Smartphones get smarter

With smartphone devices greatly outnumbering sales of personal computers, are we on the cusp of a paradigm shift?

Rajiv Rao Delhi 

Perhaps no book or movie so cannily predicted the future as much as Arthur C Clarke’s 2001: A Space Odyssey, brought memorably to cinematic life by Stanley Kubrick. The film is neatly bookended by the dawn of two seminal eras. The first, in the opening, happens when our charming Neanderthal ancestors discover the facility of large, heavy bones that they use to bludgeon their way to dominance. The second, in the end, is when a creepy computer named HAL onboard the space station develops its own intelligence and takes over humans.

It is too early to say whether or not we are on our way to becoming slaves of automatons, but what Clarke and Kubrick did so effectively was to presage the future of the machine—especially one with computing powers. Somewhere, the duo, both of whom are dead, is no doubt secretly smiling down upon the cusp of another transformation—the rise of the smartphone and the death of the PC. For the fact is, HAL, the supercomputer with remarkable processing power decades ago, is now neatly tucked into your pocket and has already taken over your life.

No other country is caught so squarely in the vortex of this change as India.

For the first time since the advent of the mobile phone in the country around 15 years ago, sales of feature phones—primarily responsible for igniting the cellphone revolution here—fell by 0.8 per cent to 51.8 million units in the quarter ending September 2013. The cause for this slump? India’s seemingly insatiable appetite for smartphones—defined as mobiles with their own Operating Systems (OS) that can download applications (or ‘apps’), which make them, by and large, identical to computers.

Death of the PC

Which is why the PC is officially now a has-been. According to technology research firm IDC, out of a forecasted 1.7 billion units to be shipped in 2014, more than 1.4 billion units are expected to be smartphones and tablets, which rack up more than $500 billion in value. On the other hand, only 300 million PCs are expected to ship with a value of less than $200 billion. This fall is only going to get steeper as time goes by.

The reason for this tectonic shift in power is simple. Smartphones are increasingly doing as many, if not more things, faster, cheaper and more efficiently and ergonomically than traditional computers. And a country like India—which hasn’t officially experienced a PC revolution, unlike China—is poised to eschew the PC and migrate directly to mobiles, further propelling this trend.

The numbers speak for themselves. Smartphone sales in India skyrocketed by 152.3 per cent to 11.1 million units at the end of the June-September quarter, and now make up 17.6% of the total cellphone sales, according to a report by Cyber Media Research (CMR), The country is currently the third fastest growing smartphone market in the world.

India’s bypassing of the PC era is also being given some jetfuel by the wildly popular ‘Phablet’— a tablet-smartphone hybrid with a screen size between 5 and 6.9 inches, which, according to some reports, has already cornered 30 per cent of total shipments in India.

Next gen drivers

There is a simple explanation for the kind of sizzling smartphone growth happening in India. Smartphones allow you to listen to music, consume videos (voraciously, as is the case in India) while on the move, play games, take pictures, and message your friends with manic frequency. Of the 51 million smartphone users in urban India today—a spike of 89% from 2012—the biggest increase is in the youngest age-group, between 16 and 18 years, according to a recent study. In 2012, 5% of smartphone users were from this group. Today, that has gone up to 22%.

A recent 2012-2013 study by software consultancy TCS offers unique insight into this group. The survey of nearly 17,500 high school students of ages 12-18, across 14 Indian cities revealed that nearly 70 percent of Indian students own a smartphone, with a larger user base in smaller cities than metros. Nearly 20 per cent of this group uses mobile phones to access the Internet (compared to 12 per cent in 2009. Nearly three out of four students cited “Research for School” as the main reason to access the Internet followed by social reasons like chatting/connecting with friends).

This cohort is using the Internet for work and play like never before. That’s why the largest and most lucrative segment for mobile phone makers is not in the premium category, but in the low-priced ones – below $200 (Rs 12,000). Phones in this category comprised over two-thirds of the sales in the country.

Here today, gone tomorrow

The appetite for smartphones has caused a tumult in the manufacturing world. Companies have begun desperately jockeying for positions to tap into this unprecedented opportunity. Yet, possibly no other industry has proven to be so volatile as the shifting sands of technology here can bury one player while crowning another king. Yet, the new leader is more than aware that this crown is ephemeral, and any easing off on any of the levers that lead to supremacy—product design, marketing or distribution—will result in a trip to the cell phone graveyard.

No company knows more about this plummeting of fortunes than Nokia. About five years ago, it was virtually the emperor of the global mobile market with over 70 per cent share. Today, it has free fallen to 35 per cent, with an even more abysmal 4.3% share in smartphones. Its recent efforts to claw back with its Lumia line of phones, however, have impressed critics, giving a boost to the player who was by and large sidelined in this feeding frenzy—Microsoft.

In fact, Microsoft’s purchase of Nokia’s phone division has suddenly sparked life back into a company that was, according to many observers, in deep trouble. The darling of the ’90s, this software giant flattened Apple’s attempts to establish a rival operating system by cannily making Windows a de facto choice for corporate offices. Then came the noughties, when Steve Jobs engineered one of the most storied revivals in business history by launching the iPod, iTunes and the iPhone, creating a must-have ecosystem that allowed it to eclipse its former rival in market capitalization by nine times.

Today, globally, Samsung and Apple are fighting a tooth and nail battle for smartphone dominance, while Google’s Android OS (80%) dwarfs that of Apple’s iOS (18%). In India, however, a different story has unravelled. Apple is nowhere to be seen and while Samsung still occupies a dominant position with 34% of market share, nipping on its heels are indigenous phone manufacturers such as Micromax (20%) and Karbonn (10%). These two have been steadily gaining share at the expense of Samsung, which once had a 40% share. In fact, research suggests that local handset brands have now close to 47% market share in India’s smartphone market.

This is a major development for a country that was unused to seeing product revolutions happen. The few glimmers of local products with potential for global markets were the accounting software Tally, Bajaj’s Pulsar line of motorcycles, or, more recently, Mahindra’s XUV 500. Now, Micromax is getting ready to storm the bastions of Russia’s smartphone market, with Hugh Jackman as its global ambassador. Micromax’s performance seems to suggest that the smartphone game is less about indigenous R&D and more about branding and distribution. Most of its phones are indistinguishable from those of the Android-based biggies.

A hazy future

It is a high-stakes, high-risk game. For instance, IDC recently reported that the once-iconic phone maker, BlackBerry’s Research in Motion (RIM), which had one of its most ardent fan bases in India, sold just under 70,000 units, or less than half of what it sold in the previous quarter. This has apparently been disputed by RIM. A spokesperson responded by saying RIM only had high-end devices like BlackBerry Z10 and Q10 selling in India during the quarter, hence the low numbers.

Sony, on the other hand, has declared the smartphone, and not television, to be the centre of its entire product strategy. Korea’s LG and China’s Lenovo have waded into the space with great ambition, while majors like Panasonic have balked and hung up their boots. After introducing its line of smartphones with great fanfare recently, Panasonic has announced it will not manufacture and sell its own smartphones under a vertically integrated business model, but will instead use the company’s brand to hawk phones made by others.

In other words, the future for companies is still ambiguous at best, especially when most phones have the exact same microprocessors made by the same handful of chip foundries in the world. This can make selling phones a commodity business at best. Of course, the benefits are huge, namely faster,
better performing devices that are already acting as catalysts for revolutions in healthcare (diabetics can now check their insulin levels daily on a smartphone App instead of getting a test done in a lab) and education (rural schoolchildren are being handed out free tablets with cutting-edge educational software).

Besides, the Chinese are coming. Xiaomi is proving to be a very capable giant-killer amongst high-end smartphones while Gionee could easily take the battle to local players like Micromax on the lower end and woo the cost-conscious Indian consumer.

Smartphones themselves may not survive the long haul. Wearable computing—phone watches and eye-head sets like Google Glass—is already promising to upend the very utility and definition of what a phone should be. But for now, it’s all about what that computer in your pocket can do for you and at what price. Meanwhile, it’s time to write that obituary for your PC.



This story is from the print issue of Hardnews: DECEMBER 2013