2010 to be 'year of conflict' in mobile

A group of analysts says that big changes are likely afoot for the coming year as Palm, Nokia, Apple, and others jockey for position

Despite a lagging economy that continues to drag down the market, 2010 promises to be an exciting year in mobile, analysts say.

"2010 will be a year of conflict," said David Eller, an analyst with TownHall Investment Research.

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Eller and others made a range of predictions for 2010 about subjects including the iPhone's dominance, Palm's likelihood to survive and whether the market will see a trend toward unsubsidized phones next year. They don't always agree on what the coming year will bring.

While Eller expects to see the bulk of smartphone sales going to the top four handset manufacturers, making it increasingly challenging for new entrants, others think it's still an open game.

Eller noted that in 2007, the top four smartphone makers sold about 65 percent of the phones, according to Gartner. By next year, TownHall expects the top four will account for nearly 90 percent of smartphone sales, leaving only 10 percent for other manufacturers and new entrants. The top four will be Nokia, Research In Motion, Apple and HTC, TownHall predicts.

But another expert said that recent history shows that new companies have a chance at succeeding in mobile. "One thing we've seen is how quickly things change," said Michael Gartenberg, an analyst with Interpret. "Three years ago if you were talking about companies to watch in mobile, you wouldn't have discussed Apple or Google. Three years later, they're probably two of the most important companies to keep an eye on in 2010."

While Palm has been around for many years, its recent struggles make its position in the top line up of mobile phone makers uncertain. "I think Palm is gone," said Caroline Gabriel, an analyst with Rethink Research. "Palm is living on borrowed time. I see no reason for them to survive long term."

But there's still hope for Palm from some corners. "They're executing in very narrow straits, but they're hitting the mark and staying relevant and capturing, if not significant market share, tremendous mindshare," said Gartenberg.

"Palm's going to have a really good year," predicts Jonathan Goldberg, an analyst at Deutsche Bank who covers Palm.

Android and Windows Mobile are wild cards for 2010, with few analysts willing to predict much about either operating system. While Android has good momentum with many new phones hitting the market, onlookers worry about Google's long-term commitment to the platform and about how fragmentation may affect the platform's potential for growth.

Despite its rapid loss of market share, Windows Mobile is a dark horse that could surprise the market with an updated operating system, Gartenberg said. Goldberg agreed: "Don't count them out yet."

Even if new and fledgling competitors have a chance at success in mobile, none has a chance at unseating the iPhone, at least not next year, many of the analysts agreed. "Is somebody going to generate a phone that is so cool that a satisfied Apple user is going to switch? The answer is no," said Tom Huseby, a managing partner at SeaPoint Ventures.

Goldberg agreed that no other phone will threaten the iPhone next year and possibly beyond. Apple managed to corner the market for portable music players with the iPod and for many years has maintained its dominance. It could do the same in mobile phones, he said.

While he doesn't think that the iPhone is necessarily the best phone out there, the apps are what sets it apart and that will continue to be true next year, he said. "People use the iPhone differently than they use other devices. It's hard to challenge them because of that. It's not a great phone but I keep it because I have nine pages of apps on it," Goldberg said.

Next year, it's unlikely that any other store will manage to match Apple's in sheer volume. And it's becoming clear that volume is critical for one reason: it continues to attract developers. That means that the iPhone, since it's by far the biggest store, is most often the platform to get an application first. "That's what matters to consumers," said Gartenberg. An Android or Nokia customer typically has to wait to get a new app even from companies that make brand-name games or services, he said.

"Numbers matter because it creates the perception of a safe platform," said Gartenberg. Many people will want to choose the platform with the most apps even if they're only going to use a fraction of them. "At the end of the day, if you've got two or three really great Twitter apps, you don't need 50, especially if 47 are mediocre," he said.

Since sheer size matters in app stores, it will be challenging for any of the other stores to catch up to Apple, which has over 100,000 apps. The closest competitor is Android, which has around 15,000 apps.

But changes in app stores are likely afoot, spurred by the expectation that the iPhone will no longer be exclusive to AT&T in the coming year. Once competing carriers have the iPhone, they will likely want to try to better monetize apps, said Huseby. "And, in fact, there will probably be some attempts to change the accessibility of apps based on carrier," he said. While Apple is powerful at retaining its homogenous environment, Huseby expects some fragmentation of the iPhone App Store.

Changes in the way people buy phones are also likely to come next year. "We might see that 2010 is the year we see a real shift in the role subsidies play in the consumer wireless market," said Chris Collins, an analyst with Yankee Group.

T-Mobile was one of the first nationwide operators to market full-price handsets in a big way. Its recently launched Even More Plus plans don't require a contract and cost less than plans with a two-year contract. But users must buy phones at full price.

"The T-Mobile Even More Plus Plan is the first of what will soon be a number of no-subsidy, no-contract plans from network operators," Collins said.

Because many people will be reluctant to pay as much as $400 for a phone, operators will likely offer financing or bundled solutions, he said. "We will see a lot more dynamic pricing to better match how people use devices," he said. For instance, operators may find ways to make people aware of their network usage at any time so that they can choose new pricing plans that give them better deals, he said.

The rumored Google phone may further a trend toward unsubsidized devices. Some media coverage suggests that Google will sell the phone directly, possibly at full price, to end users.

New phone models -- at any price -- will help drive the growing number of smartphones that "come in through the back door" of the enterprise, Collins said. In fact, he said that 2010 will likely mark a tipping point: For the first time, more than half of enterprise smartphones will be bought independently by workers, rather than sanctioned by IT administrators. Currently, that figure is around 29 percent, he said.

The iPhone continues to be one of the most popular phones that workers want to use to access corporate information like e-mail, even though it's not designed with the corporate worker in mind, he said.

But things could get better for iPhone users next year. Developers at Apple have been told that improving the corporate experience of the iPhone is a priority, Gabriel said. They've been told that "by the time of the next major release, they need to have addressed the problems that CIOs have with the iPhone as a proper corporate tool," she said.

Of all the predictions that mobile industry experts have for the coming year, one thing is certain: Change is happening faster than ever. "This is a game where real time isn't fast enough," said Gartenberg. "If you're reacting to what happened in 2009, you won't achieve success in 2010."

Copyright © 2009 IDG Communications, Inc.