It is that time of the year, when we need to look ahead to the important trends that will define 2011. This is the first of a series of articles on the trends I see for 2011.
Smartphones have been the rage for several years. This trend will continue. The question is where the best opportunities within this arena are.
Four important issues within this sector will drive influence the best investing opportunities:
• Cloud computing providing data at users' fingertips,
• Businesses migrating adopting the smartphone at the expense of laptops;
• Companies joining the bandwagon in developing their own smartphone applications and;
• Lack of sufficient revenue opportunities for Google's Android operating system.
Data at Your Finger Tips
As cloud computing (another trend) continues to march forward, individuals to corporations find they have access to an ever-growing wealth literally at their fingertips. The easy that users can retrieve the information they need with their smartphones means they will depend even less on their traditional computers (i.e. PC's and laptops).
In addition, access to less power hungry cloud based applications helps to lower the demand for more disk density, processor speed and RAM along with better batteries. This leads to lower cost for smart phones enabling users to buy more applications, many that will be available in the cloud rather than downloaded on their phone.
The manufacturers and vendors that do the best job of facilitating access to all this information will see their products outrun the competition. Here Apple with their iPhone and Google's Android are likely to standout. RIM faces the difficult problem of sustaining their powerful business platform while opening it up to be an easier to use tool. My Caughter, an attorney, recently bought a Blackberry curve to replace her older Curve that crashed. She chose the Curve again since she would not have to learn how to use one of the other Blackberries. Each time someone has the opportunity to move to another phone, they consider whether to use the one they know vs. one they do not. This opens the door to competitors' phones.
Winners: Apple and Google and Android phones
Loser: RIM, Nokia
Business Computing moving to Smartphones
Most smartphones have enough computing power to handle most of the functionality of the typical information worker. Started by the Blackberry these devices make it easy to manage email, use text messages to communicate, check the latest posts on social networking sites, search for important business news items, and plan meetings.
You can design, prepare and update documents including sales reports, project plan updates, and agreements. Cloud computing providers such as Salesforce.com and Oracle are making it easier for all business people to use their smart phones to conduct business without having to open up the laptop and boot it up.
As the next generation of workers starts their careers, they are very comfortable with using their smartphones for almost everything. In fact, they will push companies to use smartphones in place of laptops. By the way, very few of them use Blackberries.
Winners: Apple, Google and Android phones, RIM
Losers: Nokia
Companies developing their own Aps
Tighter integration with social networking sites for business purposes. Ability to know where you are at any time will raise privacy issues, though it might help connect with a business partner or prospect.
Over 130 Billion texts are sent each month. Text messaging, the most widely-used form of mobile marketing, gets, on average, 7x the response rate compared to emails. And since texting requires no incorporation of fancy graphics, the process is relatively simple to use even for non- techie business owners.
For example, retailers are hope to find ways for consumers to use their phones to enhance the overall shopping experience.
• Bar Coded Coupons. Scannable bar codes on consumers’ phones to get, for example, a free drink.
• Pay by phone. Starbucks is testing Starbucks Card Mobile, which allows customers to pay for coffee in the shop with their phone.
• Integration with real-time data. Ace Hardware is combining weather forecasts with text alerts to sell more shovels.
• Building out their profiles in localized smartphone apps. Gap Outlet, Sports Authority, and REI are experimenting with local smartphone apps, such as Yowza that delivers coupons to customers that are nearby and FourSquare that allows retailers to offer specials to customers as they explore the neighborhood.
Winners: Apple, Google and Android phones
Losers: RIM and Nokia
Lack of Revenue Opportunities with Android
Many people focus on the competition between Apple's iOS operating system and Google's Android. You see announcements that Android was on more smart phones than the iOS in recent quarters. This is true as the Android system has found a home with several smart phone manufacturers who compete with Apple. Many of these phones are in the lower price range for smart phones encouraging more sales of the phones.
The problem is Apple understands the iPhone is not a technology; rather it is a business that must have growing revenues and profits for all parties. Apple closely controls the way applications use the phone to be sure no unusual problems crop up.
They learned from Microsoft who released their Windows Phone operating system with little control on how manufacturers and application developers used it. Over time many customers became upset, as the phones often were underpowered, came with applications that failed occasionally with some applications overpriced. A number of third parties tried to build a better user experience on top of the operating system causing further confusion among customers. Customers became unhappy and Microsoft lost the battle for the phone operating system.
Android remains a techie's operating system without a good business model to sustain it. The system is open and while Google has some restrictions, manufacturers are using the platform from very low cost phones to the highest end. Some experienced analysts believe that Android will encounter many of the same problems experienced by Microsoft.
While there are a number of applications for the Android, developers first build for the iPhone as they have the largest market share. In addition, there are many industry specific applications opening the door for the iPhone to penetrate the business community. Healthcare is a good example where the iPhone is the preferred handset among doctors and other healthcare providers.
What is interesting to note is RIM is the smartphone that is suffering the most from the roll out of the Android operating system. According to market research group NPD, the Droid X and EVO 4G were the fourth and fifth best-selling phones in the third quarter of 2010, trailing the iPhone 4, BlackBerry Curve 8500, and LG Cosmos.
Apple is constrained by their agreement with AT&T in that they cannot sell iPhones through other carriers in the U.S. Once that constraint is gone, Apple should see sales of the iPhone pick up. Both RIM and the Android system are sold through all major carriers.
Apple is the number one phone in sales while Android is number on operating system as it benefits from sales by many manufacturers on all the wireless networks.
Winners: Apple, RIM
Losers: Google and Android phones, Nokia
The Bottom Line
As you see, I like Apple as they have the best current solution for the smartphone arena. I believe that Research in Motion faces a large hurdle to migrate its very successful Blackberry brand to a more ubiquitous smartphone solution that is more than an excellent messaging device. Google with their Android operating system has the potential to be a significant player if they can overcome the lack of a viable business model.
Finally, Nokia faces a dismal future until they find a viable smartphone solution. If they do, their widely known name and access to carriers will enable them to return as an important player. Until then it is a wait and see game.
If you are interested in using ETFs to invest in the smartphone trend without having to make a big bet on one stock here is a good list:
• iShares Dow Jones U.S. Telecommunications Sector Index Fund (NYSEArca: IYZ): This fund gives exposure to carriers and suppliers that are responsible for producing the services and infrastructure that support smartphones.
• First Trust Dow Jones Internet Index ETF (NYSEArca: FDN): ETF play for investors who aren’t fawning all over Apple and predict that the Android will emerge the victor. Google represents close to 10% of the fund’s index.
• PowerShares QQQ (NASDAQ: QQQQ): Apple represents the single largest chunk of this fund, making up nearly 20% of its portfolio, making this ETF an iPhone/iPad play.
