Last year, Nielsen ( NLSN) went out on a pretty sturdy limb and insisted that smartphones would be the telephone standard by now. As much as AT&T ( T), Verizon ( VZ) and Sprint ( S) have tried to tilt that balance of power, a market full of flippers and sliders still had enough to say in their defense to fill a bill's worth of anytime minutes. This summer, Nielsen had to backtrack on that estimate after smartphones held only 40% of the market. Market research group ComScore ( SCOR) said even that was an overestimate and measured smartphones' share at a wee bit skinnier 35%. What gives? "You will always have some people who don't want to or cannot have that capability for business reasons," Entner says. "There are places of work that prohibit you from having a device in it that has a camera for corporate or government espionage, so what do you do with these people? Those are the remnants of where smartphones can't go." Those spurning the smartphone are still getting plenty of support in doing so. According to ComScore, the largest shares of the combined smartphone and feature phone market don't belong to Apple, Research In Motion ( RIMM) or Android darling HTC, but Samsung (25.5%) and LG (20.9%). Those companies have managed to step into smartphones without hanging up on lesser models. That's probably the smartest move a phone manufacturer can make right now. Judging by ComScore and Nielsen numbers, smartphones won't grab 50% of market share until late next year at the earliest. Nielsen's also found that, of late adopters who haven't switched to a smartphone, 30% aren't even sure if they want to make the jump or which OS they'd want to buy if they did. Smartphone owners can play around with their apps all they'd like, but there's going to be a subset of texting and talking feature phone owners for a long while. "At the major carriers, 70% to 80% of what they're selling are smartphones and in the overall market, including prepaid, it's north of 50%," Entner says. "Within two years, every major carrier will have about maybe two feature phones left."
Garmin's ( GRMN) been shifting navigation features and maps over to smartphone apps, spreading out its services to personal training equipment and fish finders and sneaking in other offerings such as apps that monitor a car's horsepower and fuel efficiency. TomTom's chief executive, Harold Goddijn, recently told CNBC that his company isn't diversifying fast enough into subscription services, side deals with automakers or its own spread of apps. If these companies are looking at a world without their standalone navigation devices, why do U.S. consumers still buy them? Part of it is that 60% of the U.S. still doesn't have a smartphone and needs a standalone device for navigation and GPS. The rest who still buy GPS devices are a bit fickle, frugal and just a touch lazy. "You can always leave it in your car," Entner says of the devices. "You're changing your phone more often than the GPS device, and I now have three or four attachment for different phones so I can use the phone as a GPS device, which is a major annoyance when each of them is $30 to $40." Other countries don't face this question because they don't have such high-class problems. In a white paper Entner wrote for Mobile Future, he notes that the 21-month handset cycle in the U.S. is the fastest in the world. The average European waits between three to four years before changing phones, while consumers in developing countries can wait as many as eight to 10. "For GPS, we're looking at a global market, and that's what's kept GPS devices in demand," Entner says. "For the U.S. the phone is almost a disposable fashion item and for people in India it's a status symbol like a car -- people in the U.S. change cars more often than people in other countries change phones." Of course, the U.S. wouldn't be able to cycle to the Next Big Phone so quickly if its carriers weren't picking up a big part of the tab. While carrier contracts in the U.S. can eat up more than 60% of an iPhone's upfront costs, buyers elsewhere often have to part with the full price. Some Americans may just keep a cheap GPS around to avoid leaving their $200-plus investment in the car or to spare themselves from having to switch formats, but buyers in other countries already know a cheap feature phone and an entry-level Garmin can be a lot more cost effective than an all-inclusive smartphone -- especially at full price. "How many people would buy the iPhone if it was $600?" Entner says. "We know the answer to that, because the first iPhone was $400 and not a lot of people bought them."
Just two years ago, Nintendo had a firmer grip on the portable video game market than a gamer has on a controller after 12 hours of a Zelda game and a 12-pack of Mountain Dew. Eventually that sugar crash sets in, though, and last year Nintendo's DS saw its 70% market share dwindle to 57% as iOS and Android phone and tablet apps picked up steam. Nintendo's 3DS, launched earlier this year, was supposed to stop the bleeding a bit, but the initial $250 price made consumers used to $200 smartphones feel like they were the ones being bled. Nintendo dropped the price to $169 this summer, but that and 3-D graphics may not be enough to keep $1 or free smartphone apps from jumping all over Mario and company. "Three years ago the dedicated portable gaming devices had an active user base of over 90 million consumers worldwide," says Jesse Divnich, vice president of capital research and communications for video game market research firm Eedar. "In 2011, due to the increase in converging media devices such as the iPad and iPhone, we believe the total market active market for dedicated portable gaming devices has shrunk to 60 million consumers." That shrinking market somehow makes masochistic gaming companies only more inclined to jump into the fray. Sony's PlayStation Portable dominated portable gaming in the mid 2000s, but saw its market share dwindle from 11% in 2009 (compared to 19% for iOS) to a barely there 9% last year. Nonetheless, it introduced its new portable PlayStation Vita console at the Electronic Entertainment Expo this summer and showed off its motion control, touchscreen, GPS and Wi-Fi, 3G and Bluetooth connectivity. "The Sony device is likely not going to make it," Entner says. "A couple hundred dollars for that thing? Why? Because we're not that far yet down the curve as we are here in Japan." The Vita's games aren't delivered in downloadable apps, but on a hard format that looks like an SD card, yet Sony promises to make Facebook, Twitter and Foursquare apps available and says it will partner with AT&T for 3G access. Is this really what gaming companies should be doing right now? "Market share losses to smartphones will probably grow to 30% or more, but not to 100%, so the market will still be quite large for portable gaming devices," says Michael Pachter, video game analyst and managing director of equity research at Wedbush Securities. "At 70% of their peak, we'll still see 20 million to 25 million portable devices sold annually, so Nintendo and Sony will stay in the business." The software will also go a long way in keeping them around. Nintendo's in no mood to license out Mario, Link, Samus from Metroid, Kirby or any of its other holdings to a smartphone app. Sony, meanwhile, already tried its hand at the smartphone market with the Sony Ericsson Xperia Play and $10 versions of old Sony games such as Little Big Planet, S.O.C.O.M. and God of War, to little fanfare. New games from each will be enough to drive demand, but Divinich suggests that Sony and Nintendo continue building around their core gaming element with features such as the augmented reality games, front- and rear-facing cameras, Internet browsers, Netflix streaming and other video content. If not, Entner says users are better off ditching Mario and Sackboy for a smartphone that performs all those tasks and lets users share games and talk to their friends as well. "While the market for dedicated portable gaming devices have shrunk, the total size is still able to support a healthy market for dedicated portable gaming devices; however, the profit potential is certainly not as lucrative as we've seen in years past," Divnich says. "The idea of a dedicated portable gaming device is slowly becoming obsolete, but this doesn't mean the death of Nintendo or Sony, as both of their new portable gaming devices are now able to offer a robust multimedia experience including taking photos, digital app downloads, watching movies and listening to music."
Amazon ( AMZN) had it all: A beloved mobile product, a two-month battery life and an e-Ink screen technology that made it the darling of the literary world and the envy of the tablet set. Then what did it do? It set the whole thing on fire. Listen, we realize the iPad is out there lurking and waiting to mug you of all your books and we know that Android, Research In Motion and Windows tablets aren't exactly making life easier, but really? A $199 tablet with eight hours of battery life, no microphone, no camera and no e-Ink -- just to say you have a color tablet? Entner says Amazon, Barnes & Noble ( BKS), Sony, Pandigital and all other e-reader purveyors need to realize that they're not just pushing some steppingstone technology, but are turning a seemingly one-dimensional device into a beloved medium of iPod proportions. "There is room for special-purpose devices because you can optimize things around it," Entner says. "With e-readers you want to optimize around its small size and its black-and-white screen and it allows you to use very efficient digital ink technology that gives you massive battery life and is very contrast rich, so people can read it easily." It's also created a strong niche of die-hard fans. According to research firm IDC, 12 million e-readers were sold last year, with the Kindle accounting for 48% of all sales. That's well off of the 15 million mark set by the first-generation iPad alone, but small touches such as a zoom feature for text have made e-readers a big hit in demographics tablets haven't been aiming for. "You don't even have to wear glasses," Entner says. "Everyone over the age of 45 or so realizes your eyesight goes out, so with the e-reader it delays getting glasses, and that's why it's very popular in the over-40 segment." They're also a lot cheaper than the competition. An iPad or Motorola ( MMI) Xoom starts at $500, while e-readers are finally hovering around the magic $100 mark. A tablet's functionality pretty much revolves around Wi-Fi access or an "always-on" 3G connection that incurs data charges. Some e-readers may have 3G capability, but they all get along just fine without it -- or the extra weight. Most importantly, however, it's not burning through crazy amounts of battery life with all of the gaming and streaming the kids are doing nowadays. You can charge the more benign models right before Halloween and still have enough battery life left to read A Visit from St. Nicholas ("'Twas the night before Christmas ...") by the tree a few months later. "You have only two colors and it doesn't have to change a lot, whereas a screen for a tablet is very rich in color and needs to change those colors very rapidly for a movie," Entner says. "That costs power and money, and if you look at a tablet, it's basically a screen with a big battery attached to it."
The iPod went from the iconic rock star in Apple's stable to the forgotten stepchild standing in the corner while Daddy shows iPhone's pretty new hairdo on stage for an adoring public. More than a decade after its debut, the iPod now makes up only 8% of Apple's sales. Its clickwheeled Classic incarnation is practically a museum piece, its midsized nano shrunk to the size of an airmail stamp and its high-end version, the iPod touch, is basically an iPhone with a $70-higher price tag but without a dial tone. The rest of the MP3 player market lost its pop once Microsoft ( MSFT) pulled the Zune and consumers just couldn't get excited about rocking a SanDisk on the subway. "The pure iPod and MP3 player is dying or strongly declining," Entner says. "The reason for it is that the smartphones are so ubiquitous and make it so easy to listen to music." What smartphones aren't, however, is tiny. Remember when people used to have to buy armband holsters for their iPod so they could jog or ride a bike or had to wear jackets with interior pockets just to give it a place to rest? The dumb ones would just put it in a backpack and hope a thief couldn't work the zipper? Yep, that's pretty much every day with a smartphone-based MP3 player. The iPod and its ilk now survive based on size and simplicity. The new Nano was initially jeered, but its clip makes it just as portable as the button-sized Shuffle while its touchscreen maintains many of the Touch and Classic's features without taking up so much space. The iPod may not be ubiquitous anymore, but as long as there's someone who needs to jog after scarfing too much pizza on a football Sunday or a child that needs a long-drive distraction that won't cost a Benjamin to fix if it gets damaged, the Nano, Shuffle and other small MP3 players are here to stay for the time being. "You only need a small music player for children or people who want to go jogging and listen to music while they get run over by a car," Entner says. "Other than that, you're using a smartphone." -- Written by Jason Notte in Boston. >To contact the writer of this article, click here: Jason Notte. >To follow the writer on Twitter, go to http://twitter.com/notteham. >To submit a news tip, send an email to: email@example.com.
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