is expected to draw consumers to e-readers, replacement
handsets and, of course, new Android devices.
If you’re wondering what devices are going to be hot this year, Frost & Sullivan analyst James Brehm has two words for you: Android and e-readers.
“Android devices are going to be huge, and we could easily sell a third of the year’s e-readers in North America during the holiday season,” Brehm says.
The highly-anticipated Motorola Droid came out Nov. 6, just in time to compete with the likes of the Palm Pre and the iPhone for holiday shoppers. Brehm argues that the overwhelming buzz around Droid, which is the first handset to feature the updated version of the Android 2.0 operating system, has the power to lift it next to the iPhone in terms of seasonal sales.
This, of course, comes as good news to Verizon Wireless, the exclusive carrier of the phone. Like many others, Verizon has struggled to find a device capable of competing against the iPhone. The final verdict is still out in terms of sales, but the Motorola Droid seems to stand a better chance than many. The device sold 100,000 units in its first weekend, according to analysts’ estimates. That’s a fairly healthy sum compared to its closest competition but still pales to the 1 million iPhone 3GS units sold in the first three days of that device’s launch this past July.
It remains to be seen whether sales of the Droid will cut into the iPhone’s usual share of holiday traffic. Meanwhile, the iPhone’s exclusive carrier, AT&T, has placed heavy bets on connected devices.
E-READERS MAKE THE LIST
AT&T scored big with the Kindle when it unseated Sprint to provide the device’s connectivity in domestic and international markets. Of course, Amazon carries the device, not AT&T, but the operator still stands to gain from network fees.
AT&T also is providing the connectivity in Sony’s Reader Daily Edition; the Barnes & Noble Nook; and it will provide 3G support for Plastic Logic’s e-reader, which is set to come out in 2010. The exact terms of those deals have not been disclosed, but it’s speculated that AT&T will snag a share of the profits for every piece of content sold over a wireless connection on its network.
The real people who stand to benefit are the manufacturers of e-readers, a device segment that has seen significant growth over the past two quarters. Though well over a dozen assorted e-readers are on the market today, none is closer to challenging Amazon’s Kindle than the Nook from Barnes & Noble.
The Nook is priced at $260 – the same as the Kindle 2 – and supports open formats such as EPUB, a feature missing in the Kindle. The Nook is based on the Android operating system and has a dual screen with a full color touch screen at the bottom of the device. In addition, Barnes & Noble’s e-bookstore contains more than 1 million books, 500,000 of which are free thanks to its partnership with Google Books.
The Nook also allows users to “lend” e-books to fellow Nook users, a far cry from the walled garden approach of the Kindle. These types of open features have caught the eye of industry watchers like Brehm, who argues that the Nook will be a major mover over the holiday season.
The Nook was already in high demand by early November. It was backordered by Nov. 9 and new customers ordering the device were told that the Nook wouldn’t arrive until the second week of December – still in time for Christmas.
As far as other devices are concerned, they’re mainly overshadowed by the Droid and e-readers. That said, Sprint has launched the adorably-named Palm Pixi, a snazzy-looking qwerty handset that is more cute than revolutionary. Sprint also has its first Android phone, the HTC Hero, and has cut the pricing on the Palm Pre to $150. Still, the buzz around the HTC Hero, the Pixi and Pre has been all but drowned out by the Motorola Droid, so it’s not clear how sales of those devices will stack up.
GIFT-GIVING MADE DIFFICULT
Of course, the fact that these handsets come with two-year contracts may put a bit of a damper on things. “It’s not the easiest thing to buy someone a handset as a holiday gift because of the contract and stipulations,” says Kevin Burden, practice director of mobile devices at ABI Research.
Chris Collins, an analyst with Yankee Group, agrees. “A phone has a contract. You can’t just give it the way you normally would,” he says. “I want to literally wrap it up, put it under the tree and have it work.”
Apple tried to get around this with gift-wrapped cards that meant the recipient had an iPhone waiting for them, but Collins says the industry still has a long ways to go toward making a phone an easier holiday purchase. “If the industry wants to [exploit] the holiday advantage enjoyed by other consumer electronic products, they have to have a better out-of-the-box experience,” Collins says.
That doesn’t mean that the wireless industry no longer sees a fourth-quarter sales bump from the holiday season. According to information collected by Burden at ABI Research, the fourth quarter is always the biggest selling point for handsets on any given year. “The holiday season is an important time for handset sales,” Burden says. “If we ever saw a year where sales in the fourth quarter were below the third quarter, that would be very unusual.”
There is conflicting evidence on how device sales will compare to the 2008 holiday season. The National Retail Federation (NRF) predicts that holiday retail sales will decline 1 percent this year, to $437.6 billion. That forecast falls well short of the 10-year average of 3.39 percent holiday season growth, but is not as dramatic as last year’s 3.4 percent drop in holiday retail sales.
Contrasting with the predictions from the NRF are findings from the Consumer Electronics Association (CEA) that spending on consumer electronics will rise this year. According to a CEA research finding, shoppers plan to spend an average of $222 on consumer electronics this holiday season. It’s not entirely clear how that will pan out for wireless, but e-readers did make the CEA’s top 10 list of most-wanted electronic devices.
Distribution companies Brightpoint and Brightstar both have an upbeat forecast for nontraditional, wirelessly enabled devices. According to Brian Corey, Brightstar’s vice president of global product management, wireless devices and converged wireless devices will “be at the forefront of profit generation” for the retail base.
Brightpoint Americas President Mark Howell gave a more reserved forecast, saying the distributor was “cautiously optimistic around new product categories like e-readers and netbooks.”
Brightpoint bases its prediction on the “expanded” replacement cycle for handsets caused by the difficult economic conditions the nation has dealt with over the past 18 months. “That builds up a bubble of demand,” Howell says. “We’re seeing the replacement cycle moving back down again, so there may be a backlog of people looking to [upgrade their phones].”
CHANGES IN BUYING HABITS
No matter what consumers choose to buy for their loved ones over the holidays, they’re going to be more methodical about it. Back at Yankee Group, Collins argues that the ever-increasing availability of reviews and online product information, combined with a new sense of thriftiness brought on by the economic crisis, has caused consumers to make fundamental changes to their shopping patterns.
Yankee Group estimates that about 70 percent of consumers who purchased their handsets from a retail location bought it from discount giant Wal-Mart. Wal-Mart carries a surprising selection of handsets, including various BlackBerry models and the iPhone.
In addition, significantly fewer people are now buying their handsets from carrier’s stores. In 2008, more than half of consumers went directly to a carrier-branded retail store to buy a phone. By this year, that number has dropped to around 30 percent as customers are turning to online shopping and authorized retailers.
Authorized retailers carry multiple brands of handsets with multiple carriers, allowing subscribers to compare prices across both handsets and service plans. Online shopping from both independent, authorized retailers and carrier stores also is becoming popular as consumers look to find the best possible deal on their handset of choice.
“Every purchase today is a considered purchase,” Collins says. “Many retailers tend to emphasize emotional elements of shopping behavior. …I don’t think emotional cues are going to have the same play as they did in the past.”