DEFINITION of 'Smartphone'

A smartphone is a handheld electronic device that provides connection to a cellular network. Smartphones allow people to make phone calls, send text messages, and access the Internet.

BREAKING DOWN 'Smartphone'

While cellular phone functionality had improved in the years after 2000, it wasn’t until Apple Inc. (AAPL) released the iPhone in 2007 that the way people interacted with their phones drastically changed. 

Before that, network operators relied on the fee structure that they had relied on for decades: calling another line cost a certain flat rate, and sending a text message cost another flat rate. The introduction of the iPhone shifted that by introducing the possibility of Internet access to a large number of consumers.

Since being able to access the Internet from a cell phone was a relatively new service, network operators were not initially sure of the amount of time that people would spent on the Internet, let alone how much bandwidth would be required.

The introduction of smartphones dramatically altered the telecommunications industry. While cell phones were considered the death knell of land-based phones, smartphones were considered the death knell of the prototypical cell phone.

Once consumers understood that they could interact with smartphone-based applications, such as messaging apps and games, the demand for cell phones that did not offer that functionality would plummet. The demand for cell phones that lacked the functionality of smartphones plummeted in developed countries.

The cost of cell phones has increased over time. The price change is linked to improved technology – smartphones have more storage and memory than computers historically had – as well as to the demand for specific smartphone brands.

Apple, for example, commands a premium for its iPhone devices, with much of that premium being the result of Apple being a well-known and trusted brand. The market has considered the introduction of the iPhone to be the savior of Apple as a company, as its computer sales and revenue had flagged in the years leading to the device’s launch. (See also: The Economics of an iPhone.)

Impact on Social Media

The popularity of smartphones has also created business opportunities outside of the development of operating systems and construction of device hardware. The creation of smartphone software applications, or “apps,” has become a multibillion-dollar industry.

Apps are downloaded to a smartphone via a “store,” which is controlled by the company that has created the operating system that the smartphone uses. In many cases, apps are free to download, but in some cases there is a fee. Application developers may include advertisements in the app content once opened, or may sell products through the app.

One of the major beneficiaries of the rise in smartphone adoption has been social networks, such as Facebook (FB). Being able to log into a social network account from a smartphone has increased the number of hours that people spend on the network, which has dramatically increased network revenue. The behavior of smartphone users has, in some cases, been the driving factor in the changes to social networks that were once dominated by people using their personal computers for access.

The increasing prevalence of smartphones has negatively impacted some industries, particularly companies that manufactured digital cameras. Most smartphones have picture-taking capabilities that rival standard digital cameras, but, unlike digital cameras, also have the ability to readily interact with other smartphone apps, and the Internet. Some smartphone apps compete with technologies that were once limited to personal computers such as calculators, web browsers, alarm clocks, documents, and notepads.

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