Are these the Droids you’re looking for?

Five years ago, an online search for the word “Android” would’ve brought up search results related to either robotics research efforts or, more likely, science fiction writer Philip K. Dick's novel “Do Androids Dream of Electric Sheep?” The same search today generates pages and pages of results related to smartphones.

It’s not often that our perception of a word’s meaning changes so rapidly. This is perfectly understandable though; in the last couple of years the number of Android handset models in the U.S. market has increased from just a couple to more than twenty. Globally, we estimate more than 70 Android handsets have been launched since the first model in October 2008. Android handsets collectively now account for a greater share of U.S. smartphone sales than the iPhone, and the Android Marketplace has more than 70,000 applications. Google recently announced the download of the billionth application on the Marketplace.

Given this maelstrom of Android activity over the past year, it’s often hard to predict the nature of things to come. The smartphone market today is in a period of tumultuous growth. The recent launch of the iPhone 4, the imminent launch of Windows Phone 7 in fall 2010, the possible resurgence of Palm under HP and the continuing growth of Android phones will all fuel this growth. Various analysts project that more than 60% of all U.S. mobile subscribers will own a smartphone by 2014. Specific to Android, Altman Vilandrie & Co. believes that three trends will be worth looking out for over the next year.

First, we believe the ongoing “specs race” will continue. Since the launch of the Motorola Droid (3.7-inch screen) in fall 2010, the Google Nexus One (first 1 GHz processor in the U.S.), HTC EVO 4G (first 4.3 inch-screen), Samsung Galaxy S (first Super AMOLED screen), Motorola Droid X (first 4.5-inch screen) and the Sony Ericsson Xperia X10 (8 megapixel camera) have all contributed to arguably the fastest spec ramp-up ever among handsets. Motorola recently announced plans for a 2 GHz phone by the upcoming holiday season. Given intense competition among handset vendors and the limited ability to differentiate in software on Android (outside of the user interface), we see this trend continuing. We foresee a host of “super phones” coming on the market with large, high-resolution displays (4-inch screens might become the new norm), faster processors (at least 1 GHz), plenty of onboard memory (often 8 GB or more) and higher-end cameras (at least 5 MP).

Second, we envision a continued evolution and improvement of the Android UI. The stock Android interface today, while significantly improved, still lags the iPhone UI in certain ease-of-use aspects. As Android extends further into the mass market, it’ll be important to further simplify the user experience. Certain handset vendors have already addressed this opportunity – in particular, HTC (the Sense UI) and Motorola (Motoblur). Google is also reportedly working on significant UI improvements in the next release of the Android operating system (Gingerbread) due in winter 2010. As a result, we expect the Android user experience by early 2011 to be at par (but different) with the iPhone in terms of usability.

Finally, we expect to see a new category of low-cost Android smartphone. This is certainly a reflection of falling smartphone prices overall – the average price of a smartphone (with a two-year contract) fell from $220 in late 2006 to $120 in late 2009. But it is also a function of Android smartphones starting to appeal to consumers who currently use messaging phones (like the LG Envy 3) or touch feature phones (such as the Samsung Mythic). Analysis of handset component costs indicates that today low-end Android phones can be manufactured for the same costs as messaging handsets. A number of international carriers have launched low-cost Android phones. For example, Orange has announced that it plans to launch three low-end Android devices in 2010. Furthermore, the launch of multiple sub-$100 Android handsets (Droid Eris, Samsung Intercept, Motorola Charm) in the U.S. market is another indicator of the oncoming slew of lower-cost Android handsets.

There has never been a better time to be in the market for smartphones, with rapidly improved performance and usability paired with falling prices!