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Ahonen’s Rest of Decade forecast for smartphones, tablets etc.

Tomi Ahonen has just released his Rest of Decade forecast for the smartphone and PC market. His prediction is that all phones sold will be smartphones by 2018/2019 and that the low-end dumbphone market will cease to exist. Android will be the dominant platform and the PC market will remain almost flat, though within the PC segment, tablets will almost completely replace traditional PCs, holding a 77% market share by 2020. (Ahonen defines a tablet as an ultraportable PC, not a large smartphone. I agree. A tablet can’t be used with one hand while walking down the street. And you can’t put a tablet in your pocket.)

According to Ahonen, as the smartphone market rapidly expands into the price sensitive mass market, Apple/iOS will lose market share and be relegated to a very profitable high end niche player with an 8% market share by 2020. Looking at the entire computer market (PCs, tablets, smartphones) Apple/iOS will manage to keep an 11% market share by 2020, well ahead of Microsoft, which will hold a meagre 6% market share. The smaller platforms; Blackberry, Tizen, Firefox, Windows Phone, etc. will hover around 1% each if they are not almost completely wiped out.

It is hard to argue against Ahonen’s arguments and excellent track record as a forecaster. However, it is worth commenting on a few things.

In my opinion, the forecast for the decline of the traditional keyboard based laptop/desktop PC is overly pessimistic. Ahonen’s forecast is that PC sales will drop to just above a third of the 2013 sales volume (from 315 million units to 130 million). For trained knowledge workers, input via the mouse and a fully equipped keyboard is still much faster than a tablet for extended sessions of concentrated work. In addition, tablets have some significant ergonomic UX/UI problems if used for office work. A tablet placed horizontally on an office desk will catch glare from ceiling lights and give the user “iPad neck” from bending down. A vertically placed tablet in a stand will strain the arms every time the user touches the screen. No one wants to lift their arms and touch a vertical screen in front of them every 30 seconds for eight hours.

Another issue worth commenting on is the market share predictions for Google/Android and Apple/iOS. Even though Android is free and open source, the bundled Google Play is not. Google have moved most of the goodies (features and APIs) from Android into Google Play, where they exert tight control. Any device maker or operator that wants to use Android without Google’s presence will have to kick out Google Play and recreate all this functionality. Device makers are also prohibited from working on Android forks if they want access to Google’s closed source apps and APIs. They will be left with the “naked Android”. In addition, the app developer ecosystem is dependent on the APIs in Google Play.

This is of course in Android’s favour in the short run. However, as the Android platform matures and Google’s behemoth-ness increases, it is possible that another major player will fork Android and start a competing but very similar platform to get rid of Google’s tracking and analytics in their products. Perhaps by supplying a cross-platform tool that will make it possible for Android apps to easily be ported. The likelihood for such a fork has increased in the aftermath of the Snowden leak. Foreign governments will suspect that the NSA has demanded backdoor access to Google’s user tracking and/or Google Play.

Considering that entire populations will soon be smartphone users and that smartphones are an unprecedented spying device (cam, mic, location, call logs, surf patterns, banking, passwords, etc.), foreign governments will most likely find it unacceptable that the US government has backdoors into this data – and that they don’t. For example, from a Chinese perspective, government support of an Android fork will both be sound industrial policy and a way to replace US/Google control and possibly create a viable domestic player that can compete on the global market. (China has already done this but the existing Chinese Android fork is old and not compatible with the global ecosystem of Android apps.)

My point is that Ahonen’s prediction for Android dominance (89% market share in 2020) underestimates the effects of strategic countermoves from other players that view this development as a threat. When one player becomes too strong the entire industry will unite against it. Of course Android will be a dominant platform but the uncertainty is larger than what Ahonen seems to take into consideration.

I am also somewhat puzzled over the forecasts for Apple/iOS. Ahonen has a rather compelling argument for Apple as a niche player. If Apple introduces much cheaper low-end smartphones, they will reach new market segments but they will also hurt the sales of their own high-margin premium models. Apple will most likely prefer to keep stellar profit margins and remain a leader in the premium segment than compete on volume. This makes sense. The size of the global smartphone market is so large that even if you only have a 10% market share, that is enough to reap the economics of scale. And the developer ecosystem and app universe for iOS is already in place and is as strong as for Android.

But if and when the smartphone market really matures, it is possible that Apple will find itself embattled even in its core premium market in rich countries. If customers are unwilling to pay Apple’s premium prices and market shares fall, I think Apple will switch over to plan B. They can easily cut their prices and introduce low end models and go for volume instead of profit margins. In that case, Apple/iOS will end up with a significantly larger market share in 2020 than Ahonen’s forecast of 8% – perhaps 15%. The paradox is that this bad news for Apple will actually translate into a larger market share. Ahonen’s forecast is that it won’t happen before 2020. I think there is around a 40% probability that it might.

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