TECHnalysis Research Blog
December 31, 2013
TOP 5 2014 Predictions

The next year promises to bring some critical new changes to the world of devices, the software and services that run on those devices, and the usage of those devices in both commercial and consumer environments. In this year-end column, I predict what I believe will be the top 5 changes impacting the tech market for 2014.

PREDICTION 1: WORLDWIDE “PHABLET” SHIPMENTS WILL OUTPACE WORLDWIDE SMALL (8” AND UNDER) TABLET SHIPMENTS

The technology market, the hardware supply chain and most vendors have been almost obsessively focused on the tablet market for the last several years. Of course, they’ve had good reason to do so. Tablet shipments grew from almost nothing in 2010 to a market that in 2014 will be measured in the hundreds of millions of units and tens of billions of dollars. During that time, we also witnessed an important transformation within the tablet business, as the market flip-flopped between demand for larger tablets (such as the original iPad) and smaller tablets (such as the Google Nexus 7). In fact, in 2013, the smaller 8” and under category was expected to account for about 60-65% of all tablets. At the same time, we began to see the growth of the 5” and larger screen size smartphone (commonly called a “phablet”), thanks to the popularity of products like Samsung’s Galaxy Note.

In 2014, we expect these two powerful developments to cross streams, with the phablet category gaining the upper hand. Specifically, we predict that the market for large-size smartphones will surpass that of smaller tablets (in the range of 175 million units versus 165 million units) and that development, in turn, will have a dramatic impact on the hardware and software ecosystems supporting these devices for many years to come. For US-based industry observers, this phenomena may be a bit difficult to see initially, in part because we believe it will occur outside the US first. But this difficulty is also because many in the US have failed to look past the idea of a phablet as anything more than a device that looks ridiculously large when held up to your head to make a phone call. In many Asian countries (notably forward-looking South Korea—where phablets already make up about 2/3 of all mobile phones and where tablets remain a limited market) as well as developing regions, where broadband connectivity and WiFi hotspots are more limited, phablets are seen for what they really are: always on, always connected, always with you mobile computing devices that occasionally make phone calls (and typically making those calls with a Bluetooth headset).

We believe many vendors—including Apple—will enter and/or strengthen their phablet offerings in 2014, with a particularly strong push from Chinese vendors such as Huawei, ZTE and Lenovo. In fact, these vendors, amongst others, will help drive down the costs of these devices significantly over the next year—even in markets where there are little or no subsidies from the telco operators. This, in turn, will open up hundreds of millions of new customers to a more complete, more visual experience of the internet and, for many of them, serve as their sole computing device. The impact is bound to be enormous.

PREDICTION 2: THE BUSINESS PC MARKET WILL REBOUND

The PC market has been written off as a lost cause for years by some in the tech press and even within the industry itself. And again, there has been good reason for these concerns: PC shipments peaked in 2011 and have been declining ever since. But, we would argue, even a steep decline does not a death foretell. In fact, in the business world, there are several signs of hope. The last few quarters in the US commercial PC market, in particular, have returned to positive year-over-year growth and we believe this phenomena will continue in 2014 and even spread to other developed regions.

The reasons for this belief are several. First, the installed base of commercial PCs is aging and a reasonable percentage—the exact percentage being a hotly debated subject—are in need of replacement. Second, there are a number of business organizations still running Windows XP and with the April 8, 2014 end-of-support (and more importantly, end of security updates) deadline now just a quarter away, there are bound to be a bunch of last minute stragglers who will purchase new PCs to upgrade some of these older machines. The third reason—and the one we believe actually has the biggest potential impact—is the increasing awareness that PCs in business are not going away anytime soon. For all the justified excitement around tablets, smartphones and the aforementioned phablets, people also now recognize that, particularly in business environments, those devices do not replace PCs. They are great supplemental tools—and for some, perhaps even the primary tools—but the likelihood that large numbers of people in a typical business environment would be willing to completely walk away from a PC and still feel confident that they could get their work done is small, particularly in regions outside the US.

Even consumer PCs may get some badly needed reinvigoration late in 2014 thanks to the expected arrival and growth of lower-cost (sub-$500) 3-D printers. Part of the reason consumer PCs have struggled is that many people feel they are overkill for the types of applications that most people use. Viewing, creating, editing and scanning 3D images before they are printed, however, seems like exactly the kind of activity that could get at least some people to justify a new consumer PC purchase. We expect to see 3D cameras that could function as simple 3D scanners in notebook PCs by the end of the year, so this is an area that bears watching—but it probably won’t have much of a serious impact until 2015.

PREDICTION 3: LOW-END SMARTPHONE BUSINESS WILL DRIVE MAJOR PLATFORM READJUSTMENTS

The majority of the focus on the smartphone market for the last few years has been on the high-end devices geared towards developed (and relatively wealthy) markets, such as the US and Western Europe. In 2014, however, a confluence of factors will start to shift more attention to the lower-end markets in developing regions and the full impact of the widely anticipated but long delayed BRIC (Brazil, Russia, India, China) phenomena—in which developing economies, such as the ones found in these four countries end up having a much greater impact on worldwide trends—will likely hit the smartphone market more than it ever did the PC market. First, the smartphone share of the total mobile phone market in countries like the US and parts of Western Europe is extremely high—nearly 90% in the case of the US. That means the market is nearly saturated in these countries and depends almost completely on replacements—people exchanging one smartphone for another. Of course that’s a popular exercise here in the US—and one that the carriers are trying to encourage as much as possible—but it doesn’t drive nearly as many sales as that of first-time smartphone buyers. Plus, as the pace of smartphone improvements inevitably starts to slow—something that you could easily argue has already started to occur and will increasingly be the case once we see a wider array of phablet-sized phones (iPhone 6, anyone?)—the desire and impetus to upgrade is also likely to decrease as well.

The bottom line? New smartphone purchasers in developing markets will quickly become the most important consumers for smartphone vendors to target. Of course, many of those buyers will be upgrading as well—but it will be from small-screened feature phones, many of which carry the Nokia brand. As a result, we believe that if Microsoft and Nokia focus the proper attention on a solid step-up strategy from these types of customers to slightly smarter versions of the popular Asha line of Nokia phone that embed a Windows Phone 8-like UI, there could be a very real chance for the pair to become a solid number three choice in the mobile phone platform world. In addition, while there has been almost no measurable success to date, we believe it’s too early to completely write off efforts such as Firefox OS, Tizen and other efforts targeted at creating an alternative mobile OS environment for the low end. While Android clearly has a huge advantage, ongoing concerns about splintering and the uncertainty surrounding how Google intends to merge Android and Chrome (details of which are likely to emerge in 2014) could create opportunities for new, smaller players.

PREDICTION 4: WEARABLE ANNOUNCEMENTS COULD OUTNUMBER SHIPMENTS

The hype around “smart wearable” devices, particularly smart watches and smart glasses has hit the kind of absurd level that one often associates with fads and other “bubble”-type developments. So, while there will certainly be no shortage of announcements coming out of the Consumer Electronics Show (CES) in Las Vegas in January and Mobile World Congress in Barcelona in February, the actual shipments of the devices will almost certainly have less impact than all the stories they will inevitably generate.

Admittedly, the headline to this prediction is more than a bit hyperbolic in the opposite direction, but the truth is that early results from smart wearables have been disappointing and reflect the more “experimental” nature of this category’s first offerings. Smart glasses suffer not only from the basic pricing and “fashion” concerns of such a device, but from a level of privacy and security concerns that could easily led to restrictive legislative action in countries all over the world. In fact, we would not be shocked if 2014 was the year when devices such as Google Glass were legally banned in some types of establishments and/or some states or countries.

Smart watches should avoid those kinds of hassles, but have unique challenges of their own. Because of basic physics and mechanics, none of these devices are likely to include a wireless broadband (3G/4G) radio—or the battery necessary to support it—anytime soon. As a result, they will be stuck functioning as expensive accessories to mobile phones, with limited differentiation and perceived value by most consumers: not a strong recipe for success. But, if vendors can come up with the right kinds of clever applications that take clear advantage of the new form factor, then there’s always the possibility of a game-changing product. Right now, however, we’re not holding our breath….

PREDICTION 5: MULTI-DEVICE, MULTI-PLATFORM “COMPANION APPS” WILL BECOME AN IMPORTANT NEW CATEGORY

As people continue to add to their collections of smart connected devices, a few important revelations start to become clear. First, though they’re theoretically designed to make our lives easier, it seems the more devices we own, the harder it is to get everything working together. Part of this may be due to the related axiom that the likelihood of having all your devices on single platform decreases with every new device you acquire. Second, and somewhat paradoxically to the first point, the more devices you own, the more interest you develop in getting them to work together.

As a result of these observations, we would argue that the market is in desperate need of more applications and services that allow multiple devices running multiple platforms to work together as a coherent whole. We call this category “companion apps” and we believe it is poised to become an important new opportunity in 2014. The concept here is for combinations like a Windows PC and an Android Tablet or a Chromebook and an iPhone, or a smart TV, a Windows Phone and an iPad to all work together in helping to complete a task, provide some information or simply serve as a source of entertainment. This is not simply a case of duplicating functionality across all the devices, but of actually using each device at the elements of a task for which it is best suited. So, for example, to use the last combination, the act of watching TV could be greatly enhanced if the Windows Phone could function as the smart remote control for the TV, while the TV relays supplementary content (e.g., character background, sports statistics, etc.) to the iPad’s screen. To be sure, there are many different ways to achieve the scenario I described (as well as many other potential combinations—see my previous “Multi-Device, Multi-Platform Companion Apps” column for a few more companion app examples). But the important point is that these kinds of combinations could give end users a great sense of satisfaction, as well as the perspective that each of their devices was now even more powerful and more useful.

Of course, talking about these kinds of ideal device-to-device communications situations and actually achieving them are two very different things, but with developments like Qualcomm’s AllPlay protocol starting to gain traction, we believe 2014 will be year when these types of multi-device applications become important.

To see a more complete version of these predictions as well another five more, you can download a free research report sample here.

Here's a link to the original column: http://techpinions.com/top-5-2014-predictions/26118