Why the phone market is resilient to low-end disruption

The phone market excluding smartphones is not growing. Over a three year period it grew at 2% compounded.

The following chart show the make-up of the market by vendor.

Since it is not expanding rapidly, share over time has a lot more meaning.

The change in share over the last few years (since Q3 2008) is shown in the following two pie charts:

Although many will argue that the non-smart market is one of great opportunity, the historic data shows that the market is not vibrant:

  • It’s growing slowly if at all
  • Prices are falling as buyers find nothing of value in new products
  • There are fewer branded competitors (from 5 to 3)
  • There is increasing “white label” or unbranded volume growth (from less than 10% to over 30% share in three years)

Although low end entries (in this case the unbranded new vendors) can signal disruptive potential, that potential is unlikely to manifest itself in voice-oriented products. Low-end disruptions take hold when markets are overshooting the expectations of the majority of buyers and incumbents are motivated to exit.

However, if we consider all phones as a single market, then there is vast under-performance in the high end–something another set of entrants have taken advantage of and something neither the incumbents nor the low-end entrants are motivated or capable of pursuing.

The phone market is not being disrupted because of the low end entrants. Nokia and Samsung are motivated to compete for those customers. It’s being disrupted because the new market of mobile computing is completely asymmetric.

  • poke

    Presumably if you have this data, you could chart the mix of smart and non-smart phones for each vendor over the last 3 years? I think that'd be very interesting to see. Particularly for the Android vendors.

  • Abstracting from all the company names, I guess what you're saying is that various tech features — I'd emphasize touchscreens, CPUs and memory — have become cheap enough that where firms can manage the software to exploit these computer-type features (Android, RIM, Badia?), smartphones represent a newly-great tradeoff against the dullphones.

    The shift from a feature phone to a smartphone is from night to day, so no surprise that this attack comes from firms that previously were too expensive, rather from value-engineered, featurephone firms. It seems that there is a separate market at the high end, with Android duking it out with Apple; Microsoft and HP are sitting on the sidelines hoping to find a bloodied enough competitor to jump into the ring but that's not what's happening on the high end.

  • Could you expand on where the asymmetry lies? Forgive me if you've gone in depth on this before, but I don't understand what you are getting at here

    (Some minor formatting feedback: Graphs not displaying well in Firefox. Legend in first overlaps title, second has no legend, ZTE (?) label missing from second pie chart)

    • Absent @Horace's response, let me try: smartphone vendors are competing asymmetrically by introducing new technologies, new cost structures, new services. If you put a feature phone in column A against a smartphone in column B, the traditional criteria used to select a phone will dramatically favor the feature phone. Direct access to the basics, cheap, lightweight and goes days without a recharge. But the smartphones' near-infinite but still increasing flexibility in apps, high-rez screens good for videos, ability to tweet, facebook, etc., favor the smartphone despite the higher cost.

      I take it that this asymmetry has occurred because Apple realized some cusp had been reached, and ported its huge OS, plus a powerful CPU, into a package behind a gorgeous touchscreen. Unfair competition; “asymmetric.” Credit also to Google, with an even more amazing product ramp if perhaps a less expansive vision.

      • OK. Got it. Thanks for explanation; they're competing on different bases.

      • asymco

        Making computers mobile and ubiquitous is a completely different business than making phones into computers. This is something that needs to be repeated and justified repeatedly because it is so axiomatic. By different business I mean different in *every* way: development, marketing, sales, distribution, organization, operations, management experience, recruitment, partnership, sourcing, pricing, positioning, etc.

  • Abhi Beckert

    I think Apple could do very well by entering this market.

    Not with an iOS phone, instead use their iPod Nano software/hardware to make a small, light and durable phone that would be ideal for teenagers.

    My two nieces, 12 and 14, are both too young for a smartphone simply because they would break or loose it very quickly. But a cheap ad strong “iPhone Nano” would be perfect.

    They use their phone more than any adult I know of. So they really care about which one they have.

    All the current low end phones have horrible software, and none of them can do music (or do it poorly). All these kids have an iPod nano already, why not replace it with a phone? The iPod app on my iPhone is my most used app by far.

    There’s no doubt they could design a better phone than ZTE at the same retail price, and they could market it better as well.

    It wouldn’t cost them much research either, since a new model every two or three years without many changes would be fine.

  • pietro

    Great article – once again! @ Abhi: I think it's vice versa – your teens would be using smartphone to its fullest with apps, social networking, photo/ video/ life sharing – adult don't use phone as much and they use more phone and basic stuff handled by feature phones quite well.

    • That's not how it works with my two. Both have cheap Nokia smartphones (E5 and 5230). Neither of them have installed apps, ever.

      They're quite happy with the Facebook mobile website for doing everything and the built in apps. Both have all their music on their phones too despite having iPod Nanos and one of them an iPod Touch. They don't like carrying the iPods and don't want iPhones as they're too expensive and too fragile. The 5230 in particular is bombproof. You should see the abuse that has had!

      • That's today though. I can't speak to your particular two, but I've had several family members (of various ages) tell me that they didn't want an iPhone, they had little or zero use for apps, etc. They had a "music player" for MP3 playback from an SD card, They had *cringe* vCast, etc.

        And in 4 different instances, I showed them my iPod touch, not even the phone, just the touch, and the various apps, games, utils, etc, up and down the spectrum, from ToDo lists, to calendaring apps, to Angry Birds to my 73yr old uncle who is a Sudoku FANATIC and I showed him a Beautiful Sudoku app and was ready to buy the iPod off of me just to play it.

        They dont KNOW that they want it, until they get it. That's also the genius (no pun intended) with the Apple Stores. Once you touch it, play with it, you want it. iPad, Touch, iPhone, it's just that simple. I don't see apple making $300 netbooks, because there's no margin in it, and the only people in that space are completely shopping on price (which apple can compete with, but never win on). I dont see apple doing a "free with contract" mini/feature-less phone for the same reason, there's no margin in it for apple, it "dulls" the brand, and they already cant make enough iPhones…