Here's a surprise: tomorrow's low-cost phones will have cameras, FM radio, MP3 players, and support for social networking.
According to ABI Research, 80 percent of new mobile phone subscribers in the next five years will come from emerging markets. Right now, these markets are the domain of ultra-low-cost (ULC) phones that deliver voice, text-messaging, and little else. However, the latest low-cost phones are bringing a wealth of new features to the low-end market. The latest low-cost phones from Nokia (the #1 vendor in both India and China) reflect this trend. The phones range in price from 50 to 90 euros (~$78-$140), and feature FM recorders, cameras and music players.
The rapid adoption of these features may seem surprising at first. Millions of people in emerging markets already spend a large portion of their yearly incomes on phones. How can they justify spending money on these fancy new features? Part of the answer is that for many people, a ULC handset is much more than a phone. It is often their only digital device. When you can't afford a separate PC, digital camera, or MP3 player, packing low-cost versions of these functions into your phone makes a lot of sense.
Growing wealth is another important factor. In 2007 India and China, the two largest emerging markets, saw their GDPs grow by 9.1% and 11.4%, respectively. This has created an expanding middle class with a ravenous appetite for ever more features in their phones. As these Indian and Chinese middle class consumers add to the feature phone consumption of Europe and North America, economies of scale will only accelerate the price drop.
And then there is the factor of "created demand." Come up with an application that is compelling enough, and even relatively poor consumers will be willing to pay extra for it. Social networking just might be this killer app. The demand is clearly there. Informa Telcoms reports that 2.3% of mobile users, or 50 million people, use their phone for social networking. And not all are in developed countries. MyGamma, one of the 30+ mobile social networking startups, reports that most of its 2.5 million users are in developing countries in Asia and Africa.
The only problem is that today's ULC phones fall short of supporting full fledged social networking. For that, a phone would need image/video capture and display, an MP3 player, multimedia messaging such as MMS, and possibly even GPS. This means replacing the ARM7 control processor found in most ULCs with a more powerful "media processor" like the ARM11, or perhaps even a "mobile computing" processor like Intel's Atom. It means adding hardware for things like GPS. It also means software royalties for codecs, OSs, etc. The challenge in all of this is keeping the cost down. But as Nokia's latest phones demonstrate, these advanced features represent the future of the ULC market.