Telecom, Media & High Tech ExtranetMaking smartphones brilliant:Ten trends                                          No.20 ...
8    Making smartphones brilliant:    Ten trends    By: Venkat Atluri /// Umit Cakmak /// Richard Lee /// Shekhar Varanasi
RECALL No.20 – A new era of personalized computingMaking smartphones brilliant: Ten trends               The top-ten trend...
10analysis of environmental and user data collected       and iPhones. Microsoft’s Windows 8 will also havethrough sensors...
RECALL No.20 – A new era of personalized computingMaking smartphones brilliant: Ten trends                                ...
12        Implications for mobile value chain players     The pervasive trends result in implications for mobile value cha...
RECALL No.20 – A new era of personalized computingMaking smartphones brilliant: Ten trends                                ...
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Making smartphones brilliant_march_2012

  1. 1. Telecom, Media & High Tech ExtranetMaking smartphones brilliant:Ten trends No.20 RECALL A publication of the Telecommunications, Media, and Technology Practice June 2012 Copyright © McKinsey & Company, Inc.
  2. 2. 8 Making smartphones brilliant: Ten trends By: Venkat Atluri /// Umit Cakmak /// Richard Lee /// Shekhar Varanasi
  3. 3. RECALL No.20 – A new era of personalized computingMaking smartphones brilliant: Ten trends The top-ten trends that will shape the future of mobile smart d ­ evices over the next five years put a premium on intelligent s ­ trategic planning for players across the value chain. What makes smart devices so brainy, and will they diture is higher for AMOLEDs than for liquid crystal become even more intelligent in the future? Be- displays (LCDs) – and short supply mean that only yond taking cues from current customers, smart a handful of manufacturers will be able to produce device innovations also emerge from a deep un- this display at scale. derstanding of how core component technologies, business models, and services will evolve. Apple’s Processors. With Microsoft announcing support designers focused on targeted technologies such for ARM chipsets on Windows 8, a convergence as multi-touch capability combined with a capaci- across smartphones, tablets, and notebooks tive touch screen to create an entirely new user seems likely. ARM processors – with their low interface mode. In another case, Samsung bet power consumption and compact size – will con- heavily on active matrix organic light emitting diode tinue to dominate the smartphone market. As the (AMOLED) technology, assuming that consumers power of ARM processors rises, they are likely to would pay a premium for high-contrast displays penetrate the notebook and server spaces as well, coupled with lower device power consumption. reaching an expected 23 percent penetration into the notebook market by 2015 according to iSup- pli. Along with Intel’s announced Medfield lineup, Ten trends shaping the future of this will mean a significant step up in the portabil- smart devices ity of notebook PCs in the future. With ARM, for example, it is already possible to have a notebook Given the important role technology plays in with eight- to ten-hour battery life that weighs 500 driving smartphone innovations, McKinsey has to 600 grams – compared with five to six hours identified the ten top mobile device hardware and over 1 kg on the current x86 platform. and software trends that will significantly impact these devices over the next five years. Sensors. In terms of functionality, sensors con- tinue to improve significantly. Future smart de- Displays. With increased usage comes the need vices will incorporate new mobile sensor types, for more power-efficient and flexible displays. such as biometric, pressure, and environmental AMOLED – a power-efficient, flexible, and fold- sensors, along with the ones currently in most able display technology that will soon reach “retina smartphones. More resolution” (i.e., a higher display resolution density sensors and the that boosts text and graphics clarity) – is emerging greater penetration Mobile devices will as the next standard. Following the lead of Sam- of mobile devices drive global ­ ensor s sung with their Galaxy phone (and now tablets), will drive global players such as Nokia and Motorola are offering sensor shipments shipments to this technology on their high-end handsets. Suc- to 6 billion units by 6 ­ illion units by b cess among early adopters is driving widespread 2015, one third of 2015, one third of use across platforms. According to J.P. Morgan, which will represent AMOLED’s display revenue market share should new sensor types. which will be new reach 50 percent by 2015. However, high capital Particularly, the sensor types investment requirements – up-front capital expen- aggregation and
  4. 4. 10analysis of environmental and user data collected and iPhones. Microsoft’s Windows 8 will also havethrough sensors will enable smarter applications similar traits to the Windows Phone 7. Along withand personalized advertisements adapted to user the convergence of processors (i.e., the samebehavior and preferences. processor will be used to power smartphones, tablets, and PCs), a true convergence is on theBatteries. With increased mobile phone usage, horizon – one that could be described as “one OS,satisfying power needs has become a priority. one processor, but many form factors.” Such trueInnovations in battery technology, however, have convergence would enable consistency of experi-lagged behind advances in processing power. ence across different devices.Since 2000, battery capacity has only doubled,while processing speed has increased 12-fold. Web centricity. With HTML5 – the latest “openCurrent developments in lithium-sulfur and carbon Web” version of the HTML language – and cloudnanotubes might increase battery capacity if they services gaining traction, Web-based applicationscan be made commercially viable. Compared with are moving computing power from devices to thelithium-ion technology, lithium-sulfur promises 80 cloud. As this takes place, browser technologypercent more capacity, ten times the power den- will dominate over operating systems. Based onsity, and the ability to last four times longer. Car- McKinsey’s iConsumer survey, mobile activity viabon nanotubes can store much more electricity by browsers already accounts for three quarters ofweight than lithium-ion batteries, while maintain- non-talking time. Web centricity will enable a newing their charge. They are also far more durable. set of consistent multiscreen experiences andWireless battery charging, faster battery charging, drive advertising by providing a greater ability toand adaptive battery management are also in the achieve scale in devices. Web centricity, however,development stages. Even though battery power could also pose a serious threat to adjacent indus-is being used more efficiently and battery makers tries such as PC gaming as the cloud becomesare experimenting with new technologies, capac- the platform for many applications and games,ity will continue to constrain the day-long use of using the browser as the middleware.smart devices in the short term. User interfaces. Current user interactions areMaterials. Advances in nanotechnology are lead- limited to the touch screen, motion sensing,ing the way toward more adaptable and eco- peripheral input devices, and voice recognition.friendly materials. If proven commercially viable, The development of gesture and retina tracking,graphene will enable a new generation of lighter, the infrared keyboard, and context-aware usermore flexible, durable, and transparent form interfaces (UIs) will accompany the emergencefactors that are a hundred times stronger than of new sensors, disrupting the mobile space andsteel and reduce the cost of materials for mobile giving rise to a new generation of applicationsdevices. With competition among mobile device and form factors.makers becoming fierce, sustaining operating Context-aware UIsmargins will require such reductions in materi- would allow de- Context-awareals and operating costs. These new, cheaper vices to adapt to user interfacesalternatives will enable device makers to further the user’s physicalreduce their “bill of materials” costs. setting and prefer- would allow ences. The device d ­ evices to adapt ­Operating system convergence. In order to pres- screen could adjust to the user’sent users with a unified experience, operating itself to a user’ssystem providers have continued to converge their location, for ex- ­physical settingOS across devices. Apple’s Lion OS for PCs, for ample, displaying and preferencesinstance, has features similar to its iOS 5 for iPads work productivity
  5. 5. RECALL No.20 – A new era of personalized computingMaking smartphones brilliant: Ten trends 11 applications when at the office. At home, it would Trend-driven mobile functions of show entertainment and social connectivity apps. the future Innovations in UI technology will help devices adapt independently to user contexts and prefer- Key developments in hardware, software, services, ences, optimizing productivity, while maintaining and networks are coming together to create prom- portability and enabling intuitive interactions. ising opportunities for industry players and con- sumers alike. Potential growth areas include new Cloud services. From storing digital content form factors and UIX models, cognitive services, online to synchronizing content across multiple personal cloud, and new connectivity technologies. devices, cloud services have become a major part of daily computing. With the rapid growth of Form factors and UIX models. Foldable, modular, this market, it is no surprise that major players hybrid devices combined with new UIX models are already staking out their own territories with will change the mobile device landscape. While very different monetization models to command current input methods are limited to touch and ownership of customers. speech, ­ sers will be able to communicate with u their ­ evices with a wave of the hand or a directed d „„ Device lock-in model. Apple’s iCloud drives glance in a few years. Pressure-sensing screens high-margin device sales by providing seam- will also know exactly where the user intends to less multi-device synchronization. click, and advances in natural language processing and artificial intelligence – exemplified today by Ap- „„ Advertising model. Google leverages its large ple’s Siri digital personal assistant – will make voice cloud user base to drive advertising revenues recognition a truly interactive experience. One pos- by offering low-cost or free cloud services. sibility is a device that users typically carry in their pockets as a smartphone. When they need a larger „„ Content sales model. Amazon drives content screen to watch a movie, they would unfold the sales with cloud-based platforms that push device to become digital content directly to users that have heav- a tablet. Eliminating ily subsidized devices. the need to carry By eliminating multiple handsets, the need to carry „„ OS lock-in model. Microsoft leverages its Sky- such hybrid devices Drive cloud services to let users synchronize have the potential multiple handsets, ­ their content, thus increasing customer reliance to capture about ­hybrid devices on Windows’ platform and suite of applications. 10 percent of the could capture device market by roughly 10% Networks. As smart device penetration and data 2015, reshaping the usage both increase, demands on mobile network competitive land- of 2015 device capacity will continue to spike, leading to greater scape for OEMs in ­market congestion. In response, operators have rapidly in- the process. creased their adoption of long-term evolution (LTE) networks, accelerating from 126 commitments in Cognitive and contextual services. With the advent August 2010 to 324 in October 2011. Enabled by of sensors and data analytics, mobile devices will LTE networks, next-generation application pro- know more about users, their preferences, and gramming interfaces (APIs) will help drive innova- the environment than ever before. Imagine an ap- tions in mobile applications and tiered data pricing plication that checks the user’s calendar, sees an plans for operators. With these APIs in place, upcoming business call, and automatically shows users will be able to dynamically control quality of directions to a nearby coffee shop – that real-time service and bandwidth. noise sensors indicate is quiet. Other new sen-
  6. 6. 12 Implications for mobile value chain players The pervasive trends result in implications for mobile value chain players Component players CMs/ODMs/OEMs1 OS/app providers DCS providers2 Operators Positive  Higher component  Increased smart  Increased smart  Increased adoption  Increased data pene- pricing (new batter- device penetration device penetration of mobile content and tration and ARPU ies, screens) services  Potentially increased  New business models consolidation (e.g., chipset players) Negative  Increasing OEM  HTML5 disruption  Decline in messaging fragmentation of OS layer and and voice revenues in  Increasing competi- native apps developed countries tion from ODMs 1 CMs = contract manufacturers; ODMs = original design manufacturers; OEMs = original equipment manufacturers 2 DCS = digital content and service SOURCE: McKinsey Exhibit 1sors will provide indoor positioning and biometric will soon be able to provide dynamic bandwidthsecurity. Beyond this, businesses will be able to control, which means that users can choose in realmonetize contextual advertisements, since person- time when to increase their bandwidth (for a price),alized ads have demonstrated that they can provide such as when streaming a high-definition video.a 40 percent lift in purchase intent. In sum, sensorsand data analytics have the potential to reshape the However, LTE networks might not be enough to alle-USD 600 billion global advertising industry by shift- viate the capacity problems. Many carriers will haveing more spending to mobile markets. to turn to alternative network technologies such as TV white space, software-defined radio (SDR),Personal cloud. The mobile cloud will become and cognitive radio (CR). SDR and CR in particularan all-encompassing personal online identity that could help carriers to auction wireless spectrumstores everything from user content, documents, in real time to reduce network capacity problems,calendar appointments, to-do lists, and personal trading spectrum from high-capacity to congestedpreferences to financial information and sensor networks. Furthermore, the use of TV white spacedata. Social networks and online connections will could allow operators to offload heavy bandwidthbecome much easier to manage because one consumption services such as video streaming fromcloud will centrally store all user information. For carrier networks to the TV white space spectrum.instance, users could upload photos from a recentouting to a personal cloud, and social networksand photo-sharing Web sites could automatically Implications for value chain playersaccess that cloud-based data. Each of these opportunities will play a significantConnectivity technologies. Handling the expected role in the future of mobile devices. As a result,growth in mobile device usage will require critical they will have a potentially large impact on the bot-improvements in network capacity. LTE networks tom lines of mobile value chain players (Exhibit 1).
  7. 7. RECALL No.20 – A new era of personalized computingMaking smartphones brilliant: Ten trends 13 McKinsey’s analysis of the trends and the players Mobile operators will capture a lower value share involved indicates that digital content and service due to declining voice revenues in developed (DCS) providers along with component manufactur- countries, the shift of content and advertisement ers will capture much of the value shifts in the mo- revenues to DCS providers, and the migration bile value chain, since the trends highlighted are in of messaging revenues to IP services and social their favor. Component manufacturers should see a networks. Still, operators do have several potential greater increase than expected in value due to the plays that can help protect their value shares. higher penetration of smartphones and the evolu- tion of new and innovative form factors. Each of First, they can jointly develop mobile devices with these trends will drive demand for more and better key device OEMs. This would provide them with components. The value share that DCS providers exclusive rights to device sales and give them the can capture will grow significantly thanks to higher opportunity to redefine the retail experience for content consumption and the greater value gener- their products, as Apple stores have successfully ated by very effective personalized advertisements. achieved. Another move: mobile operators could launch next-generation IP services and network For contract manufacturers (CMs), original design APIs that capture the benefits from all-IP LTE net- manufacturers (ODMs) and original equipment works – and enable seamless user identity por- manufacturers (OEMs), significant shifts in value tability across devices via platform-independent share are not expected. These players will benefit mobile clouds. Such companies could also lever- from launching new form factors driven by display, age new network models to alleviate frequency sensor, processor, and battery innovations – and restrictions and spectrum congestion. from expanding into lucrative business segments such as productivity and special-use devices.    Growing OEM fragmentation and competition from ODMs will, however, threaten OEM revenues. As the trends, opportunities, and implications show, the smart device landscape is ripe for in- For OS and app providers, the opportunities novation and change. Room exists for players presented here will not have a disruptive impact to make strategic moves and revolutionize the on their value pools. Unlike the PC space – where industry. Consumers will also benefit greatly from OS players are strong – the mobile device industry the rapidly improving user experience these trends requires simultaneous innovation and coordina- foster. As smart devices evolve into brilliant ones tion in hardware and software to streamline the over the next few years, industry players need to user experience. Thus, pure OS players are not make sure their own strategies to capture value equipped to make significant plays. from this shift are equally intelligent. Umit Cakmak Venkat Atluri is an Engagement Manager in McKinsey’s is a Principal in McKinsey’s Chicago office. Istanbul office. venkat_atluri@mckinsey.com umit_cakmak@mckinsey.com Shekhar Varanasi Richard Lee is an Associate Principal in McKinsey’s is a Principal in McKinsey’s Seoul office. Chicago office. richard_lee@mckinsey.com shekhar_varanasi@mckinsey.com

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