A Peek at Smartphones in the Year 2020

It's the year 2020 and, if you currently get angry at those who drive and talk on their cell phones, just wait until you deal with distracted hoverboard drivers. Kidding, of course. But as wrong as predictions have been for flying cars and the like, there are things that we can predict with a certain sense of accuracy. For example, one thing that's fairly sure to happen is the saturation of the smartphone market in the U.S.

What will this smartphone market in the year 2020 look like? What can Apple (AAPL -0.38%) and other device makers expect?

Nary a feature phone in sight
Horace Dediu of Asymco plotted out the expectations for the smartphone industry. By 2020, Dediu estimates 270 million U.S. smartphone users, which, when converting to devices, does not include the fact that many have more than one smartphone, or have a company-issued phone. Adding those factors in, Dediu arrives at about 300 million smartphones in the U.S. in 2020 and, with purchases of a new phone averaging about every two years, a market of 150 million new smartphones annually.

Given these numbers, what would smartphone makers expect to sell in 2020 with their current market share?

Source: Nielson, and author's calculations.

The issue with such an extrapolation, however, is that device makers have proven that they can drop market share incredibly fast. Seven years ago, Apple had no market share, Microsoft (MSFT 1.86%) had 36%, and Blackberry had 31%. Seven years in the future, there could very likely be a different hierarchy of names on this list.

For example, HTC recently announced its first quarterly loss since going public in 2002. As Deidu notes, when a handset maker posts a losing quarter, it's incredibly difficult to resurrect momentum, as Blackberry, Nokia (NOK 0.41%), Motorola, and Sony Ericsson have demonstrated in the past. These firms all ended up sold, merged, or they withdrew from the market, and at an increasing speed once they hit trouble.

However, while HTC may eventually bow out, there is a trend that fewer users are switching platforms, and when they do, they switch to Apple. While 4% of iPhone users expect to switch to Android, 12% of Android users expect to switch to an iPhone. This dynamic could lead to Apple remaining on top, even seven years in the future, and smaller competitors fighting among themselves in the lower ranks.

Potential disruptors
Apple will have to put up with hefty competition from companies that can afford to battle for years: Microsoft and Amazon (AMZN 3.45%). Microsoft is not afraid to lose money in a segment for years, as its online division demonstrates, with at least $7.5 billion in losses over the past three years, not including a $6 billion write down in goodwill. Microsoft has committed itself to an extended presence in mobile with its $7 billion purchase of Nokia's device business. And, although losses may mount, its enterprise profits can easily fund years of failure.

Amazon is the dark horse of the mobile industry's future, a frightening prospect for both Samsung and Apple. Amazon recently denied rumors of an upcoming smartphone release, which said that a value device could come late this year, and a more advanced device released in 2014. Amazon has no regard for margins, whether in eBooks or traditional products, as the company's decisions seem centered around the idea that the customer needs to be overjoyed with its products and services. If the company can release a phone that competes on features, with an incredible price tag, it could easily grab share in the always tumultuous smartphone market.

Making the best bet
History can only help us predict the future so well. Instead of digging into trends, investors should look, perhaps, at which company is best at responding to market changes ahead of competitors. That is, if a company just focuses on satisfying the current market, it will miss out on the next shift in technology; but if it creates the next change, it's already on top.