A major component to predicting the market for mobile devices is the interplay between technology and entertainment services - does one drive the other, or do they emerge simultaneously? Some encouraging signs for growth in this segment are appearing in the market, which bear closer scrutiny.

According to a study of the global cellphone market by Forward Concepts, a 12.8% growth is forecast for cell phones globally in 2010, after a decline by 4.4% in 2009 to 1.22 billion shipments. Smartphone shipments are predicted to grow by 25%, feature phones by 2.5%, and ultra-low-cost phones for developing countries will grow by 14.5%, according to the report. At the same time, the market for OLED, ePaper and similar displays is predicted to grow to over $3 billion in 2013.

Part of this growth is being fueled by an increasing demand for low-cost and ultra-low cost telephone handsets, according to a study from ABI Research, that shows that the two categories together will see a compound annual growth rate (CAGR) of 24% over the next five years. But video entertainment as a driver of these products is still meeting with resistance, especially from low-income users, who must exact extremely high value from any feature or service that adds to their cost. It is therefore imperative that the higher end of the income scale initiates a market that will ultimately subsidize lower cost devices. Such a push towards more mobile television may be happening in Japan, where the government is considering more spectrum for mobile use. In anticipation of its digital switch, slated to take place July 24, 2011, the nation’s Ministry of Internal Affairs and Communications (MIC) has already determined that several VHF and UHF bands can be freed up for multimedia broadcasting.

As reported here earlier this year, ABI Research forecasted 500 million mobile TV viewers in 2013; there are early signs that 3D handheld devices will be a part of that. But there will be missteps along the way - perhaps none fatal to the overall market - but certainly with casualties. To paraphrase the mantra, content will play a major role; one way or another, all mobile services will compete for the user’s attention, and therefore the market for content can be seen as an indicator of the right recipe for device consumption. In that arena, video entertainment as a pay service will likely yield to ad-supported free TV, but a business model is still elusive.

Alternatively, applications are increasing leading the market development. For example, location-based services developer, Skyhook Wireless, reports that the Apple App Store added thousands of 99-cent "bulk apps" during the first half of the year, and that one developer sells more than 850 travel applications based on the same template, with each individual app swapping out content based on specific vacation destinations. These mass-produced local search and travel guide apps now account for around one third of total iPhone location-based services (LBS) apps, according to Skyhook. Apple announced recently that more than 1.5 billion applications have been downloaded from the App Store in its first year of operation.

But there are also signs that the user experience on mobiles is holding back the reins of the burgeoning market. Research by Nielsen Norman Group finds that users are 35% less successful at completing website tasks on a cell phone than on a regular PC, suggesting that web browsing on a small device still leaves much to be desired. Part of this is attributable to the small form factor, for both the display and the keyboard, and part of it can be blamed on poor repurposing of the content from its original larger-screen targets.

Conclusions? In a nutshell, profits are tantalizingly close, but both hardware and software must improve - at the right price points - to really make mobile video the next big thing. Expect some major failures and successes as the mobile market matures. Profits will come back.-agc