Categories

The near-death experience prerequisite

All phone vendors saw smartphones coming.  They hired all the right market research companies and spent lavishly on analysts to confirm that phones with operating systems were imminent.

Nokia was one of the early movers, establishing its own software platforms group as early as 2002 while others like Samsung licensed Windows Mobile or PalmOS as early as 2003. Yet not much happened to sales. The number of smartphones units sold as percent of total has been fairly low.

The following chart shows the number of smartphones sold as a percent of all phones sold for the top three vendors (as of the time when the chart starts early 2007). Note that the percent of smart products shipped did not accelerate or grow dramatically for the largest two vendors even into last year.  It’s still a pittance at Samsung (<5%) and even less at LG.

The one vendor that did stage a shift was Motorola. (and Sony Ericsson, though later and softer) Both converts did this shift when faced with near-death experiences of sequential earnings losses and catastrophic market share collapses.

Nokia is showing signs of a secular shift to smartphones but it’s been a decade-long process so far, a slowness that ripped shareholder value to pieces.

So is the precondition for a shift to smartphone focus a collapse in the core business?  It certainly seems so from the data. Motorola first, Sony Ericsson second, Nokia presently and Samsung and LG later.

Each of these decision points reflect precisely the timing of pain points with the core businesses.

Why this asymmetry? At first glance, the smartphone business should be sustaining and an attractive option to be exercised as soon as possible.  It offers better margins, better prices and a better return on capital.

So why is there this disconnect? As regular readers of this blog can probably guess, my hypothesis is that the smartphone business is disruptive.  Incumbents are motivated to ignore this business because it makes money in ways they cannot control. More importantly, their best customers are signaling (in non-transparent ways) that they don’t want their top vendors to participate in this market.

  • james a

    hey there,

    you're right, it's disruptive, but you're looking at it from the wrong angle. it's disruptive to laptops. the iphone is a great miniature laptop; it's actually a pretty crappy phone. the problem nokia et al had is that they were trying to build a sustaining smart phone – something that looked like a phone and tacked more and more features onto it.

    apple took a laptop, and cut stuff out of it, and made it always on. that's the difference. eventually, the iphone and the ipad will start to eat into the share of their desktop computers.

    it's actually a tough case to look at through the lens of disruptive innovation because the most impact is being had on the phone market right now as the functionality of the devices converge. however, i really think that it's a disruption to laptops that's just having its initial impact in the phone market.

  • http://www.asymco.com asymco

    Hi James,

    I agree about the disruption of fixed computing through mobile computing. I wrote about this here:
    http://www.asymco.com/2010/05/05/misdiagnosing-fa

    and here:

    http://www.asymco.com/2010/01/28/first-thoughts-o

    My point in this context is to answer why mobile phone incumbents did not grab mobile computing and run with it. The pure implementation of mobile computing that iPhone embodies is disruptive to both fixed computing (WinTel et. al.) and voice-based telecom.

    When "convergence" was kicked around a decade ago as a concept, the debate was whether the WinTel hegemony would expand into telecom or whether the "phone guys" would take over computing. (Even I made my bet on the phone guys, and lost).

    In the end, it turned out that mobile broadband was sufficiently disruptive that neither group of incumbents could find symmetries.

    It took two complete outsiders to make it happen: Apple and Google.

    • james a

      "why mobile phone incumbents did not grab mobile computing and run with it"?

      probably because: Apple and Google were able to grow out of it (Apple wasn't selling phones; Google gets more ad revenue).

      this is in contrast to Nokia; which probably looked at really investing heavily into the area… but, they saw it as something that would require lots of money to start from scratch, and wouldn't generate huge additional returns because they just assumed the world would keep on working as it always did.

      This is a great HBR article on the subject.

      Cheers

      — james