GfK Custom Research

Press Release

Date

December 1, 2010
Richard Morland GfK Custom Research Tel. +44-20-7890 9811 richard.morland@gfk.com

The smartphone market is there to be won

In 2011 the mobile ecosystem will be critical to driving loyalty and re-purchase
London, UK, December 1, 2010 Gone are the days consumers choose mobile phones based solely on their features and functions. New research by GfK1 shows that smartphone owners in key global markets buy into the experiences created by the mobile ecosystem and the majority (56%) are keeping their options open, when deciding their next smartphone purchase. Every quarter brings new reports of rapid growth in smartphones sales but a key question left unanswered is what is actually driving purchase in the high end smartphone category? Understanding drivers of purchase is naturally a complex subject due to the sheer number of factors that influence consumer decision making. Looking back as little as 3 years ago, the primary focus for many consumers was acquiring a well designed phone packed with the latest technology such as Wi-Fi, GPS, high resolution camera and so on. In recent years, however, development in mobile hardware has slowed and is arguably becoming less important. Of course, consumers still want good looking handsets with the latest technology, but with so much choice and less differentiation the mobile handset is potentially becoming a more commoditised purchase.

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Management Board: Prof. Dr. Klaus L. Wbbenhorst (CEO) Pamela Knapp (CFO) Dr. Gerhard Hausruckinger Petra Heinlein Dr. Grard Hermet Debra A. Pruent 1 Wilhelm R. Wessels Supervisory Board Chairman: Dr. Arno Mahlert Commercial register Nuremberg HRB 25014

The differentiating factor now, especially among buyers of smartphones, is the experience, the possibilities smartphones enable and the needs they satisfy. As such, it is often more appropriate to talk about the attachment consumers place on their smartphones being a direct result of the experiences provided within a mobile ecosystem. An ecosystem can be considered as a mobile operating system (OS) that is internet enabled, has integrated services, is easily customised with 3rd party applications and

Global online research was conducted by GfK Custom Research among a sample of

mobile phone users in Brazil (1480), Germany (1001), Spain (1202), UK (1499), USA (883) and China (578). Fieldwork was conducted during October and November 2010
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allows straightforward and instant access to content relevant to the enduser. So, why is it so important to understand the intricacies behind smartphone purchase decision making? Well, put simply, there is still huge potential for manufacturers to take market share: 1. 37% of mobile phone owners in key global2 markets are looking to upgrade to smartphones on their next upgrade cycle 2. The majority of smartphone users (56% globally) are keeping their options open on their next upgrade with very few people declaring loyalty to their current smartphone ecosystem With the rapid advances of smartphone ecosystems in 2010 it is not surprising that consumers remain open minded about which manufacturer they will opt for on their next mobile upgrade. Each mobile ecosystem continues to develop new services, announce high profile applications and broker exciting content partnerships. Table 1 (below), shows the varying levels of purchase consideration among consumers using different smartphone ecosystems: TABLE 1: SMARTPHONE OS AND ECOSYSTEM LOYALTY Smartphone Ecosystem Nokia Windows Overall Apple BlackBerry (Symbian) Mobile3 Will stay loyal to smartphone OS Will stay loyal to smartphone OS but switch handset make I will look at all options Will switch smartphone OS Don't know

Android

25%

59%

24%

35%

21%

28%

7% 8% 16% 56% 36% 60% 58% 61% 49% 6% 1% 8% * 5% 2% 7% 4% 7% 6% 4% 4% Base: Smartphone owners in China, Germany, Brazil, UK, US and Spain (n=2653)
Only 1 in 4 global smartphone users stated they would stay loyal to their current mobile ecosystem with the majority (56%) wanting to keep their

Global in this instance includes Brazil, Germany, Spain, UK and USA but excludes We realise that Windows Mobile has been re-built and re-branded to Windows

China
3

Phone 7. During the fieldwork period of this research, Windows Phone 7 had not been released so we refer to current ownership of Windows smartphones as Windows Mobile
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options open. Understandably, huge importance is being placed on the ecosystem of smartphones by manufacturers. Recently, for example, Nokia have rebuilt Symbian and launched Symbian^3 on the N8, whilst Microsoft released Windows Phone 7 in a high profile campaign across a range of high-end devices. Previously, both Symbian and Windows Mobile have come under criticism (from some quarters) for providing a user experience that does not match the high standards set by competitors and for offering limited services and content. This is reflected in the relatively lower loyalty scores their respective ecosystems generate; Symbian (24%) and Windows Mobile (29%). In contrast, Apple, who have arguably led the way in the smartphone market in terms of user experience and service / content provision have very high levels (59%) of stated loyalty to the Apple Ecosystem. Nevertheless, despite this lead even Apple and Android users would consider other mobile ecosystems when it comes to upgrading their phone. So, with so many consumers keeping their options open, which ecosystems are they currently considering? Overall and perhaps unsurprisingly, Table 2 (below) indicates that Apple (53%) and Android (51%) lead the way in consumer future purchase consideration. TABLE 2: SMARTPHONE ECOSYSTEM PURCHASE CONSIDERATION Current Smartphone Owners Nokia Windows Overall Apple BlackBerry Android (Symbian) Mobile Apple iOS BlackBerry OS Symbian Windows Phone 7 Android

53% 85% 46% 47% 43% 38% 33% 22% 74% 34% 41% 22% 23% 14% 18% 40% 18% 13% 41% 28% 40% 47% 65% 31% 51% 40% 41% 48% 42% 84% Base: Smartphone owners in China, Germany, Brazil, UK, US and Spain who were aware of smartphone OS listed (n=1516)
Clearly, the positive user experience provided by Apple and Android ecosystems is having a positive impact on their current user base. 85% of Apple users would consider re-purchasing an Apple smartphone and similarly 84% of Android users would also consider an Android based Smartphone. The story is different for other smartphone Ecosystems. Users of Nokia smartphones (running Symbian) are currently more likely to consider alternative mobile ecosystems with Apple, Android and Windows Phone 7 all strong contenders. RIM, although behind Apple and Google Android, is in a stronger position as the large majority of its current base will consider repurchasing a Blackberry. The challenge for RIM in 2011 is to drive up purchase consideration among non-users and grow its market share.
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Evidently, the multitude of options is ensuring that competition in the smartphone market is intensifying. Despite the challenges faced by Nokia and RIM in 2010, they both have some exciting developments in the pipeline which will make them increasingly attractive in 2011. For Nokia, Symbian^3 major updates scheduled in Q1 2011 and the first iteration of MeeGo (not tested in this research) is due for release in early 2011. In addition, RIM has recently launched their new operating system, RIM OS6, and they are expanding their device portfolio with the introduction of a tablet PC. So, what is going to influence choice of mobile ecosystem? Table 3 (below), shows that in 2011 consumers will be looking for experiences which are interoperable across varied devices such as the smartphone, tablet PC and laptops. TABLE 3: WHAT SMARTPHONE CONSUMERS WANT FROM THEIR ECOSYSTEM Current Smartphone Owners Nokia Apple Blackberry (Symbian) Access to an apps store Access to low cost and free apps and services Ability to sync mobile experience with PC experience Access to a large number of apps and services Usage of cloud based services on lots of different devices Ability to continue using paid for apps on upgraded handset Windows Mobile Android

13% 12% 31% 14% 20%

12% 22% 28% 10% 19%

9% 24% 27% 12% 22%

8% 17% 32% 11% 23%

12% 21% 24% 16% 19%

11% 8% 6% 9% 8% Base: Smartphone owners in China, Germany, Brazil, UK, US and Spain (n=2653)
Tablet PCs running the same ecosystems as Apple and Android based smartphones have enabled consumers to evolve the mobile experience and benefit from different form factors on different devices. It is this kind of cross device experience that high-end smartphone consumers will be looking for from their mobile ecosystem in 2011. Smartphone owners from all ecosystem providers ranked the ability to sync their smartphone experience with other device form factors as the most important factor. RIMs tablet PC Playbook is due for release in the first half of 2011 and it is rumoured that Microsoft and Nokia (through MeeGo) will follow suit. If RIM, Microsoft and Nokia can create cross device integrated experiences then consumers will sit up and take note.
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The provision of apps, services and content will still play an important role in 2011. However, it is interesting to see how this has developed and that the importance of cloud based services suggests that consumers want their favourite mobile content supported across different device form factors. 2011 will clearly be an important year for smartphone providers. As consumers continue to buy into experiences, the mobile ecosystem will be vital to attracting the next wave of smartphone users and winning the hearts and minds of existing smartphone users. With many compelling options, it will be the manufacturers whose ecosystems offer diverse services, relevant content and a simple user experience across a range of device form factors who will find themselves in the driving seat. APPENDIX TABLE 1: COUNTRY AND ECOSYSTEM LOYALTY Country Over China Germany Brazil UK US all Will stay loyal to smartphone OS Will stay loyal to smartphone OS but switch handset make I will look at all options Will switch smartphone OS Don't know

Spain

25%

20%

41%

15%

17%

33%

23%

7% 14% 5% 4% 5% 13% 2% 56% 54% 46% 67% 63% 41% 62% 6% 11% 5% 8% 4% 1% 5% 7% 2% 3% 6% 12% 12% 8% Base: Smartphone owners in China, Germany, Brazil, UK, US and Spain (n=2653)

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The survey For this analysis, GfK Custom Research carried out an online survey of a select group of mobile phone users in Brazil (1,480), Germany (1,001), Spain (1,202), the UK (1,499), the USA (883) and China (578). The survey was conducted in October and November 2010. Further information: Richard Morland, tel. +44-20-7890 9811, richard.morland@gfk.com The GfK Group The GfK Group offers the fundamental knowledge that industry, retailers, services companies and the media need to make market decisions. It delivers a comprehensive range of information and consultancy services in the three business sectors Custom Research, Retail and Technology and Media. The No. 4 market research organization worldwide operates in more than 100 countries and employs over 10,000 staff. In 2009, the GfK Groups sales amounted to EUR 1.16 billion. For further information, visit our website: www.gfk.com. Follow us on Twitter: www.twitter.com/gfk_group.

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