As consolidation occurs among established mobile device vendors, more challengers will enter from other markets, such as consumer electronics.

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1 Research Publication Date: 18 June 2008 ID Number: G Key Trends in Mobile Devices, Jason Chapman, Carolina Milanesi, David A. Willis Enterprises and the mobile device users they employ can expect a changing selection of mobile device vendors during the next 18 months, due to a mix of consolidation and new entrants in the market. Vendors will be looking at different business models, including offering services and applications directly to end users, which will increase the choices available to enterprises. Key Findings As consolidation occurs among established mobile device vendors, more challengers will enter from other markets, such as consumer electronics. Many device vendors will build out partner ecosystems to sell content and services to users as a new source of revenue, although most will target the consumer such as Apple itunes and Nokia's Ovi. Users choosing mobile devices will want them to serve as personal lifestyle statements and will also demand a simplified user interface (UI) and interaction experience as new features and services are added to these devices. More high-end mobile devices will feature "field-refreshable" platforms to support vendors' need to provide ongoing support, upgrades and enhancements of these devices. Recommendations Enterprises with consumer brands should explore the potential of partnerships with mobile device vendors to extend their brand appeal and consumer reach. Changes in UIs will potentially enable more enterprise applications to be made available and usable on mobile devices. Hence developers should seek to extend applications such as sales force automation or field force automation to mobile devices during the next 18 months. With the shortening of technology life cycles, enterprise users should push vendors to support upgrade cycles for high-end devices. Reproduction and distribution of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although Gartner's research may discuss legal issues related to the information technology business, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The opinions expressed herein are subject to change without notice.

2 TABLE OF CONTENTS Analysis Introduction Factors Contributing to These Trends Trend Analysis and Implications Established Vendors Will Consolidate and New Players Will Enter the Fray Device Vendors Will Build Out Ecosystems Device Makers Will Focus on Removing Complexity for the User Mobile Devices Will Increasingly Become Lifestyle Statements High-End Device Platforms Will Become "Field-Refreshable" Conclusions... 6 Recommended Reading... 6 Publication Date: 18 June 2008/ID Number: G Page 2 of 7

3 ANALYSIS 1.0 Introduction Gartner expects the following five key trends to impact the mobile device market during the next 18 months: As established vendors consolidate, new entrants will join the fray. New device vendors such as Apple and Garmin are looking to differentiate themselves, while bigname vendors like Motorola face pressure as market shares decline and design innovation becomes more challenging. Device vendors will build out ecosystems. Pressure from operators to lower the price of devices will drive some established players such as Nokia and Sony Ericsson to seek out new sources of revenue from content and services sold to end users. More devices will focus on removing complexity for the user. Increasing device functionality and a need for differentiation will drive demand to simplify the user interface and service experience. Mobile devices will increasingly become lifestyle statements. Style will play more of a role across the range of devices, driven not only by fashion trends but also by consumers' desire to reinforce their lifestyle choices. More high-end mobile devices will feature "field-refreshable" platforms. As cellular technologies become part of increasingly expensive consumer devices, vendors must manage ongoing support, upgrades and enhancement of devices. These trends along with their implications for enterprise mobile device users are analyzed in this report. This analysis is part of a series of reports examining the enterprise implications of trends in several aspects of the worldwide communications market (see "Key Communications Trends Will Impact Enterprise Strategies"). 1.1 Factors Contributing to These Trends Mobile operators are seeing their service revenue come under pressure and, driven by lower flatrate tariffs, demand for data services is starting to pick up, increasing demand for network investment. Cost control and putting pressure on supplier pricing are the business norm for operators. Hence, mobile device vendors are experiencing increased pressure on device pricing. Improved mobile networks, with their faster data rates, are now appealing to Internet players, who see the mobile market as the next battleground for their services. To ensure control of the user experience, some are considering branching out into the device space. Apple's iphone launch in 2007 had a major impact on expectations for mobile device UIs and ease of use, and for device vendors' relationships with operators and ecosystem partners. Vendor responses to the iphone phenomenon will be seen during the next 12 months. Publication Date: 18 June 2008/ID Number: G Page 3 of 7

4 2.0 Trend Analysis and Implications 2.1 Established Vendors Will Consolidate and New Players Will Enter the Fray Consolidation in the mobile device market is not a new phenomenon. However, as margins on mainstream devices are squeezed, volume and operational scale become increasingly important. This will lead to consolidation, joint ventures and mergers to ensure that vendors can compete effectively. In January 2008, Motorola announced that it is looking at options for its handset business, which could lead to its sale. In October 2007, Sanyo confirmed that it was selling its handset business to Kyocera. And in March 2008, Acer acquired E-Ten's mobile device business and Mitsubishi withdrew from the market altogether. Expect further consolidation to occur among midsize vendors and more acquisitions by Asian vendors as they seek to expand internationally. By contrast, the lower cost of mobile phone reference designs and modules as well as the appeal of such a large market will attract more conventional consumer electronics companies to join the fray. Already, full Web browsing capability and voice either through cellular or voice over Internet Protocol (VoIP) service are being added to some mobile devices that were previously unconnected or single-purpose-connected (for example, navigation devices). Expect more new entrants to add cellular service to existing consumer electronics products or to create new mobile devices supported by established brands. Amazon.com recently launched its Kindle e-book reader in the United States. Kindle's e-book service runs over the Sprint Evolution Data Optimized (EV-DO) network, although most users are not aware of the cellular operator's role in providing that service. Meanwhile, Garmin moved into the mobile device market with the Nuvifone. Here, the Global Positioning System (GPS) provider added the Nuvifone into its range of Nuv GPS products. Along with mobile features such as calling, texting and Web browsing, the device offers enhancements such as access to local traffic and weather data. Both cases are examples of new devices and business models based on services whether subscriptions to Amazon for e-book content or to Garmin for navigation. Implications: In the near term, user organizations should stick to standardized mobile device platforms, and diligently keep track of the shifting marketplace as new entrants from noncellular device industries move into this market, potentially bringing new functional and application synergies. 2.2 Device Vendors Will Build Out Ecosystems With revenue from mobile device sales coming under more pressure as operators strive for reduced pricing and with volume growth coming from emerging markets where average selling prices are lower some device vendors are looking for alternative sources of revenue. Many will find it by offering services and applications directly to end users, either through partnership with operators or by controlling the ecosystem directly. Some vendors are shifting from single payments for device purchases to ongoing revenue for services. This trend is epitomized by Nokia with Ovi, Sony Ericsson with PlayNow and Apple with its itunes store. Although itunes is accessible to mobile device users only on the iphone via Wi-Fi, it has challenged the status quo. Because operators are the largest distributors of devices in a number of markets, this trend brings some downsides. In Germany, for example, T-Mobile recently decided not to range Nokia products that support Ovi. By contrast, Vodafone, TIM and Telefonica have announced support for Ovi, on their terms. Publication Date: 18 June 2008/ID Number: G Page 4 of 7

5 Not all device vendors will need to follow this trend. Depending on market size, share and position with the operators, some will be content to continue being nothing more than device vendors. Implications: Although these ecosystem changes will be mainly targeted at consumers, this new market will bring changes in relationships between vendors, operators and content providers. Applications relevant to enterprises such as location and navigation will increasingly become available directly from device vendors that are integrating GPS into their products. There will be differences in the business models used and even between differing geographies. Any relationships must be flexible as service offerings evolve and partnerships and roles become more established. 2.3 Device Makers Will Focus on Removing Complexity for the User With the addition of video, music, location and navigation services, contacts and gaming to the traditional phone functions, mobile devices are becoming extremely complex products. This complexity has come at a cost in terms of reduced ease of use. However, new user interface techniques such as multipoint touch screens, tilt sensing and other haptics are finding their way into devices to make them more usable and are often adding a differentiating "wow factor" in the process. UIs such as Apple's Cover Flow, which allows users to virtually browse through their music collection on the iphone, have great appeal. However, UI improvement will not necessarily need to be groundbreaking, or feature stunning graphics, to be successful. What has attracted the most attention to the iphone is the simplicity of using the device. Basic functionality such as adding a contact from an message and later associating a picture with that person follows a logical flow. The trend in further simplifying mobile UIs is also reflected in the attention paid to the Android Platform from Google and the Open Handset Alliance. Early demonstrations of Android have focused on the need for tight integration across applications and the ease with which this can, in theory, be accomplished on this platform. Implications: With mobile device vendors looking to make improvements to their UI, the usability of enterprise applications running on these devices should be improved. However, this will not happen immediately and the first products to see improvements will tend to be more expensive, high-end products. Enterprises will increasingly be faced with the challenges of "consumerization"; balancing the simplification of functionality that can have business benefits with users' desire for "cool" products with compelling UIs. 2.4 Mobile Devices Will Increasingly Become Lifestyle Statements With increased availability, mobile devices have moved from utilitarian products engineered to fulfill telephony functions to products that feature styling and increased functionality designed to play a role in an individual's lifestyle. From high-priced devices positioned with fashion brands such as Prada and Armani, to less-expensive products such as Nokia's Barracuda and its lowerend 2626 devices, styling and fashion appeal have become important. Trendy designs, colors and casing materials contribute to this appeal. During the coming 18 months, we expect this focus to increase. Consumers in emerging device markets will want devices that are both stylish and low in cost. Style will play more of a role across the range of devices, driven not only by fashion trends but also consumers' desire to reinforce their lifestyle choices. One potential downside to this trend is that rapid changes in fashion trends could cause product life cycles to shrink. Publication Date: 18 June 2008/ID Number: G Page 5 of 7

6 Implications: Although it is not appropriate for all companies, those with consumer lifestyle brands should at least explore the possibility of extending these brands into the mobile realm using partnerships with device vendors. This will enable them to either lead the move into this area or, if such a move is inappropriate, be ready to respond to any such moves from competitors. 2.5 High-End Device Platforms Will Become "Field-Refreshable" Between now and the end of 2009, as high-end device pricing and integration into other consumer electronics products increase, replacement rates will become more variable compared with the 12- to 18-month cycles traditionally seen in the mobile device market. Because many users will hold onto high-end devices longer, these platforms will need more life cycle management in the form of upgrades and enhancements. In the same way certain consumer electronics products have firmware upgrades during their lifetimes, devices with cellular connectivity will need to do the same. These "field refreshes" could be made to support new digital rights management (DRM) requirements, download bug fixes, or download new applications, wallpapers or skins to keep devices up-to-date. Nokia already enables some of its devices to be refreshed in this fashion. Nokia's smartphone users can upgrade their device's firmware via a software client on a PC. Over-the-air support may not be available during the next 18 months, but should be factored into product evolution plans. Software-defined radio (SDR) will be introduced into high-end devices in late SDR will open up possibilities for further changes to devices after they have been sold. These technologies will enable devices to continue to evolve and potentially generate further post-sale revenue. Implications: Mobile access technologies such as cellular will be built into more high-end devices. This is occurring at a time when change in technology is coming about more quickly and the role of software is increasing. Enterprises purchasing these expensive high-end devices may wish to push vendors to ensure ongoing support, bug fixes, software loads and potentially even access technology migration paths are available. 3.0 Conclusions Changing UIs, simplified usability, evolving business models and growth in the smartphone market will all contribute to expansion in the mobile device market. As mature markets are driven by replacement rates associated with operator contracts, emerging markets continue to reach new users and those looking to upgrade from their first phones. The top 10 mobile device vendors will change as some established vendors will lose out to new challengers during the next 18 months. The larger vendors will evolve toward new business models, where content and services sold directly to end users drive more ongoing revenue. The integration of cellular technologies into consumer electronics products will expand, but complexity for the user must be reduced. Mobile device vendors have to balance immediate operator demands with longer-term market demands. RECOMMENDED READING "Key Issues for Mobile Devices, 2008" "Changes Coming for Embedded 3G in Notebooks" "Cool Vendors in Mobile and Wireless, 2008" "Gartner Changes Its Enterprise iphone Recommendations" Publication Date: 18 June 2008/ID Number: G Page 6 of 7

7 Acronym Key and Glossary Terms DRM EV-DO GPS SDR UI VoIP digital rights management Evolution Data Optimized Global Positioning System software-defined ratio user interface voice over Internet Protocol This research is part of a set of related research pieces. See "Key Communications Trends Will Impact on Enterprise Strategies" for an overview. REGIONAL HEADQUARTERS Corporate Headquarters 56 Top Gallant Road Stamford, CT U.S.A European Headquarters Tamesis The Glanty Egham Surrey, TW20 9AW UNITED KINGDOM Asia/Pacific Headquarters Gartner Australasia Pty. Ltd. Level 9, 141 Walker Street North Sydney New South Wales 2060 AUSTRALIA Japan Headquarters Gartner Japan Ltd. Aobadai Hills, 6F 7-7, Aobadai, 4-chome Meguro-ku, Tokyo JAPAN Latin America Headquarters Gartner do Brazil Av. das Nações Unidas, andar World Trade Center São Paulo SP BRAZIL Publication Date: 18 June 2008/ID Number: G Page 7 of 7