The Shape Of The Smartphone And Mobile Data Markets

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Recommended: Mobile phone market structure

With all the new mobile devices coming out, I thought it would be useful to give an overview of the market for mobile data. I covered some of this information in a post written about a year ago, but this one has a lot of new information, plus diagrams.

I believe the market for mobile data devices (smartphones, PDAs, mobile game machines, iPods, etc) is not structured the way most people think it is. A lot of new mobile products fail because they're not designed for the real market, or because they target imagined customers who don't really exist in large numbers.

There are two big erroneous assumptions that I think many people make about mobile data:

First incorrect assumption: Mobile data is for everyone. Most people assume that mobile data devices like smartphones will eventually be used by everyone. The idea is that they're being bought by early adopters now, but as prices drop they'll soon be adopted by the whole population. The market is supposed to look like this:

Higher prices are to the right. Smartphone sales start with the early adopters at the right, and then as prices drop everyone switches to smartphones and starts using all their features.

The only problem with this idea is that there's no evidence to indicate that it's true, at least not in the US and Europe (where I've done research). In fact, almost all of the evidence I've seen to date shows that the market is deeply divided into two groups. When surveyed, most people in the US and Europe say they will not pay anything extra for mobile device features other than voice and SMS. They'll use those features if you give them away for free, but as soon as you ask them to pay, about 65% of the population drops out. This makes them very unpromising targets for device companies that want to sell value-added devices, operators who want to sell advanced services, and software companies that want to sell mobile data apps.

Fortunately, the other 35% of the US and European population is willing to pay extra for mobile data features.

So the real market looks like this:

The people I labeled "value-added users" are the mobile data market. But that's only the beginning...

Second incorrect assumption: There is one smartphone market. Most people assume that there's just one market for smartphones, and that eventually we'll see the emergence of a single ultimate smartphone that everyone uses.

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