246-Evolution of the Smart Phone Market

The smart phone market is growing at a very fast pace. The number of smart phones sold world-wide is expected to grow at a pace of more than 15% a year. This is what we call a Developing market. The smart phone market portrays some interesting developments you might expect to see in other fast-growing markets.

Apple really made the market take flight with its original iPhone. Apple has migrated into the high-end, Performance Leader, part of the market with its iPhone4, selling for $199 with a two year contract. (See the Symptom & Implication, “The industry leaders are losing share” on StrategyStreet.com.) Wisely, Apple kept its old iPhone3 GS on the market as a lower-cost product, selling for $99 with a two year contract.

Competitors have been stumped trying to outflank Apple with new and better functionality. Apple simply has too many apps for most competitors. Only the Android phones, using the Google operating system, have gained share. Nokia and Research In Motion have both lost substantial share in the smart phone market. So, what are the competitors to do? (See the Symptom & Implication, “Competitors in formerly underdeveloped markets have begun meeting one another” on StrategyStreet.com.)

In this market, as in other Developing markets, the competitors strip out some of the expensive benefits of the product and introduce a new lower Price Point. In the smart phone market, the new lower Price Point still delivers one of the most important benefits of a smart phone, internet access. Because these new Price Points have fewer benefits, they cost less and allow the companies to sell to the carriers at lower prices than the Apple i4 product. (See the Symptom & Implication, “Low end products are gaining share of the market” on StrategyStreet.com.) In turn, the wireless service carriers offer lower priced package deals to their users when the packages include the new lower-priced smart phones.

Two developments are of note here. First, the evolution of the market. In this case, as in others, the market develops a new lower Price Point product that satisfies some of the basic needs of the current customer group. More importantly, the new Price Point attracts a new cohort of customers due to its lower prices. Second, prices decline in the market despite the fact that the market is growing very quickly. Prices are declining because costs are going down. Yes. But they are also declining under the press of competition in a market where margins are high enough to sustain lower prices with still-acceptable margins. Virtually all fast growing markets witness falling prices.

Posted 1/27/11

Update:

As the cell phone market evolved, the one time Performance Leader smart phone became the industry Standard Leader product. The original industry leaders failed their customers. By 2015, the smart phone market was a duopoly. The combination of the Apple iPhone and the Android phones owned 97% of all the smart phones sold.

The two erstwhile leaders in the mobile handset market no longer exist in 2022. Both Research In Motion, renamed Blackberry in 2013, and Nokia had full operating system and handset capability in 2009 and led the industry. In fact, Nokia introduced a smart phone in 2002 and had the market to itself for five years until Apple introduced its iPhone in 2007.  Neither company focused on the growing, Performance Leader, market segment of smart phones. This Performance Leader segment became the industry Standard Leader over the next several years, while neither Nokia nor Blackberry products kept pace on Function and Convenience.  The early market leaders both failed their customers because they did not keep pace with the movement to smart phones. Failure is a major cause of shifting market share in most industries, but particularly in hostile markets. See HERE and HERE for more explanation.

Apple continues to compete as a Performance Leader in the global market, even while it leads the US market.  Apple’s global market share is below 17%. The overwhelming leaders in the market are the Android phone producers, especially Samsung. The picture is different in the US market where Apple leads with nearly 50% of the market. This US leadership is the result of superior apps and, surprisingly, similar or lower prices compared to Samsung phones.  Android’s global leadership is the result of a far greater number of total apps and phones at many more price points than those offered by Apple. It is likely that Apple’s high US market share results in part from Samsung’s high pricing policy.

In 2022, Apple dominated the US market with about a 50% market share. While it has fewer apps available than does the Android family, Apple has far more downloads and app revenue than does the Android system.

There is a common myth that Android phones are cheaper than are Apple phones. That certainly is a myth. In fact, Android’s top-of-the-line Samsung Galaxy line of phones are priced slightly higher than Apple’s equivalent phone.  The myth may be due to the fact that there are far more phones at lower price points in the Android world.

While Samsung is a distant follower to Apple in the US market, its pricing policy of pricing the same as, or at a slight premium to, Apple has certainly helped Apple maintain its high US market share. Samsung has chosen not to exploit its potential superior economies of scale in this decidedly nonhostile market. Samsung has opted for profits from high prices in the US instead. See HERE and HERE for further perspective.

11/22

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