What The Arrival Of Contract-Free £20 ($32) Smartphones Mean

T-Mobile UK has put on sale an Android smartphone for just £19.99 ($32) on pre-pay, with no contract commitment whatsoever. This price for the Pulse Mini includes 20% UK sales tax (VAT) as well as six months of free mobile Internet access, but excludes a compulsory £10 airtime top-up.

This pricing places smartphones into the mainstream. And, as consumers no longer have to pay a premium for the phone over a basic phone or a featurephone and nor do they have to choose to pay extra for a data tariff, many consumers will buy the Pulse Mini without even realising it is a smartphone.

Other smartphones remain a little more expensive for now. A number of smartphone models from Samsung, LG, HTC, SonyEricsson, and RIM are on sale in the £80-£150 range on pre-pay in the UK. Over the next few years, these prices will reduce and will place big-name-brand smartphones into the mainstream phone market pricing, too.

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We Correctly Predicted Smartphone Trends

To be a great analyst, it's not sufficient to say what will happen. The best analysts make the call and tell clients what actions they should take as a result. But before creating those client recommendations, it's vital that an analyst correctly predicts what will happen. Otherwise, those recommendations are based on the wrong foundations.

Earlier this year, we published our Smartphone Trends 2011 report, which I wrote back in November. In it, we set out the key trends that smartphone-related product strategy needed to be built around. There are numerous predictions in that report. But already at the end of the first quarter, we have successfully predicted numerous events. Read the report now for the rest.

Events that we predicted include:

  • The arrival of 3D smartphones from HTC and LG. We identified 3D smartphones as a trend that would arrive in western markets. It has: LG's Optimus 3D was announced at Mobile World Congress in February and goes on sale in Q2 in Europe. It's being sold in the US as the AT&T Thrill. HTC's 3D Evo was announced at CTIA for US CDMA networks and is coming to Europe too. My colleague Nick Thomas will be publishing a report on 3D product strategy across all devices soon and what actions firms must take now.
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The Consumer Impact Of An End To "Unlimited" Mobile Internet

Last week, O2 in the UK and AT&T in the US announced an end to "unlimited" mobile data on their smartphone tariffs.

Many have argued -- some discussed with me on twitter last week -- that the impact on consumers will be minimal as very few consumers currently use a greater amount of data than the new data limits. This is only a part of the story. There will be unintended impacts as the new limits will alter mainstream consumer behaviour:

  • The perception of "unlimited" is as important as the reality. Like the word "free", "unlimited" is a powerful word in helping consumers feel sufficiently comfortable to experiment with the mobile Internet. Any sense that a consumer will incur extra costs, or a glacial throttled speed, as a result of using too much data will cause consumers to alter their behaviour. And, as mobile Internet adoption is still relatively small, this could cause a slowdown in usage that will harm the mobile industry. Handset makers will see slower demand for advanced smartphones while operators will see lower revenues, alongside the lower data costs that they so desire.
  • Consumers' expectations have been set by their home broadband experience. Before the arrival of unlimited mobile Internet tariffs three to four years ago, adoption of mobile Internet was tiny. The vast majority of new mobile Internet users never used the older tightly limited mobile data tariffs -- the time when 10Mb was a generous bundle -- but the new consumers that have started using mobile Internet in the post "unlimited" data era have been conditioned by home broadband. In the home, most packages are either unlimited and marketed as such, or so generous with their data limits so as to be effectively unlimited.


In a similar vein, I'm unconvinced that the widely publicised AT&T and O2 moves will mean an end to "unlimited" mobile Internet tariffs across the board in Europe. In diverse countries across Europe there is fierce mobile operator competition. The iPhone is non-exclusive in most countries. Other advanced handsets typically enjoy brief periods of exclusivity before being offered on all operators.

This competitive dynamic enables consumers to pick and choose the best offer from the variety available, and so encourages mobile operators to differentiate. O2 showed its hand early with its new iPhone and smartphone tariffs last week, I expect we will see a variety of options from the six operators in the UK that sell the 3GS today or have announced they will sell the iPhone4. In markets with fewer mobile operators -- such as France -- and a lesser competitive dynamic, the range of offers will likely be more uniform.

Is The iPad A PC Or A Smartphone?

Today's FT reports Microsoft CEO Steve Ballmer's take on this question:

"To a man with a hammer, every problem looks like a nail," he said. “We have our hammer [with Windows],” while Apple had its own hammer with the iPhone operating system that it was expanding to support the iPad.

This is a supremely shrewd observation, but it misses one important fact: Microsoft has a rival to iPhone OS in the mobile device market too, and one which would be ideally suited to tablets. The right tools are Microsoft's true mobile-optimised platforms on which Microsoft's handhelds, phones, and Windows Phone 7 are built. See more information, including photos, of the proof of concept Microsoft tablet running Windows Embedded Compact here in Engadget's Computex coverage.

This is significant. Because Microsoft has failed many times in the past using full versions of Windows in tablet designs such as Ultra Mobile PCs, Windows for Pen Computing, Windows XP tablet edition and the rest. These past failures were due to a lack of convenience. Microsoft must avoid repeating history now. So, Steve Ballmer is wrong: Windows 7 is not the right hammer for tablets to compete with the iPad. Why?

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iPad Delay, European Pricing Opportunities

Today, Apple announced a delay for non-US availability of the iPad due to extremely high levels of US demand.

This is credible. The iPad is a new category for Apple and arguably there is nothing quite like the iPad available from any other firm, certainly nothing with the same high media profile supporting sales. This makes forecasting sales harder than it would be for a new phone or a new computer. If the iPad was just a PC in tablet form forecasting would be easy. It's not.

With iPhone, Apple staggered its multi-country roll-out by five months. For iPad, Apple had ambitiously set out to shrink this lag to just one month - perhaps Apple was simply over optimistic?

However, even with high demand, it's completely possible that Apple is experiencing manufacturing or component problems as well. As a colleague once said about football: an incident can be both a foul and a dive.

What's going to be more interesting than today's news will be iPad pricing in Europe. Apple still hasn't announced prices and now plans to unveil them on May 10th. In the US, the iPad is sold at full retail price for both the WiFi-only and 3G version. Mobile internet data is offered as an ad hoc pre pay addition. In Europe, I wonder if Apple and its European operator partners may go down a different route.

If mobile operators were to subsidise the iPad, as they already do for the iPhone, it would completely alter the sales prospects for iPad in Europe by dramatically reducing the up-front price that consumers pay and increase sales.

Regardless, until Apple announces both the price structure and actual prices, we'll hold off making a call on iPad sales outside of the US (where we forecast 3 million first year sales).

Why and Where Apple Should Innovate with iPhone OS 4

Everyone agrees Apple is innovative. Even mobile industry insiders reluctantly admit Apple is now a leader in mobile. But one set of innovation isn't enough, especially in the competitive mobile market. Apple has to continue to improve, to continue to break new ground, and to expand its product line to catch new opportunities. That was the formula that enabled Apple to resist all-comers in the mp3 player market for many years after the iPod's 2001 launch. With the iPod, Apple kept improving both its hardware and software and shifted from offering a single model with a single form factor to selling four models: Shuffle, Mini/Nano, Classic and Touch and in so doing reaching a range of price points.

So, where should Apple focus with the next version of the iPhone software? I'm approaching this from two angles: what are the new opportunities that Apple should seize? What are the weaknesses of its current offering that need improving? Here's my take:

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iPad: Consumers are already embracing the cloud. They just don't know it

George Colony is absolutely right when he argues there is a new form of software emerging (see Beyond iPad Yadda Yadda). This is precisely the line I started to set out in this report, Consumer Cloud Services Are The Foundation For Multidevice Strategies . Those that argue that consumers are not using the cloud have failed to grasp that everything from Facebook, through Hotmail and Google Maps are based on cloud concepts extensively, and those are mainstream mass market services that demonstrate the co-operative software model that George outlines.

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Microsoft's Response to Apple iPad

The iPad is not a PC and Microsoft will not respond to it with Windows 7-based tablets (tablets that use the full PC version of Windows have different strengths and focus). Microsoft is too smart a firm to try an oranges to apples fight. iPad is built on a smartphone OS -- iPhone OS -- and not a full fat PC computing operating system. Microsoft will respond in kind.

Microsoft's real response to iPad will use a mobile-focused design. Look to the new "Metro" user interface design style for Windows Phone 7 series as a guide to Microsoft's direction. These early design mock-ups show the spacious, magazine-style typography and visual layout that carried through into the finished look that Steve Ballmer announced at MWC. Am I the only person that thinks this style would be ideal for a slightly larger device than a smartphone, like a touch screen tablet?

Microsoft has already emulated a number of parts of Apple's iPhone strategy: the new Windows Phone 7 OS limits multitasking; has no copy and paste initially; actively courts app developers; and has a centralised single distribution market for apps. Microsoft has the capability with the Windows Phone 7 series design to emulate iPad too. We can only guess Microsoft's intent, but with Windows Phone 7 series Microsoft is putting all the right capabilities in place to take its smartphone OS into other smart mobile devices, and not just further Zunes, but tablets too.

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"Cloud" is the Missing Ingredient for a "Third Device" iPad Strategy

Apple pitched the iPad at launch as a third device that consumers would use alongside the PC and the phone. While the iPad has genuinely innovative software and hardware, Apple has done little new to make the device easy to use in tandem with existing devices, beyond what is already in the iPhone. Consumers must sync the iPad using a cable with PC/Mac iTunes to transfer music or videos; while photos and podcasts are easiest if loaded the same way.

Apple has left too much in the hands of consumers to transfer and manage manually. For example, if a consumer wishes their video viewing position to be remembered across their devices, then they must sync first the iPad with iTunes, followed by syncing their iPhone or iPod. Contrast that with Amazon's Kindle: Whispersync maintains a person's reading position automatically between Kindle apps on PC or iPhone and Kindle eReaders.

The same issue hits multiple areas on iPad from games' scores and progress, the reading position on Apple's own eBooks, and the preferences of Apps downloaded from Apple's App Store, email, calendar and contacts.

There are workarounds for some of the above from app developers. Games built with the Plus+ network essentially have their own cloud service built in. Consumers may sync Calendar/email/contacts with a cloud by using a specific provider such as Google apps, a corporate account with Exchange, or Apple's own MobileMe. Other apps have their own app specific cloud abilities like Evernote or the iPhone/iPad Kindle app.

For iPad to really fly, preferences, usernames, passwords, and content should transfer automatically across the different devices that Apple intends consumers to use together: PC, phone, and iPad. Apple should use a consumer cloud to do it. Consumers should not have to think, all of this should just work. Tethered sync is a twentieth century product feature.

If Apple does not extend its consumer cloud services, iPad will rely on a patchwork of cloud services to deliver the third device experience. But, as a consumer cloud is essentially software, Apple could easily fix all of these things mid-life for existing iPad owners. iPad is after all very much a version 1.0 .

Every time I think of the iPad as "the third device," the image of Orson Welles from the film the Third Man appears in my head:

"You know what the fellow said – in Italy, for thirty years under the Borgias, they had warfare, terror, murder and bloodshed, but they produced Michelangelo, Leonardo da Vinci and the Renaissance. In Switzerland, they had brotherly love, they had five hundred years of democracy and peace – and what did that produce? The cuckoo clock."

iPad is no cuckoo clock, but it's not, yet, a Michelangelo either.

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Why Mobile's Time Has Come

Virtually every firm has been burned in the past by failed mobile initiatives that launched before the market, consumers, or technology were ready. This time is different. Why?  There's now the critical mix of great devices; widely available fast mobile networks; often unlimited data tariffs; a shift in mobile carrier attitudes; and a focus from US-based firms placing mobile as a core part of their strategy, this raises the amount of mobile services and content available and in so doing boosts the value of mobile to every consumer.

The spectre of Apple's innovation has driven every mobile handset maker, every mobile operator, and every media or entertainment firm to raise their game.  It's taken a while for those new smartphones and service plans to come to market. Now they are, and it is changing everything.

We're in the process of ramping up our research around mobile product strategy to help all types of companies -- in essence every firm that has an Internet presence -- to determine when and how to embrace mobile. We've published numerous recent reports, some are referenced here.

And, to pull together in a little more depth why mobile and why now, and set out how we can help different types of firms with their mobile strategy, we've put together a short document. Anyone can read this, whether or not you are a Forrester client:- Forrester's CPS Mobile Consulting capabilities

For the cynics out there, especially those too lazy to follow that link, here's my take on why mobile's time really has come:

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