A $99 Smartphone Key for Handset Sales

Price is still the main driver for all cell-phone buyers.
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What will it take for the handset market to keep expanding?

Today's

New York Times

poses the question "Can The Cell Phone Industry Keep Growing?" The story attempts to determine whether the cellular industry can advance despite sagging handset sales, industrywide layoffs and a dearth of new customers.

The story quotes analysts and pundits as believing the industry's salad days may be over. Despite a few protests and shoulder shrugs to the contrary, sales projections for 2009 are stagnant at best and might not pick up again after the current recession.

(Photo gallery: Smart Phones )

What the industry knows and what everyone else must remember is that smartphones -- and all other top-of-the-line handsets -- make up a small slice of the U.S. cell-phone sales pie. Think in terms of 10% or so for smartphones vs. 90% for all other handsets. These number can be traced to one simple fact -- most cell-phone buyers prefer not to spend more than $99 on a new device.

Think about that. Most of what you read or hear or even desire about

Apple

iPhones

(AAPL) - Get Report

,

BlackBerries

(RIMM)

and touch-screen models and technologies from

Google

(GOOG) - Get Report

,

Nokia

(NOK) - Get Report

,

LG

,

Samsung

,

Motorola

(MOT)

,

SonyEricsson

(ERIC) - Get Report

and the others is just a drop in the bucket when compared with what customers really buy.

(

Motorola is looking to find its sales niche in the midprice range

, as

TSC's

Scott Moritz recently reported). Of course, when someone walks into an

AT&T

(T) - Get Report

,

Verizon

(VZ) - Get Report

,

T-Mobile

(DT) - Get Report

or

Sprint

(S) - Get Report

store, he or she will head directly for the shiny new smartphone with all the hot new features.

But after they get to study and hold it in their hands, reality nearly always takes over. Inevitably, the follow-up question mentions other more modestly priced models. According to sales records, those cheaper models are what they wind up buying.

Worse, that was before the economy took a nose dive. Now that iPhone devotees have their phones, and CrackBerry addicts have theirs, what's next for the industry? Cheaper smartphones, that's what.

Look for instance at the Palm Centro. Originally introduced a year and a half ago,

Palm

(PALM)

has since sold more than a million of the little smartphones. Know why?

Because aside from the fact that they're small and cute, they offer many smartphone features at a low price. Sprint subsidized the Centro and sold it for $99 (the magic price point). In some cases, you can now find them for half that price and available for purchase nearly everywhere.

Centros measure off the charts on a price vs. value scale. Featurewise, it's right up there with all the other smartphones, although the touch-screen technology is somewhat primitive compared with an iPhone, G-1 and others. Nonetheless, it is a touch-screen smartphone, can surf the Web, get your email (including corporate

Microsoft

Exchange mail), help you with directions, store your favorite music files and lots more. All for under $100.

That corporate email feature might become even more important in the near future, especially if companies, large and small, decide they would rather not spend $200 to $400 per employee to replace handsets. Fifty dollars vs. $250 per can add up very quickly. Whether or not corporate workers will be able to download music and apps from the iTunes store probably won't matter. If people can be called and get their email on a $50 smartphone, why would they spend more?

I agree that cell-phone industry growth as it was expanding in the past few years may be history. But I expect manufacturers and cellular carriers to shift their focus to less-expensive options, which could be a boon to them and to customers alike.

Even without a constant influx of brand new customers, as long as handsets have a relatively short (two to three years) lifespan there will continue to be a need for millions of increasingly better devices at increasingly better prices.

Gary Krakow is TheStreet.com's senior technology correspondent.