Surviving in the smartphone business

Jouko Ahvenainen/Grow VC Group
22 May 2013
00:00
News
Commentary

Only two companies, Samsung and Apple, can make significant money in the smartphone market. Many companies have seen it as an attractive market, but are we coming to a new era, where smartphones are no longer an attractive market and companies focus on developing new devices for the ecosystems?

Samsung is not only a smartphone manufacturer. It also develops components and other devices. And on the other hand, Apple offers also the whole ecosystem.

We could simplify that the smartphone market has three main parts: 1) components for the phones, 2) smartphone manufacturing and sales, and 3) smartphone ecosystem (e.g. operating system, apps stores and content).

Samsung (1 & 2) and Apple (2 & 3) are the only companies that operate in two parts. Google also has its branded phones and owns Motorola, but this is still very small part of Google’s business. Telecom carriers have also their own role, and they might try to come to the ecosystem game with new operating systems like Tizen, Firefox and Sailfish.

Apple and Samsung have many other devices than smartphones, like computers, TVs, music players (Apple) and tablets. They also develop their ecosystems and the same operating system to work in several devices. Google is an active player in this game. It wants to spread its Android operating system to new devices and also expands its own ecosystem (e.g. search, maps, Google+, Play Store) to all these devices. It wants to bring new devices like glasses to the market. We also expect new devices, like watches and mini iPhones, from Apple.

Microsoft would also like to come to this game. Its position at the moment is very weak considering Windows Phone’s tiny market share. Microsoft already has its tablet; it has been in buy-out discussions with Dell. It is bringing a new version of Xbox and aims for integration into the phone, tablet and PC user experience. There are a lot of rumors that Microsoft is going to bring its own phone to the market. The company wants to be in the battle with Apple, Google and Samsung. Its partner manufacturers, like Nokia, have a very weak position in this battle. Nokia has no ecosystem, no other devices, and no components.

What we can conclude from this? First, it is very difficult or impossible to be a smartphone manufacturer only. Second, a symbiosis with your own components or ecosystem helps your profitability with smartphones. It is hard to say if iTunes and App Store support the iPhone or vice versa, but either way together they are strong. Third, innovative companies are focused on bringing new devices to the market that are connected to the same ecosystem as phones, tablets and computers. Google Glass is one example, but maybe we can finally see more wearable communications devices.

Jouko Ahvenainen is serial-entrepreneur and co-founder of Grow VC Group (growvc.com), a new funding solution. In the 1990s Jouko worked for Nokia in Europe and Asia, and then lead the 3G practice at Capgemini globally. The last 12 years Jouko has been an entrepreneur and investor.

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