When I study data and trends in every major smartphone market in the world several points stand out. The first is the dramatic rise of regional smartphone players. Most of these players are coming from Asian markets due to regional manufacturing infrastructure. This article includes a list of the top 15 Asian handset makers who are, for the most part, focusing only on certain regions of Asia. This is a major trend and is one of the most fascinating to watch. It is also perhaps the biggest challenge for companies like Samsung and Apple who are the brands dominating the global smartphone market today.
The second major trend is related to the price bands where all the growth will come from in smartphones the next few years. Since we have, for the most part, saturated the total addressable market for smartphones in developed economies, the vast majority of the growth (over 80%) of the smartphone market will come from devices costing less than $150. When you combine the two trends I just described, you can see why these lower cost regional players are rising fast and worth paying attention to.
To Be Global, Think Regional
Be global, think regional. This will become the mantra for every global tech company selling products to consumers worldwide. I am becoming increasingly convinced a global brand strategy will work but a global product strategy won’t. Global companies like Apple and Samsung will have to be sensitive to the unique market dynamics of each region and, in many cases, offer products and services unique to those regions. As I study larger regions like China, India, Indonesia, Brazil, and even Africa, it becomes clear there are specific things that are popular and working in those regions not available elsewhere. More often than not these are regional services like micro-payments, search, and local commerce (transit, leisure, etc.). This is not to say these things don’t happen in developed markets, but the infrastructure is highly localized in many cases. For example, in developed markets credit cards are a common method to handle transactions but in many of these emerging markets, credit cards are not common. The key takeaway for companies looking to compete in this region is the necessity to support and integrate the vast diversity of highly localized services dominating these regions.
These local players are succeeding, and in some cases dangerous to the likes of Samsung and Apple, because they are focusing so heavily on localized services. This is a key point due to the economics of these regions. We are seeing business model innovation in handsets due to the extremely low cost of these devices. The OEMs know the money is not in the hardware but in the services upside. This is why, for example, it is not out of the realm of reality (and would not surprise me one bit) if companies like Tencent or Alibaba got into the hardware business with a smartphone or tablet in China.
The massive growth coming from the low end is driving companies to focus more on localized services. This is an attractive proposition since these markets thrive on local services. Companies willing to go out of their way to cater to these customers and their localized needs are the ones positioned to succeed.
Samsung and Apple
Although often compared, Samsung and Apple are in very different positions when it comes to these markets. Samsung has risen on the basis of their low end smartphone business. The premium category line of Galaxy smartphones is relatively new and not where the bulk of their mobile hardware revenue comes from. Nor is the Galaxy lineup where they see the bulk of their mobile device shipments. Samsung’s mobile group thrives from the low end in markets like China and India. Coincidentally, the exact same markets where these regional players are squeezing them out of that low end. I remain convinced Samsung can not and may not even want to compete in the low end any longer with these upstarts. It is a battle they can’t win, especially when they don’t have a services business model to get incremental revenue beyond the hardware.
On the other hand, they are shifting to become more of a premium player. This is why they are willing to spend billions of dollars on global marketing for the Galaxy brand. With just over 200m ((Creative Strategies estimates)) Galaxy smartphones sold to date, it is a slow but steady crawl. Samsung’s only hope is to develop into a premium hardware player. Whether they can create a services revenue model on top of that hardware is yet to be seen. Samsung is in the more precarious position of any company in my opinion.
Apple, on the other hand, has no intention of competing in the low end with the companies I mentioned. This is the right decision. So what is Apple’s play, if any, in these markets? The first is their continued investment to support local services. Apple has shown, with regard to China, they are investing in features in iOS and Mac OS X to integrate local and regional services. There is still more to be done but this is a good start. While Apple has stayed away from carrier billing, it happens to be the norm in many of these markets. Whether it is embracing carrier billing, or integrating better with a local payment services, it is in Apple’s interest to integrate with the transaction models that are the norm for the regions where credit cards are not standard. Apple can not just be a hardware company in these regions but must be in a position to monetize software and services within their ecosystem. Going beyond credit cards is the key in these markets.
While it is reasonable for Apple to not go toe to toe with these low end companies, the risk is in the business model innovation happening around them. Xiaomi is a good case study to continue to keep an eye on. They have managed their brand well. They sell affordable premium devices at cost but monetize services as a part of the platform. They have global ambitions as well. Today, they renamed their company to Mi in an effort to expand globally with a name much easier to brand than Xiaomi. Very smart on their behalf. This business model may very well represent the future of OEMs. Premium hardware at cost but tied to services is a model to watch in every region.
I don’t think Apple is in nearly the precarious position Samsung is but I will wait and see how they adapt to the global trends at all levels of their business, hardware, software, and services. Global brand, regional strategies are the key.
Samsung is in the middle of forfeiting its position as a premium player in the smartphone market. It has entered its second ‘Crisis of Design’ and this time, it doesn’t have Apple to copy – in fact, for reasons I outline in my blog piece, Samsung won’t be able to copy Apple like it did in the past: http://torusoft.com/blog/peerless
Apple is on the verge of producing a new generation of devices that rely on technology so deep, it can’t simply be replicated by slapping together products using OEM parts like the PC industry did for decades. Samsung’s ride on Apple’s coattails will prove to have been a short one indeed.
I agree with you on Samsung. As I point out there are multiple realities with this market. There is what is happening with phones and there is what Apple could do with iOS smart accessories.
To the smartphone market, I still feel we are early stages. So I’m not convinced the rules will change as it relates to the category quite yet. I certainly feel that the device we carry in our pocket (less a phone nowadays) will go through some re-invention as compute gets better and more capable. Everything I outline in this analysis speaks to Samsung’s challenges, but one can’t take for granted how regional / localized Apple may need to start thinking to drive their ecosystem in these new markets.
I think it’s important to remember that the iPhone was never a phone. I realize you’re talking about smartphones generally, but so many analysts (even today) are simply unwilling to accept the reality that the iPhone is (and always was right from its launch) a Mac in your pocket. Analysis becomes much more clear when you use the proper lens.
Of course I agree with you but I’m not sure what bearing that reality will have outside of the higher tiers of these markets. I’m sure Apple is assuming some percentage of people will rise up the value chain and that Apple still has customers to be had when this happens, but that will be very slow growth.
One thing I did not mention that is a key part of my thinking is that it would make complete sense for Apple to launch regionally specific products. For example make the iPad mini with a phone app in China, or release a “phablet” size device in China only. This would be an example of the kind of locally/regionally centered thinking that I think is crucial. The more I study these markets the more I’m convinced that each region is so unique that one size fits all will not work in the global landscape any longer. All companies need to adapt their products and strategy to meet the unique needs of these regions.
So to your point, the value proposition of a mac in your pocket may look and feel very different in the west, vs the east. Understanding the differences and adjusting is the key to compete with the rise of the locals.
I’m not sure the Mac in your pocket concept is anything concrete in the minds of most consumers, but it does mean the device is well suited to handle a wider range of jobs-to-be-done, which consumers do have an awareness of. Device X can do Y for me. This also speaks to localization, a computer does a better job of this, it’s a more flexible tool. And this brings me back to automated manufacturing, robotics and such. Apple should be able to crank out more tailored offerings at scale over the next five years. I also think sensors inside and outside the iPhone (computer) will aid in localizing the product (personal computer).
I think a Mac in your pocket is what it became. To call it that from _launch_ probably overstates it a bit, except in as much one task was considered a PC-only task. At the launch Jobs focused on the three devices-in-one mantra—internet communications, mobile phone, iPod. At the beginning his only vision of apps for the phone were web apps. I could be wrong, but I think Jobs referred to it as the internet in your pocket.
Joe
At launch, from a pure feature/spec/capability point of view, you are correct, but the concept was obvious. The iPhone has been a computer from the very beginning. That’s the disruption, and it is what so many people missed then and continue to either miss or deny now (it’s not a PC!).
I agree. I went back and watched the iPhone launch. Branding was one thing, the underlying architecture/undertones were what you pointed out.
Joe
And perhaps I’m not remembering correctly, or imagining too much, but it seemed to me that Jobs was very careful about not calling the iPhone a computer. I remember that was my immediate reaction, holy-crap-its-a-mac-in-my-pocket, but Jobs avoided saying that.
Hey, how about we get to read the article if we promise to comment on it? Certainly a decent comment is worth more than two bits to you. Make it a pay door instead of a pay wall.
Sorry, that wouldn’t help our little site stay sustainable. đŸ™‚ Appreciate the comment though.
This post post made me think. I will write something about this on my blog. Have a nice day!!
Wonderful post! We will be linking to this great article on our site. Keep up the great writing
I do not even understand how I ended up here, but I assumed this publish used to be great