Bringing smart phones to the masses

Smart phones, or phones that enable Web access and e-mail, are heading for the mass market.

Palm's new $99.99 Centro, the sleeker, hipper update to the business-centric Treo, is the latest example of a phone that provides all the data-centric features of a business device with the price point and design of a consumer phone.

"What we've known as the smart-phone market is quickly becoming just the cell phone market," said Iain Gillott, founder of iGillottResearch. "These phones used to cost $500 and $600. Some still do, but we're seeing more and more of them come down in price and targeted for consumers."

Traditionally, in the United States, the smart phone market has been dominated by Research in Motion's BlackBerry devices and Palm's Treo line of phones. Initially, these devices were thought of as corporate productivity tools allowing people to send and receive corporate e-mail.

While the corporate market is humming along quite nicely, carriers and cell phone makers also see huge potential in the mass market where teen-agers and even soccer moms, who want e-mail access and Web surfing on the go, could benefit from smart phones. Of the 213 million cell phones operating in the United States today, only about 4 percent of them are smart phones, according to market research firm M:Metrics.

Video: Palm Centro
At less than $100, it could convert a lot of regular cell phone users to a sleek new smart phone.

But experts say there is a clear indication that people are hungry for more advanced devices. According to M:Metrics the rate at which people have been buying smart phones is increasing rapidly. Today there are roughly 9 million smart phone users in the U.S. That figure has almost tripled in the past two years.

Some e-mail and Web surfing can be done on feature-based phones like Motorola's popular Razr. But the experience is often clunky. Still, consumers generally don't like the bulk and design of the traditional smart phones. And of course, price is a major factor, as most smart phones cost hundreds of dollars, whereas many feature-based phones are practically given away by carriers.

"Carriers and manufacturers recognize that smart-phone owners spend more money on services by browsing the Web and watching mobile video," said Mark Donovan, chief market senior analyst for M:Metrics. "But the challenge has been to design a device that appeals to this market and also hits an affordable price point."

As a result smart phones are evolving to address this market. These "lifestyle" devices not only offer business applications for the corporate set, but they also offer features that are common on regular cell phones, such as easy access to Web-based messaging tools, music players and cameras.

Apple takes a bite of the market
Over the past 18 months, almost every major cell phone manufacturer has come out with a product to address this market. RIM introduced the BlackBerry Pearl, a slimmer version of its BlackBerry device with an abbreviated QWERTY keyboard for typing. Motorola came out with the Q, and Samsung introduced the BlackJack.

Then along came Apple, which essentially redefined the market, with its sleekly designed iPhone that combines the functionality of an iPod music player with a phone and portable Web browsing device that allows people to surf the Net on their mobile device just like they would on their PC at home. While other smart phones allow people to surf the Web with full browsers, Apple took the mobile Web surfing interface to a new level.

But up to this point, price has been a major barrier to truly penetrating the consumer market. Most "consumer"-oriented smart phones have still been initially priced above $300. The iPhone retailed initially for $500 and $600. Prices are starting to come down, but experts say the hefty price tag of these devices has prevented them from reaching the mass market.

The Centro is Palm's attempt to reach this consumer market with a smaller device that is more attractively priced. At $100, the phone, which will initially be sold exclusively through Sprint's network, hits a price point that someone interested in buying a next-generation Razr or other feature-based phone might consider buying, Ed Colligan, CEO of Palm, said during the product's introduction at the DigitalLife show in New York City on Thursday.

In addition to being priced lower than other smart phones, the Centro has tried to address design issues. In essence, the Centro is a smaller version of Palm's Treo 755p. It works over Sprint's 3G wireless network. It supports Microsoft Exchange Direct Push to allow users to get work e-mail. And Sprint has provided easy access to Web-based e-mail such as Gmail, AOL and Yahoo, along with access to common IM platforms.

"The Centro is a very nice form factor that is small enough to compete with a standard feature phone," Colligan said. "It's also priced like a feature phone. Yet it has all the power of a Treo."

Analysts say they expect the Centro to resonate well with some price-conscious consumers, especially as it's introduced following the major hype of Apple's iPhone. On the one, hand these products don't compete with one another at all. Priced at $400, the iPhone addresses a totally different market segment. From a features perspective, the phones also won't likely compete. Not many people will buy the Centro as a combination phone/media player. And it's unlikely that longtime Palm users, who may want a sleeker design, would give up access to their corporate e-mail for an iPhone.

But the frenzy around the iPhone this summer has certainly elevated the conversation around smart phones, which Palm's executives hope will help sell Centros.

"There's no question that the iPhone has sparked the imagination of people who would not have otherwise looked at devices like this," Colligan said. "Apple did a beautiful job executing on the design of this product, but when people really compare them side by side, they'll see they can get a lot of advanced features, like 3G wireless access, in a product that is a quarter of the price."

The iPhone operates on AT&T's slower 2.5G network, but unlike the Centro it also offers Wi-Fi access.

While it's true that the Centro is on a faster network than the iPhone, in many respects the device's design is still way behind Apple's iPhone. For example, Centro's touch screen doesn't even approach the functionality or design of the iPhone's screen.

But Palm's biggest problem is the perennial thorn in the company's side: the ancient Palm OS Garnet. That operating system was originally designed for PDAs, not Treos, and while Palm has done a great deal of work to make Garnet into a smart-phone OS, the company still hasn't released a major update since 2004. Palm has been trying to release a new operating system that preserves the Palm heritage, but it has been delayed several times, and now won't be available until next year.

Until Palm comes up with an operating system that rivals Apple's OS X, Symbian or Windows Mobile (which Palm also offers), it might have trouble attracting smart phone converts looking for something new and cool. The Centro at least updates the industrial design of Palm's products, but beautiful and useful design involves more than hardware.

"The iPhone has raised the bar in terms of what a cell phone could be," said Sean Ryan, a research analyst with IDC. "In a way, Apple is educating the market. And people see what a cell phone is capable of."