Smartphone Penetration in Asia Set to Boom

Smartphone Penetration in Asia Set to Boom

Hanis Harun, Global Executive Director, Telecom Practice, Nielsen

Penetration of smartphones stands at more than 40 percent in Western Europe and 38 percent in the U.S. as consumers snap up the latest models and download apps. While fewer than 20 percent of Asia Pacific mobile users currently have smartphones, interest in upgrading is high: nearly half of consumers intend on buying a smartphone in 2011, according to Nielsen research.

In our recent brand surveys, iPhone was second amongst all handset brands in Vietnam in terms of top-of-mind recall, while in Indonesia BlackBerry was in fourth place, ahead of many longer established handset brands. Mind share will likely play a key role in determining which brands will do well in the region, and the iPhone and BlackBerry have much higher mind share relative to their current market positions. For example, in Malaysia, Apple and BlackBerry only have 3 percent and 1 percent share of the smartphone market respectively. But 17 percent and 11 percent of smartphone users would choose Apple and BlackBerry, respectively, as a first choice for their next phone.

Higher smartphone ownership will drastically change how mobile data is consumed by mobile users in Asia Pacific. Nielsen data from the United States show that smartphone users are typically three times more likely to access the Internet (86% vs. 30%), and four times more likely to access their e-mails (80% vs. 21%) via their handsets, compared to non-smartphone users. They are also much more likely to download applications onto their handsets, with iPhones users averaging 48 apps on their handsets and Android phone users 35 apps. Some smartphone users spend a quarter of their time with their mobile phones simply accessing Facebook.

Two other developing trends will also have an impact on data usage:

  1. Tablets: Sales in the U.S. and Western Europe have been surpassing expectations, and there is no reason for this trend to be different in Asia Pacific. As the substitution effect of tablets tends to be against laptops, PCs and netbooks, many — if not most — tablet owners will also own a smartphone. This creates an attractive niche group of “super consumers” who can be reached through an additional high-engagement screen, but who will also have an additional need for seamless service and content mobility in order to remain satisfied and loyal.
  2. Multimedia phones: Phones with touchscreens but lacking open, high-end operating systems provide an opportunity for other players in the mobile ecosystem to ride on the excitement generated by smartphones. While they are technically not smartphones, multimedia phones have many similar features, and often the average mobile user cannot distinguish one from the other. In Latin America, the market share of multimedia phones is growing dramatically as they satisfy consumers who want the features offered by smartphones but are unable to afford them. In India, local brands such as Spice and MicroMax are already making huge splashes in the market.

Increased data usage has a number of implications for the mobile ecosystem. For example, service providers may find it difficult to monetize mobile applications beyond providing data plans, and may lose out to application providers (e.g. Facebook, Google) and app stores. If they are unable to monetize the content coursing through their pipes, they must monetize access both to the pipe, and to the users of the pipe. This means ensuring they have the fastest data speeds and the most attractive subscriber profiles to make themselves a compelling advertisement platform for brands.

Meanwhile, operating system (OS) providers will seek to own all of the “intelligence” in a mobile phone, from the operating system to the middleware, to apps and app stores. Consumers will increasingly tie their personal information to one nexus (e.g. Google Gmail, iTunes ID) and attach various functions to it (communications, information, payments, location, social networking). OS providers need to come out of the background; they need to ensure that their brand is relevant and generates deep loyalty amongst consumers across the entire mobile usage spectrum.

The depth of smartphone user engagement with their devices clearly creates exciting new advertising opportunities. While mobile advertising can provide superior cut-through and impact with consumers, it can also be viewed as intrusive. Mobile advertisers must provide real value or entertainment to consumers within the parameters of the ad campaign itself and reward them for taking the time to engage.

But before all this happens, more subscribers need to use data services, and for that to occur mobile service providers in many markets need to restructure their pricing plans. In many parts of the Asia Pacific region, mobile handset owners are still “under-using” the full features on their handsets as concerns about the affordability and transparency of data pricing linger. In developed markets, generous and unlimited data plans have played a critical role in the surge of data application usage. While unlimited data plans may not be the right solution in all markets, operators nonetheless need to provide better pricing plans with which consumers are comfortable if they want to hasten their adoption of data services.