The Gadget Cassandra – A Contrarian View

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I am aware of the explosion of smartphones in the Indian, as well as the, global economy. Nevertheless, I continue to get a nagging feeling that all may not be well with the mobile phone market over a medium term. Let us look at the statistics: currently there are over 750 Million mobile phones in the country, 30% of which are Smartphones. Sure enough, this portends a heady growth period ahead for the Smartphones. Combine this with the downward trend in the prices of Smartphones and the picture gets even more rosier. On an average, you could expect a 20% conversion from feature to Smartphones on an annual basis, on top of the organic growth, which translates to roughly around 100 Million Smartphones that will be sold over and above the existing 225 million phones which will get upgraded and/or replaced. Numbers that are certain to warm the hearts of any handset maker.

Now look again. The form factors of the Smartphones have remained static over the last few years. Typically, we are talking about a 4.5” screen. Secondly, there is going to be an explosion of video once the 4G rollout happens, which may probably mature in about two years time. Thirdly, we have already started seeing an uptick in the ‘hybrid’ mini tabs releases in the market, which essentially means that you now have the comfort of a higher form factor with a voice facility.

That leads me to my inevitable conclusion – the smartphone, as we know it, may have  a much shorter life cycle than what we have imagined. Why would you carry two gadgets in your pocket – one for voice and the other for data? You may well argue that it is possible to watch videos on a 4.5” screen..true, you may.. but you may just miss seeing the ball ricocheting off Dhoni’s bat, which is the prime reason why you are watching that clip.

My own feeling is that in the next 12 months, there will be a mini-tablet war in the market and you will see the current players joined by the erstwhile IT hardware worthies – HP, Lenovo, Acer, Dell… My second view is that except for iconic brands such as Apple, you may actually see the market for smartphones move towards the mini-tab form factor. Thirdly, I also foresee that the data revenues will overtake the voice revenues in these form factors by a factor of 2 to 1.

Where does that leave the smartphone market? In the short run (read one year) there wont be too much of an impact. There is still huge headroom for growth in the untapped hinterland markets of India. However, as the mini-tab prices also come down, as they inexorably will, I see the market sharply polarized between voice only ( a very small percentage) and data- heavy. While the former may still live with Smartphones, the latter will move AWAY from smartphones towards the mini-tabs, which will provide voice and data capability.

Even today, there is a small but growing urban professionals market which is shifting away from an expensive smartphone to an “iPad+ cheaper (feature) phone” life. This tribe will grow till it comes across a smart mini-tab contraption which can give them both.