The recession was supposed to impose a new era of frugality. But when it comes to mobile phones, consumers are still eager to open their wallets for the latest thing.
That's made the market for smart phones -- handheld devices that allow people to surf the Internet, check e-mail, play music and games, shoot photos and video, organize their calendars and, yes, make phone calls -- the hottest consumer battlefield around.
Score the latest round for Apple (AAPL, news, msgs), which sold a million of its new iPhone 3G S phones last weekend. In a bid to frugality, the company has cut the price on its older models, but who wants anything but the latest thing?
Before we declare a winner, however, consider this: Last week the Pre smart phone, from Palm (PALM, news, msgs) -- the company that started the craze years ago -- sold out on its release. And Research In Motion (RIMM, news, msgs), which makes the BlackBerry devices that are so popular with business users, saw sales leap an impressive 53% in its most recent quarter.
It's easier to figure out who's losing this war. Thus far, competing phone makers such as Nokia (NOK, news, msgs), Motorola (MOT, news, msgs) and Samsung haven't kept pace. And since smart phones are starting to compete with other gadgets, the makers of digital music players, GPS devices and handheld games, including Nintendo's (NTDOY, news, msgs) DS, could suffer.
Also on the winning side: Best Buy (BBY, news, msgs) and other companies that sell these phones head to head. "We think the summer is going to be huge, and we are fired up by it," says Scott Moore, the vice president of marketing for Best Buy Mobile.
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No recession here
Moore had good reason to be cheery even before the new phones hit the market. Consumers have been buying smart phones throughout the recession.Consider:
- Mobile phones were the bright spot in Best Buy's February-April quarter. Driven by smart phones, mobile sales shot up by about 15%, compared with sluggish 1% sales growth overall.
- At Research In Motion, whose products include the popular BlackBerry Curve, sales leapt as smart-phone fans signed up for 3.8 million accounts, a 65% increase over the year before. Most of them were consumers, as opposed to business users, the company's traditional base. "I think we've demonstrated a lot of surging strength in the last two quarters, and I'm not seeing anyone here take their foot off the gas," co-chief James Balsillie said during the company's quarterly conference call with analysts.
- Worldwide during the first quarter, consumers bought 36.4 million smart phones, an increase of 12.7%. That's pretty striking when you consider that overall mobile-phone sales declined 8.6%, according to Gartner, a technology research company.
Smart phones now represent 13.5% of mobile-phone sales worldwide, Gartner says. And a recent survey by the Yankee Group concluded that 41% of people in North America want one.
Research In Motion plans to introduce a version of the BlackBerry called the Tour and is working on a new touch-screen model with a flip-out keyboard like Palm's Pre.
Nokia hopes to join in, too, rolling out models that should at least sell well abroad, and we may finally see more smart phones using the Android operating system made by Google (GOOG, news, msgs).
Research In Motion co-chief Balsillie expects sales this fall and holiday season to be "very, very strong."
The smart-phone allure
Why are smart phones hot at a time when consumers are otherwise turning frugal?Sure, there are fresh, cool features. The Pre's flip-out keyboard frees up space for a bigger screen and has an operating system that makes the phone more like a computer. Apple broke ground with a touch screen, and the latest iPhone sports a video camera and faster speeds.
But beyond the cool features, smart phones are a big hit for three basic reasons, analysts say:
They have badge value. This marketer's term means that when the phone gets strategically placed on the table at a meeting or during a meal, it sends a message: I'm hip.
"People want to be seen with the product," says Moore, of Best Buy Mobile. "It is statement about you."
At a time when we're worried about job security and our finances, the $2,400 or so it takes to fund a smart phone and a two-year contract may be a good deal on an ego boost.
They're the new Swiss army knife. Smart phones are consolidating several consumer electronics on one device, says Research In Motion's Balsillie. People can now do everything on them -- access the Web and play music and games -- while also staying in touch with friends and family.
That last part is key, especially with the growing popularity of social-networking tools such as Facebook, MySpace and Twitter, all reached easily via smart phones.
What's important for so many users is "the sense of being always connected," says Phil Goldstein, who follows the mobile-phone sector for FierceWireless, a Web site on the wireless industry. "It's having the ability to take the desktop Internet experience with you in your pocket because the browsers are becoming more sophisticated."
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