1. Telecom, Media & High Tech Extranet
Making smartphones brilliant:
Ten trends
No.20
RECALL
A publication of the Telecommunications,
Media, and Technology Practice
June 2012
Copyright © McKinsey & Company, Inc.

2. 8
Making smartphones brilliant:
Ten trends
By: Venkat Atluri /// Umit Cakmak /// Richard Lee /// Shekhar Varanasi

3. RECALL No.20 – A new era of personalized computing
Making smartphones brilliant: Ten trends
The top-ten trends that will shape the future of mobile smart
d
­ evices over the next five years put a premium on intelligent
s
­ trategic planning for players across the value chain.
What makes smart devices so brainy, and will they diture is higher for AMOLEDs than for liquid crystal
become even more intelligent in the future? Be- displays (LCDs) – and short supply mean that only
yond taking cues from current customers, smart a handful of manufacturers will be able to produce
device innovations also emerge from a deep un- this display at scale.
derstanding of how core component technologies,
business models, and services will evolve. Apple’s Processors. With Microsoft announcing support
designers focused on targeted technologies such for ARM chipsets on Windows 8, a convergence
as multi-touch capability combined with a capaci- across smartphones, tablets, and notebooks
tive touch screen to create an entirely new user seems likely. ARM processors – with their low
interface mode. In another case, Samsung bet power consumption and compact size – will con-
heavily on active matrix organic light emitting diode tinue to dominate the smartphone market. As the
(AMOLED) technology, assuming that consumers power of ARM processors rises, they are likely to
would pay a premium for high-contrast displays penetrate the notebook and server spaces as well,
coupled with lower device power consumption. reaching an expected 23 percent penetration into
the notebook market by 2015 according to iSup-
pli. Along with Intel’s announced Medfield lineup,
Ten trends shaping the future of this will mean a significant step up in the portabil-
smart devices ity of notebook PCs in the future. With ARM, for
example, it is already possible to have a notebook
Given the important role technology plays in with eight- to ten-hour battery life that weighs 500
driving smartphone innovations, McKinsey has to 600 grams – compared with five to six hours
identified the ten top mobile device hardware and over 1 kg on the current x86 platform.
and software trends that will significantly impact
these devices over the next five years. Sensors. In terms of functionality, sensors con-
tinue to improve significantly. Future smart de-
Displays. With increased usage comes the need vices will incorporate new mobile sensor types,
for more power-efficient and flexible displays. such as biometric, pressure, and environmental
AMOLED – a power-efficient, flexible, and fold- sensors, along with the ones currently in most
able display technology that will soon reach “retina smartphones. More
resolution” (i.e., a higher display resolution density sensors and the
that boosts text and graphics clarity) – is emerging greater penetration Mobile devices will
as the next standard. Following the lead of Sam- of mobile devices
drive global ­ ensor
s
sung with their Galaxy phone (and now tablets), will drive global
players such as Nokia and Motorola are offering sensor shipments shipments to
this technology on their high-end handsets. Suc- to 6 billion units by 6 ­ illion units by
b
cess among early adopters is driving widespread 2015, one third of 2015, one third of
use across platforms. According to J.P. Morgan, which will represent
AMOLED’s display revenue market share should new sensor types. which will be new
reach 50 percent by 2015. However, high capital Particularly, the sensor types
investment requirements – up-front capital expen- aggregation and

4. 10
analysis of environmental and user data collected and iPhones. Microsoft’s Windows 8 will also have
through sensors will enable smarter applications similar traits to the Windows Phone 7. Along with
and personalized advertisements adapted to user the convergence of processors (i.e., the same
behavior and preferences. processor will be used to power smartphones,
tablets, and PCs), a true convergence is on the
Batteries. With increased mobile phone usage, horizon – one that could be described as “one OS,
satisfying power needs has become a priority. one processor, but many form factors.” Such true
Innovations in battery technology, however, have convergence would enable consistency of experi-
lagged behind advances in processing power. ence across different devices.
Since 2000, battery capacity has only doubled,
while processing speed has increased 12-fold. Web centricity. With HTML5 – the latest “open
Current developments in lithium-sulfur and carbon Web” version of the HTML language – and cloud
nanotubes might increase battery capacity if they services gaining traction, Web-based applications
can be made commercially viable. Compared with are moving computing power from devices to the
lithium-ion technology, lithium-sulfur promises 80 cloud. As this takes place, browser technology
percent more capacity, ten times the power den- will dominate over operating systems. Based on
sity, and the ability to last four times longer. Car- McKinsey’s iConsumer survey, mobile activity via
bon nanotubes can store much more electricity by browsers already accounts for three quarters of
weight than lithium-ion batteries, while maintain- non-talking time. Web centricity will enable a new
ing their charge. They are also far more durable. set of consistent multiscreen experiences and
Wireless battery charging, faster battery charging, drive advertising by providing a greater ability to
and adaptive battery management are also in the achieve scale in devices. Web centricity, however,
development stages. Even though battery power could also pose a serious threat to adjacent indus-
is being used more efficiently and battery makers tries such as PC gaming as the cloud becomes
are experimenting with new technologies, capac- the platform for many applications and games,
ity will continue to constrain the day-long use of using the browser as the middleware.
smart devices in the short term.
User interfaces. Current user interactions are
Materials. Advances in nanotechnology are lead- limited to the touch screen, motion sensing,
ing the way toward more adaptable and eco- peripheral input devices, and voice recognition.
friendly materials. If proven commercially viable, The development of gesture and retina tracking,
graphene will enable a new generation of lighter, the infrared keyboard, and context-aware user
more flexible, durable, and transparent form interfaces (UIs) will accompany the emergence
factors that are a hundred times stronger than of new sensors, disrupting the mobile space and
steel and reduce the cost of materials for mobile giving rise to a new generation of applications
devices. With competition among mobile device and form factors.
makers becoming fierce, sustaining operating Context-aware UIs
margins will require such reductions in materi- would allow de- Context-aware
als and operating costs. These new, cheaper vices to adapt to user interfaces
alternatives will enable device makers to further the user’s physical
reduce their “bill of materials” costs. setting and prefer- would allow
ences. The device d
­ evices to adapt ­
Operating system convergence. In order to pres- screen could adjust to the user’s
ent users with a unified experience, operating itself to a user’s
system providers have continued to converge their location, for ex-
­physical setting
OS across devices. Apple’s Lion OS for PCs, for ample, displaying and preferences
instance, has features similar to its iOS 5 for iPads work productivity

5. RECALL No.20 – A new era of personalized computing
Making smartphones brilliant: Ten trends 11
applications when at the office. At home, it would Trend-driven mobile functions of
show entertainment and social connectivity apps. the future
Innovations in UI technology will help devices
adapt independently to user contexts and prefer- Key developments in hardware, software, services,
ences, optimizing productivity, while maintaining and networks are coming together to create prom-
portability and enabling intuitive interactions. ising opportunities for industry players and con-
sumers alike. Potential growth areas include new
Cloud services. From storing digital content form factors and UIX models, cognitive services,
online to synchronizing content across multiple personal cloud, and new connectivity technologies.
devices, cloud services have become a major
part of daily computing. With the rapid growth of Form factors and UIX models. Foldable, modular,
this market, it is no surprise that major players hybrid devices combined with new UIX models
are already staking out their own territories with will change the mobile device landscape. While
very different monetization models to command current input methods are limited to touch and
ownership of customers. speech, ­ sers will be able to communicate with
u
their ­ evices with a wave of the hand or a directed
d
„„ Device lock-in model. Apple’s iCloud drives glance in a few years. Pressure-sensing screens
high-margin device sales by providing seam- will also know exactly where the user intends to
less multi-device synchronization. click, and advances in natural language processing
and artificial intelligence – exemplified today by Ap-
„„ Advertising model. Google leverages its large ple’s Siri digital personal assistant – will make voice
cloud user base to drive advertising revenues recognition a truly interactive experience. One pos-
by offering low-cost or free cloud services. sibility is a device that users typically carry in their
pockets as a smartphone. When they need a larger
„„ Content sales model. Amazon drives content screen to watch a movie, they would unfold the
sales with cloud-based platforms that push device to become
digital content directly to users that have heav- a tablet. Eliminating
ily subsidized devices. the need to carry By eliminating
multiple handsets, the need to carry
„„ OS lock-in model. Microsoft leverages its Sky- such hybrid devices
Drive cloud services to let users synchronize have the potential
multiple handsets,
­
their content, thus increasing customer reliance to capture about ­hybrid devices
on Windows’ platform and suite of applications. 10 percent of the could capture
device market by
roughly 10%
Networks. As smart device penetration and data 2015, reshaping the
usage both increase, demands on mobile network competitive land- of 2015 device
capacity will continue to spike, leading to greater scape for OEMs in ­market
congestion. In response, operators have rapidly in- the process.
creased their adoption of long-term evolution (LTE)
networks, accelerating from 126 commitments in Cognitive and contextual services. With the advent
August 2010 to 324 in October 2011. Enabled by of sensors and data analytics, mobile devices will
LTE networks, next-generation application pro- know more about users, their preferences, and
gramming interfaces (APIs) will help drive innova- the environment than ever before. Imagine an ap-
tions in mobile applications and tiered data pricing plication that checks the user’s calendar, sees an
plans for operators. With these APIs in place, upcoming business call, and automatically shows
users will be able to dynamically control quality of directions to a nearby coffee shop – that real-time
service and bandwidth. noise sensors indicate is quiet. Other new sen-

6. 12
Implications for mobile value chain players
The pervasive trends result in implications for mobile value chain players
Component players CMs/ODMs/OEMs1 OS/app providers DCS providers2 Operators
Positive  Higher component  Increased smart  Increased smart  Increased adoption  Increased data pene-
pricing (new batter- device penetration device penetration of mobile content and tration and ARPU
ies, screens) services
 Potentially increased  New business models
consolidation (e.g.,
chipset players)
Negative  Increasing OEM  HTML5 disruption  Decline in messaging
fragmentation of OS layer and and voice revenues in
 Increasing competi- native apps developed countries
tion from ODMs
1 CMs = contract manufacturers; ODMs = original design manufacturers; OEMs = original equipment manufacturers
2 DCS = digital content and service
SOURCE: McKinsey
Exhibit 1
sors will provide indoor positioning and biometric will soon be able to provide dynamic bandwidth
security. Beyond this, businesses will be able to control, which means that users can choose in real
monetize contextual advertisements, since person- time when to increase their bandwidth (for a price),
alized ads have demonstrated that they can provide such as when streaming a high-definition video.
a 40 percent lift in purchase intent. In sum, sensors
and data analytics have the potential to reshape the However, LTE networks might not be enough to alle-
USD 600 billion global advertising industry by shift- viate the capacity problems. Many carriers will have
ing more spending to mobile markets. to turn to alternative network technologies such
as TV white space, software-defined radio (SDR),
Personal cloud. The mobile cloud will become and cognitive radio (CR). SDR and CR in particular
an all-encompassing personal online identity that could help carriers to auction wireless spectrum
stores everything from user content, documents, in real time to reduce network capacity problems,
calendar appointments, to-do lists, and personal trading spectrum from high-capacity to congested
preferences to financial information and sensor networks. Furthermore, the use of TV white space
data. Social networks and online connections will could allow operators to offload heavy bandwidth
become much easier to manage because one consumption services such as video streaming from
cloud will centrally store all user information. For carrier networks to the TV white space spectrum.
instance, users could upload photos from a recent
outing to a personal cloud, and social networks
and photo-sharing Web sites could automatically Implications for value chain players
access that cloud-based data.
Each of these opportunities will play a significant
Connectivity technologies. Handling the expected role in the future of mobile devices. As a result,
growth in mobile device usage will require critical they will have a potentially large impact on the bot-
improvements in network capacity. LTE networks tom lines of mobile value chain players (Exhibit 1).

7. RECALL No.20 – A new era of personalized computing
Making smartphones brilliant: Ten trends 13
McKinsey’s analysis of the trends and the players Mobile operators will capture a lower value share
involved indicates that digital content and service due to declining voice revenues in developed
(DCS) providers along with component manufactur- countries, the shift of content and advertisement
ers will capture much of the value shifts in the mo- revenues to DCS providers, and the migration
bile value chain, since the trends highlighted are in of messaging revenues to IP services and social
their favor. Component manufacturers should see a networks. Still, operators do have several potential
greater increase than expected in value due to the plays that can help protect their value shares.
higher penetration of smartphones and the evolu-
tion of new and innovative form factors. Each of First, they can jointly develop mobile devices with
these trends will drive demand for more and better key device OEMs. This would provide them with
components. The value share that DCS providers exclusive rights to device sales and give them the
can capture will grow significantly thanks to higher opportunity to redefine the retail experience for
content consumption and the greater value gener- their products, as Apple stores have successfully
ated by very effective personalized advertisements. achieved. Another move: mobile operators could
launch next-generation IP services and network
For contract manufacturers (CMs), original design APIs that capture the benefits from all-IP LTE net-
manufacturers (ODMs) and original equipment works – and enable seamless user identity por-
manufacturers (OEMs), significant shifts in value tability across devices via platform-independent
share are not expected. These players will benefit mobile clouds. Such companies could also lever-
from launching new form factors driven by display, age new network models to alleviate frequency
sensor, processor, and battery innovations – and restrictions and spectrum congestion.
from expanding into lucrative business segments
such as productivity and special-use devices.   
Growing OEM fragmentation and competition from
ODMs will, however, threaten OEM revenues. As the trends, opportunities, and implications
show, the smart device landscape is ripe for in-
For OS and app providers, the opportunities novation and change. Room exists for players
presented here will not have a disruptive impact to make strategic moves and revolutionize the
on their value pools. Unlike the PC space – where industry. Consumers will also benefit greatly from
OS players are strong – the mobile device industry the rapidly improving user experience these trends
requires simultaneous innovation and coordina- foster. As smart devices evolve into brilliant ones
tion in hardware and software to streamline the over the next few years, industry players need to
user experience. Thus, pure OS players are not make sure their own strategies to capture value
equipped to make significant plays. from this shift are equally intelligent.
Umit Cakmak
Venkat Atluri is an Engagement Manager in McKinsey’s
is a Principal in McKinsey’s Chicago office. Istanbul office.
venkat_atluri@mckinsey.com umit_cakmak@mckinsey.com
Shekhar Varanasi
Richard Lee is an Associate Principal in McKinsey’s
is a Principal in McKinsey’s Seoul office. Chicago office.
richard_lee@mckinsey.com shekhar_varanasi@mckinsey.com