Emerging markets will shape the smartphone world, new industry figures suggest

The mobile industry’s trade body has predicted that there will be six billion smartphone connections by 2020, accounting for two-thirds of the non-internet-of-things global mobile market at that time. And 80 percent of those smartphone connections won’t be coming from developed markets.

In order to interpret the GSMA’s Thursday report, it’s important to understand what the organization is measuring. Nearly a year ago, analysts noted that more than half of all mobile phones being sold at the time were smartphones, as opposed to basic or “feature” phones. The GSMA isn’t measuring sales or shipments here, but rather the connections to mobile networks that are being made – in other words, it takes into account the millions of older phones that remain in use.

One other major point: The GSMA study excludes machine-to-machine (M2M) connections, such as those made when a SIM-card-equipped vending machine tells a supplier that it’s empty. This is only comparing smartphones with basic and feature phones, and tablets, dongles and mobile routers – a reasonable condition, as everyone’s expecting the internet of things to prompt a crazy explosion in M2M connections that would throw these numbers completely out of whack. Got that? Right, let’s move on.

Where the growth is

The study predicts that there will be nine billion non-M2M mobile connections in 2020, largely driven by the proliferation of cheap – as in sub-$50 – smartphones in emerging markets. China will account for 629.2 million of these, followed by the U.S. on 196.8 million, Brazil on 141.8 million, India on 111 million, Indonesia on 95 million, and so on.

It’s worth noting that the developing world already accounts for two out of every three smartphones out there, and the GSMA is predicting that will rise to four out of every five. The Asia-Pacific region today accounts for half the global smartphone connections total, despite the fact that penetration is still below 40 percent. Smartphone penetration in sub-Saharan Africa is only around 15 percent today.

In other words, the growth potential in emerging markets is enormous, even though it’s slowing in developed markets, where penetration is already around 70-80 percent. According to GSMA Chief Strategy Officer Hyunmi Yang:

As the study released today shows, smartphones will be the driving force of mobile industry growth over the next six years, with one billion new smartphone connections expected over the next 18 months alone.

Big shift

What can we learn from all this? A few thoughts:

  • Asian hardware vendors like Xiaomi/Mi and Micromax, and service providers like [company]Baidu[/company] and [company]Tencent[/company], will become increasingly important and perhaps ultimately more important in global terms than U.S. or European vendors and providers. A lot of this depends on the ability of “western” vendors and providers to think beyond the needs of their local markets.
  • Unless [company]Microsoft[/company] starts coming out with sub-$50 Lumias, its decision to kill off most of Nokia’s low-end, non-Windows device lines looks short-sighted. Yes, the very low-end phones will survive (and will probably retain the valuable Nokia brand unlike the Lumias) but those are basic handsets, and all those people in emerging markets want smartphones. That almost certainly means they will go with variants of Android (unless Firefox OS surprises everyone with strong sales — where are those figures, anyway?)
  • And finally, an obvious point but one worth savoring: The rise of smartphones in emerging markets could do wonders for local economies and education, as they will be most people’s first computers and first connections to the internet. That’s awesome. On the other hand, it will also give much greater surveillance powers to autocratic regimes, which is decidedly not awesome.

In short, if you want to build a business with serious growth potential, think beyond developed markets.