with added applications, making it potentially far more interesting than the ‘plain vanilla’ data of Wi-Fi in the home, for example.”

Windows 8 for Ultrabook Devices and Beyond

As the installed base of Windows 8 devices grows, so does the opportunity for mobile developers to target a wide range of users and device types, including users of Windows 8 Ultrabook devices. In fact, Windows 8 makes it relatively fast and cost-effective to code once and run many -- meaning a big pool of potential customers.

“If [developers] build for the store, they have to recompile for each processor and put in flexibility for screen sizes, but they don’t have to recode,” says Rob Enderle, principal analyst at Enderle Group. “Assuming they follow the guidelines, it is a couple hours recompiling and testing for each platform, much of it automated. Much easier than with anything else. Developers love this platform.”  

Netflix was one of the first companies to offer a Windows 8 app. “We reuse a significant amount of C# code among our Windows 8, Windows Phone, Silverlight and Xbox apps,” says Joris Evers, corporate communications director. 

The ability to reuse code means developers can also leverage their existing skills for Windows 8 even though it provides a host of new features. “The tools offer Windows 7 developers familiar ramp-up to the platform, but Windows 8 offers HTML and Java Script developers [opportunities] to develop for the platform as well,” says Russ Whitman, Ratio Interactive’s chief strategy officer.

“These devs will be new to the tool set but will find there are a number of great online resources to ramp up on the tools,” Whitman continues. “They will find the platform supports their skill sets extremely well. We have turned several Web developers into Windows 8 app devs quickly.”

Windows 8 and Ultrabook: The Perfect Match?
On the Ultrabook platform, Windows 8 enables features and user experiences that are difficult or impossible for developers to create on Windows 7 Ultrabook devices. Enderle singles out four Windows 8 features that work particularly well with Ultrabook devices:

  • Fast boot, suspend and resume. That speed can increase productivity for mobile workers, says Enderle. “Improved load time is a big benefit we see,” agrees Whitman agrees. “It allows us to create highly complex experiences that are performant and offer users instant experiences.”
  • Wireless convenience. “[Windows 8] is both fast and easy to use with wireless networks, far easier than Windows 7 was, and this class of product is intended to be mobile,” Enderle says. 
  • Integration with Windows Store. “[Windows 8] uses the Windows App store by default, which, much like it is with a tablet, allows users to quickly get the applications they need for work or entertainment,” Enderle says. “Given these users by nature are more mobile, being able to get access to this stuff on the road is very compelling.”  
  • Integration with Microsoft’s SkyDrive. “SkyDrive links the user’s PCs, phones and tablets, allowing the user to switch devices quickly and still have access to their personal content, be it work, product or entertainment,” Enderle says. “This is a platform designed to optimize the highly mobile worker, and it dovetails nicely with the Ultrabook, a product class with similar design elements.” 

Windows 8 Ultrabook Devices: Additional Features
The UI options of Windows 8 are another draw. “The introduction of touch fundamentally creates opportunities to create more compelling user experiences,” Whitman says.

Speech control is another example of how the Ultrabook platform is enabling new ways for users to interact with their devices. This fall, some Ultrabook devices began shipping with Nuance’s Dragon Assistant Beta, which will run natively on the device. (By comparison, iPhone’s Siri uses the cloud.)

“With the recently announced Intel SDK, developers will have the ability to include speech recognition technology using Dragon’s API into applications for the Ultrabook,” says Mark Geremia, Nuance senior director for Dragon marketing. “We will have more to share on speech as it relates to Ultrabooks in the coming year.” [Disclosure: Intel is the sponsor of this content.]

That’s also another example of how developers can leverage their mobile expertise -- such as creating a great touch-driven GUI or speech-controlled app -- in the Ultrabook environment, where touch and speech input will be common. It’s a new world, but also a familiar one.

Developing your next app? Intel’s Perceptual Computing SDK brings new levels of usability and engagement to any app, with speech recognition, facial tracking, augmented reality and more. Get it today at

Photo: Wikimedia Commons

Trends in Device Turnover

What do the iPhone, the EVO 4G LTE and the Droid 4 have in common? They all have batteries that users can’t replace themselves when they start having problems holding a charge.

For developers, that design is noteworthy because it’s one of many factors that affect how often people replace their smartphone. Replacement rates affect the addressable market for apps built for each OS.

Smartphone vendors are increasingly using non-user-removable batteries because that design frees them to shoehorn in ones that last longer. If the battery wears out before the two-year contract expires, users have to decide whether it's worth paying around $80 to have it replaced or whether they should shell out the full, unsubsidized price for the latest and greatest model.

Other factors that influence replacement rates include:

  • Prepaid or postpaid? If your app caters to demographics with a high percentage of prepaid usage, expect your customers to get a new phone much more frequently.

“Postpaid smartphone users tend to upgrade to a new phone every 18 to 20 months,” says Julien Blin, Infonetics directing analyst for consumer electronics and mobile broadband. “For prepaid users, I believe it is every seven to eight months because of the nature of the business.”

  • The end of early-contract-renewal incentives. Until recently, some operators let customers upgrade to a new model at a deep discount even when they still had six months or more to go on their contract.

“Some carriers have started to cancel early upgrade programs because they are losing money on the subsidy cost and duration of the contract,” Blin says. “In fact, for the iPhone 5, it looks like AT&T might have phased out its early upgrade program. [But] some smartphones users (e.g., die-hard Apple fans) don't mind paying a premium to get the latest and greatest.”

Changes to those programs are particularly noteworthy for developers that create apps for specific operators. If eliminating an early upgrade program increases churn for a particular operator, then that app’s addressable market shrinks.

Refurbished smartphones are significantly cheaper than their brand-new counterparts. So if the selection of refurbished devices grows -- including models that are less than a year old -- it’s possible that more people will switch smartphones more frequently.

  • The rise of the must-have smartphone. Some people don’t mind paying a hefty premium to have the latest model outside of new-contract or new-customer incentives.

“The refresh cycle is reducing year over year because of companies like Apple or Samsung who offer new flagship devices -- the iPhone 5, the Galaxy S3 -- every year,” says Blin, who was strategy manager at Samsung, where he advised the CEO about products such as the Galaxy family of tablets and smartphones.

Is There OS Loyalty?
When people replace their smartphone, do they stick with the same OS? Not surprisingly, the answer varies. For example, the week that the iPhone 5 launched, the analyst firm iGR surveyed 1,001 U.S. consumers.

“Eighty-eight percent of current iPhone users were likely to buy another iPhone, and 10 percent were undecided,” says Matt Vartabedian, vice president of wireless and mobile communications research. “Sixty-nine percent of current Android users were likely to buy another Android device, and 26 percent were undecided.”

An OS’s market share can change dramatically in the span of a two-year phone contract -- or even faster. For example, in late 2009, Android had less than 10 percent of the U.S. mobile market, IDC says. One year later, it was 45 percent. During the same period, BlackBerry’s share dropped from about 45 percent to 25 percent.

Another factor that affects replacement rates is the availability of OS upgrades. Smartphone vendors typically offer only one major OS upgrade for their Android devices, so customers who want the latest and greatest OS version have to decide whether to pay the hefty unsubsidized rate for a new phone before their two-year contract is up.

Apple is an exception because it typically provides OS upgrades to all but its most elderly iPhone models. That means the majority of iPhone owners will be able to take advantage of app features that require the latest version of iOS. In the case of iOS 6, it also means that developers have to move quickly to upgrade their apps so they don’t lose customers who dislike letterboxing.

How quickly? Less than a week after iOS 6 and the iPhone 5 debuted, 63 percent of Pocket’s iOS customers were already using the new OS

Photo: Corbis Images