Demand for inexpensive top hardware

08 Aug 2017

The mobile phone business hasn’t really been interesting for several years, but it’s time to review the current situation regardless. Apple continues to do well with the iPhone, although it’s hard to expect significant market share growth. Nokia and Vertu demonstrate that the old days won’t come back and there are many not so well known Android phone brands. What can be concluded from the market, and what really matters now?

Samsung still dominates the smartphone market - approximately every fifth new phone is a Samsung - but has had a declining trend. Apple is number two, with an about 15% market share. And then we have many Chinese manufacturers with single digit market share numbers. So, basically nothing new is in this area.

Apple’s latest iPhone sales numbers were not exceptional, but many analysts still saw them as a positive sign when many consumers now wait for the new model. The 10-year-anniversary iPhone this year should introduce many more new things than the last years 6 and 7 models. Probably many consumers have already been waiting for some time for this year's iPhone. But whatever the next iPhone will be, it cannot change the market share significantly. Android phones continue to dominate the market.

HMD introduced new Nokia branded phones at MWC2018. They got a lot of interest from old mobile business experts and Nokia fans with fond memories of their own youth with Nokia phones. But it is still totally unproven that the revived Nokia brand could achieve any significant market share. HMD’s first CEO left the company in July that was said to be linked to problems getting new models to the market. The phones don’t offer anything special compared to other Android phones in the market, if you are not a special fan of the Nokia brand.

I wrote in January about how Vertu demonstrates it is difficult to make smart luxury. Now it looks like Vertu is dead and the company is in liquidation. We haven’t seen other luxury brands be able to achieve success in the mobile phone business. It is not easy to get people to pay a premium for luxury phones.

What can be concluded about the market behind the official numbers?

One conclusion is that the Android phone business is not really a strong brand business. Samsung is the strongest brand in that market, but it doesn’t mean all Samsung owners are its fans. When you listen to Samsung owners, the conclusion is easily almost the opposite, many complain about how Samsung’s software is useless, the battery gets rapidly worse and the phone slower. And they would like to find something better, if they only knew of a better alternative.

Many people also feel smart phones are really expensive, for example, if you compare them to laptops. This fact has been a bit hidden, when carriers offer subsidized phones or the phone is included in a pricing package. But people are becoming more aware of this, and also make decisions based on price. People also question two- or three-year contracts more, when they have seen how rapidly some phones can become slow to use with short battery life.

Nokia and Vertu cases are also further evidence that even well known and seriously built brands are not so significant in the current market. Another interesting example is OnePlus that is a kind of a geek brand. Its USP is very powerful hardware. And, actually, many of its users seem to be happy. One reason for this is that hardware actually matters a lot. Again we can see the Android phone business is like the Windows PC business, the main problem is that new software versions make static hardware slow. It really matters to get really powerful hardware that can also run future software versions properly.

At the same time, when hardware really matters, phone manufacturers’ own software really creates more harm than brings value. Pure Android is better to have really compatible software, and manufacturer’s own software can also make the phone slower. This is also one factor that makes iPhone users happier - Apple still gets the operating system and hardware to work better together, and it also manages applications in its Apps Store better.

It is hard to see any significant changes in the phone business in the near future. Probably market shares of different Android manufacturers will continue to change. An interesting question is how long Samsung will be able to keep its current market share and position. Otherwise, my advice for Android manufacturers would be to focus on making the most powerful hardware with the lowest possible costs, and ignore many other things like in-house software development, high-end brand building or proprietary features. Maybe one day we will again see demand for branded unique phones, but that day is not today.

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