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27% of smartphones under $200

Phone software more important than handset

Smartphone prices are falling as shipment volumes increase, and a new study finds that while in 2007 only 18 percent of smartphones on offer cost under US$200 retail, that percentage has already grown to 27 percent this year.

By 2014, according to ABI Research forecasts, 45 percent of the smartphones shipped that year will be priced below $200.

These numbers highlight a rapid change in many consumers' attitudes about smartphones, and a corresponding shift in vendors' and mobile operators' sales and marketing strategies.

"Manufacturers see consumers increasingly demanding smartphones, because of their better understanding of the value that a smartphone delivers," says ABI mobile devices practice director Kevin Burden.

"Nearly all consumers used to choose handsets based on the physical characteristics of the hardware, not the software inside. The iPhone changed that: more users are now shopping for their handset based on the operating system and software, which is something once thought to be very unlikely."

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The result: more and more smartphones and conventional phones are priced in similar ranges. Handset makers' and carriers' marketing strategies must accommodate both groups of consumers: those who want a basic replacement phone, and those who care about what the OS can do for them.

In some markets, these strategies are further complicated by the heavy subsidies that mobile operators may offer.

Some smartphones are never subsidized: the high-end concept phones intended as prestige items or to demonstrate a manufacturer's design and innovation prowess.

But increasingly, manufacturers want to offer a mix: some high-priced, high-margin models, but also a generous helping of moderately-priced smartphones that can generate high volumes of sales.

According to ABI Research, by far the greatest increase in smartphone shipment volumes over the next five years will be found in the $100-200 price range.

"Prices will hold at a certain point," notes Burden. "We may never see a $30 smartphone. But over time, smartphones will take a substantial part of the mainstream handset market."

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