Although smartphones have seen explosive growth within developed markets, smartphones as a whole only represent about 25% of all mobile phones worldwide. With the prospect of $100 unsubsidized smartphones on the horizon, the industry is nearing its next growth phase, which will be largely driven by increasing rates of adoption within emerging markets. The Times of India is reporting that Samsung has partnered up with Indian mobile carrier Reliance Industries to bring a $100 4G-powered smartphone to the Indian market later this year. Not only are the implications of $100 smartphone tremendous for the world, the race to the bottom among device makers has officially begun.
Over the years, the price gap between the feature phone and the smartphone has become increasingly narrowed, and we’re nearing the point where the feature phone loses almost all of its credibility. Nokia Corporation (ADR) (NOK) (NYSE:NOK) , which has one foot stuck in the feature phone past, is about to face increased pressure from the prospect of a $100 smartphone. Last quarter, feature phones proved to be more profitable for Nokia on a gross margin basis than its smartphone business. During the period, feature phone shipments declined by 15% year over year, forcing the company to adopt an aggressive pricing approach within its smartphone business. Until now, it appeared that Nokia was muscling the smartphone competition on price relative to features with its Lumia 620 Google Inc (NASDAQ:GOOG) Android-killer. Now that Samsung has thrown a rather large wrench into the mix, Nokia Corporation (ADR) (NYSE:NOK)’s growth efforts may be met with stronger resistance.
As smartphone manufacturers continue to battle it out by offering more technology for a better price, the clear victor to this battle is the ecosystem. At this time, it’s unclear if Samsung will be using Google Inc (NASDAQ:GOOG) Android for its $100 smartphone or its homegrown Tizen ecosystem, and for the time being, it doesn’t necessarily matter. In the grand scheme of things, the ecosystem that gets adopted the most over the long term will win, since it’s the ecosystem that has the opportunity to capitalize on recurring revenues over the life of the device. Not to mention, it’s little, if any skin off an ecosystem’s back if smartphone OEMs battle it out in a race-to-the-bottom showdown. Considering Android’s 70.1% global market share at the end of 2012, it’s clear that Android’s OEM-driven model has given Google Inc (NASDAQ:GOOG) Search and its app store a tremendous business opportunity.