Those 8-million smartphones are just the beginning

The massive growth in smartphones in emerging markets — in South Africa the number has doubled in the past year — has led to many suggesting that the market is close to “saturated”.

Take into account that there are between 50-million and 55-million active SIM cards in the country, and suddenly 8-million number doesn’t look like such a big number any more. There are also well over 2-million “data-only” SIMs in South Africa, but you can easily assume that the majority of these are secondary devices (more often than not, company issue) and these users have smartphones.

Pieter Uys, the chief executive of Vodacom has been very public about his aims. He, very bullishly, wants every Vodacom subscriber to have a smartphone. The group’s goal is to reach 25-million data customers by 2013. There are over 10-million today. Already 3-million Vodacom customers use data bundles. Similarly, Karel Pienaar the MD of MTN’s South Africa business has been vocal about driving smartphone penetration.

But will smartphone growth stall? (or has it already)

It is interesting to compare the number of smartphones in this market, to the number of active DSTV subscribers. The temptation would be to bundle these in similar LSM groupings – “only people who can afford DSTV can afford a smartphone”. In its latest financial results to 30 June 2011, Naspers reported a 637 000 increase in the “gross base” of satellite television subscribers in SA to 3.5 million. This is far short of those 8 million!

It comes down to affordability.

Yes, pretty much everyone in South Africa who can afford an iPhone or Samsung Galaxy S II or HTC Sensation already has one. Data charges, especially out of bundle, on these bandwidth hungry high-end phones remain high.

This explains the success of BlackBerry in emerging markets, especially SA. Flat-rated, eat-as-much-as-you-want data is a massive attraction. Plus, BlackBerry handsets are increasingly highly subsidised (“all-in” for less than R140 per month over 24 months).

So, one would imagine BlackBerry (and other more basic smartphones) would’ve swept up the next few million subscribers who couldn’t afford premium devices.

Enter the Vodafone 858. A R999 smartphone (just over US$100). This is the next phase of growth. Mark Taylor, managing executive at Vodacom pointed to this as the holy grail over a year ago. Thanks to a global procurement strategy where Vodafone is able to order tens of millions of devices, and a favourable exchange rate, Vodacom succeeded. The 858 is impressive, considering the price. HSDPA (3G), email, FM radio, 2 megapixel camera, Wi-Fi and it runs on the Android operating system. On prepaid, Vodacom is offering 3 months of free unlimited music downloads and 30MB of data for twelve months.

Cynics will point to the R999 price point as still too steep where the official unemployment rate remains above 25%. And yet, there are 50-million cellphones in the country. R999 is not prohibitive when it can be bought on 6 months interest-free credit at an Edgars or Jet or Foschini. That’s R166 per month! It’s no wonder Edcon, parent of Edgars, Jet and Discom, is rumoured to be the largest (non-network) retailer of cellphones in the country.

The Vodafone 858 is just the beginning.

What happens when that number of smartphones doubles again to 16 million by the end of 2012?

I made the point last week that we’re not yet seeing enough local(ised) apps. And, largely, the apps that have been released in this country aren’t taking full advantage of the capabilities of smartphones.

What about augmented reality? What about true location-based services? Google Goggles offers a glimpse at what’s really possible.

I would argue we’re not in the golden age of apps. Not even close.