Android and the Innovator’s Dilemma

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We have two very different things happening in the smartphone world. We have Apple, who is growing smartphone share in many regions where people said iPhone peaked, raising ASPs, and capturing new customers switching from Android. Then we have Samsung, who has quite a different circumstance. Samsung’s mobile phone unit is suffering from nearly every symptom found in the “You Are Being Disrupted” handbook. Not shockingly, they missed estimates again. A key point here:

Increased marketing spending, including a $120 rebate program, hasn’t sparked sales of the premium devices that generate fatter profit margins. Samsung is investing in computer chip plants as it tries to revive Galaxy smartphone demand through a new mobile payment service and by releasing larger devices at least a month before the new iPhones to recapture market share from Apple Inc.

The article also goes on to say their smartphones in the $150 range sold well but their premium smartphone sales are falling off a cliff. Their blended handset ASP from 105m total units shipped and 84 million of that smartphones was $180. Samsung is suffering from “The Innovator’s Dilemma“. There is absolutely nothing they can do to fix the downturn in their premium handsets. No amount of innovation will save them because the “good enough” mindset has settled into Android land.

If you are not familiar with the Innovator’s Dilemma, it is that, as a market matures, the early innovators get disrupted by competitors who come into their space with lower priced products, similar specs (the specs that matter), and eat into the market share of the early innovator in the category. Once the market embraces good enough products, the innovator can no longer push premium innovations as their value is diminished once a good enough mentality sets in. Android devices in the $200-$400 range are good enough for the masses leaving Samsung’s $600 devices and above stranded on an island.

One of the most interesting observations about all of this is the innovator’s Dilemma was supposed to impact Apple. This was a fundamental tenet of most bear cases. When the market for smartphones became filled with good enough devices at very low prices, why would anyone buy an iPhone? Yet this is impacting Samsung exactly according to the guidebook — but not Apple. The fundamental lesson to learn here is the innovator’s dilemma, in this case, only applies to Android land because all the hardware OEMs run the same operating system. As I’m fond of saying, when you ship the same operating system as your competition you are only as good as their lowest price. This is the curse of the modular business model. This is also why Samsung had hopes for Tizen. They actually knew this was coming. I know this because I discussed it with them in 2013 and was convinced they understood this was their fate if they continued to sell out to Android. Unfortunately, Android was their only option given its momentum. I’ll make a prediction. Samsung will be out of the smartphone business within five years.

Android’s new premium price point is between $300-$400 and the new mainstream Android smartphone price point is under $300. No other Android OEM, Samsung included, will sell in volume anything above those prices. At those prices, cutting edge innovation will be void, meaning the gap between iPhones and Android will grow. This is one element in the bull case analysis for upside potential for Apple which I discussed yesterday.

Android is playing the role of getting everyone onto the internet with a computer in their hand and this is a critical role to play for the benefit of humanity. Many billions of people will be included in the benefits of the online economy and financial inclusion thanks to Android. Android devices will be extremely capable and with very good technology in the premium $300-$400 price range. But the innovator’s dilemma will make it very tough to commercialize true premium innovation in Android at any scale. We are already seeing this in the component landscape where the vast majority of component vendors seeking to commercialize cutting-edge innovation are working their tails off to win Apple, knowing that is the only design win option for them to have any reasonable scale and thus get an ROI on their cutting edge products.

This case of the innovator’s dilemma is one for the study books, since it is a rare occasion where the theory did not hold to the entire category of players but only to those who were modular. Apple is immune to disruption for the primary reason they are not modular. If Apple ran Android OR if Apple licensed iOS to other partners, then all the dynamics mentioned above would apply to them and they would not be able to sell in volume iPhones costing over a certain price.

Let Android and the innovators dilemma be a case where sound business theory is necessary, but the wisdom comes in knowing when it applies and when it does not.

Published by

Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

2,602 thoughts on “Android and the Innovator’s Dilemma”

  1. ” if Apple licensed iOS to other partners, then all the dynamics mentioned above would apply to them and they would not be able to sell in volume iPhones costing over a certain price.”

    On a topline level, this is good for Apple and bad for the consumer. It contributes to lock-in, higher prices, and fewer choices.

    Fast forward five years, to when you are proven correct, and Samsung is out of the phone business, I’m reminded of a line from the movie Demolition Man… “Taco Bell won the restaurant Wars, and now all restaurants are Taco Bell”.

    1. Your last point is a great one. I have pointed this out as a sub-theme of some of my articles lately including the one on hardware invention. If you look at what is happening at the component level as I pointed out, it is very concerning that ONLY Apple is truly left to commercialize premium parts. I’m a bit concerned about the overall state of hardware innovation because of the dynamics mentioned above.

      Especially with the dynamics of public markets and so many companies under investor pressure who are now looking like they are willing to take less risks for fear of the stock plummeting or missing numbers.

      As of now I don’t see how any of this changes.

      1. Being the last person who would comment on “Disruption Theory”, I’m going to do it anyway. How else would Apple be disrupted other than another product, with technology that’s inaccessible to Apple comes forward and usurps them. Live by the sword, die by the sword…

        1. I’ve been thinking a lot about this, especially after the A16z podcast on what comes after mobile. The bottom line is mobile has a long roadway ahead so that day is not soon. But what other personal computing will every adult human own some day? A personal cloud AI? If so how will they access it? With an embedded device? And I’d argue the thing that unseats apple is not the new device it is if that new device is made by a company who provides a better user experience. UE matters so much in consumer markets and the companies who do that the best are the ones to bet on for the future.

          1. It need not be that futuristic, but it can be. A nextGen GPS, carrier independence, things like that. Being able to do something that couldn’t be done before, and the iPhone can’t do. Yes, a “killer application”.

          2. Just bear in mind the importance of UE and consider who actually does that well. But I can’t shake how the smartphone is so unique in its role in personal computing that anything beyond it will be build off or from it or on top of it. Apple easily can still play a role. To be honest the day Apple UE suffers holistically, not just in small pockets, is the day I’d worry about them.

          3. I take it that by UE, you are encompassing aspects related to status signaling and Veblen goods, in which case I would assert that people here are underestimating how big a factor UE is and how hard it is to dislodge a brand that has claimed the top of the Veblen goods pyramid.

            It really takes an incredible amount of ineptitude sustained for a long time to lose the top spot. The kind displayed by GM with Cadillac in the 70s and 80s, for example.

            There’s always a chance of course that Apple’s management suddenly turns into the Keystone Kops of Silicon Valley but I think that’s highly unlikely.

          4. What will come after mobile will not necessarily be another category of product, it may be the same mobile phone, but with a differente inside experience, I foresee Apple losing the best experience advantage the further we go towards the cloud with integrated service, as this will add a lot of complexity that they’ve never been a good at managing.

          5. I think Google’s plan to now kill ChromeOS and move it to Android is an admission we are not moving toward cloud, at least in this instance and certainly not for a long time.

          6. there is a big difference between a web Base OS and the Cloud Based one, Chrome OS is web base while Android is becoming more and more Cloud base.

            What I think Google is doing, is simply taking Google Plays services which is already a cloud base platform and add it on top of chrome OS while retaining all that make Chrome OS attractive which I think is brilliant. Similar to what they did for Android wear.

          7. How about an i-device embedded into your head?

            But seriously, if we go into this direction as Google Glass did, we need a completely new interaction model and hence a completely different user experience paradigm.

            Apple cannot expect its current expertise in user experience to simply translate into the new model. It will have to start from scratch. Of course, there is not guarantee that Google/Alphabet will get there earlier either.

          8. precisely
            What I hate the most with technology has always been the ease with which the indisputable strength of a company, can easily become their primary weakness for what comes next,

          9. “Apple cannot expect its current expertise in user experience to simply translate into the new model. It will have to start from scratch. Of course, there is not guarantee that Google/Alphabet will get there earlier either.”

            That would depend on from where that expertise stems. If it is based on empathy, I think they could continue to do quite well in any endeavor. But with their main empath long now departed, I am more in your way of thinking.

            Joe

          10. I don’t know how serious you are about devices embedded in the cranium. For one thing, hardware upgrades would be quite the pain in the noggin. 🙂

        2. That has always been the case. The question is, how long until the next new sword comes around to take a swing at you? Since it settled down around the 1920s-30s, the auto industry is facing the first real technological disruption only now.

          Sure, tech cycles seem to be much shorter now but the computing industry is running up against limits enforced not really by what is technologically feasible but what human cognition and ergonomics enforce.

          I cannot imagine a device smaller than a smart phone being of much utility. I cannot imagine a device that does not have a screen. Very few people have the cognitive capacity to visualize with their minds’ eye the amount of information that a screen can convey. I cannot imagine a device that doesn’t allow manipulation of the visual display using direct physical inputs. How do you manipulate the visual display on Google glass?

      2. When that day comes, “five years from now”, I see an anti-trust case of MS levels coming towards Apple like a freight train.

        1. You’d have to prove that Samsung’s move was a result of only Apple and not also other Android vendors. Never mind also show that iPhone has 90% market share.

          Joe

          1. I’m no lawyer, but anti-trust law is there to protect the consumer, not other companies, per se. MS hurt the consumer by squeezing out competition, this is true. Apple forbids internal completion, which is more egregious. Should Apple become the dominant phone company, these things become huge.

            Apple’s case IMO would hypothetically be about practices that impact the consumer directly. Things such as high prices (weakest angle), to lock-in and bundling (strongest angle). I also think the App Approval Process will land them in hot water, since it amounts to censorship.

          2. None of Apple’s current business practices are anti-competitive. In fact, Apple uses Samsung as a component supplier. Arbitrating whether software titles will be sold in Apple owned stores is not censorship, it is curation.

            As long as there are Android devices, Apple is in no legal danger. Furthermore, cornering a market is not the same as monopoly. It is perfectly legal to corner a commodity market (whether pork bellies, copper, or silver). It is risky and expensive, but it is legal. Cornering a market on high-end components is NOT anti-competitive.

            Smartphone manufacturers need to find ways to differentiate and compete. Anti-trust won’t save them.

          3. Curation, without recourse, by fiat, IS censorship. There’s no wiggle room on this. Forcing someone to buy exclusively from your store, after purchase, is forced bundling, and is anti-competitive.

          4. As you said, you’re not a lawyer.

            Every developer has recourse. They can sell their software on Google Play. Your personal definition of censorship is considerably off the mark.

            Forcing someone to buy exclusively through your store is not anti-competitive, after purchase or otherwise.

            You seem to be accusing Apple of “tying.” This is also lacking. Under Section 2 of the Sherman Act:

            The Supreme Court has explained that a plaintiff must establish two elements to prove the existence of a Section 2 violation: “(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.”

            Good luck with your “tying” argument. Apple is hardly a monopoly in the smartphone market. Their business acumen is the subject of business classes.

          5. So explain to me then, what MS was guilty about for bundling IE, thus favoring their browser, while still not forbidding anything.

          6. That rather far-fetched premise potentially changes everything. In the unlikely event that Android is marginalized to the degree that Apple becomes a monopoly, Apple would be subject to antitrust scrutiny.

            But you have argued that Apple is behaving in a manner similar to Microsoft (aggressive acquisition and enforcement of monopoly power).

            That simply isn’t true. Exclusivity of features is the very essence of competition. Apple’s exclusive stores compete with Google, Microsoft, Blackberry, etc. to meet the needs of their customers.

            Whenever Apple fails to meet customer’s needs, they will lose to the competition. How could it be more simple?

          7. That’s the tension. Ben wasn’t talking about Android getting marginalized. He was talking about Samsung getting marginalized, by both Apple at the highend/just below highened (with older iPhone models) and the rest of the Android OEMS.

            Your extrapolation makes even less sense, but I know it is one of the drums you continue to beat, no matter how out of tune it is.

            Joe

          8. I admit I’m going on the assumption that as Samsung goes, so does Android, but is it really that unreasonable? Should Android devolve into second and third rate devices, I’m left with terrible choices in the market overall, which is tantamount to less choice.

            Secondly, just because Apple’s behavior deserves scrutiny, should it “win” (monopoly) does not make the practice, for me, any less contemptible before that happens.

          9. “I admit I’m going on the assumption that as Samsung goes, so does Android, but is it really that unreasonable?”

            Since Samsung is suffering as much at the hands of other Android OEMs I believe the answer is ‘Yes’.

            Joe

          10. It is unreasonable because Apple will never ever reach down that low in the market as to threaten Android’s market share. Apple is at the high end because that’s where the $$$ are. Android is at the lower end because that’s the only place they can be. Apple can easily annihilate Android by releasing models at the Android price points but they will also annihilate their own profits. We have seen from both Android and Windows that for a given OS, the existence of a low end segment pretty much eradicates the high end segment.

          11. MS did way more than just bundle IE. They enforced a component supply contract that made OEMs pay for Windows regardless of whether or not a machine shipped with Windows, that completely locked out any competing OSes, such as OS/2 which was deemed to be superior to Windows at the time. They intentionally made it difficult for MS Office competitors to write software that interacted with Windows as smoothly as MS Office did.

          12. I agree that MS acted despicably. I would go even further, they used private API calls to gain competitive advantage over competing office suites (Apple does that too). IE was the least of it.

            Still, bad as that was, being unfair to other players ‘within their ecosystem’, is not as bad as saying how other players ‘within iOS’ can or must play, if at all. Market share does not color my opinion on that.

          13. Calling total BS on the ‘Apple uses private APIs for competitive advantage’ nonsense.

            If your going to Apple bash, at least speak truth. Otherwise you lose all credibility and respect.

            Certainly Apple has some private APIs. But the claim that Apple uses them to hinder competition is pure fiction.

          14. There are many reasons for them to be private. They could be private because they aren’t fully stable. They could be private because they expose user data or other security issues. Your blanket assumptions are BS.

            Provide a specific example. Or stop with the pure supposition.

          15. Keeping user data to yourself is competitive advantage. Having ANY access to the underlying OS that competitors don’t have is competitive advantage.

          16. Wow. Just wow.

            By that logic, Apple should open its doors and allow everyone to simply grab everything they want. Now you want Apple to sacrifice all security and innovation for your ridiculous version of “fairness.”

            One can’t argue with you if you think that there should be no exclusivity available to anyone. As pointed out so eloquently below: “Exclusivity of features is the very essence of competition.”

            Your definition of ‘competition’ escapes me.

          17. If you’re going to allow for third party development (which helps make you what you are by the way…), and you publish software on your platform, then there should be a level playing field.

            If Apple makes an Office Suite, and opens up for others to do so, these others should have the same access Apple does for their software. Same for UI type programs, same for anything Apple offers really. But that would be relinquishing control you say, to which I say…exactly!

          18. Provide specific present day examples of Apple withholding critical performance enhancing APIs. Otherwise, your argument lacks all merit.

          19. No that gets us nowhere. If we can agree that private APis exist, I can just as legitimately say to you to “Prove to me that they’re NOT using them”. Or you can get us the source code…. /s

            That they exist at all, I would say the burden of proof is upon Apple to assure us that the developer playing field is level.

          20. And I would say that you are making specious accusations based solely on your anti-Apple bias and your absurd notions about competition and fairness.

            The burden of proof falls on the accuser.

            You are upset that Apple isn’t open source. And that leads you to make all kinds of silly claims about anti-competitiveness. The lengths you go to find fault have gotten truly pathetic.

            “Keeping user data to yourself is competitive advantage.” You’re capable of better, dude. I can’t take the red pill with you.

          21. I’m not suggesting that Apple open source iOS. Where we differ is that you have faith that Apple is competing fairly, whereas I have no such faith. The existence of private APIs are a possible ‘smoking gun’, they don’t constitute proof in and of themselves…(though one should just question their existence))

          22. Apple has private APIs for their security updates. Are you saying they should be open? Apple has private APIs for iTunes song matching. Are you saying they should be open? Apple has private APIs for allowing software purchased by an Apple ID to be installed on all qualified devices and family plans. Are you saying they should be open?

            Does the concept of privacy and security have any meaning in your world?

            You are not asking for Apple to compete fairly, you’re saying they shouldn’t be able to compete at all.

            Pure F’n nonsense.

          23. The very concept of these exclusive restrictions is anti-competitive, and you don’t even need private APIs for them. Where can an iOS developer get a better retail deal, for instance. Say a 10% cut?

            Still, you cite some benign examples. I don’t know the answers to the following questions, but my line of thinking is as so…

            Are there private APIs for accessing the hardware in a more direct manner?
            I want to write a more robust encryption system. Do existing APIs permit this?
            I want to write an App that allows me to fully customize the phone’s layout.
            I want to write an on-device compiler. A JVM, etc. Do I need private APIs to do so?

          24. Yes, by golly. Windows allows those things. And Windows’ stellar reputation for security is world renown.

            This is a tired old argument. OSX allows these thing, too. But iOS was designed, with intent, to be everything Windows was not. To your specific questions, in short ordered I realized that:

            “Accessing the hardware in a more direct manner” is tantamount to a complete bypass of app sand-boxing and iOS permissioning provisions. Any hardware call outside the restrictions of the OS is fundamentally insecure.

            Who’s to say your encryption system is more robust? That is tantamount to rendering the whole device less secure.

            An app that negates iOS’s carefully designed interface is an encroachment on Apple’s brand. As an added bonus it is also insecure. Skinning works by intercepting system calls to resources and replacing them on the fly. Any app that intercepts system calls and replaces them is, by definition, insecure.

            Why would you need private APIs to make a compiler? For obvious security reasons, Apple would have every right to object to a third party compiler in their store.

            I can’t speak to Windows 10 with authority, but I would imagine Microsoft aims to curb the wild west mentality of desktop if they want Windows to be taken seriously as a phone OS. Google is also trying to reign in the insanity, but the forks are now out of the barn.

            Sorry if I got short, but I read your first line of “exclusive restrictions is anti-competitive” and realized you still don’t “get” why iOS exists as a deliberately closed, proprietary system. It doesn’t HAVE to be fully open, Apple doesn’t want it to be, and that’s a GOOD thing.

          25. “Sorry if I got short”
            I’ll start here. No worries man, didn’t get mad at you. You saying so, however, is respected and appreciated. It’s okay if we disagree, even greatly.

            There are a lot of smart people in this world, and they don’t all work for Apple. Having Apple control them does the users an injustice. Controlling MY property and controlling ME offends me deeply. You may say that I’m not their target customer, and you would be right.
            That doesn’t disqualify me stating why I’m not their target customer. Apple is taking away freedoms computer users have enjoyed for decades. It’s too often in their self interest, and no, doing so solely in the name of security isn’t good enough.

            This is like buying a Lambo, that’s artificially limited to the speed limit, and correct neighborhood. You know, for my safety. Still, being broad does not automatically mean insecure. You want safe, stick to App Store and ‘default settings’.

          26. True story: about twelve years ago I made the mistake of going to a high school reunion. Ran in to one of my best high school friends, whom I had lost all track of. Turns out he’d joined the navy and when he got out he was one of the first 200 people Microsoft hired. Worked his way up to be on the worldwide security crisis response team. He told me stories of the resources MS was throwing at the problems of their near weekly security issues. All the stress, all the anger from IT departments who continually had to deal with eradicating viruses and the resulting downtime in their systems. I was wearing an Apple logo shirt under my sport coat. He told me he was a huge Apple fan. He said they got it right.

            This was before iOS. You better believe that some smart people at Apple saw what the smart people at Microsoft were going through; they saw the damage it was doing to Microsoft’s brand. For their smartphones, Apple wisely decided they wanted nothing to do with that mess.

            Bad security gave Microsoft a permanent black eye. Only a locked down system that anticipates and avoids security issues –to the degree it is humanly possible –can keep a brand like Apple from suffering the same fate. Default settings aren’t enough; prevention required some restrictions and some loss of “freedom.”

            Sometimes its better to learn from other’s mistakes. Security IS in a brand’s self interest. Unfortunately, Google didn’t attend that class…

          27. If you are referring to JavaScriptCore, that is a perfect “example” of what I stated above:

            “There are many reasons for them to be private. They could be private because they aren’t fully stable.”

            Apple didn’t withhold any APIs, per se. They are fully documented for OSX, but perhaps not completely implemented in iOS. Apple holds WWDC sessions about JavaScriptCore for iOS. There are hundreds of freely available web pages documenting examples gleaned from those sessions.

            https://infinum.co/the-capsized-eight/articles/running-javascript-in-an-ios-application-with-javascriptcore
            http://nshipster.com/javascriptcore/

            Again: iOS is not wide open, Apple has never claimed it is, and there is no reason for you to believe it should be other than a bizarre belief that Apple isn’t entitled to compete at all.

            iOS is proprietary. Don’t like it? No one says you have to develop for it.

          28. The private APIs that MS had for Windows were never the issue. The issue was when they produced their own private APIs for ostensibly open platforms that were not their own, like Java or Web. When public websites don’t work unless you are running IE, then there is an issue. When Javascript gets corrupted into what amounts to a parallel, private platform, then there is an issue. MS did this for competitive advantage.

            Apple’s iBook Author exports to PDF and eBook, etc. It also produces an iBook format that gives you enhanced features. What Apple doesn’t do is break the eBook standard or publish your book in their private iBook format when you want to publish a public “eBook”. Likewise, webkit is open source.

            The “competitive advantage” that Apple gains is in the whole package it offers within its own products and platforms. It can offer more desirable products that deliver value, because it doesn’t compete with others to use the same one-size-fits-all or off-the-shelf platforms or OS’s as the basis for its products.

            However, Apple doesn’t restrict the actions of others to go about their business on their platforms or on their own products; and it doesn’t need to, because the products sell themselves to the end user (unlike Windows PCs which came into dominance through corporate purchasing). Apple will have even less need to if it is ever the dominant producer of phones or computers.

            Yes, we shall see. But like Joe said above, it’s as likely today as in five years. And it doesn’t happen today.

          29. Actually MS did use private APIs in Office that competing suites did not have access. This gave them advantages in speed. I remember the whole controversy in InfoWorld at the time.

            Yes, they did try to undermine the Web, Java, etc. as well. What they didn’t have (justly) is legions sticking up for them.

          30. Yes, I edited my comment.

            Yes, they did have legions sticking up for them: they’re called IT departments, publications, analysts… 😉

          31. IT departments, fair enough.
            Analysts, I don’t know.
            Publications correctly slammed them every inch of the way. Except when they did hail them for fixing something that shouldn’t have been broken to begin with…

          32. Look at you, using fancy words like “fiat”! Do you know what it means?

            “an arbitrary decree or pronouncement, especially by a person or group of persons having absolute authority to enforce it”

            Just one problem for you – Apple doesn’t have absolutely authority in app sales. You can create a web app. You can create an Android or Windows Phone app. Heck, they don’t even have absolute authority over iOS, not just because of the web-app thing, but also because you can sell any app you like on the Cydia store, or via enterprise distribution, neither of which go through Apple reviewers.

          33. You have a way with word my friend (not a typo).
            See me define it elsewhere in this thread…

          34. You’re perilously close to sounding like you’re complaining about Apple’s monopoly in Apple products. 🙂

            “Should Apple become the dominant phone company, these things become huge.”

            Agree with you completely on this conditional statement. Problem is, to become the dominant phone company (and ‘dominant’ has a precise meaning in antitrust) Apple has to abandon its high end strategy. Which will never happen because that means abandoning profits.

          35. MS was rightly slammed for having monopoly in MS products. There they not only provided the OS and applications, they controlled the hardware OEMS. They did not control the retail channel.

            Apple provides the base hardware, provides OS and applications and controls the ‘software OEMs’, AND they control the retail channel.

            So, yes I am….
            What’s stopping this from becoming ‘real’? Market share. Though, like I said, market share does not color my opinion of the practice.

            Further an argument can be made that each isolated ecosystem is a market unto itself. You have the ‘iOS market’, the ‘Android Market’, the ‘WP Market’, etc. There are distinct, technically insurmountable barriers separating them.

            In the Android market, the OS is open sourced. Vendors are not required to use ‘Google Android’, witness Amazon’s Fire. There are a multitude of OEMs that run the same Apps. Apps don’t get rejected, and if they do, there are multiple stores to get Apps. Users can even download Apps from the developer’s website, or even over email. Same for Windows (less open sourced OS), albeit with less success.

          36. But they *don’t* control the software OEMs in the same way that MS controlled the hardware OEMs — that’s the whole point!

            MS effectively said hardware OEMs could not sell a product that deviated from the MS-defined product, at all, anywhere — it had to have Windows on it. There were repercussions if Linux products, for example, were sold (sure you could put Linux on a PC yourself, or try and order it BTO, but MS still had the OEM pay for a copy of Windows).

            On the software side, the only control Apple exerts, is when the software OEM sells on Apple’s platforms. Apple doesn’t care if they also make Android and Windows versions of their software — in fact, it helps show contrast how Apple’s platforms are better and provide more value. Content owners can also sell their media anywhere else as well.

            Yeah, Apple tries to collect a commission for every Android or Windows app a software OEM sells or any content sold outside iTunes or the App stores, riiiight!

          37. No they are even more severe. They flat out reject! Sometimes arbitrarily. And where else will the iOS developer publish iOS Apps? Far, far worse.

          38. That’s irrelevant. In the ’90s OEMs were going to Windows and doing better than Apple. They were controlled, but no where close to the extent Apple developers are controlled.

        2. Even if Apple wins all of the high-end, that still won’t amount to a majority of mobile phone sales. So there is no monopoly.

          I’ll grant Apple will have to have a good paper trail on how it builds its App Store, iBook Store, iTunes Store, and various related subscription and service businesses. But that scrutiny started long ago, and we’ll see where the courts wind up on that.

          1. Premium is an artificial distinction only when you apply the logical fallacy of false equivalence, which in the case of Apple is done all the time.

          2. Let me put it another way. When the user experience is what consumers are buying, it’s very difficult (maybe impossible) to reach ‘good enough’. What many tech pundits (and commenters) do is use the logical fallacy of false equivalence to say that other products are “the same” as Apple’s offerings. And if this is the case Apple will of course be disrupted Any Day Now ™.

          3. I’m sure you can agree that to many Apple products ARE ‘the same’, and I can envision that from advanced and ‘typical’ users.
            Once you get into premium ‘snob appeal’, you start splitting hairs.

          4. You’re completely missing it, and that’s not surprising given that you don’t value most of what Apple is offering. This is why you don’t understand Apple’s success, and probably never will.

          5. What am I missing? There’s NOT people such as me, that don’t see Apple as ‘the same’ ? I don’t think my Samsung or Nokia are in any way inferior with an iPhone. In fact, I think they’re superior. In my case, Apple products leave me wanting.

            You’re trying to make this a matter of taste, which it is to say you come across as ‘if you don’t drool over Apple, you have no taste’. That’s as relevant as preferring Bach over Beethoven…John over Paul, Curley over Shemp. In other words, elitist nonsense.

            We’re not all from the same cookie cutter, and that’s a good thing.

          6. I said nothing even remotely approaching your comments about taste and elitist nonsense. You’ve just proven my point.

          7. Your denial or even not understanding how people don’t appreciate Apple as you believe they should. I think that pretty much nails it, and I still prefer Curley to Shemp.

          8. Again, I didn’t say anything about appreciating Apple, and I certainly don’t think Apple is the right solution for everyone.

            There’s real value in what Apple delivers within the user experience. You just don’t see it. And what you think you see is far off the mark. But as I said, this isn’t surprising because you don’t value what Apple offers. Which is fine by the way, people value different things. You misunderstand what Apple is offering because you base your analysis on your personal experience.

            On the other hand I do understand the value of Android and modular solutions. Each has their place and each resonates with different people.

            You say it’s a good thing we’re not all from the same cookie cutter, and yet your comments are uniformly anti-Apple and you often deride what Apple users value and choose. I wish you would at least end that intolerance.

          9. I deride Apple for non-inclusiveness, and for being my unwanted IT department. For their tight control over MY property. Each and every criticism you ever heard from me goes back to those points.

            Making comment like ” logical fallacy of false equivalence, which in the case of Apple is done all the time.” speaks to your appreciation of Apple. Who’s logical fallacy? There’s no law of nature by which we can measure this logic. It’s subjective. Further, to paraphrase George Carlin, why is their logic a fallacy, while your fallacy is logical?

          10. The logical fallacy of false equivalence says nothing about appreciating Apple. Rather, it speaks to what I value. What you don’t like about Apple is what I value. And yet you deride this. You mock Apple for the “holding it wrong” incident and yet that’s pretty much all you do, telling people what they value is wrong, that they’re making wrong choices. You are incredibly intolerant. I’m ending this discussion, your intolerance is bothersome. Goodbye.

          11. “I’m sure you can agree that to many Apple products ARE ‘the same’,…”

            Android cannot be the same until the StageFright (or whatever) protection problem is handled. The patch may or may not work, but it doesn’t matter whether it does.

            The only thing that matters is Google can’t get its protection onto 1B Android devices. (A bit like birth control where the prophylactics would fit on //almost none of// the men.) : )

          12. Yeah, it’s a shame that the choices are ‘relative’ safety or ‘relative’ freedom.

        3. I do not foresee the demise of Samsung’s smart phone business leading to a massive anti-trust case. Samsung might disappear but you’ll still have a gaggle of Android mfrs out there to take over for Samsung. If the DoJ prosecutes Apple as you predict, it would be the first time in the history of human civilization that a company that holds a minority market share of an industry has been accused of being a monopoly. I don’t think the DoJ would allow themselves to be subjected to that much ridicule and derision.

      3. Yet Apple’s parts are far from premium. Both the screen and camera are sliding down the rankings, the once distinctive metal casing is being seen on $200 phones (to my despair)…
        Competition does not have to mean race to the bottom. Some players still do fight on performance and features, even if at lower price points. Not only is the market big enough for niches, but the increased competition means $400 Android phones surpass the $700 iPhone in several areas.

        1. No. The gap will widen. It is inevitable. Android will get innovations later. Camera quality is subjective. Look at the pros who will use iPhone but not Android. Software matters here also hence Xiaomi’s camera app..

          Watch display innovation, security, and chipsets. More will commercialize at high end with iPhone. Latest gen Android won’t have the latest innovations. This movie has played out before in PC land/mini land, mainframe land, etc.

          1. Precisely: I’m not seeing that being played out in PC land, on the contrary, Wintel is where all the fun (sorry, innovation/disruption) is.
            Also, why hasn’t it happened yet ? The situation has been pretty stable for years now, yet an innovation scorecard would be, at best, pretty balanced.

          2. Apologies that we are not on the same page. I don’t think you understand the full thrust of my argument. 90% of the volume of Android is in low cost devices not devices costing $500. PC ASP is also relatively low but it is controlled so it can’t get as low as smartphones. Margins on PCs are very very slim for everyone but Apple. Same in smartphones. When you build your house on someone else land the end result is very predictable.

            Android buyers, generally, are a cheaper not better audience. Same is true for the masses with PC.

          3. 2 things:
            1- I’m not aware that “cheaper” is the opposite of “better”, except from the vendor’s point of view. “Cheaper” when it means gets the job done while freeing resources for other stuff on the side usually is “better”.
            2- is it about the devices, or about the buyers ? I’ll use the handbag analogy again: Vuitton bags are not really better (more innovative, more disruptive, more functional…) than $50 bags, yet they do attract the spendier clientèle.

            Also, how are PC’s prices “controlled ” ? And how much lower than $110 do you want them to get to label them as low ? $110 buys you a complete PC (Atom x5-8300 2GB/32GB + Windows + Android + a case + a PSU; http://www.geekbuying.com/item/PIPO-X7-Pro-Windows-10-Intel-Cherry-Trail-Z8300-TV-Box-2-4GHz—5GHz-Dual-Band-WiFi-Bluetooth-4-0-356455.html ), which is enough for 50+% of users. Is that “controlled” and “high” ?

            You’re equating more expensive with better (not sure along which criteria, can’t be features/performance) and with more innovative (ditto). Sometimes more expensive is simply more expensive (cf handbags): luxury is self-sustaining and rather self-defined. Apple has achieved Singularity on that front.

          4. No, again you are missing my point. In modular systems (in this case not owning the OS and shipping someone else’s) the high-end becomes niche. Better is also subjective, but it also encapsulates so much more than pure specs. Visually appealing can be a subjective “spec” that alters the performance bar. In disruption theory, performance is a metric but many parts of the performance bar can be things that are not simply objective meaning not on paper..

            What you can’t escape is the data that backs up Android’s global ASP approaching $200 and falling fast. My point, which is what your not grasping, is vendors can not commercialize the latest innovations at those price points. With Samsung becoming a very small minority player in the premium price tiers, again making cutting edge specs difficult to invest in.

            Perhaps the POV you are taking is that hardware innovation is over and therefore all one needs is lower priced devices with solid specs but future innovations need not apply. This would be an unfortunate reality. While you may look at things Apple is doing with current tech and say there is nothing special there, the bottom line is there is still a great deal of hardware innovation coming across the board from display, glass, sensors, SoC, software, etc. and my point is commercializing those in Android land will be very difficult. Similarly no Android OEM will be able to go much farther upstream into premium because they will always need volume and thus competing with those who seek to undercut them with price.

            When you build your product on somoenes elses’s land, in this case Android, and in the PC space Windows, there are very predictable dynamics that play out every single time.

            Also no volume in PCs come from sub $200. PC ASPs remain relatively steady. Again this is controlled much more that you know.

          5. >> there is still a great deal of hardware innovation coming across the board from display, glass, sensors, SoC, software,

            Don’t you see Google investing in the needed software innovation ?

            And maybe enough Android users are just frugal and feel that the Apple’s innovations just aren’t large enough to be worth the price, but when something big/important will come, they’ll spend the money, and hw vendors will rise ?

          6. I don’t see Google investing that much in the ‘needed’ software innovation. That is, if what you mean by ‘needed’ is ‘needed to compete head to head with iPhone’.

            Google just wants to harvest as much private information and sell as many ad views as they can. They will invest just enough in the OS to ensure that Android is good enough to be sold at the highest possible volumes to the most number of people.

            You have to remember that with Android, the customer Google is trying to please is not the smart phone owner but the mobile advertiser.

          7. How is that different ? the advertisers want users, and users have to be pleased to be recruited.
            It’s like saying TV shows are designed to be boring so that viewers are well-rested mentally when ads pop up, and to help make those ads look better than the show…

          8. The difference is do you want to maximize your smart phone’s installed base or do you want to take customers away from Apple? I thought that was clear in the first paragraph.

            It’s not a question of bad versus good software. It’s one of good-enough versus good, which has always been one of the underlying themes in the Android vs iPhone discussion. Your TV show simile is bad-versus-good which makes it a straw man argument.

          9. The two are not mutually exclusive, most suppliers of … stuff… (cars, cameras, TVs…) do have a 10x price range between cheapest and priciest models, computer OEMs even more so. And diverse ecosystems with multiple sellers are even less constrained by branding issues (it’s hard for a single brand to be both low and high end, not for several brands).
            Android as an ecosystem does not have to choose being “good enough” and “excellent”, Android has proven a) it supports both b) from a system software perspective, the success factors in both segments are fairly identical.
            Individual OEMs choose whether to go volume or luxury, not Android per se.

          10. Google can pretend that they support both “good enough” and “excellent” but they structured the Android business model in such away that the “excellent” subsegment will be a mere rump. If they did not realize that back then, then they weren’t looking close enough at the Windows experience.

            Sure it is the OEMs’ choice which subsegment to focus on but that’s really a Hobbesian choice. And as the inescapable outcome of the Android business model unfolds, Google naturally evolved, and continues to evolve, towards a strategy that embraces “good enough” if only because for them, that is the optimal path.

          11. I think you and aardman are having an interesting discussion, but I think the clue is in you post above. You mention;

            it’s hard for a single brand to be both low and high end, not for several brands

            In the case of Android, the dominant brand is Google/Android and it is stronger than Samsung/Galaxy, HTC, LG, Huawei or even Sony/Xperia.

            If Android had a budget brand tailored for the low-end, something like Androidino, and they reserved Android for the high-end, then maybe it would work. It would be your “several brands” solution.

            Without budget branding, high-end brands tend to be cannibalised by the low-end brand, and that is clearly what is happening in Android. Android needs something like Intel’s Celeron brand and Xeon brand, even if it is artificial (little real difference in costs). Android needs a way to protect the high-end brand.

            The gist is that the Android problem is possibly less of a technology problem and more of a branding one. And Google/Android being the dominant brand in Android space, should have assumed responsibility for doing something about it.

            I found a good article here

            https://hbr.org/2009/10/should-you-launch-a-fighter-brand

          12. Android does have ONE for the low end, but it’s not ubiquitous and not very successful where it *is* present. And it has nothing on the high end, since the demise of Android Silver / Google Play Edition (which was not quite a high-end label, but could work as an unsubsidized approximation).
            I’d think that branding and the accompanying HW/SW/design/support/image value-add fall squarely in the OEMs’ purview. Google taking that over helps with Android’s perception as a whole, but it creates further undifferenciation for each participating OEM.
            Plus, frankly, I don’t think branding is Google’s forte: they just renamed themselves… alphabet… and will probaly come up with a product named “duh” (because it’s easy to use) in the near future.
            And I’m fairly sure they’re busy re-architecting Android for better updates, when they could have created an “updated Android” label and told OEMs to sign up of their own free will and get compiling… I’d really like to know what happened with Silver.

          13. I agree with branding not being Google’s forte, and I agree that if the OEMs were able to own the branding of their own devices, then that’s the way it should work. The problem is that Android is the face of the device and it is beyond the capability of the the vast majority of OEMs to overcome that.

            One point that I would like to make is that not owning the OS and shipping someone else’s OS per se does not necessarily result in a race to the bottom. If Google had been aware that having a healthy high-end market segment was important and had implemented a budget branding strategy to prevent cannibalisation, then it could have made it easier for OEMs to earn profits. One possible idea is to have various grades like Windows has (Home edition, Business edition, Ultimate edition, etc.) and to impose certain artificial hardware requirements for each. This would mean that high-end devices would have an artificially strong differentiation from the low-end. This is a tricky strategy, but it has been done before.

            There are probably many other ideas that would work better than the one that just sprang to my mind.

            Of course, its easy to see why Google would have neglected this problem. Hopefully they can do something about it in the future.

          14. Since Google makes very little money from Android, what real incentive would there be for artificially fragmenting the OS and then having to support multiple versions?

            “This is a tricky strategy, but it has been done before.” Yes, and the days when tech companies can charge money for OSs is gone, never to return. This transparent ploy to monetize would be a catastrophic mistake for Google.

            “Hopefully they can do something about it in the future.” Hope springs eternal. But Google has made this uncomfortable bed, and they will be lying in it until they sell off Android to focus on making cars.

          15. Are you suggesting that if Google suddenly started to charge say 30 USD for the high end version and 10 USD for the low end version, OEMs would suddenly abandon Android and flock to Windows? I don’t think so.

            Of course, they would also have to do something about AOSP.

          16. No, I’m not implying an abandonment of Android. I’m implying an abandonment of Google.

          17. OK. So as long as Google Play Services are worth 10 USD for the OEM, that is, customers are willing to spend 10 USD more (or maybe a bit more depending on the margin structure) to buy a phone with Google Play Services, then they can pull it off.

            Maybe Google should focus on making their services worth paying for and start putting a price tag on them.

            What I’m trying to say is that if Google started to focus on making customers pay for the value they are getting, then they could fix a lot of the problems that they and their OEM partners have. I do not agree with the categorical assertion that you cannot make money off an OS anymore, especially when you consider that modern OSes are tightly bound to cloud services. I also do not agree that not owning the OS will necessarily cause a race to the bottom either.

            Yes Google is in an uncomfortable position, but a bit of out-of-the-box thinking and a bit of learning from traditional marketing could help them and their OEMs get out of it.

          18. The sad part is Google have been dabbling in branding, with about as much persistance as anything else they do. Nah, even less actually:
            Google Play Edition (flagship handsets such as Galaxy S, LG G, xperia Z… with a vanilla ROM and updates)
            Android Silver (never materialized, was supposed to be same as GPE + setup services and warranty and upscale selling booths)
            Android One (low-end specs on standardized hardware with straight-from-Google updates, just got gutted into less standardized, no longer updated by Google)
            Nexus: Was “good enough”. Then midrange perf with lots of features. Now luxury (not so much premium as flashy, fewer side features, same idiotic choices as many: low storage, small battery, metal; pricier than non-nexus equivalents….)

            Not only do they make iffy choices, they don’t stick with them, don’t even really get behind them.

          19. I agree. They don’t seem to believe in the value of branding.

            Nor for that matter do a lot of pundits who blindly proclaim that anything that Apple makes has a superior user experience, or is always better in the features that matter. This might be true in a lot of cases, but being an Apple user for 20 years, there have been many, many instances where this was not the case.

            On the other hand, I am amazed at the consistency with which non-techies (the mass market) blindly assume that Apple products are easier to use. This is the power of branding.

            Whether or not Apple products have a superior user experience is not what’s important in and of itself. What is important is that the mass market believes so. This brand is the result of careful positioning, pricing, marketing message and advertising, and generally providing a good product and service (never selling dead cheap, useless stuff).

            And this is what Android (and Google) lacks.

          20. I’m getting mental whiplash between innovative, expensive, features, and specs.

            “Owning the OS” is a fuzzy concept. Again, OEMs can do, and have done, whatever they want with Android-the-OS. The one thing they can’t do is remove Google’s cloud stuff, or make it non-default (they can supply alternatives to it, but not make them default). That gives OEMs all the rope they need to be as innovative as they want, and they have been (pen, laptop, desktop, multiwindows, different looks/UI, different permission systems…). I’m not seeing how starting off with a modifiable but turnkey OS impairs innovation/differentiation when that OS is fully modifiable. On the contrary, I would assume it frees up resources to focus on those inno/diffs instead of reinventing the wheel.

            How are innovations about money/price ? Some are, but not all by any means: ideas don’t have to cost a lot, and manufacturing/developping those ideas doesn’t, either. If we use the recursive definition that something has to be succesful to be an innovation, of course, there’s a lag to copy Apple, which by that definition is axiomatically the only possible successful innovator.

            Then you loop back from innovation to cutting edge specs which you denounced a few lines before, I’m lost. I’m not saying hardware innovation is over, though at this point it’s mostly incremental progress that doesn’t really enable new uses, and I do think most innovation in the mobile space will happen outside of hardware proper (we’ve had pens, docks w/desktop OS UI, finger scanners, windows, … for years now).

            Android OEMs are going for volume, but I think not because going luxury is a theoretical impossibility (again, they can do whatever they want to the hardware, the OS, the branding, even the apps&cloud if they manage to get users to press “set as default”), but for tactical reasons: it’s easier to build up while avoiding Apple, Samsung, HTC, Sony and LG. The exact same happened as a first phase in a lot of other markets: japanese cars, Lenovo, Dell all started low-end. I’m not presuming to know things will turn out differently in the mobile market than most others ?

            Aren’t the “predictable mechanics” a chicken and egg problem ? Are OEMs uninnovative because they’re constrained by the 3rd-party ecosystem, or are OEMs choosing a preexisting ecosystem because they’d be unable to build their own good ecosystem (even discounting apps, simply the OS, core apps, and core cloud services) ? From what we’re seeing of their bumbling attempts at “adding value” to Android, I’d mostly go with the second case. Again, Android’s “land” can be remodeled at will. Failure to remodel lays with the tenants, not the owner.

            When you say “controlled”, do you mean someone/something is controlling it ? Or just “stable” ?

          21. “I’m not seeing how starting off with a modifiable but turnkey OS impairs innovation/differentiation when that OS is fully modifiable. On the contrary, I would assume it frees up resources to focus on those inno/diffs instead of reinventing the wheel.”

            Sure, OEMs are “free” to remodel the landscape and innovate at will. The problem is they don’t really have the time, luxury or insight to do it credibly and successfully, and certainly not repeatedly.

            That is largely due to their business model, which is reliant on volume and using someone else’s OS and platform; it’s not based on value to user, that in turn garners profitability. If a single Android model could sell in the quantities of an iPhone model (and they don’t, not even widely pushed flagships like the Galaxy), it still wouldn’t give the OEM the ability to look up, take a breath, and think 2-3 years down the line.

            For all the hype and marketing and you accuse of Apple, and for all the “freedom to design and innovate” you claim of OEMs, the shoe is really on the other foot. Apple has the ability to look up, take a breath, and plan 2-3 years in advance. Part of it is profitability on each and every unit sold, part of it is commitment to their design philosophy.

            Though you pooh-pooh Apple’s design chops and philosophy of integrating Design (capital D) into its whole development process; though you may like to think Apple merely chooses one design out of a book of designs assemblers present to Apple, this is how OEMs largely “design” — they have to, since they produce 50 models each to see what sticks.

            You also seem to scorn Apple’s margins (though they are largely a testament to the ability to deliver enough value to be able to sell a single model for 2 years, and to hold their different price points without giving phones away). Apple delivers value through a commitment to a rigorous development process where each model benefits from years of development, with rigorous Design and lessons learned guiding the whole process.

            OEMs end up in a vicious downward spiral — as evidenced by Samsung’s inability to shift the G6 and its falling ASPs. The spiral doesn’t help OEMs exercise commitment to a conviction or ideal; there is no luxury of being able to take time and evaluate what worked and what didn’t. There is no sense of lessons learned.

            Your accusations about Apple generating not value but emotional attachment is completely false: it’s Samsung that resorts to marketing alone to sell its products — 12B worth of marketing annually. Apple relies on happy customers, and uses 12B annually on CapEx like tooling as it plans several years down the road. Repeatedly successful launches of iPhone after iPhone attest to this.

            So, that is what Ben is referring to: OEM’s may have the “freedom” to innovate, to go up market, to do whatever the heck they want… but they can’t or don’t. Do they step back and see how they can best differentiate around Android? No, they are afraid their fellow OEM competitors are going to have the next fleetingly popular model. OEMs are in a stampeding herd, and they can’t take a breath without getting trampled by the others.

          22. Yep, doing tactics and strategy at the same time is hard. Ask any football (not american) player: you’ve got to dribble past your opponent and know where your teammate with an opening is.
            That’s why OEMs are OEMs, it’s a much easier job. Ascribing their limitations to the structure it resulted in is like reproaching footballers for not being club owners.

          23. Well, you’ve probably just nailed it for big picture questions. Many of the questions and discussions regarding Apple ask how it manages to grow despite its size, how it doesn’t seem to be susceptible to the same pressures and disruptions as OEMs, why market share isn’t of particular concern, etc. You’ve come back to an answer offered before: Apple is not in the same game as OEMs.

            At the same time, you seem to imply that that’s not relevant to the question of great products, and why OEMs may or may not themselves produce great products and innovations.

            Well, structure does come into if you have a bunch of independent contractors building all these buildings that at the end of the day no-one really wants to live or work in. The contractors have all these great skills between them — brick-laying, carpentry, plumbing, electrics, etc. …But, no architects, no urban planners, no surveyors, etc. The developer that brought the contractors together and was supposed to provide all that extra expertise is really just a slum lord that is only interested in being awarded the key to the city for putting up as many structures as possible in as short a time as possible.

          24. “No, again you are missing my point.”

            This response could be set up as an all-purpose automated response to obarthelemy.

          25. There was no sub $200 pc market because you need a certain amount of storage for the jobs a pc needs to do. (something like a minimum of 60-80GB). You could provide that storage in two ways. Hard disk which starts at $40 but the smallest size is 320GB or flash which you buy per GB but until recently 80GB of flash cost more than the cheapest hard disk so that was not useful for the very cheap pc market segment. Now it is cheaper so expect big growth in the $100 to $199 segment in the next two years and in the sub $100 in three year

        2. As usual, you have quite a narrow perspective on what constitutes “premium” (and even “innovation”).

          In the narrow perspective of a spec-list, Apple’s screen and camera could be seen to “slide down the rankings”. Maybe how black the black is, or in how high the dpi count is.

          Raising such specs is exactly how OEMs compete with one another. The customer tries to get the “biggest bang for his buck”. But cramming more pixels in isn’t “innovative”, it’s inevitable.

          Apple can “play” that game, too. Apple does, as time goes on. After it delivers the improvements that tend to be regarded as more subjective in nature (but which actually represent very real innovations), Apple can add the numbers (of pixels, or MB, physical size of screen, or whatever) — and keep the cost the same over time. It’s a balancing act to deliver the best mix of features at the same consistent price points.

          A less narrow perspective considers other aspects of screen technology: like the materials, the way the touch layer is laminated into the glass, how the on-screen elements you are touching seem closer to the surface, the way the touch layer on iPhones is able to flex more in the vertical plane with 3D Touch, etc. And, similarly, features of Apple’s cameras: larger sensors (though not as many), more effort to separate the sensors to reduce noise, etc.

          No, just adding to the numbers on a spec sheet is the least “innovative” thing a company can do. The types of components or differences between components that those numbers represent are definitely commoditised, and grabbing them first off the assembly line is all that OEMs can do to compete. Apple can “catch up” to those numbers or use more of the latest commoditized components at any point it chooses.

          But, following Apple into making the kinds of investments that Apple is making into touch sensor technology, systems on a chip, specialised chips, materials, custom glass lamination, etc. is far harder for Android OEMs to do; and is precisely why Samsung is having trouble differentiating and sustaining its high-end business.

          1. No, I’m talking of holistic picture quality appraisal, not individual pixel counts. Same for screens.

          2. Interesting, because most your contentions with people on these threads are when we are talking about “holistic device appraisal”, not individual features.

            So, you can conceive of the concept of an “holistic quality appraisal”when it suits you; but completely dismiss is as a concept when it comes to integrated Apple products — though they cause people to observe and experience a real difference, a difference which raises the bar for all “premium” devices.

            In fact, the other article we are commenting on (MS sees Apple has been right along…) wouldn’t be necessary if there wasn’t an “holistic quality appraisal” applied to devices that went very much in Apple’s favour most of the time.

        3. Having a higher res screen is not “premium” when it causes both battery life and graphics performance to suffer. Premium is when you realize you have to balance out all components well – just like a twenty foot long sword is not “premium” over a well balanced sword you can hold and actually use.

          1. It’s really not only about the resolution. You’ll understand it next year, if as is rumored Apple switches to AMOLED and you get to experience what Samsung flagships have had for a few years.
            I switched away from Samsung a while back, AMOLED is the one thing I’m still missing sorely (well, that and a plastic casing that can take a fall by itself, but that’s becoming very rare ^^)

  2. any successful company was immune to low end disruption until they got disrupt.
    Know one though Microsoft could get disrupted by Google in Mobile the way it did

    1. Actually we saw what Android would do to Microsoft coming. And as you point out as I am as well, low-end disruption only applies in modular ecosystem to which both Windows and Android are. Apple is isolated by this because their vertical integration allows them to focus on better not cheaper. Samsung can not do this.

      1. Nobody saw Android coming before 2007, everyone thought that Windows Phone OS would dominate the Smartphone market as they did with the computer market.

        For Apple to be immune to low end disruption the IPhone need to remain the best of the best and also the most important product in user live
        which history has showned us wont be the case.

        Consumers used to valued notebook a lot until the smartphone became their most important product.

        Apple Fan used to say that the iPad was the future of Apple until the Phone cool it off

        Macbook used to be the best and most popular computer at school until Chromebook replaced it

        What makes you think it will be different with the iPhone ?

        Also you have forgotten one of the most important aspect of low-end disruption whcih is the cost of added complexity.

        the more hardware feature that Apple will have to add the iPhone to justify annual upgrade, the more complex and buggy it will become, therefore what used to be a great advantage can easily become a weakness .

        1. Really? Someone out there thought Windows would dominate Blackberry and Symbian? That’s the first I heard that.

          Joe

          1. When Android hit the scene we knew its potential. All the OEMs were not happy with Microsoft and were desiring an alternative. Was pretty predictable actually.

          2. That so-called consensus was IDC and then the internet echo chamber that reverberated after the release of that ridiculous forecast a few years back. IDC sells ‘market research’ to high paying clients who then use it to influence the media coverage and news cycle (need I add “in their favor”?).

        2. Great point!

          Yes, the iPhone and the smartphone category as a whole will be disrupted eventually. Maybe we will have cellular radio embedded into our heads.

          What we have seen from Apple however, is that they tend to disrupt themselves. If any company succeeds in bringing a smartphone disrupter (a brain wearable) to market, there is a high chance that it will be Apple.

          1. Well I think I know who’s users would be more inclined for implants! 🙂 /s
            That was a joke people!

          2. Just to be logically thorough, I also searched for “android shaved head” and “Google shaved head” but all I could find were some punks.

          3. My iBrother put an Apple sticker on his fridge. I strenuously point out to my nephew at every occasion that the Apple is half-eaten, I’d never accept it !

          4. it is always easy to disrupt yourself when it is just an extension of your current product and the new opportunity is greater than the current one, but is a nightmare when you have to destroyed the one product that make your company relevant for an uncertain future.

          5. That is exactly true, and if I recall correctly, when asked whether Apple was a company that could self-disrupt, Christensen himself reserved judgement because of the very reason that you mention.

            Having said that though, among the tech companies that exist today, Apple is one of the very few that comes close.

          6. I think Christensen kept getting it wrong on Apple, as another commentator said, because Christensen is a “Cheap” guy at heart and doesn’t understand other differentiators in the consumer market.

          7. My tentative position, as I have mentioned elsewhere in the comments for this article, is that Christensen probably did get it right; the iPhone was probably disrupted by Android in the 2010-12 time frame. The problem is, because the market as a whole was growing fast enough so that even the disrupted iPhone grew in sales (although slower than the meteoric rise of Android), and hence nobody noticed that iPhone was actually being disrupted.

          8. They disrupted their entire iPod market by adding a music player to the iPhone and iPod touch. In Q1 2007 iPods accounted for 48% of Apple revenue. They were willing to abandon that revenue on the bet that iPhone would succeed. And it was a bet as the iPhone was met by jeers by the entire media as too expensive, too limited and appealed to only rich tech junkies. Look up quotes by Microsoft, Palm and Nokia when the iPhone was released

        3. “Macbook used to be the best and most popular computer at school until Chromebook replaced it

          What makes you think it will be different with the iPhone ?”

          Schools make purchasing decisions mainly on cold budget-based calculations. Otherwise they have to answer to the taxpayer or the board (for private schools).

          Emotion, vanity, status plays a big, likely dominant role, in iPhone purchases and the buyers doesn’t have to justify his or her decision to anyone.

          That is a big difference.

          In fact disruption theory, at least as originally formulated, fails spectacularly with consumer goods markets that have a significant luxury segment because the theory was formulated on the premise that purchase decisions are made on purely pragmatic, efficiency-based considerations. This is true for companies, not for consumers.

          For the iPhone’s case, disruption theory as applied to enterprises is not the applicable theory.

          1. Emotion, vanity, status plays a big, likely dominant role, in iPhone purchases and the buyers doesn’t have to justify his or her decision to anyone.aardman

            Tell that to the IPad which has been disrupted by Phablet so was the IPhone until Apple decided to introduce their own Phablet

          2. And then when Apple introduced their own phablet which parties really got disrupted (if I might abuse the term) in turn? The iPad or the other phablet manufacturers?

            The non-Apple phablets were only able to ‘disrupt’ iPad because Apple had no competing model. When Apple came in, emotion, vanity, status came into play again in the phablet market and Samsung can tell you how much advantage Apple derived from those factors.

            People keep holding up the iPad as a case of failure for Apple. It was, in the sense that their initial predictions about how big the tablet market were mistaken. But is it a failure in that Apple could not compete with the competition in tablets? No. Apple still dominates the smaller-than-predicted market.

        4. “Apple Fan used to say the iPad was the future of Apple”

          No Apple fan ever said that, nor did anyone that I can recall.

          When it launched many said it would be an absolute failure, but instead it’s a steady business – not at the volume of iPhones, but then few things are. Instead it’s at the level of selling more iPads per quarter than any one PC maker sells computers per quarter – and with higher margins. If you claim the tablet market is going anywhere then you are pretty much prediction the death of PC makers also.

          “What makes you think it will be different with the iPhone ?”

          The better question is, what makes you think it will not? The iPhone has already conquered completion, Samsung being the last possible contender. As the article points out, from this point forward the lead Apple has in build quality, sales and so forth will continue to grow. In five years a two-year old Apple device will be about 2x more powerful than a brand new Android device – and cost half as much. What happens to Android Land when older iOS devices start to consume the market downward?

      2. Why can’t Samsung focus on better and not cheaper? Nothing is preventing them from making Android better than iOS. Nothing is preventing them from producing better hardware. Is there?

        1. No but it won’t matter. They can sell 30-40m high-end units but that is about it. Once good enough sets in, and you ship the same OS as your competition, its basically over unless you want to compete at the new price price points.

          1. Suppose Samsung produces the S7 that is objectively “better” than the iPhone. It is thinner, has 10X the battery life, takes sharper photos, etc. The technologies to achieve this is proprietary to Samsung. Won’t Samsung be able to differentiate itself from other Android manufacturers. And can’t Samsung charge a premium for this? Why is only the OS the differentiator?

          2. I believe OS, today, is the differentiator because it actually exists in reality. On a theoretical basis, IF Samsung provided a hw breakthrough like you suggest, it would definitely lead to high growth sales, but they need to //actually ship// it.

            “Real artists ship.” – Someone at the fruit company. : )

          3. Exactly. My point is that Android manufacturers are not doomed to being undifferentiated in the eyes of consumers. An Android maker simply needs to change the basis of competition. When Samsung was the only one shipping phablets, screen size was the basis of competition and it was the OS that was “good enough”. There is no reason why changing the basis of competition can not be done again in the smartphone space.

          4. They are going to focus on curved glass screens. Is that enough to change the basis of competition in your mind? Once the train starts de-railing focus and resources start going to other areas where money is still good. Like their components division. I saw another report that Samsung plans to lay off nearly 30% of work force. This is will certainly come from areas struggling to which mobile is one of them. This is how the downward spiral begins.

          5. I’m not sure it’s about the glass being curved by itself, but rather about making the product visibly distinctive, so owners get some bragging rights. Part of a wider “let’s get some brand cred” thrust.

          6. In my view Samsung will continue innovating in the smartphone space, but, as ASPs and margins go down, with less efforts (i.e. costs).
            As far as I know Samsung never quit a market, but stay in there till the end, constantly adapting the costs to the revenues.
            My main (off topic?) question is: What is the next potentially huge market they choose to invest in to become the #1 player with solid profits?

          7. The problem is, whatever hardware based (vs OS-based) differentiation that Samsung introduces will be easily copied by another Android phone manufacturer and they’re back to competing on price. The issue is not that Android manufacturers cannot match the hardware features of the iPhone, the problem is that the shared OS consigns all Android manufacturers to a race to the bottom and there is no way for them to generate sustainable high margins like Apple does. No matter what segment of the smart phone market an Android mfr initially chooses to address, margins will be thin everywhere. Might as well have your thin margins at the bottom end where R&D (and the costs associated with it) are very low or nonexistent.

          8. If this is the case, it does not fully explain the phablet phenomenon from a fews ago. Before the iPhone 6, a significant number of “high end” customers chose Samsung because it offered a feature Apple didn’t, even though this feature was found in other Android phones. Brand matters. It was only when Apple closed the screen size gap that Samsung started getting squeezed. According to Christensen, the traditional way for incumbent to respond to low end disruption is to move up market. Competing with Apple for the high end is not easy, but as the phablet showed that it is not impossible. It will be a huge mistake for Samsung to exit the smartphone business.

          9. “Competing with Apple for the high end is not easy, but as the phablet showed that it is not impossible.”

            Huh? You say this, except as evidence you cite Samsung which did well in the phablet market until it got squeezed when Apple came out with their phablet.

            Other than that, my point is that with respect to Android, sustained high margins at any segment, high or low, is unattainable because any product differentiation outside of an exclusive, proprietary OS is easily imitated by the competition. Samsung might have been able to earn respectable margins for a while there, but those disappeared after a couple of years didn’t they?

            To debunk my assertion, you have to be able to say “Here, here is one hardware feature that one Android manufacturer has, that no other Android manufacturer can imitate, AND that has allowed them to generate sustained and significantly higher margins.” If you can point to me one such example, I will gladly concede that what I claim is wrong.

          10. Take a look at what Xiaomi is doing with IoT. Although Xiomi’s strategy is in its infancy, if successful, it has the potential to act as a moat for Xiomi to generate sustainable higher margins.

          11. IoT is not a hardware feature of a smartphone, it’s an ecosystem feature. That is why it just might succeed in generating sustainable high margins for Xiaomi if they play it out right. Again, provided nobody else can imitate it.

            I’m not saying nobody has a ghost of a chance competing with iPhone, I’m saying nobody has a ghost of a chance competing with iPhone if all they are relying on are hardware features on their competing smart phone.

          12. Agreed. My suggestion to Android manufacturers is to change the basis of competition. This isn’t limited to hardware features ;>)

          13. There is a market for Samsung in the high end it just isn’t large. What is interesting about this, and the application of low-end disruption, is the disrupted retreats to the high-end after the disruption occurs. The problem this poses for Samsung is this area is owned by Apple. And as I pointed out in comments throughout this Apple switching to Android is very small % of people. The ecosystem is a mousetrap in ways Android is not beyond the customer experience, simplicity, etc. So I agree with you Samsung can still sell to the high-end but it isn’t enough volume for them to meaningfully sustain their efforts, RND, etc.

            This same dynamic exsits in PCs. OEMs try very hard to innovate on hardware but most people just look at price when things are generally equal. Samsung will lean on curved glass but they built their house on someone else’s land (Android) and this is the root of this issue.

          14. If you want to claim Samsung needs magic to succeed, sure, go ahead.

            Absent a magic 10X battery life boost, however, the point is that each of those components are commodity items. Samsung can have a better CPU than Apple if they’re willing to pour the design resources into it. They can buy better sensors from Sony or whomever. But none of it comes for free, and none of it will be viewed enthusiastically by the majority of Samsung customers, for whom a $15 pricier camera buys no advantage, just as a $10 more expensive CPU merely increases the cost of the phone by at least $10.

            This is the commoditized component issue. Alternatively, getting parts to work more closely together? Either Samsung pours Apple-level R&D into better apps, which make the phone more expensive, or they submit their improvements to Google, resulting in ALL Android sets getting better… at Sammy’s R&D expense, again putting Samsung at a competitive disadvantage.

            It seems to me that there are enough profits in the high-end smartphone business that Samsung could develop better features and pull away from the pack without making their phones too expensive. But I’m pretty sure they’d have to give up the market perception of quality, moderate-cost phones, again, the bulk of their shipments. A tough choice either way.

  3. I would like to offer a different way to look at this, which I personally thinks makes the current situation fit better into Clayton Christensen’s framework.

    I think that the iPhone has already been disrupted by Android.

    Some key points of the theory.
    1.
    Disruption theory does not necessarily assume that the incumbents will be driven out of the market. It does state the incumbents will typically retreat to the high-end of the market, while the entrants will dominate the mass market.
    2.
    Disruptive innovations typically dramatically expand the scope of the market. Although the word “disruption” implies destruction, it is a very creative form of destruction that actually fosters widespread empowerment.

    Some key observations.
    1.
    If you define the smartphone market as limited to touch-based, full-browser, app-store enabled smartphones, explicitly excluding the Symbian, Palm Treo, old Blackberry type devices, then the iPhones market share dropped dramatically from 100% to 15%, due to Android entering the market.
    2.
    Android dramatically expanded the market for touch-based smartphones. The modular approach drove down prices immensely and expanded the market to over a billion. This has hugely empowered people all over the world. Without Android, smartphones would still be limited to wealthy countries.

    As you can see, Android has the characteristics of a low-end disruption. It has successfully entered the smartphone market, driven the entrant (iPhone) to the high-end, and empowered a huge population who cannot afford an iPhone.

    If you take this view, then the issue of whether the iPhone can be disrupted or not becomes irrelevant. It has already been disrupted.

    The only question left is whether or not iPhone will be driven out of the market, or whether it will thrive at the high-end.

    In disruption theory, if the entrants can remain profitable despite being low-priced, then they can invest money into improving their product to the point that it challenges the high-end incumbent product. If the entrant’s product then surpasses the incumbent’s in even the features that high-end customers value, then the entrant will drive out the incumbent.

    This is exactly what is not happening in the Android/iPhone world. The entrants are not profitable and cannot invest in the technologies that will challenge Apple’s dominance at the high-end. At the same time, Apple is innovating quickly and further distancing itself from the mass-market, which makes catching up even more difficult. Furthermore, Apple has the knack of introducing high-end features that their customers appreciate.

    To reiterate, the battle between iPhone and Android is no longer about entrant vs. incumbent. It is no longer about “good enough”. That battle is already over, and as Christensen’s theories suggest, the modular approach beat the integrated approach for the mass market. The current battle is for the high-end, which obviously has a very different dynamic compared to the initial phases of low-end disruption.

    Of course, this is hugely complicated by subsidies, total-cost-of-ownership (+ data costs), etc. which make the effective cost of owning an iPhone hard to measure in many developed countries.

    1. “the iPhones market share dropped dramatically from 100% to 15%, due to Android entering the market.”

      Are you discounting the Windows based phones of the time based on market share or OS form?

      Joe

      1. Yes. The definition is murky, but I think we can agree that those phones were no match for the iPhone and the Androids that came 3-4 years later.

      2. In that most people who bought the iPhone probably never ever considered the Windows phone to be a realistic alternative purchase, then yes, Windows phones then should never count as being in the same market as the iPhone. Where a market really begins and ends is determined by the consumer and we only hope that what we identify in our analyses to be the relevant market is actually what the consumer perceives it to be.

    2. I agree with your Android points. Not sure I agree fully on the iPhone being disrupted point but I understand where you are coming from. Michael Raynor had some great points on the modifications to disruption theory on the latest A16z podcast. They have a new paper coming out, which Horace was also involved in so I got the overview, that I think will help with some of these dynamics.

      What I still feel is not covered well in this dynamic is the modular/integrated dynamic in markets where user experience matters and alters the basis of competition. I’d argue Apple, while positioned in the high end, is capturing value/new customers from Android with legacy hardware because even if slightly higher price than a current gen Android phone, the user experience is perceived as better by the customer and therefor better wins over cheaper. It’s also possible Apple is an anomaly. Regardless, the theory is obviously useful and predictable in some areas, as I depicted with Android but not others even in the same market like Apple.

      1. iPhone does fine at the $400-450 price point.

        It does fine at the sub-$700 price point.

        It would never do a $300 iPhone, not the way its competitors do.

        Apple is “high-end” because everyone’s drifted lower over time. iPhone should end up like Mac. At minimum, stable price over time. Price relativity.

        Your Honda Accord will creep to $25,000 US over time. Your iPhone is unlikely to ever exceed $849 US unlocked.

        Apple got pressured by Samsung and responded, partly because it was gonna get to BigPhone at some point anyway, partly because Samsung brought the heat. But is it “disruption”? I’m a Philistine, but I’m not a fan of “disruption” as a catch-all for “business challenge effecting change (really, more like “destroying the incumbent” these days) or forcing the affected business to take countermeasures”.

        1. Disruption in the original terminology by Christensen was not a catch-all. It was a specific explanation of why big incumbent companies sometimes dramatically lost out to smaller entrants.

          Since then, many people have abused the term.

      2. My tendency is to not use the modular/integrated – customer experience argument as a barrier to disruption. I do this intentionally.

        I do this because there is a dearth of examples to prove it. In fact, the vast majority of consumer products are integrated in the eyes of the consumer (TVs for example) but we still see disruption happening just as dramatically. Being integrated didn’t save Sony from Samsung in TVs, for example. As Steve Jobs once said, integration is the norm for consumer products, and the modular PC model is the anomaly. This is true even in digital products like game consoles. This makes it hard to find markets where there is a mixture of modular and integrated offerings, and that’s why I try not to rely on the modular/integrated and customer experience argument. Without at least a handful of examples, I have no way to verify the accuracy of any theory.

        Of course I use the modular/integrated argument in other areas.

        1. “Is “user experience” something that users will never perceive as “good enough”?”

          This is exactly right. When the user experience is integral to the value being delivered, it can never be good enough. Your point about Sony and Samsung re: TVs illustrates this, the user experience in TVs is horrible. Disruption can happen to anyone in that industry because there is little attention paid to the user experience. If some company worked hard on the user experience and delivered real value with that user experience re: TVs, they would be very hard to disrupt.

          1. The main difficulty with this is that the TV itself is only a small part of the equation, with the major part of the equation being fought over control, i.e. content creators vs. content providers vs. content distributors.

            Joe

          2. Yes, TV as a user experience has a lot of moving parts. To be fair to the current crop of TV makers, they can’t really do much about the total user experience. But I also think very few companies pay much attention to the user experience, which makes them vulnerable to disruption. My Samsung ‘smart’ TV is just awful from a UI perspective. And why is my satellite TV guide so terrible? And my PVR from Motorola is a piece of junk, I’m on the fourth one in two years, they just keep failing and going haywire. These companies don’t seem to care about building something good.

          3. It is amazing that in this post iPod era, consumer tech companies still sell products with user interfaces reminiscent of MS-DOS.

          4. I appreciate your assertion but what I find lacking is examples. I have no way to verify what you say is true.

            When I try to look for examples where user experience is regarded to be of utmost importance, I mostly only find luxury products. But driving luxury products out of the market isn’t really what disruption is about. It is about what happens to the mass market. Hence luxury markets aren’t the examples we are looking for.

            Regarding TVs, my point is that integration alone does not save you from disruption. It might save you from modular entrants, but I know of no other examples in the consumer space where integrated and modular players competed. In the business space at least, we know that integrated players like SUN lost out to modular PCs.

            Going into the user experience discussion though, how much would the general population be willing to pay for better UE? If you had to pay 50% more, for example, I doubt that the TV with a better UE would drive the cheaper but worse product out of the mass market. What price would you place on better UE?

          5. “Going into the user experience discussion though, how much would the general population be willing to pay for better UE?”

            A minority of any market is looking for this kind of value, which is why we only see attention paid to UE at the high end. Where there is opportunity to deliver value via the user experience there can be a sort of insulation or protection against disruption, since when it comes to UE you can’t reach good enough. But of course the majority of any market is not buying based on value within the UE, and that’s fine, different people value different things.

        2. Hopefully what you see I’m getting at which is firstly, the parts of the theory here that are useful and predictable in application apply to Android land not the entire smartphone market in general. The theory generally was used to apply to an entire category. I’m saying that is not the case. At least not yet and maybe not ever in this case.

          Second, when the UE becomes a major factor in the purchase, which it does I’d argue in more personal/emotional purchases, like a personal computer, like a car, like a restaurant, like Disneyland, etc., the good enough mentality does not universally set it because consumers are emotional and not always rational or pragmatic. Hence the segmentation of the market which usually takes place at this point. A TV or a fridge is a commodity and therefore less personal emotion and taste applies making price the more important driving factor. But in Android land, what we find is that customer GENERALLY, is one for whom price matters. Hence the dynamic facing Samsung is predictable. And no effort in superior UE will save them because they can’t retreat to the high end because Apple occupies it.

          I’ve stood by this before that the theory (at least this part of the theory) and its application seems to work best when you know you have a pragmatic customer which I’d argue is a predictable customer using historic comparables.

          1. Regarding your first point, the only point where I think we disagree is whether or not what happened between iPhone and Android during the 2010-2012 time frame can be considered a disruption or not.

            During this period, iPhone grew but Android grew much much faster and as a result, the iPhone ended up being only 15% of the total smartphone market in units. Android dominates the mass-market, although this is complicated in countries like Japan and the US. I consider this to be a disruptive innovation, but because the word “disruptive” suggests that iPhone should have shrunk, I instead would prefer to use the word that Christensen uses more recently; “empowering innovation”. So in summary, my view is that Android was an “empowering innovation” that empowered the mass market.

            What this means from a practical perspective is that Android provided a means for the price-conscious mass market to enter the smartphone market. The iPhone found its niche in the value-conscious high-end market.

            The high-end market is composed of the most demanding customers, the customers for which the product is not yet “good enough”. It is a different market from the price-conscious mass market, and is defendable as long as value is created and appreciated by customers. At this point, I think our perspectives converge.

            An interesting point is that the price-conscious mass market segment that Samsung dominated in 2012-13, is the very segment that can easily be disrupted again by a new low-cost entrant. But this new low-cost entrant will fail to go up to the high-end for the very same reasons why Samsung failed.

            In summary, instead of separating the Android and iPhone markets and treating one as susceptive to disruption and the other as immune, I am saying that this separation is the result of a past disruptive event in 2010-2012. As a result, the iPhone found itself in a 15% high-end market niche that is very value-conscious. This niche is where disruption failed to reach once, and will continue to be difficult to disrupt in the future.

            Without even going into the UE argument, I think it is sufficient to say that low-end disruptors are very susceptible to new low-end disruptors.

            For example, the Japanese were the low-end disruptors in many industries with a cheaper and high-quality product. However, because their value proposition was cheap and high-quality, they were susceptible to new entrants who were even cheaper and had comparable quality. Hence the Koreans and Chinese had little difficulty eating Japan’s lunch. Cheap and high-quality is actually quite easy to do for emerging nations. However, in automobiles, the Germans had already survived the Japanese onslaught and had positioned themselves in a way so that cheap and high-quality products would not disrupt them (user experience is one aspect, but not necessarily the whole). Hence the Japanese have difficulty entering the Mercedes and BMW markets, and the Koreans or Chinese can’t touch them either.

          2. Ok. Let me think on this more. I’m also seeing Horace next week so I’ll discuss with him as well. It’s a good argument overall. Perhaps the difference in this instance from so many others is the high end is so large and so very sustainable vs. other examples where the disrupted can’t sustain in the high end any longer because it is not large enough or profitable enough to keep inventing/innovating.

          3. Interesting. We can say then that the high end in digital music players is so large it encompassed pretty much the whole market. I mean, I remember dirt cheap Sansa players sitting alongside iPods in Best Buy stores that still couldn’t make any headway against the iPod.

          4. Could you give us more detail on the Sansa players, because I don’t know of them and I do not know if they qualified for “good enough”. If they weren’t “good enough”, which is likely for a dirt cheap product, then it is no surprise that they wouldn’t sell. Being cheap alone is not sufficient for a low-end disruption. Also I would like to know how significant the price difference was.

          5. I don’t recall the price but I do remember being struck that the Sansa competitor that was on display right next to the iPod Nano was half the price of the Nano for the same number of gigs. I suppose the problem the Sansa faced was that no matter how great it was, as soon as people found out that it won’t work withiTunes, interest would immediately plunge to zero.

          6. Sansa players are from Sandisk and are still alive today: https://www.sandisk.com/home/mp3-players
            I’d say “good enough”, if managing music files via Windows Explorer is OK with you (it’s actually a plus as far as I’m concerned, I got a noname MP3 player at the time because iTunes choked on my large music collection and on the FLAC I ripped my CDs to). Design and sound quality are OK. They never came with a shop nor desktop-side software IIRC.

          7. They seem to only have two very low end models. Do you what models they had and what the prices were in say 2005-7, when the MP3 player business was still thriving and companies were actually serious about selling these things?

          8. Thank you.

            If I understand correctly, the high end model Sansa cost roughly the same as an iPod Touch of the same era, and the low cost device was $100 less than the iPod Nano which cost $200.

            Given the huge effort that Apple spend on branding and marketing, and the cheapish image of the Sansa brand, I’m not really surprised at all that the Sansa didn’t sell well.

            Regardless, if Sansa had been profitable with its players and been able to spend money on marketing and future product development, then maybe they could have made some headway.

            This brings up to another important point. For low-end disruption to work, the entrants have to be profitable in some way or another. Otherwise, they can’t move up-market. Given that Apple probably had huge price negotiating power for Flash RAM, I doubt Sansa was very profitable.

            That’s my take.

            In the case of Android, we initially saw modularity helping OEM (Samsung) profits, but eventually profits had to rely on the OEMs adopting different business models or skimping on marketing and distribution.

          9. I think the main issue is, if you’re ready to go non-Apple, you’ll go low/midrange, not Sansa which is high-mid range. Sony, Samsung, Archos all had early music/video players at the high end, couldn’t get people to look past the brand. Especially for music players, which are the quintessential “good enough” device: as long as it plays music when you push the button (audiophiles notwithstanding), it’s satisfactory from the technical side.

            Re Android, I’m not sure what you use “modularity” for: separate OS and hardware layers, or OEM-modifiable subsystems within the OS.

          10. Because portable music players are generally targeted toward overly self conscious teenagers and young adults, I expect getting them to look past the brand is very difficult.

            Regarding Android, maybe I should give my thoughts another time.

          11. As a small anecdotal data point to support your argument , my Girlfriend switched to an iPhone yesterday from a Galaxy S5 that was causing a lot of usability headaches, she was dissatisfied with the total experience after upgrading from the GS3 that she was happy with but stopped working . She owed $130 on the phone through ATT next, and they only valued the phone at $110. She paid $650 for it in July 2014. Not only was the phone disappointing, but it deprecated much faster than an iPhone would have. The GS6 is nice, but the accelerated release of the GS7 will accelerate its depreciation rate, and the cycle continues. She swore up and down she would never have an iPhone, but Samsung managed to push her over the cliff. Seeing me be able to replace a broken phone through AppleCare at the Apple Store was another factor, as Samsung can’t do that through carrier stores, and carrier insurance with deductibles is more expensive than AppleCare with two $99 replacements. We did our research and realized the deductible to replace her GS5 would be about the value of the phone. In the end iPhone wins due to the combination of these factors. And the sales rep at ATT had just switched from GS5 to the iPhone as well, he said he was surprised the resale of the GS5 was so low.

          12. Does Apple’s deliberate limited distribution outlets not play into any of this? Vs Google’s Android every where approach? Seems like less a product disruption and more a supply systems disruption.

            Joe

          13. I think you are exactly right. The distinction between a product disruption and a supply systems disruption is not really important, in if we want to go further, we could even say that Android was also a business model disruption. Either way, the important thing is that Apple was totally unable to tackle Android head-on and that is why they ceded 85% of the market in 2010-12. They were unable to counter Android because Android was build upon the very things that Apple avoided, like allowing OEMs and carriers to customise the OS and giving them control, and giving away the OS for free. Competition was asymmetric.

          14. I’m still not sure why you leave Windows mobile phones out of the picture. As the closest in form to the iPhone in the early days (touch screen, though resistive, apps, app store, somewhat usable browser), then iPhone never had more than roughly 50% market share.

            And is market share really the only measure for disruption? That seems pretty one dimensional.

            Joe

          15. If you really wanted to, you could surely add Windows mobile phones but still end up with the conclusion that Apple lost a huge amount of market share.

            http://www.businessinsider.com/the-state-of-the-smartphone-industry-2014-9

            And regarding whether market share is the only measure. It certainly isn’t the only measure for whether companies are successful or not. But if we are measuring the impact of the innovation to the world, then market share makes sense.

            Think of all the Syrian refugees who depended on smartphones for information. They mostly used Android. Think of the people who overturned governments in the Arab Spring. They mostly used Android. This is how the smartphone/mobile revolution is changing the world. This is the impact of innovation. And although iPhone certainly plays a part, a lot of world-changing is actually being done on Android.

            In general, I do believe disruption is best measured by market share.

          16. I don’t agree with your assessment that Apple had 100 percent of the market at any time in any way, shape, or form. Sure the iPhone was unique in many ways when it launched, but from a consumer perspective it was another pocket device that delivered various jobs-to-be-done. The iPhone started at zero share and grew from there.

          17. The original Android team led by Andy Rubin and developing a Blackberry clone, upon seeing the iPhone for the first time, immediately understood that the iPhone was a completely revolutionary product that was in a class of its own. They understood that iPhone-like products, not the descendants of Blackberry, Windows phone or Palm, would rule the world. They understood that the iPhone was not just “another pocket device”.

            That’s why Android succeeded

          18. Yes, the iPhone changed the basis of competition. I also understood this immediately when it was launched, it was a Mac in your pocket. But we can’t then say the iPhone had 100 percent share of anything, that’s too artificial in my opinion. Consumers were still mostly buying devices that were not the iPhone, and others were always going to follow Apple’s lead and serve the majority of the market that simply does not make purchasing decisions based on the kind of value Apple delivers.

          19. We need to be careful when we talk about market share. My view on it is that Apple only had 100 percent of the market when it was the only smart phone in that market i.e. the modern, pocket computer segment that iPhone pioneered.

            In truth the relevant market Apple addressed then (and now) was never the whole modern smart phone market but just the high end. Most of the people who own a midrange-and-lower Android now, are not in and never have been in the market that iPhone addresses.

            So it is not completely accurate to say that Apple had 100% of the market and retreated to the high end. Maybe they briefly held out the hope that they can capture the whole market without yielding one bit on their high-end pricing model. Well, that might have been true for iPods where we found out that people were willing to spend $300 for a ‘luxury’ buy, but it proved to be a pipe dream at the iPhone’s $700+ price point.

          20. Agreed. The Church of Market Share is a poor way to look at Apple. As you point out, much of the market simply isn’t a part of the segment Apple operates in. While we could create some definition that means for a brief moment Apple had 100 percent share of devices like the iPhone, that is artificial and not useful. Apple was never trying to serve the entire market.

          21. Agree entirely. Even Steve Jobs said at the end of his historic presentation that Apple would be well pleased with 1% of the cellphone market! and 10% of the smartphone market within a year. So this idea that once upon a time Apple held 100% share of some market or the other and was disrupted is patently false. This has been dealt with several years ago and been thoroughly debunked and tossed aside.

            As has also the idea that “100% market” is a static, known figure – the market is growing all the time as new markets are being entered into, so even Apple’s estimated 15% share is a figure that is growing. Whatever else could explain the solid growth in their revenues and profits?

          22. Apple never aimed for market share. Steve Jobs stated aim was to capture 1% of the entire mobile market by the end of 2007. They succeeded in that. And every year they’ve sold more iPhones than the previous year. They’ve never had any sort of dominant market share. They just currently keep over 90% of the profit share. If you’ve never had a dominant market share you can’t “lose” it.

          23. At that time, Steve Jobs included even Nokia Symbian devices into his market share numbers.

            If it isn’t clear already, this is not the market that I am talking about. I am talking about the touch UI smartphones, originating with the iPhone and imitated by Android, and which is by far the dominant form of smartphone today.

            Despite Steve downplaying its significance, the engineers working on Android were not fooled and immediately understood that the iPhone was in a league of its own.

          24. “the Germans had already survived the Japanese onslaught and had positioned themselves in a way so that cheap and high-quality products would not disrupt them (user experience is one aspect, but not necessarily the whole). Hence the Japanese have difficulty entering the Mercedes and BMW markets, and the Koreans or Chinese can’t touch them either.”

            Having experience briefly in the automotive marketing industry I don’t think BMW and Mercedes, when they are being honest, would agree with this assessment. The Japanese, from two fronts, put a lot of pressure on the Germans.

            In the 90s both tried to create lower entry points for their products because of the lower cost of foreign automobiles. Dailmer-Benz’s merger with Chrysler was specifically meant to help counter that. Both failed at their attempts to go down stream based on price. It really hurt their brand. They needed new brands to go downstream, thus Smart and Mini.

            Which gave the Japanese an even greater window after they learned how to take their mainstream cars and turn them into luxury cars the way the US companies did with Cadillac and Lincoln.

            Not that your point isn’t valid. Just that German luxury brands are probably not the best example.

            Joe

          25. “As a result, the iPhone found itself in a 15% high-end market niche that is very value-conscious.”

            And I am not sure you clearly laid out that iPhone was ever anywhere else, either because of price consciousness or unwillingness to open distribution to any carrier.

            Little, if anything, has changed in iPhone branding or price positioning. There is no reason to think that 100% you reference was different than or anything more than the 15% of the TAM today. The same people who were price conscious then are likely the same today, individual fortune changes not-withstanding.

            Joe

          26. I think there is a misunderstanding of what disruptive innovation is, and why Christensen now refers to it as “empowering innovation”.

            The core point is that the value proposition that the iPhone laid out, the possibility of accessing the whole Internet from a device that fits in your pocket, and the benefits of being always connected in the same way as your desktop PC, was what eventually caused the mobile revolution. This was the jobs-to-be-done. This was not the case with the Symbian and Blackberry products that competed with the iPhone in the 2007-2009 period. The iPhone had a near monopoly on this. But only a small minority of the people has access to such a device, due to price and distribution.

            Low-end disruption is about expanding the market with a good enough product. This is exactly what Android did. What was only available to iPhone users was now available to anybody, regardless of carriers, and the price also dropped quickly so that less wealthy people could afford them.

            The price conscious in 2009 didn’t get full access to the Internet on their mobile devices. They do now, and that is the “empowering innovation” that Android brought forth.

            I hope that this make it clear that to measure the iPhone’s position in 2008, you have to restrict the market to the devices that provided the full Internet experience. The products that had good standards-based browser capable of CSS and Javascript and which could be used conveniently with pinch-to-zoom. The products that could access email via IMAP. That’s why I put iPhones market share in 2008 so high.

          27. “you have to restrict the market to the devices that provided the full Internet experience. The products that had good standards-based browser capable of CSS and Javascript and which could be used conveniently with pinch-to-zoom. The products that could access email via IMAP.”

            Which is why I can’t figure out why you leave out Windows. I had an HTC Windows phone before the iPhone exactly for those reasons. And if Kenny is right, then Windows was the platform primed to disrupt BBRY and Symbian. When iPhone hit the market it was a roughly even split in market share in the US between those three with Windows on the rise (and BBRY was on the rise until 2010). If Ben is right and Eric Schmidt is to be believed, then Android filled the void of Windows since the OEMs wanted something other than an MS product and they clearly were not going to get iOS.

            In essence you are imposing a value and a narrative that is unsupportable. You are saying Apple failed to accomplish something it clearly never set out to do except metaphysically. In that regard Android is actually merely an extension of iOS. Android did to Windows what Apple wasn’t even trying to do. Apple was doing exactly as it set out, even succeeding beyond their initial goals.

            In many markets Apple is the newcomer and Android is the incumbent because of how Apple restricted distribution.

            Joe

          28. Sorry if I made any mistakes regarding Windows Phone, but I have to say that even Steve Jobs seemed to completely dismiss Windows Phone. As far as I know, that product was inconsequential.

            Regarding how Apple was doing exactly as it set out to do, I agree. But that doesn’t mean it wasn’t disrupted. In fact, I would say that is the typical behaviour that an incumbent displays when facing a low-end entrant. Please refer to an earlier comment that I wrote.

            http://techpinions.com/android-and-the-innovators-dilemma/42215#comment-2340185165

          29. I am in no way saying Windows phones of the time were a superior product. That’s what made iPhone disruptive. I am only saying Windows phone approximates the characteristics you earlier set forth with iPhone. It had all the fundamentals you articulated here (maybe there are some you left out?), even if poorly. So this market share of 100% seems unreasonably restrictive if not a bit forced. In the same way, I could say that Apple still has 100% of the market of iPhone buyers.

            Joe

          30. “iPhone grew but Android grew much much faster and as a result, the iPhone ended up being only 15% of the total smartphone market in units.”

            I don’t think Android ever grabbed significant market share from iOS. Android grew not buy grabbing customers from Apple but by catering to the customers that Apple never addressed.

          31. Android grew not buy grabbing customers from Apple but by catering to the customers that Apple never addressed.

            That’s exactly what happens during low-end disruption. Please consider how PCs disrupted mini-computers. Low-end disruption works by bringing a technology that was previously only available to the high-end of the market to the low-end. Low-end disruption works by expanding the market.

          32. I’m slowly getting the hang of this ‘disruption’ thing. 🙂 The way I understand it then now is there’s disrupting an industry and there’s disrupting a firm. So Android disrupted the industry (low end disruption, to be specific) but did not disrupt Apple. Or does the theory, as originally laid out, never really talk about disrupting firms and people just misuse the term when they say XYZ company was disrupted?

          33. I just found time to listen to the a16z podcast with Michael Raynor, co-author of books on disruption together with Christensen (a16z Podcast: Holy Non Sequiturs, Batman: What Disruption Theory Is … and Isn’t). From the discussion, you can see that the way Christensen used the word “disruption” is much, much narrower than way most people in tech use it. In fact, if I insisted on using the word in the way that Christensen intended, I would probably not make any sense to the vast majority of people who come to this site.

            I am myself confused over the semantics, and not being in a position to define terminology, my usage also varies.

            Having said that, Raynor in the above podcast makes it clear that disruptive innovation describes the trajectory by which small entrants enter a market (importantly expanding the accessible market and also in a profitable way), cause incumbents to move up-market, and finally as a result of an enabling technology which allows the entrant to move further up-market, push the incumbents out of even the high-end.

            I’m not sure if he approves of using the term “disruption” to describe something halfway, but that is how I used it (maybe I should use “disruptive trajectory”).

            So clarifying my position, Android is on a disruptive trajectory relative to the iPhone, the product (not the firm). Since the iPhone basically equalled the touch-UI enabled smartphone market, you could also say that it disrupted that market (not the whole smartphone market). However, Android is having trouble with the later stage of disruption; moving up-market. This is related to Apple innovating really fast so that the “enabling technology” (Moore’s law) isn’t catching up to Apple. Although Samsung was a very profitable OEM and could invest in the “enabling technologies”, other OEMs are less fortunate and as the price war wages on, we are likely to see Android falling further behind in this aspect. Therefore, although Android successfully entered the low-end market and confined iPhone to the high-end, they have stalled mid-way in the disruptive trajectory.

            I would also add that the 2010-12 era when Samsung was very profitable and was rapidly catching up with the iPhone, was when Android was closest to pushing iPhone out of the market. Samsung had the profits to invest in “enabling technologies”. Now, with the race to the bottom in Android, it is becoming increasingly unlikely that this will happen.

            I think the confusion is that the term “disrupting XYZ” focuses on a measure of success and does not consider the trajectory. What must be understood is that disruption theory describes a sequence of events. If we are able to identify a certain situation as resembling the initial phases of the disruption trajectory, then we can predict that the future will also resemble the late phases.

            And finally, regarding whether or not Android disrupted smartphones (the industry: Blackberries and Nokias), the mystery here is why were these two dominant companies slow to embrace the touch UI model? Why did they resist the move to Android? Disruption theory gives an idea of why they made bad decisions. However, because Android development moved so fast and because they didn’t have time to retreat to the high-end (which Blackberry did for a limited time in business, but Nokia mostly failed to do), they were crushed early in the trajectory.

            h

          34. I think Horace Dediu’s definition of “competing against non-consumption” is a better description of what happened in the smartphone market. There was a huge land run on feature phone owners who would eventually all be converted to smartphone owners. Android just captured a bigger piece of the land due to various mechanics (being more affordable and diverse, being available in the Verizon iOS vacuum for years due to Apple’s exclusivity contract with AT&T, …), but Apple never actually owned the land to begin with. Low-end disruption implies taking existing, over-served customers away from the incumbent(s). But the incumbents in this case where Motorola, Blackberry, Palm and Nokia. Also: Garmin, Tom-Tom, and other consumer electronics manufacturers. Not Apple. On the contrary, Apple has seen nothing bot growth so far.

          35. First, I personally find the distinction between New Market Disruption (targeting non-consumption) and Low-End Disruption (targeting the low-end) confusing and somewhat arbitrary.

            For example, looking at the examples in Wikipedia, you can see many entries that are both New Market and Low-End, depending on customer segment. Taking the first example, Wikipedia vs. traditional encyclopaedias, if you are looking at the people who owned or often consulted Encyclopaedia Britannica, then it is a low-end disruption. On the other hand, if you look at people like me who haven’t ever opened Britannica, then Wikipedia is clearly a new market disruption. This illustrates why the distinction may be more confusing/distracting then helpful. Also, on the “helpful” side, my understanding is the long-term consequences for the incumbent are virtually identical in both cases. Hence the need to distinguish in the first place is not very clear.

            https://en.wikipedia.org/wiki/Disruptive_innovation

            Since I think that the distinction between New Market and Low End is unclear, and the consequences are the same (the incumbent is pushed into a corner, or pushed out completely), I personally prefer to lump together New Market and Low End Disruptions into one, with the caveat that “low-end” does not equate to “low-price”.

            On your point about Apple only seeing growth, the central thesis of Disruption Theory is that the incumbent makes a conscious, un-forced decision not to enter the low-end/new market. The incumbent concludes, based on analysis of their values and metrics, that it is better for them not to invest in that market opportunity. Therefore, at least for the short term, it will not be uncommon for the incumbent to make even larger profits and to still grow even after an entrant has arrived. In fact, unless the executive is highly incompetent, the incumbent should see both high profits and growth, especially in a rapidly growing market. Otherwise the stockowners would revolt.

            Disruption theory is about incumbents who make the best short-term decision, only to find that it was a bad long-term one. Hence financial performance in the short-term is in no way indicative of whether low-end/new market disruption has occurred. In fact, one might even say that an insistence on high-profits could make an incumbent more susceptible to disruption, both low-end and new market, and that we should see that as a warning (for example, consider Apple during the Sculley/Gassee years: it was very profitable but the seeds of low-end disruption by Windows were sown there).

          36. I think the very definition of “new market” is that there are no incumbents to begin with, only entrants or first movers. It’s a blue ocean where the rules of the game are yet to be defined, and it’s up to the entrants to decide how to best approach the market. Apple clearly opted for integration, quality and profitability, while Android offered free modularity, and everyone else jumped on it at the cost of quality and profitability.

            The reason why new-market innovation can still be disruptive, is that the technologies applied there are ignored by incumbents in other, red ocean markets. See what happened to wrist watches, feature phones, point-and-shoot cameras and gps devices when “app stores” became a thing on general-purpose small computing devices called “smartphones”. They simply got out-app’d.

            Same goes for publishers that ignored the massive opportunity offered by this new technology called “the Internet”, with its zero cost of distribution. You could call Wikipedia “just an app” from the Internet’s perspective, and certainly the folks at Encyclopaedia Britannica initially thought it was inferior compared to their leather books.

            So you are absolutely right that disruption only happens to incumbents. But the reason you are confused about the distinction between “new market” and “low end”, is that in the former case the disrupted incumbent comes from an entirely different market than the one the disruptor is playing in.

          37. If I understand correctly, you are now talking about how iPhone + Android = Smartphones entered the market.

            That is not the discussion here. The discussion is about how Android impacts Apple. You seem to have changed the discussion to feature phones vs. smartphones, point-and-shoot cameras vs. smartphones, etc.

            Disruption Theory is about incumbents and entrants. Both have to be defined if you want to make any sense, and you have to make sure that you are consistently talking about the same players. Otherwise the discussion goes astray.

            You are talking about something very different from what the article discusses, and what I was commenting about.

          38. Let me summarize it:

            a) In the nascent smartphone market, Apple was not the incumbent in your story; Nokia, Blackberry, Palm et al. were.
            b) Now that the smartphone market has matured, Apple and Android manufacturers are the incumbents fighting for market share. And Apple is growing, taking away Android users; not shrinking.

            I fail to see how this changes the topic of the discussion somehow.

          39. Regarding a). Go back to the original article and see if you can find the words “Blackberry” or “Nokia”. You can’t. Read the original article carefully. It is about how Samsung is struggling versus lower cost competitors. There is also mention about how Apple is not affected by this. It clearly does not refer to the “nascent smartphone market” where Nokia and others were overwhelmed by the combination of iPhone/Android. You are clearly off topic here and it is not a summarisation of what the article says, or what I’m saying in the comments.

            b) is simply a rephrasing of the original article, and as far as I know, it’s not what you were talking about when you were mentioning “new market”. It is a correct rephrasing of the original article, but unrelated to your comments.

    3. I’ve read the whole thread, replying to that comment since it is by far the most interesting.
      What about the luxury effect and network/lock-in effects ? The whole discussion seems to have a strong undercurrent of specs+features, yet I think it’s obvious non-devices externalities are probably the driving force in the luxury segment ? Not that specs+features don’t matter, but they’re a distant second ?
      I’ve mentionned co-branding a while ago (actually, simple branding is sorely needed on the Android side), but isn’t a KanyePhone what would probably most effectively compete vs the iPhone ?

      1. I’m not exactly sure what you are referring to in discussing luxury and network/lock-in, but if you are referring to the part where I say Android is not profitable enough to invest in challenging Apple at the high-end, then I get you.

        I totally agree that in addition to technical features, high investment in marketing and branding are very important for the high-end segment. If fact, I would even suggest that in some markets (especially luxury), marketing and branding are almost all that counts (an extreme example being the Minolta cameras that were basically simply sold as Leicas).

        Whether or not the high-end appeal of the iPhone is predominantly tech or predominantly marketing is very interesting, and it we should not forgot that Samsung also spends a ton of money on marketing as well. I think that this is another article though, that will probably have as many comments as this one.

        1. Apple spent around 500M total on marketing per year. That includes all products. At the same time Samsung spent 12B on mobile marketing alone. Apple spends billions on things that actually make a better phone, like manufacturing, R&D and acquisitions.

          1. Your kidding I hope. Samsung ($14bb)spend far more on R&D than Apple. Actually Apple spend ($6bb) far less than most. With regards to marketing Apple spent 1.2 billion last year and Samsung on average spend about 3X Apple so about 3.6 billion.

          2. The crux of the matter is, as Samsung loses momentum in the smartphone market, their marketing and R&D investment for this product segment is likely to decrease. Other OEMs in the Android space that are disrupting Samsung have vastly less profits than Samsung. As a result, total R&D and marketing investments directed towards Android are likely to suffer dramatically.

      2. “The whole discussion seems to have a strong undercurrent of specs+features, yet I think it’s obvious non-devices externalities are probably the driving force in the luxury segment ? ”

        What does this mean? Other than your usual attempt to imply that all Apple sales are purely emotion-driven, and to deflect attention from the fact that Apple actually does some real, unique work on its hardware and software that delivers real value even if it is not reflected in numbers on spec lists?

        Naomi: “Whether or not the high-end appeal of the iPhone is predominantly tech or predominantly marketing is very interesting, and it we should not forgot that Samsung also spends a ton of money on marketing as well.”

        In fact, according to Horace, Samsung has been spending orders of magnitude more than Apple, into all areas of marketing (including spiffs for salesmen, etc.). At times, spending some 12B annually; when Apple was spending a similar amount on CapEx toward tooling, etc., and buying specialised companies like PA Semi and 20 or 30 others we don’t have details on.

        1. I have read Horace Dediu’s estimation of Samsung’s marketing costs.

          It’s not possible however to directly compare Apple’s and Samsung’s marketing budget and say which is putting more effort than the other. The way they spend their money is very different, the number of years spend to build their brand through high-quality products is different, the marketing message is different, the OS is different, the long-held reputation for ease of use is different, and much more.

          What I am trying to say is that I agree with Obarthelemy that specs + features are not the only things that drive strong sales of iPhone in the high-end market, but that marketing and branding are playing at least a comparable and maybe even larger role.

          Samsung knows this and that is why they are the biggest spender of marketing dollars. This has been very effective for winning the Android market, but it wasn’t enough to beat Apple at the high-end (even though the invested dollar amount was larger than Apple).

          1. Oh, I agree that individual specs and features are definitely not the only things. The full “holistic quality” (to use a phrase Obart used of non-iPhone cameras) does a lot to sell the iPhone.

            I just find Obart a little disingenuous:

            On the one hand, he wants to tout all the best specs of every possible Android in aggregate, in order to dismiss iPhone as an holistically great product.

            On the other hand, when he realises that isn’t working, he wants to put the success of the iPhone completely down to an Apple cult following that has aspirations of a “luxury” lifestyle, with the purchase decision nothing more than the folly of a self-indulgent person who would buy a luxury bag instead of a more functional one at a fraction of the cost.

            I suspect this was at the core of his lead comment: “I think it’s obvious non-devices externalities are probably the driving force in the luxury segment?” Because this is what he pushes on every article on which he comments — he is implying that these “externalities” are only at play when it comes to an iPhone decision, not an Android decision.

            Note how he conveniently slips in “luxury”, in place of something less inflammatory (such as “high-end” or “premium”). With him, always, the iPhone (and all Apple products) are completely frivolous. He will not be swayed otherwise. This thought is what he pushes in just about every comment he has ever made through Disqus.

            Yes, I am in agreement with you: Samsung and Apple spend their money differently, so a direct comparison is not really possible.

            Obviously, “Marketing” only goes so far. There has to be real substance and value (that the iPhone clearly offers despite Obart’s fondest wish), or it wouldn’t get loyal, repeat customers and achieve phenomenal success it does.

            As you said: “the number of years spend to build their brand through high-quality products is different, the marketing message is different, the OS is different, the long-held reputation for ease of use is different, and much more.”

            That makes me think that 12B is what is required for Samsung to make up for the fact they haven’t invested properly in their actual products. …and it still isn’t enough.

    4. Android didn’t drive iPhone to the high end. The iPhone sits at the high end, where it’s always sat, because that’s where Apple wants it.

      1. That is true, but that does not mean that the iPhone was not disrupted. In fact, in many of the cases that Christensen laid out in his books, staying put at the high end was exactly what the incumbents did until the entrants became powerful enough to dethrone them. More precisely, pre-disruption, the high-end was often the only market that existed.

        Long-distance telegraphy, minicomputers, steel mills were all very expensive until the low-end entrants came into the market. For a more recent example, think of how SUN was disrupted by x86 and Windows/Linux. SUN hardware was always very expensive and they stayed expensive while they were being disrupted from the low-end. Being at the high-end from the beginning didn’t save them at all.

        Although I have not done any comprehensive analysis, I think that the vast majority of companies that were disrupted sat on the high-end pre-disruption and stayed there. Companies like Intel which recognised the threat of disruption moved down-market to compete head-on with the entrant, and that’s why they survived the threat from entrants like AMD.

        The difference between the companies that disappeared post-disruption and companies like iPhone that survive, is whether or not the entrant can move up-market. In the case of SUN, after years of improvements, Intel and Windows/Linux finally proved to be fully capable of serving heavy workloads on even the most demanding websites. That’s why SUN was driven out. In the case of iPhone, Android & OEMs haven’t improved to the point that they can surpass iPhone in features, brand and marketing, even though they succeeded in dominating the low-, mid-end market. That’s the difference and that’s why Android can’t drive iPhone out.

        And the final comment “because that’s where Apple wants it” is exactly what disruption is all about. Disruption is about the incumbent not wanting to compete with the entrant at the low-end. Often, the incumbent is happy to get rid of the low-margin business. That is what makes the competition asymmetric.

        1. All true, but we could also view this as Apple understanding disruption and insulating itself against it very well. I think the fact that we’ve never had a consumer-facing high end segment of this size before is also a factor. This brings the user experience into the mix, and also the possibility of a segment that is typically very small to be about a billion customers worldwide, which is likely self-sustaining.

          From a buyer’s perspective what I want from my computing products is: closed and curated, abstracted and simplified, a whole solution from wrist to pocket to pad to desktop from a single vendor, all well supported (including a good retail presence), well-designed, integrated services as well as hardware/software, quality build/materials, and safe, secure, private. Who else in tech is even attempting to offer this? Who can even afford to try? Is anyone else in tech even motivated to offer this, given that much of the tech industry views Apple’s approach as ‘wrong’?

          Add to all of this that what Apple is doing takes a long, long time, and what Apple is offering likely means you’ll have to serve only a portion of a given market. It is incredibly difficult.

          1. I generally agree.

            One thing that I try not to do is to treat iPhone as something special. I therefore try not to bring the size of the market segment early into the discussion.

            Treating iPhone as something special makes it difficult to compare with other markets and difficult to fit into pre-existing theories. Theories are basically an abstract expression of the commonalities of a large number of observations. Therefore, if we aim to let theories help us see further into the future, we need to focus on commonalities.

            The size of the segment can be discussed after applying the theory.

    5. A noteworthy idea. But I object to the claim that Androids drove iPhones to retreat up-market. Apple has sustained itself in the premium phone market quite nicely; the lack of sales during the 5c experiment shows that they haven’t really EVER produced a low-cost, less-featured smartphone.

      1. If you look at typical examples of disruption theory, you will notice that many of the incumbents also never had low-end products, or only sold those half-heartedly after it was too late.

        Did the minicomputer vendors sell cheap low-end computers before the PC came along, for example?

        The hallmark of low-end disruption is that it dramatically expands a market that previously only served a limited number of customers, and provides the same benefits to a much larger one. Where there was only a high-end market, the entrant creates the low-end.

        For the incumbent, staying put is often the same as retreating up-market.

        The fact that Apple is sustaining itself nicely in the high-end is also not unusual. SUN briefly enjoyed its best years after it mostly lost the workstation market to PCs. This was because the large high-end server market to which it had retreated to was booming.

        What is lacking in Android at this moment is the momentum to move up market. Low-end disruption consists of two stages. First the entrant captures/creates the low-end, and then it moves up market to challenge the incumbent. Android was starting to challenge iPhone at the high-end during 2012-3, but failed. The performance gap has recently been widening since then.

        So to clarify my point, Android has succeeded at the initial stages of low-end disruption. Android has however failed so far to displace iPhone at the high-end and the later stages of disruption have not yet happened. The reason is likely the lack of profits.

  4. I’ll make a prediction. Samsung will be out of the smartphone business within five years.
    I agree. Along with exiting the consumer smartphone business I think their tablets and laptops will follow.

  5. The iPhone market share at 15% keeps coming up. Worldwide this may be true. But this is sales not users. And fails to account for the fact that Apple’s iPhone is not offered in all markets, last I remember Apple’s iPhone was only on ~ 50% of the carriers worldwide. In China its share is increasing as evidenced by their YOY growth. In the established US market Apple’s iPhoneis what >40% and in Japan ~ 60%.

    I contend the iPhone has not been disrupted based on the above.

    1. I would very much like to know what your criteria for disruption is.

      For what it’s worth, mine would be that a low-end entrant gains a strong foothold at the low-end, often times expanding the market, and that the incumbent subsequently focuses on the more attractive and profitable customers. This is a description of what happens at the early stages of a disruption. Late stages of disruption would see incumbents getting squeezed out of even the high-end, and eventually being driven out of the market, but that is not what is happening to iPhone at the moment.

      Absolute market share figures are not as important as the dynamics of Android vs iPhone, which in my eyes, are indicative of the early stages of low-end disruption (prior to the entrant’s move up-market). Figures are merely symptoms which alert us of what might be happening.

      Regarding iPhone not being offered in all markets, that is simply a part of Apple’s high-end strategy. Restricting carrier access to the iPhone forces carriers to cede power to Apple and to invest in marketing the iPhone as something special. This is similar to how Apple forced retails stores to have a store-within-a-store if they wanted to sell the Bondi Blue iMac in 1997-8. A full distribution strategy like what Samsung is doing will shift the balance of power to the carrier, and conflicts with the business objectives of Apple.

      Limited distribution is no reason to justify Apple’s position in the face of disruption. Instead, it is part of Apple’s unwillingness to confront low-end disruption head-on.

      1. “. . . a low-end entrant gains a strong foothold at the low-end, often times expanding the market, and that the incumbent subsequently focuses on the more attractive and profitable customers.”

        I really don’t want to belabor the point but I will make one final comment about the iPhone getting disrupted by Android. I will quote your own definition and focus on the word “subsequently”. This presupposes that the incumbent initially targeted the whole market and then retreated to the high end. This definition then does not apply to the iPhone-Android case because as I, and a few other people here have contended, the iPhone did not “subsequently focus on the more attractive and profitable customers”. iPhone and Apple, in all of its products starting with Lisa (or Apple III?), have always focused only on the more attractive and profitable customers.

        1. Apple as far as I know, often works very hard to drive down prices. What they don’t sacrifice is profits. For example, I think that at the All-things-D interview with Bill Gates and Steve Jobs, Bill mentioned that the original price target for the Mac was sub 20K USD, but ended up being much higher. The iPod is an excellent example where Apple provided a range of products at different price ranges. And remember the most pundits actually predicted 1,000 USD for the first iPad and competitors initially struggled to get their prices down to the iPad level.

          In general, the incumbent will be expensive. Consider the example of SUN workstations that I’ve been pointing out several times. SUN workstations initially cost 40K USD (1987 http://www.sparcproductdirectory.com/history.html ) but that was the market. As Wintel products entered the workstation scene at dramatically lower price points, SUN products became the high-end, not because they raised prices but because the market average decreased.

          The thing that Apple did not do was to drop its iPhone prices in response to Android. That is effectively the same as focusing on the high-end.

    1. Profound point, Tizen has a deep developer community, and is rumored to have some blockbuster apps on the way.

      1. You forgot the /s ^^
        It’s an interesting study in alternative ecosystems though. It seems the hardware is OK, as is the OS… Even limited success would be informative.

        1. It will be interesting to study. It will be really easy to study, also. Just ask all 27 of the people who to buy it what they think of it.

        2. North Korea, I believe has developed and successfully deployed and propagated its own home-grown OS, so why not South Korea?

          And here’s my /s.

  6. The big question is really Apple. How long will suppliers take their crap until they push back, leaving Apple with a fist full of patents and no hardware… Now that will be the “real” innovators dilemma for Apple…. Apple will be the one falling off their high horse and ending up like the Nokia’s and Blackberries of the world. All their iCrap innovations that is “the one thing that has changed everything” is nothing but a marketing ploy to suck people into using technologies that are already available (some a few years old but rebranded as iCrap). Soon people will become smart again, and that will be the end of the iSheep revolution….

    1. There’ll always be someone to take Apple’s big checks to build factories and handle the iffy workforce.

  7. There are various assumptions this article makes that i think may cause significant problems with the assertion that Samsung will exit the mobile phone market in the next 5 years.

    Firstly, how the mobile phone market works in the states is almost nothing like how it is like in most other places in the world. An un-subsidized iPhone costs more then most premium (same class) mobile phones from other brands.

    Secondly, many of the features and functions that give an iphone an edge in the states (apple pay, apple health, even the itunes store) are simply unavailable in many parts of the world. You end up paying more for less functionality.

    Thirdly, Apple did try to create a mid-range iPhone (the 5c), they couldn’t compete.

    Fourthly, in terms of innovation, Samsung is not the only game in town, and Apple is buying optics tech from Sony that’s at least 3-4 years old.

    Apple innovates for the US market and assumes that it’ll work worldwide. Many of their new features don’t work however, and their phones become very expensive facebook, instagram, candy crush, social networking devices only…everything you can also do on cheaper mobile phones.

    1. Apple is not trying to compete with every Android vendor. As thirty people have correctly written in this thread, Apple is only competing in the high-end, top-dollar range. The iPhone 5c was never really a mid-range device, it was an entry-level teaser to upsell to the 5s.

      “…many of the features and functions that give an iphone an edge in the states…are simply unavailable in many parts of the world.”

      Apple’s superior security and polished interface are available everywhere.

      “Apple is buying optics tech from Sony that’s at least 3-4 years old.”

      Yeah, and every Android device is using 32-bit ARM technology that’s over a decade old. The real action in tiny cameras is image processing, software that takes advantage of modern CPU hardware. Apple has a huge lead there. 64-bit on Android is still a joke.

      1. The iPhone 5c was a failure of a product, the target market even as an entry level phone never enticed anyone to use it.

        According to the National Vulnerability database, IOS is less secure then android (http://www.gfi.com/blog/most-vulnerable-operating-systems-and-applications-in-2014/).

        UI is a subjective thing. Having apps on a phone that cannot be used unless you are in the States is a useless app, regardless of how polished it is. Plus with less then 20% of smartphone users worldwide using an iPhone, it doesn’t seem that your point on security or UI is shared by the rest of the world.

        How many cores does the iPhone chip have again?

        1. Oh man! You came armed with facts! The rest of the world doesn’t agree with me! Apple lost trillions of dollars on their failure product! Apple doesn’t have enough cores! You’re amazing! I can’t thank you enough!

  8. Most concise, well-written, and spot-on analysis of the history of the Samsung/Apple business model I’ve read. Saving this one, kudos.

  9. Very funny. My prediction: the Samsung mobile business will not die. Furthermore, Samsung will strengthen its position.

    Why is that? For a long time to explain. Just we meet here in 5 years. OK? )

  10. Saying Samsung is going to leave the smartphone business is a strong Lehman brothers headline, so what comes after for Samsung. But anyway back to the highend android coming disaster Android has three problems Qualcomm, China and software. Apple pushed Qualcomm to rush out a 64 bit chip which setback the android market because everyone uses their 2nd tier chip which is no competition for iPhone. The second problem is China right now belongs to apple and that leads to androids main problem which is software that’s added on top of Android which causes security problems and slow phones. I think the reason Android will be able to compete with apple is the right deals will solve these problems and people will make whatever deals necessary to make sure the smartphone market isn’t like the PC market and I think there’s still time before brand loyalty sets in for Apple

  11. Samsung Note7 explosions show Samsung’s phone business is ALREADY ON FIRE less than 1 year after Ben’s prediction.

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