Smaller Smartphones: A Market Ready to Explode

Last Updated Jun 14, 2010 5:59 PM EDT

It was once natural law that newer technology meant a smaller device -- but not lately. The enormous screen on HTC's new EVO 4G and the sizable screens on other Google (GOOG) Android phones is proof that big phones are hot commodities. And Apple's (AAPL) new iPhone 4G isn't appreciably smaller than the last iteration, suggesting that Apple believes it has found the ideal form factor.

But a lot is still missing from an iPhone-sized device, as big as they all are. And the market might be primed for an explosion in compact smartphones. (Palm (HPQ) owners: can I get an amen?)

For one thing, the dream of mobile media is dying a cancerous death with the introduction of data caps from carriers like AT&T (ATT). Capped data means that big-screened phones are more a liability than a boon, as video becomes more and more tempting (and pricey) with a gorgeous screen. The cap trend is catching on in Europe, too, where carrier O2 has introduced limits of its own; if carriers on both sides of the Atlantic reign in their customers data usage, that will mean a sea change in the way that people use their phones -- and a similar change in the way that developers write their apps. That, in turn, changes how OEMs build phones.

Losing screen real estate means setting off a cascade of other usability issues. The biggest one: the on-screen keyboard, which requires ample width to be usable. But that may be less of a concern in the next 24 months as voice-commands and automation reduce the amount of typing required in daily use. As tech site Xconomy says of Siri, Apple's recent "digital assistant" acquisition:

The answer, of course, is that the fuss isn't about the Siri app. It's about the artificial-intelligence insights behind it: the chain of machine-learning, natural-language processing, and Web search algorithms that swing into action with every Siri query. When you can access these algorithms from a mobile device like the iPhone, and prime them with a bit of contextual awareness such as a GPS location reading or an understanding of the user's preferences, you have a powerful personal tool that Norman Winarsky, SRI's vice president of ventures, licensing, and strategic programs, likes to describe as a "do engine" rather than a search engine.
Voice power may reduce the number of screen-taps it takes to get things done, but it also raises another issue: the relative importance of voice calls. With data caps, the long-awaited dream of data-network VOIP is virtually dead in the water -- meaning we'll still be using our phones by burning up minutes, as we always have. This also puts a damper on the explosion of video calls, despite the fact that more and more phones (including iPhone 4) sport front-facing cameras.

Of course, the promise of ubiquitous video calling would have made the big, clumsy smartphone form-factor a reasonable compromise; if you're "watching" calls as often as you're listening to them, it makes sense to have a bigger screen and a bigger phone. But if data caps force users to stick to WiFi for video calls, then most people will stick to voice. And when it's held to your ear, a smaller, candybar phone feels much better than the heavy glass expanse of a smartphone.

That said, WiFi seems to be available more and more places for free. Perhaps taking a cue from McDonald's (MCD), Starbucks (SBUX) is planning on unleashing free WiFi at its stores starting July 1st. The impetus is to push Starbucks-only content. Says TechCrunch:

[T]he company aims to launch its own digital network by creating a third place between home and work. Starbucks wants to create proprietary way to give access to new sources of information and content that you can get only at Starbucks.
Using WiFi to consume content isn't ideal on a smartphone; it's much better on a tablet. And since Starbucks is a destination (at least in most of this car-reliant country) that means that users can plan ahead and bring their tablet instead of relying on their phones to spontaneously pull in WiFi-delivered music and film. If tablets popularize as quickly as Apple's sales figures suggest, hot-spot browsing will be only one example of the way that tablets may change the duties of the smartphone. If bigger-screen content is shunted to an iPad or Android tablet, that means there's less of a need for screen real estate on the phone.

For some, a smaller smartphone will feel like a retreat. And yes, a slighter smartphone might be less of a multi-tool than today's iPhones and Android beasts. But sometimes going backwards in terms of features is the best way forward: witness the netbook phenomenon.

The winner in all this might oddly be Nokia (NOK), which has pretty much missed the entire super-smartphone revolution ignited in 2007 when Apple released the first iPhone. The Finnish phone maker has been muddling along with its dumpy smartphone offerings ever since, and has no army of app developers to compare to Apple and Android.

But in a world where only basic apps are reserved for phones, Nokia can still compete; it can make most of those apps in-house. Arguably one of its most exciting phones in a few years has been the new C5, pictured above, which capitalizes on just this trend: it's a surprisingly apt smartphone crammed into the body of a candybar. Other device makers may soon be following suit.