Ronnie05's Blog

Global Smartphone Markets: Learnings and the case for Android

Posted in Industry updates by Manas Ganguly on August 22, 2010

In an earlier post, i had blogged about Global smartphone markets: The effect of disruptive competition on wealth and profit. distribution. This post attempts to take the analysis of the global smart-phone wealth distribution to the next level and ponders about the effect that Android will have on this scene.An interesting theme set in here is the ASPs of the top 7.

While the unit markets has grown, ASP erosion has seen to it that the incumbents like Nokia make less money than the 2007 period. Apple on the other hand has positive volume increases as well as a smart ASP increase. The case study of Apple’s success will be discussed in another post going forward.

We have seen how the incumbent 5 (Pre 2007) lost EBIT shares from 93% to 35% (2010). Thats a giant fall and these are learnings to be taken from this fall. Summarizing the learnings from the market in terms of smartphone EBIT shares:

1.The lack of a real response. The recurring theme in the giant drop has been that giant multinational incumbents in a vast and rapidly growing industry, enjoying all the advantages that size and incumbency, have had their profits taken from them. And they don’t seem to have put up much of a fight.

2.It’s all wealth transfer. Note the total amount of profit available has not increased markedly; this is not about incumbents growing the pie. Two thirds of what should have rightly been theirs moved from the incumbent shareholders to the entrant shareholders.

3.Speed. This shift of profit occurred over an unprecedentedly short period of time. Three years is no more than two product cycles in the industry and it’s an order of magnitude faster than what happened historically to other industries.

4.Disruption is the diagnosis here. The incumbents were caught in the headlights. Disruptive innovation leads to asymmetric competition and this is what we just witnessed. History has shown that the shift of profits is usually the last stage of disruption and is usually irreversible because the change in business models cannot happen at the rate of change of profit transfer.

When analyzing the potential for challengers to the new winners, the most cited is Android. Can Android affect this redistribution of profit once again? And to whom? If Android is to become the dominant platform, does it depend on the success of its licensees? Who are these licensees and what are the chances that they will be able to align their businesses to what Android offers (a new revenue model based on services and advertising).

Google is making a bet on those same vendors who are now squeezed in the middle of that last pie chart: Samsung, LG, Motorola and Sony Ericsson. Nokia, Apple and RIM will certainly not take the OS over what they already have as it dilutes their differentiation and margins. That means Android is aligned with the biggest losers in the industry.

The real challenge to Android is its partnership with defeated incumbents whose ability to build profitable and differentiated products is hamstrung by the licensing model and whose incentives to move up the steep trajectory of necessary improvements are limited.In other words, Android’s licensees won’t have the profits or the motivation to spend on R&D so as to make exceptionally competitive products at a time when being competitive is what matters most.

Advertisements
Tagged with: , ,

2 Responses

Subscribe to comments with RSS.

  1. […] The Germination of the Thought: Tiered Internet (Courtesy Android) […]

  2. […] Apple iPhone has a BoM (Bill of Materials cost, production cost) of less than $200. However, it sells at $645 to customers (Carriers) who subsidize it. Very clearly, Apple is able to dip into the service revenues generated by the carriers from higher […]


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: