What If Everyone Does Not Want A Smartphone?

Walt Mossberg, the tech columnist of The Wall Street Journal, made a good point recently. Smartphones like the Apple (AAPL)iPhone are not phones at all. They are miniature portable computers.

Suddenly, there is not a single handset or PC company of any size in the world that is not selling either a high-priced smartphone or a low-priced netbook. There is very little difference between the functions of the two sets of products, so there is almost certainly an oversupply of brand new products for the market.

Acer, the No.2 notebook PC-company in the world, said that it would offer the first netbook running Google (GOOG) Android, an operating system originally created for smartphones. Several competitors including HP (HPQ) and Asus, the first mass-producer of netbooks, will offer similar machines. The price of the hardware for these devices is so low that some of them will sell for under $200.

Computers are supposed to be more expensive than phones, but the competition for market share in the portable electronics business has changed that. Nokia (NOK), the largest handset company in the world with 38% of the market, introduced a new flagship product. The N97 smartphone retails for $776. A cell carrier like AT&T (T) or Verizon Wireless (VZ)(VOD) might sell it for something less than that if a customer is willing to sign up for a multi-year service plan. Nevertheless, a phone now costs more than a powerful desktop computer, a sign that the market created to sell people computing devices to people may have lost its way.

Apple, Blackberry, and Palm (PALM) will all introduce new, expensive smartphones this month. Most of these, like competing handsets and netbooks, will play video, work on wireless networks, give the owner access to the internet, offer GPS functions, and make phone calls. The products are so good, technology has advanced their features so far, that it is becoming harder and harder for any of them to stand out because of a unique feature. Even the iPhone’s most important point of differentiation is that Apple has an application store for the handset that has tens of thousands of software applications. What a handset can download and run has become more important than the device itself.

Recession or no recession, the number of people who can afford a small computer for $200 to $600 and then pay for the service that connects it to the internet is fairly limited. The number of people who actually need the service and can pay for it is even smaller.

The creators of smarphones and netbooks may have missed the fact that some people just want to talk on the phone.

Douglas A. McIntyre