Hi Gang.. been on holiday, now starting to prepare to come back (not quite yet, still doing some travel) but have had time to think a bit and draft some blogs... lets start first with the Bloodbath Year 5...
When I started this ‘Bloodbath’ intense focus on the upcoming smartphone wars four years ago, I said the wars would bring a lot of change. Back in 2009 the world’s largest smartphone makers were very well known brands of the handset tech space such as Nokia, Blackberry, Palm, Motorola, HTC and SonyEricsson, with the upstart Apple iPhone having appeared only two years earlier. No Chinese smartphone maker was ranked in the Top 10. What happened has been dramatic, indeed the most volatile period of any global industry. Motorola and Palm died early and were sold. Ericsson quit the races leaving the partnership to Sony. Nokia was sold late last year. Blackberry is on the ropes and HTC is not faring much better. Four Chinese vendors have already crashed into the Top 10 (Huawei, Lenovo, ZTE and Yulong/Coolpad) with a fifth, Xiaomi likely to enter the Top 10 early in 2014.
Many tech writers looked at Apple’s early iPhone growth trends and promised that Apple would own this market. I was the first to say that Apple’s growth trajectory (in taking smartphone market share) had ended. This past year, 2013, marks the first year that Apple’s iPhone actually lost market share. Most on the West Coast haven’t yet gotten their heads around that fact. Readers on this blog knew to expect this to happen.
I told readers on this blog when Motorola was in trouble and what HP had to do with its Palm acquisition to capitalize on it. We saw what happened. I was on this blog explaining what would happen to Nokia after the new CEO Stephen Elop changed the strategy - and I was the most accurate forecaster on how badly Nokia would fall. I also clearly forecasted that the single company with most to gain from Nokia’s fall would be Samsung - as it was.
I wrote last year that the ‘Bloodbath’ wars had become boring. We had now the two clear winners. On the operating systems side, Android had won. Android is today on more devices than Windows is on any computing device so Android has already defeated Microsoft’s Windows juggernaut. Congratulations Google. But my readers have known this for a long time, as I did tell you this back in 2012.
On the handset side some on the West Coast still think its a two-way race between Apple and Samsung. Readers of this blog know that is utter hogwash. Apple only has a niche - a large and highly profitable niche yes, but Samsung is the real thing, selling two smartphones for every one iPhone (plus Samsung sells a third lower-cost dumbphone in the same period). Samsung covers the full range of devices by features and design, and more importantly, by price.
Samsung has already gained the leadership edge of being the world’s largest handset provider, and its competitive advantages out of scale. Scale in manufacturing. Scale in sourcing. Scale in reach. Scale in retail presence. Scale in installed base of users. As long as Samsung doesn’t mess this up (like Nokia did), this is a very strong position and Samsung won’t be dethroned any year soon. If they grow complacent towards the end of this decade, maybe. But by pouncing very strongly when Nokia stumbled the past two years, Samsung has effectively won the decade, and is guaranteed to have well above average profits in a very profitable industry. The real long-term rival to Samsung is not Apple, it is the Chinese vendors. One from the pack will finally get a genuine hit product and propel it to solid second place, in the next few years. That Chinese manufacturer will fight on price and in most consumer segments where Samsung is (and where Apple is not).
That will be Samsung’s real rival, not Apple. Just like Apple was not Nokia’s real rival - Samsung always was (and until Elop came along Nokia HQ knew this very well and kept their focus on the real challenger. Remember - during Nokia’s world-record collapse Apple actually LOST market share while Samsung gobbled up almost all that Nokia left on the table. If Apple was Nokia’s primary rival, Apple would have taken at least half of that and today Apple would have 25% smartphone market share rather than 16%). So Sammy is very happy to see that there is no solid number 3 emerging. The longer the number 3 place alters year from year and the pretenders fight amongst each other, Samsung can collect huge profits and not be too concerned. But a solid number 2 will emerge and trust me, Samsung are nothing if not competitive, they are monitoring the market very closely to see who that will be and react accordingly.
Apple will do the iThing. They take the cream off the top, offering less than supreme devices, with some very Apple-ish ooh-aah single feature every few years, but lagging in most tech specs from the leaders. But providing uber-desirable sexy iconic iGadgets that every iGeek has to iHave. And in the process Apple gets to collect the biggest share of iProfits. As long as Apple investors are not under any illusions that Apple would one day ‘rule the world’ of smartphones, and its role will be in the 10%-15% market share mid term, maybe more like 6%-8% in the long term, but taking the biggest profits, that is fine.
So this story is a bit boring now. We do have a nice tussle for who gets to call themselves the third largest smartphone maker. That race currently features Asian makers. World’s largest home electronics entertainment company Sony from Japan. World’s largest laptop computer maker Lenovo of China. And several second tier handset players - LG out of South Korea, Huawei out of China, ZTE out of China and Coolpad/Yulong out of China. If you want to be generous you can add HTC out of Taiwan.
A player who is not in the race for the third ranking among smartphone manufactuers is Microsoft, with its Nokia acquisition. When we started this series of articles, Nokia towered over its rivals. Even in its ‘problem’ year when Elop was hired in 2010, Nokia still wiped the floor with all the rivals, growing more new smartphone sales than Apple, or Blackberry or Samsung - and Nokia did this with Nokia-record profits in its smartphone unit. That all was demolished under Elop’s reign of terror. In a world-record collapse Nokia went from twice as big as its nearest rival to now ranked barely 9th largest smartphone maker by the end of 2013 (and the smartphone unit is now massively unprofitable).
Can this improve under Microsoft? In the long run, maybe. In the short run absolutely not possible. Microsoft has been tossing Billions of dollars into propping up the undesirable Windows Phone system and much of that money has gone to help the Nokia Lumia sales either through marketing support paid to Nokia or as further marketing support paid to carriers/operators. (Recognize what this means in reality. The Lumia series of Nokia smartphones has scared away 4 out of 6 loyal Nokia Symbian smartphone customers - and of the 2 that remain, half will never again buy another Windows Phone based device - so say consumer surveys. And this ‘success’ was achieved by Nokia reporting anywhere from 20% to 49% losses per quarter of selling those Lumia phones. AND that ‘loss’ was diminshed by the money-injection from Microsoft. In reality Nokia Lumia phones generated even bigger losses - and produced almost no satisfied customers).
Microsoft will need to continue subsidising this undesirable tiny ‘ecosystem’ as during 2014 Microsoft takes over the Nokia handset business and tries to figure out how to fix it. A big sign of will Microsoft do this intelligently or dumbly, will be how quickly Stephen Elop is removed from running the handset business of Microsoft. If Bill Gates (and Steve Ballmer) knew what they were doing with the Nokia acquisition then soon after the deal is completed in April, or during the spring they will reassign Elop to do something less damaging than running Microsoft’s handset business.
But during 2014 no matter what miracles Microsoft were able to achieve with its new Lumia (Nokia) unit, much of 2014 will be just adjustments and corrections and this is not a year of Microsoft/Nokia comeback. Microsoft-Nokia will be fighting just to remain relevant and in the Top 10 throughout this year. If you want to see the glass as half-full, then maybe in year 2015 we can hope for a comeback. If you want to see the glass as half-empty, we are now counting time till Microsoft shuts the lights out from the futile purchase of the Nokia handset assets. Although with Microsoft’s deep pockets. that will take years still.
Blackberry already fell out of the Top 10 and are in such a bad shape they won’t be doing major returns any time soon. We already have seen Chinese Xiaomi pass Blackberry taking 11th ranking during Q4 of 2013 (they may even pass HTC and enter the Top 10 by the time the final Q4 numbers are in around early February)
If you are ‘interested’ in the race for who is 3rd they are all essentially full Android houses now, all from Asia, with very similar products and prices in their product range. This industry from the hardware side is Samsung, Apple and the Nine Dwarfs (Huawei, Sony, Lenovo, LG, ZTE, Yulong/Coolpad, Microsoft/Nokia, HTC and Xiaomi). Yes I will be monitoring the races and reporting on the stats but yeah, this is not anymore the exciting times it was three and four years ago.
We did see the ‘son of Nokia’ ie Jolla launch on the evolution of Nokia’s next generation operating system MeeGo, called Sailfish (which is also Linux based and can run Android apps natively... cool). Jolla in December outsold the iPhone on the one carrier/operator that offered it in Finland DNA. From small things big successes can grow. Wishing Jolla and Sailfish all the very best.
There are regional players hungry to take to the global stage, especially from India we see Karbonn and Micromax. With some luck and an aggressive global expansion strategy one of those could grow into a Top 10 contender. No doubt there are more ‘Coolpads’ coming still from Shenzhen China, so we may well see a few more Chinese makers appearing to follow in the footsteps of Xiaomi etc. In Japan the industry has been consolidating but of the fewer domestic handset makers we may see one or two re-emerge to the global stage. And in South Korea if you like Samsung and LG, there is also Korean number 3 handsest maker, Pantech. And this is a global industry so the next big thing could just as well be someone like Africa’s MiFone.
On the software side the biggest potential disruptor is Tizen. We should see the first Tizen smartphones from Samsung this Spring and likely sold among first markets in Japan on NTT DoCoMo’s network. My guess is that Samsung wants to create a big spash with its first Tizen device so they are putting extra effort to make it noteworthy. If a couple of other hardware vendors also deliver on expected Tizen handsets, it could be a fascinating world. Samsung also intends to use Tizen on its TVs and Tizen has many car makers and other tech providers lined up in that ecosystem
Will Sony use the Playstation brand to boost Xperia and other Sony smartphone sales? Will Nikon launch a smartphone? Will Nintendo correct its strategic mistake (of missing the smartphone challenge in pocket gaming). Will Microsoft use the Xbox branding to help its Nokia handset sales? What will LG do with the Palm WebOS platform it acquired from HP. And how will HP re-enter the smartphone space as it signalled last year. Its likely that Apple breaks the iPhone release cycle from 12 months into 6 months, releasing a new flagship in the Spring and new cheaper models in the Autumn, likely starting this year and they will probably spread the price difference between flagship model (current 5C) and discount models (5S). Yes, there are many stories still to be expected in smartphones but the big deaths are done in the Bloodbath. This will be the post-Nokia era of smartphones, Bloodbath Year 5: Who Is Still Left Alive. But stay tuned, I will be reporting on it as it develops.