Smartphones not the smartest buy yet

Given the craze around the iPhone, Motorola Droid, Palm Pre and Nexus One, it might seem that nearly everyone has a smartphone. But most consumers use simpler, much cheaper phones.

According to data from the Nielsen Company, roughly 82 percent of cellphones in use are limited-function phones, the kind that typically sell for less than $50 or are given away with a two-year service contract.

The cellphone industry prefers to call them feature phones, to distinguish them from smartphones like the Pre or the Droid, but they could just as well be called “kinda smartphones.”

Although once easily identified by boxy designs and minuscule, poorly pixelated screens, many feature phones these days more closely resemble their smarter cousins because software improvements enable them to run more sophisticated mobile applications.

“Feature phones are migrating away from the tiny screens that characterised their dominance in the era of the Motorola Razr,” said Ross Rubin, an industry analyst with the NPD Group, a market research company. “They have more sophisticated operating systems, touch screens and bigger screens.”

Sleek offerings from Samsung, LG and Motorola have attracted the attention of entrepreneurs and software companies hoping to market functions similar to those found on the iPhone. One phone, the LG Vu, for example, has a three-inch touch screen with “haptic feedback” so the user feels a response when tapping on the screen, a 2-megapixel camera and up to 4 gigabytes of external memory — enough to fit hundreds of additional applications.

Another, the Motorola Clutch, has a Web browser, support for GPS functions and is Bluetooth enabled. These phones typically come loaded with a simple suite of applications selected by the carrier, like puzzle games, a mobile e-mail application, a navigation application and an instant-messaging client. “These companies are trying to raise the bar from the lowest common denominator,” Rubin said.

One such company, GetJar, offers about 60,000 applications for nearly 2,000 different mobile phones, including the Motorola Rokr. Feature phone users can find YouTube, Tetris, the restaurant locator Urbanspoon and a range of expense-tracking and calorie-counting apps. But just because consumers have simple cellphones doesn’t mean they don’t want Facebook, Wikipedia or a popular instant-messaging application like Nimbuzz on their phones, says Ilja Laurs, chief executive of GetJar, which is based in San Mateo and Lithuania.

“Everyone wants apps, but not everyone can afford an iPhone,” Laurs said. At the end of December 2009, the company said nearly 55 million applications were being downloaded each month, an increase of 260 percent from the period a year earlier. “We’re on track to hit a billion total downloads in about two months,” Laurs said.

Cellphone owners direct their phones’ browsers to GetJar’s mobile Web site, which automatically detects the model of the phone and the wireless network it is running on. GetJar then compiles a catalog of compatible applications that can be downloaded to the phone. If the phone doesn’t allow third-party applications to be downloaded to the device, GetJar creates a short link to a mobile version of the application.

These niche applications, he said, have the potential for success on a site like GetJar, which caters to a broad set of phone users outside the iPhone or Android-powered system.

This way, Laurs said, companies like Facebook that may not have a mobile application compatible with every kind of feature phone can still have a presence through his company.

Mass market

Facebook’s application has been downloaded close to 20 million times through GetJar, he said. “This is the mass market,” he said. “If companies want scale for their mobile application, this is the way.”

About a third of GetJar’s traffic comes from smartphones, the company said, and the rest is from feature phones. GetJar doesn’t process payments for the applications on its site. Instead, the company allows developers to pay for priority placement in the catalog.

Although Laurs declined to discuss specifics, he said GetJar is profitable. In addition to selling ads on the site, developers can pay for better placement on GetJar’s home page. For each download developers receive, they pay GetJar a commission.

In early 2010, the company plans to build an application storefront for its Web site and begin building a platform to process payments, similar to Apple’s App Store. The storefront will first be available on the Android platform, and will eventually migrate to others, the company said.

Historically, the barrier to developing for feature phones has been sluggish operating systems that are less integrated with other features of the phone.

Gaining share

To be sure, analysts caution that while feature phones still make up the bulk of the handset market, smartphones are rapidly gaining share. And companies like GetJar and Snac will have difficulty matching the marketing muscle of Apple and Verizon.
“It takes a lot of money to run an app store,” said Ken Dulaney, a wireless industry analyst with Gartner. And many feature phone owners do not have data plans, he pointed out.

“Until recently, smartphone devices have traditionally really been e-mail devices,” said Ed Ruth, director of strategic business development at Verizon Wireless. “Customers may not have even known about other services that might appeal to them.”