3 Reasons to Believe in the Death of "Smartphones"

Can we agree that there's no such thing as a smartphone? Phones that we call "feature phones" used to cost as much as Apple's (Nasdaq: AAPL  ) iPhone does now.

But don't take my word for it. Five years ago, Cingular Wireless sold Motorola's RAZR V3i handset for $299. Today, the same price will get you a mid-range iPhone 4S.

That's not all. Nokia (NYSE: NOK  ) wants to sell a new Windows Phone for $50. Verizon (NYSE: VZ  ) is getting booed for selling Google's (Nasdaq: GOOG  ) new Galaxy Nexus for $300. Why? Fewer of us want to pay a premium for advanced phones.

Devices that were once special aren't anymore. They're the standard.

No one wears a watch anymore
Don't blame Apple for this; blame AT&T (NYSE: T  ) . The original iPhone went for a massive premium until the Mac maker agreed to a price cut. Ma Bell began subsidizing the handset at a lower price point. Getting an iPhone had become just like getting any other phone.

And that has changed behavior. Think of how many people still wear watches. A fair amount do, sure, but I find this informal survey telling: Many of us have become so dependent on phones with smarts that we forego wrist jewelry -- unless it's to make a fashion statement of some sort.

Instead, specialty watches are where the industry is headed. Garmin (Nasdaq: GRMN  ) has enjoyed a 25% increase in sales of its Forerunner series of timekeepers that embed a GPS for providing all sorts of fascinating fitness data, ABI Research reports.

Hey! Look up for a second!
Then there's how we spend idle time. Maybe you take the subway or bus to work. Or maybe you're like me and spend time driving kids to and fro, often waiting with a crowd of parents as your children finish events.

Check the crowd the next time this happens. Count the number of people looking down and thumbing through a touchscreen. Startling, isn't it? As consumers, we've become used to the idea that handsets are designed to occupy idle time -- either for staying in contact, remaining productive, or playing a favorite game. More than 70 million Americans use social media via mobile devices, according to researcher comScore. In the five leading European Union markets, 55 million log on to handsets to check in on Twitter, Facebook, and the like.

And what about apps? In China, app usage is up more than 870% year-to-date, according to Flurry Analytics. Usage throughout much of Asia and Latin America is tripling, quadrupling, and more, as users become accustomed the idea that a phone should act like a computer -- and occupy us just as much.

Oh, and pricing. Don't forget pricing
But more than anything else, it's lower costs that suggest the term "smartphone" is, at best, outdated.

Again, consider what Google and Verizon are planning. I've no doubt the Galaxy Nexus is an outstanding handset. Certainly, there's plenty to like about the new Ice Cream Sandwich edition of Android, including support for near-field communications that allow a handset to double as a wallet. Mix in access to Verizon's fast LTE network and there's reason to believe the device could sell well.

Just don't be surprised if it doesn't. So many (ahem) smart devices that lack Apple's brand cachet are available for less than $300. Betanews' Joe Wilcox received mixed reactions when asking users if they'd buy the new Galaxy Nexus recently. Some were enthusiastic, while shipping delays frustrated others. A not-insignificant remainder couldn't justify the purchase.

This isn't surprising. As my Foolish colleague Evan Niu writes, the new Galaxy Nexus isn't a game-changer because it contains features we've become accustomed to. Dumb phones hardly exist anymore. And even the most moronic of the dummies is smart when compared with handsets of yesteryear. My daughter's basic T-Mobile prepaid handset plays games and allows for limited texting.

For investors, this shift makes it tougher to decide which handset makers to bet on. What to do? Try well-positioned component makers instead. Our analysts have identified three such companies in a new report, "3 Hidden Winners of the iPhone, iPad and Android Revolution." Get instant access to the report and all of our research by clicking here -- it's free.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He owned shares of Apple and Google at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of Apple and Google. Motley Fool newsletter services have recommended buying shares of Google and Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 16, 2011, at 3:13 AM, TMFOpie wrote:

    Insightful as always, Tim, and I use my iPhone for everything except making my breakfast (it can order it though). I'm writing this comment on it. But I still get annoyed when I forget my watch at home. I find pulling my phone out to check the time a PITA. Then again I'm probably the same guy who hates resetting his cruise control after tapping the breaks. :-)

    Cheers,

    Andy

  • Report this Comment On December 16, 2011, at 8:19 AM, BedfordNH wrote:

    So ... I'm not sure I see a conclusion here ...

    Is Nokia poised to make a rebound because they are re-entering the American market -- and the untapped parts of India, China, etc -- with more "entry-level" or affordable handsets? Or AAPL needs to be careful that it doesn't get trampled by a newcomer like MSFT was by AAPL? Or both? I have been arguing that AAPL is plateauing.

  • Report this Comment On December 17, 2011, at 10:27 AM, swansont wrote:

    Price drops and feature expansion are exactly like what has happened in the computing industry all these years, and "smart" phones are no more than portable computers that can make phone calls. So, no surprise there. So this is death of the terminology, not of the phones.

    Focusing on Apple's (or anyone else's) "brand cachet" would be a mistake, as would focusing on any single attribute of a product. Some people will buy because brand and status. Some will buy because of price and for some price is not an issue. Some will buy because of app availability. Some will buy because of the OS and how well it works.

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