Why smartphone sales are up, but application sales are down

[Bob Russell]

Smartphone sales are up. That's pretty much common knowledge these days, whether we have good data or not. Just like we are convinced that sales of traditional PDAs are slowing down. But do we really understand what is really driving the increased smartphone sales, and who's doing the selling? Probably not.

Even more interestingly, it turns out that there is a general understanding by mobile device software developers that software sales are dropping off despite strong smartphone sales. So what's going on?

Michael Mace provides a great analysis and some answers in his lastest Mobile Opportunity post, Why are mobile application sales dropping? You don't want to miss his article, but here's the bottom line: "

* Palm OS and Windows Mobile, taken as a whole, are not growing. That probably accounts for the decline in app sales on those platforms.

* Smartphones in general are less likely than handhelds to drive app sales. The more handhelds are cannibalized by smartphones, the tougher the application sales process becomes. This would worsen the effect of the flattening demand for Palm OS and Windows Mobile.

* The platform that is producing lots of smartphone growth[, Symbian,] isn't currently a big driver of sales of sophisticated apps."

So smartphone sales growth is driven primarily by Symbian, but people don't even think of Symbian phones as an application platform. PalmOS and Windows Mobile sales are not growing. To make matters worse, many smartphone sales for PalmOS and Win Mobile are for replacement/upgrade purchases, so the buyer already has the software he or she needs. It will be interesting to see how things change in the next few years as the product quality and market penetration increase.

Iimportant note: DON'T PANIC!

We are talking about current trends. The marketplace will work everything out. There is a tendency for mobile fanatics, myself included, to get easily worked up into a frenzy whenever anything seems to infringe upon our private fantasy of a perfect future for the mobile device industry. Life isn't perfect and it never will be. The mobile device industry isn't perfect and it never will be either. But it will be great, nonetheless.

To put things in perspective, the mobile device world is still one of the hottest technology topics, and boasts outstanding growth, especially if you include mobile technology outside of smartphones. It seems that everything is going mobile these days. What a wonderful time to be a mobile device fan!

Don't forget all the doomsayers about the PC industry. There were hurdles and obstacles and uncertainties just like for mobile devices. At first, people said nobody would ever want to use computers. Then experts talked about how expensive they were. Then when the price came down, experts said that nobody could afford to make and sell them anymore because there was no profit in them. Then it was said that the market was saturated and volumes would continue to fall. But the desktop computer is one of the greatest technology success stories of our era, and the same thing will be true of mobile computing solutions in the future. Don't worry, this is going to be a wonderful ride!

Postscript:
I have learned that Mike is not only a fascinating writer and speaker, but that it's impossible to get his input on a topic and not have it affect the way you view the topic. He seems to plant thought seeds that grow into all kinds of new ideas that tumble around in your cranium like in a cement mixer. Fresh perspective is a rare, but wonderful commodity. So if you are interested in mobile computing, be sure to keep up with his blog, Mobile Opportunity. If you are interested in business strategy, be sure to follow his book writing blog, Stop Flying Blind.

[Laurens]

Originally Posted by Bob Russell

We are talking about current trends. The marketplace will work everything out. There is a tendency for mobile fanatics, myself included, to get easily worked up into a frenzy whenever anything seems to infringe upon our private fantasy of a perfect future for the mobile device industry. Life isn't perfect and it never will be. The mobile device industry isn't perfect and it never will be either. But it will be great, nonetheless.

While the mobile hardware market will undoubtedly continue to grow, the question is whether the 3rd-party software market will still be healthy enough in the future. At least that's what the article is about. It doesn't give much cause for optimism, actually.

[Bob Russell]

While the article doesn't give much cause for optimism, my point is that there's a lot of evolution to still occur through the marketplace.

Some changes I suspect will evolve:
1) Better multiplatform development environments. This could be wishful thinking in the short run, but Rubicon consulting has just discussed Flash for example as making a bid to take over as the web platform of choice and make the OS irrelevant. Don't remember if Michael Mace wrote that one or someone else. But we get some significant economies of scale if you can write a program once and sell it across the markets for cell phones, Win Mobile smartphones, PalmOS smartphones, Symbian smartphones, etc. That would mean that even with similar levels of sales, the profits for developers would be higher. Or lower sales might even be acceptable on an industry level.
2) Software will get better, easier to use, and more widely accepted.
True, there are people that only get MS Office for their PC and that's the end of it. But as PC software got better, it got more useful, and I believe that helped sales.
3) More people will have mobile devices and be ready to buy. Right now, even if they might be buyers, they probably don't know what's available, don't want to bother learning about it, have problems if they do try, etc. But just like iPods... once they have a friend or neighbor using it and helping them with it, they want one. Same with mobile devices. If everyone has one, and is adding software, then all their friends will be emboldened.
4) The best software will continue to have stronger sales. It will be stuff that "everyone should have." Like MS Office that sells well.
5) The whole mobile market has worldwide potential, and when the worldwide market picks up, it will make for many more sales.
6) Purchases will be easier... people will be able to buy over the air. Right now you have to be pretty adventurous to do that.
7) The whole open source movement will help provide apps. One could argue on the PC platform that open source could put developers out of business also. But I think there's a place for them and they will be able to make money if they have a good product at a reasonable price point. Same for mobile apps. And those apps that everyone needs will get better and better and in many cases there will be open source alternatives. This isn't a joyful thing for professional developers, maybe, but for device users it's great. Already, we see that some of the best software comes for free or nearly free. It's unfathomable how much work people will put into a project they really care about, but nonetheless there's some very generous developers out there (like yourself) that devote countless hours into projects. Whether free, or reasonably priced, I don't think it's all about the money. So even if the market doesn't explode, some of those people will be able to continue to develop software. Some probably won't unfortunately, but hopefully the positive trends will overcome in the long run.
8) Business sales. This could be the pot of gold at the end of the rainbow. We aren't seeing much in the way of app sales to businesses at all, even to business people with corporate devices. Assuming security fears don't completely lock down devices, this is a huge market both for company-purchased and user-purchased software.

I agree that there are some serious hurdles and it will make it harder for software developers. Especially Win Mobile and PalmOS developers in the short run. But there's still money to be made, and I think it will explode in the future.

If nothing else, the worldwide market will help, and it will help that mobile devices will be everywhere and familiar to everyone. It's easy to be optimistic when you're not the one suffering the "short run" pain, but I think things will continue strong. On the other hand, one can't completely ignore the short run. As economists say, "In the long run, you're dead." In other words, the long run may not be completely relevant to the current players. We'll see.

[rmeister0]

I'll just give my 2 cents here.

I bought a SmartPhone early: the Motorola MX200 (iirc). I was also stupid enough to sigh up for a two-year agreement.

Once those 2 years expired, I went out a bought a phone that does nothing but place and receive phone calls. Why? Because that was the one thing that the MX200 couldn't do! Honestly, half the time - and yes, I started keeping track - any attempt to answer an incoming phone call was met with a scren that said "Error - cannot connect to call".

I just don't think there's much call for "applications" on a telephone, Blackberry notwithstanding. The screens are just too darn small, and while they are sufficient for quick "read only" access to data are not very useful for putting data back in.

[Laurens]

Follow-up article: We need a new mobile platform. Sort of.