Increased Consumer Demand for Smartphone Technology

Executive summary

The paper involves an analysis of the effects of increased demand for smartphones on the software industry. The factors that have resulted in an increase in consumer demand for smartphones are also analyzed. These include; increased affordability, advanced smartphone features, and integration of wireless networks by various economies. The increased affordability of smartphones is due to the adoption of price cuts and discounts in the pricing strategies of the producing firms. Incorporation of internet and multimedia features on smartphones has resulted in an increase in their demand. Through development of wireless networks, smartphones have been able to penetrate diverse economies. The paper also analyses the impact of the increased consumer demand for smartphones on the software industry, which has resulted in increased growth in the software industry due to increased contracting. A SWOT analysis is conducted to illustrate the effects of the trend on the software industry.

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Introduction

In the recent past, the technology industry has experienced a rampant growth. According to Binh, Minh, Lan, and Tung, the lucrative nature of the industry has resulted in an increase in the number of investors who have ventured into this industry (5). The effect is that, the intensity of competition has greatly increased globally and hence the degree of rivalry (Binh et al 5). As a result of increase in the level of competition, the management of firms in this industry is increasing their investment in research and development. This enables them to conduct effective invention and innovation. The objective of this is to attain a higher competitive advantage and hence the market share. One of the industries that have experienced extensive growth is the Smartphone industry. However, the degree of rivalry is fairly low in comparison to other industries in the technology industry. According to Ko, Rukavina and Ng, there are several barriers that hinder entry into the smartphone industry (1). Some of these barriers are with regard to; cost of research and development, goodwill and high switching cost. However, the growth in the smartphone industry has been greatly impacted by the development in other related industries and more so the software industry. The discussion of this paper involves an analysis of the trend that has occurred within the smartphone industry and its impact on the software industry.

Trend identification

Increased global consumer demand for smartphones

Over the last two decades, there has been an increase in consumer demand in relation to smartphones. According to Binh et al, there has been a steady growth in the smartphone industry from 1997 to 2009 (5). This is evident from the fact that there has been an increase in the number of smartphones that have been sold from 150 million units in 1997 to 1.2 billion units by 2009. In 2008, the number of units that were sold was 200 million. This was a 35% increase in the volume of sales over 2007 (‘Smartphones: how to stay clever in downturn’). By the end of 2008, the smartphone industry had experienced enormous growth that it became the leader in relation to the handset market. In 2009, the projection is that the volume of sales will exceed one billion during 2009 (Binh et al 5).

As a result of intense competition, firms in this industry are formulating strategies on how to increase their market share. One of the firms that have continued to dominate in relation to consumer market share is Research In Motion (RIMM). According to Paul, RIMM Company has maintained its market share at 41% since March 2009 (Para. 2). On the other hand, the size of growth in Apple’s market share during 2009 was only 1% to settle at 25%. Currently, Palm has the smallest percentage of market share at 7% (Paul para. 4).

A number of factors have contributed to the increase in consumer demand in relation to the smartphones. These include the following:

Increased Affordability

In their operations, firms in the smartphone industry conduct intense market research in relation to the consumers. One of the findings in the research is that consumers are price sensitive. As a result, firms in this industry have incorporated effective pricing strategies (Ethan 3). Amongst these strategies involve price cuts through issuing of discounts. Alternatively, firms in this industry are increasingly adopting variable mark-up about fixed mark-up. This means that the consumers have the capacity to make a bargain on the buying price up to a given degree. The price cuts are mainly integrated at the point of sale (POS).This has resulted in the price of the smartphones being low at the point of sale. The effect is that the smartphones are becoming more affordable amongst the consumers. Paul asserts that there is a higher probability of a firm increasing it smartphone sale if its price point is relatively low (para.3).

According to Ko et al, firms in the smartphone industry have not been able to exclusively differentiate their products (2). This means that the pricing of the smartphones is relatively low since there are a large number of substitute products. The effect is that a large number of consumers are able to purchase these phones.

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According to Webb, firms in this industry are experiencing a high degree of economies of scale. This has resulted in a reduction of the cost of smartphone manufacture (8). The consumers are as a result benefiting through a reduction in the market price of smartphones. According to a survey by Merrill Lynch, it is expected that the global demand for smartphones will increase into the future. By 2010, approximately 40% of all the phones in the world will be smartphones (Webb 8).

Adoption of wireless technology

Various economies are increasingly adopting wireless networks. This has enabled the smartphones to be effectively distributed in various markets. This is because the wireless technology provides a platform for effective operation of the wireless technology. According to Webb, one such technology that has resulted in effective market penetration of smartphone is the 3G network (8). For instance, countries in the Asia-Pacific region are increasingly integrating wireless technology into their economy. Currently, the size of market in relation to smartphones in this region is relatively low. In this region, the total sale of smartphones is estimated to only account for 37% of the total global sales. The leading countries in relation to sale of smartphone in this region are Japan and South Korea. On the other hand, the total sale in the European market average 27% of the total global sales (‘Smartphones: beyond voice to entertainment and information). With the increased integration of internet technologies in the European region, it is expected that the total sales of smartphones will exceed those of the Asian region.

Advanced Features

Firms in the smartphone industry have heavily invested in research and development. The result is that there is innovation of smartphones with superior features. Some of the features that the smartphones have incorporated are related to those of the mini computers. According to Shahahine, the smartphone manufacturing companies are producing smartphones with a wide range of features (4). Some of the features include internal storage devices that can store a large volume of information such as the Random Access Memory (RAM) and Read Only Memory (ROM) (Shahahine 4). It is also possible to expand the storage capacity through the use of memory cards. Another feature that the smartphones have incorporated is the operating system, (OS) which is highly advanced. The OS enables the smartphones to operate diverse applications. For instance, games, books and document viewers, calendars amongst others. Through features such as OS, the smartphones enable the consumers to access the internet more effectively.

Globally, the consumers are increasingly integrating internet technology in their activities. This means that the demand for internet has increased over the past decades. As a result, consumers have increased their demand for smartphones. This is because the smartphones can access the internet at a higher speed (Palwaski Para. 7). According to a research conducted by RIMM Blackberry which has a significant market share in relation to smartphones, the size of demand related to wireless e-mails has increased significantly (Webb 8). Additionally, studies by Webb have revealed that there is a high probability of Smartphone users accessing internet in comparison to other mobile phone consumers (9). It is estimated that by 2020, the smartphones will be used increasingly as devices to access the internet (Webb 9).Due to increased integration of internet technology by consumers such as through electronic commerce; there is a high probability of consumer demand for smartphones increasing (‘Reports: smartphone market trend reports 2009/2010’ para. 3).

Other features that firms have incorporated in the manufacture of smartphones are related to multimedia. Globally, the entertainment industry has also experienced a rampant growth which has resulted in a change of lifestyle (Andrew 3). By integrating the music features, consumers are able to easily access a variety of products from the music industry. For instance, the venturing of Apple Company by launching the iPhone into the Asian market is expected to increase the consumer demand for smartphones (Canalys 3). This is due to the fact that, through the iPhone, the consumers will be able to access diverse multimedia services. According to Simon, this will culminate into increased demand for the smartphones (para. 3). Webb asserts that approximately 95% of all the iPhone users surf internet through the mobile phone. Of these, 51% watch videos through the YouTube (9). Simon asserts that of the 140 million units of smartphones that were shipped into the Asia- Pacific region, 40% of them had multimedia features. It is expected that the demand for smartphones that have incorporated multimedia devices will account for 77% of the total sales in the handset market by 2011 in this region (‘Symbian smartphone up 67% ‘para. 5).This makes it evident that the various features that have been incorporated in the manufacture of smartphones have resulted in increased consumer demand in relation to smartphones.

Impact on the software industry

The increase in consumer demand for smartphones has had a direct positive impact on the software industry. This is because the manufacture of smartphones entirely depends on the availability of effective software. This means that, the firms in the software industry have got a high potential of increasing the level of profitability. For instance, Microsoft Incorporation which is a firm that specializes in the manufacture of computers and related accessories such as software is increasingly benefiting from the growth in demand for smartphones. This is because the manufacture of smartphones such as iPhones has increasingly integrated Microsoft Incorporation technology. This is through various operating system applications such as word, excel, spreadsheets and PowerPoint (‘Recent and future trends in the smartphone industry’ para. 6).

Definition of software industry

According to Kelly, software industry refers to all the firms that are involved in the development and maintenance of computer software. Intense computer programming is integrated within the industry in the process of software production and maintenance. Apart from software development and maintenance, the industry also offers other services such as training, consultation and documentation (para. 1). The industry is composed of both the individual and organizational consumers.

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Firms in the software industry produce different types of software in relation to the various sectors of the economy. Examples of software produced by firms in this industry are related to production, logistic and marketing software, financial software, and security software.

Growth and financial performance of the software industry

Globally, the software industry has experienced a high rate of growth in the recent past. This has resulted in an increase in the level of profitability (‘A look at the growth of the smartphone industry’ para. 4).

According to Holmdel, the software industries in the Asia –Pacific region have experienced a high rate of growth (para. 2). This is due to the fact that, it is an emerging market and hence the potential of growth is very high. According to Xinhua, during 2007, the software industry in China, an emerging economy, generated $80.8 billion. This represents a 20.8% growth rate. The total volume of sales averaged 201.7 billion Chinese Yuan which represents an increase of 22.5%.On the other hand, the level of integration income rose to 147.8 billion Chinese Yuan which is a 16% increase (para. 1).

The growth of the software in this region has resulted from adoption of effective management practices. Some of the management practices that have been integrated include the formation of mergers and acquisitions. This is due to the fact that there is intense competition amongst firms in this industry. Through mergers and acquisitions, firms in this industry have become well-positioned in the market and hence increasing their competitive advantage. For instance, on 1st September 2009, MacAfee Incorporation, a firm that deals with the production of security software, completed its acquisition of Mx Logic. This has made MacAfee to be effectively positioned in the market (‘MacAfee Incorporation completes acquisition of Mx Logic’ para. 1).

On the other hand, the software industry is very volatile. This makes it paramount for the management of firms in this industry to heavily invest in research and development. Effective research and development demand heavy financial investment. Due to the effects of business cycles, firms in the software industry may not be able to conduct effective research and development. This is because their financial performance may be impaired. To overcome financial constraints, firms in the software industry are increasingly integrating the concept of merger and acquisition.

Future of the software industry given the increase in demand for smartphones

SWOT Analysis

Strengths Weaknesses Opportunities Threats
The legal environment enables software-producing firms to patent their products. This means that the smartphone-producing firms have to contract the software developing firms in the manufacture of the smartphones (Bertrand 5). Inability of the smartphone manufacturing industry to integrate all the computer software technology into the smartphone. This limits the market niche for firms in the software industry. The emergence of New niche-Increased chances of software developing firms being contracted to innovate on the software technology applicable to the smartphone. (For instance, approximately 56% of the consumers will prefer iPhone hence Microsoft Incorporation will benefit (Jean& Myer 3). Intensity of competition within the smartphone industry may result in a change of taste and preference in relation to various brands of smartphones. This means that the change of brand preference will result in shrinkage of the market for the software producing firms.
Most of the firms in the smartphone industry have effectively developed customer loyalty. This means that the software producing firms will have the continued benefit of being contracted to develop smartphone software (Bertrand 2). Smartphones only appeal to individual consumers in relation to surfing the internet and not corporate or institutional consumers. This means that the increase in smartphone consumer demand is skewed. This limits the size of market for the software industry An increase in consumer demand will result in need for developing upgradeable software. This means that firms that develop smartphone software will have increased competitive advantage. Increase in consumer bargaining power- A large number of suppliers of smartphones will result in an increase in consumer bargaining power. This means that the software-producing firms will be forced to adjust their pricing strategy. This may result in a reduction of the firms’ level of profits.
Increase in market share. As smartphone manufacturing firms increase their global market share, firms in the software industry will benefit from increased global promotion of products. High probability of a more powerful smartphone manufacturing firm entering the industry. This may result in a change of consumer tastes since the smartphone manufactured may have superior features.

Currently, Apple iPhone has the smallest market share in relation to smartphone market share. However, there is a high probability of iPhone increasing the size of its market. This is due to the fact that the company has come up with other kinds of Smartphones that have ventured into the market. In terms of sales, it is expected that iPhone will exceed that of Microsoft (Paul 5).

Conclusion

The global increase in Smartphone consumer demand in the recent past has resulted from a number of factors. The increase in the degree of competition in the firms has led to the adjustment in the pricing strategies, for example by the incorporation of discounts. This has increased affordability of the smartphones. Various economies have also integrated wireless networks into their economy. This has improved the platform for effective penetration of smartphones into these economies. The smartphone manufacturing firms have integrated diverse features in the smartphones. For instance, the incorporation of internet and multimedia technologies has resulted in an increase in consumer demand for smartphones. This is due to the fact that the consumers are continuously integrating internet technology in their activities. The smartphones increase the flexibility in relation to accessing the internet.

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Growth in consumer demand for smartphones has positively impacted the software industry. This is because the smartphone manufacturing firms have incorporated features of the software that are produced by the software developing companies. This has resulted in an increase in the market size for firms in the software industry such as Microsoft Incorporation.

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