Does The Phone Make The App Or Does The App Make The Phone?

by: George Kesarios

Nokia (NYSE:NOK) yesterday unveiled the Asha 210, a new qwerty keyboard phone dedicated to offer consumers a more social experience at an affordable price. The phone is available in single or dual-dim variants and the most surprising feature is that the phone is first in the world to come with a WhatsApp button.

WhatsApp is a very popular cross-platform text and messaging app in many parts of the world, because it lets users communicate for free via the Internet bypassing telecom providers.

Nokia did something similar last year when it offered Asha phones with a dedicated Facebook (NASDAQ:FB) button. Those phones were mainly for Europe and Latin America. The Asha 210 however is mostly for the Asian, African and Middle East markets. The Asha 210 is expected to cost about $72 before subsidies and taxes.

The reason Nokia is targeting this device in Asia, Africa and the Middle East is because consumers in these parts of the world do not have much buying power. So they can buy a cheap phone for cash (no service plan) and at the same time they could use apps like WhatsApp to communicate for free over an IP network where available.

Blackberry (NASDAQ:BBRY) also has a very big presence in Asia-Pacific and specifically in the Indonesian market. One of the reasons why Blackberry was (and is) so popular in Indonesia is that people were able to buy a low-end Blackberry device and then use BBM to communicate for free with each other. In other words, BBM is something similar to WhatsApp, but was embedded in the phone.

And the reason why Google (NASDAQ:GOOG) Android devices have recently gained in popularity in Indonesia (besides the fact that everyone is waiting for the new lower priced BB10 devices to come out) is that people don't really need a Blackberry device and BBM to text each other for free anymore. With WhatsApp, you can do the same thing using any kind of device. And with so many Chinese Android devices in the $100 range, there is no shortage of choices.

Several months ago WhatsApp twitted that it handled 18 billion inbound and outbound messages in one day. Recently Techcrunch reported that WhatsApp handles 8 billion and 12 outbound messages daily and has more than 200 million users. If you didn't notice, that's even more than twitter. In fact there were rumors some time ago that Facebook might buy WhatsApp.

Another interesting cross-platform communications app is Viber. The difference is that Viber permits you to make voice calls also. Viber is probably Skype's number one competitor.

If you ask me, Microsoft (NASDAQ:MSFT) paid good money for a platform that has no use in the smartphone space. In fact, I have never actually used Skype on my smartphone, but I have used Viber many times. Skype is very well designed for PCs, but lousy for smartphones. It was just not originally designed for that. Viber was designed for smartphones from the ground up and is available in more platforms than any other app and is probably used by more people than Skype itself.

While these apps have yet to establish a strategy to make money, the fact that they are used by so many people raises many issues and questions. For example, should smartphone manufacturers build their phones around these apps, like Nokia did in the case of the Asha 210?

The answer is probably yes, at least in many low end markets. Nokia has it right with the Asha line of phones. Growth in the high-end smartphone space will be limited in the years ahead, but growth in the sub $400 price range will be strong. In fact, the lower the price the higher the growth (but the lower the profits).

And while all smartphones can use these apps, embedding them in the phone itself is actually something to differentiate you from the competition.

I am actually surprised that Blackberry missed the opportunity to be where WhatsApp is today. BBM is the father of all of these services. Blackberry could have made a cross-platform app years ago and have this market today. In fact, on the Android store there are apps that let Android phones communicate with BBM.

If I were Blackberry, I would embed a Viber button on the lower priced BB10 models that will be rolling out in several months. In fact I would go one step further and integrate both Viber and WhatsApp directly in BBM that would be available to all BB10 users. As far as I'm concerned, that would be a very good reason to buy a lower priced BB10 device in the future.

The bottom line is that as apps gain in popularity and importance, the physical phone devices themselves will become less relevant, especially in the lower-end smartphone space. While the high-end smartphone space like Apple (NASDAQ:AAPL) is not affected at the moment, one wonders what the future holds as these apps become ever more important to users.

So getting back to the original question, does the phone make the app or the app the phone, the answer is that while several years ago the smartphone platform made the app, today to phone - and the platform - is becoming less relevant and the app is becoming more important. The main reason is simply that all these apps today are cross-platform.

However, in emerging markets where these apps are even more important than western markets, the app is probably just as important as the phone itself. The simply need to communicate - via an app that everyone has - is probably above and beyond the status of a high-end phone in many markets. The Asha ecosystem itself is of no importance in the Asha 210's case. The importance is the phone itself with the embedded WhatsApp button.

In many cases future phone makers will probably have to ally themselves with many of these very popular communication apps because that will give phone makers some kind of edge. Because with over 60 smartphone manufacturers out there, it's getting very hard (in the Android space at least) to differentiate ones self.

Finally, with all these new trends, apps and changes in the smartphone space going on, the space is changing faster than we realize and picking winners will be very tricky in the future.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.