The Demise of the Others
I’d like to offer an interesting observation. As I look back over the past annual shipments of the PC, smartphone, and tablet categories, an interesting pattern appears. Take a look at this chart:
(Click to enlarge. I’ve highlighted the “other” category in the chart)
I like to keep track of how hardware brands sell within any particular category. Each category of PCs, smartphones, and tablets have their leading brands that absorb most of the volume. While we can list the estimates by quarter for every major brand, we tend only to break out individual brands that are the class leaders and group everyone else into a category called “Others”. This group can consist of a name brand that simply doesn’t sell in high volume but it also includes any number white label or upstart brands trying to capitalize on the potential S-curve of growth.
The observation I’d like to point out is, at the start of each new category, major name brands own the largest percentage of volume. These name brands are primarily responsible for creating the segment since they already have some established brand trust with consumers. Once the new segment begins to grow, non-name brands start to flood the market. The Chinese tech manufacturing scene is key to this phase of the market as they make it cost effective for nearly anyone to slap a brand on a piece of hardware and try to compete in new categories. These new brands attempt to ride the growth wave of the category but then, something interesting happens. At about the point in time when the market for the specific segment matures, the volume and percentage of total shipments for others begin to decline. The market slowly consolidates and often comes back to the brands who were there from the start or emerged out of the others category to be a recognizable brand.
In each of the three categories I charted, we see this pattern play out. Name brands dominate the majority share of products shipped. Once the category starts to accelerate, a flood of brand upstarts begins to enter the market. When we isolate the brands who ship under 10 million units per quarter and add them to the others section in each of the three categories mentioned, we see this group often make up 40-50% of all devices shipped at the peak of the cycle. Sometimes this is simply a gold rush but, in some cases, companies are making a valid attempt to become a name brand. As we enter the post-peak, more mature stage of the cycle, we seeing the decline of the “other” category as brands begin to reabsorb the bulk of quarterly shipments.
This observation further deepens my conviction that the single most important thing any technology company can do to help ensure a long life in the industry is to establish a strong brand. In an era where the perception of low-end disruption and good enough products has led to many false assumptions, I’d argue a strong brand is one of the most powerful defenses against that disruption.
The competitive dynamic in each new technology category becomes fascinating to watch as brands look to fend off upstarts who flood the market and offer lower pricing or a differentiated service to create a brand. In either case, the longer the company can compete and sustain in any given category, the more likely they are to be among the winners once the category consolidates back around brands when the category is mature and extends into post maturity. While the PC categories lifecycle allowed those in the other category more time to establish themselves, the smartphone and tablet category did not. Companies looking to emerge as a brand from the other category in both smartphones and tablets had roughly 3-4 years to accomplish it. Most failed.
The last thing to add is how this dynamic can be true of any brand, including those who don’t start off in hardware, but eventually get into hardware once the category consolidates to brands. Microsoft, for example, is starting to become a genuine threat to other PC makers even though they are relatively new to the category. They established their brand in software and services, not hardware, but then entered the hardware market at the time it was consolidating around brands. Google is similarly attempting this with the Pixel by entering the smartphone segment only after their brand was established in something other than hardware. Both Amazon and Snapchat are employing similar strategies by entering hardware categories only after building a strong brand and customer loyalty.
I believe this pattern will play out in every major category we observe. We are starting to see it in wearables, we will see it in AR/VR, and anything else that comes along in the future.
The moral of the story is a brand is critical. Whether a company starts in hardware, software, or services and then tries to enter a hardware category, the most important strategic thing they can do is establish a strong brand. If successful, the number of options open to them in the future is plentiful.