Microsoft has been trying to create the smartphone market since the CE era. Symbian follows. Nokia launched multiple products with Symbian and MeeGo. So is Ericisson. Android came next in 2003 if you still remember the bulky Android smartphone. No products were getting enough attention. At the time, iPhone was no where to be seen.
However, I have to give credit to Apple that successfully creates the smartphone market by training user to use touch screen and by leveraging capacitor touch on a glass screen. The big leap of improvement of user experience comes into place. This makes the legacy of Jobs.
If we look further back in time, Newton is no doubt the first PDA that has ever made. Although the market didn't response well. It did pave the road to the creation of iPhone. To me, iPhone is an evolutionary product starting from Newton to iPod Touch with 3G capability. In between, there are Palm, Windows CE, Symbian and Android.
Interesting on many levels. First off, I think it's important to recognize that Apple's iPhone shipments are projected to grow at a healthy level. It's not as though the iPhone is dead. Far from it. But the fact is that iPhone is more expensive than most, and Apple commands a healthy premium. Meanwhile, other smartphones from Samsung (whether it is because they ripped off Apple or not) and others have gotten a lot cooler. And I think the iPhone, as a status symbol, is not what it once was. I have friends with Android phones and in a way I'm kind of envious.
Everybody in the smart phone business knows that market share (units) and profit are two completely different things. You can buy market share, you can't buy profit. Last time I looked, Apple and Samsung had 103% of the profits (so the rest of the firms combined had only losses). Why should Apple be interested in more market share, if more market share means less profit? So nobody is eating Apple's lunch, as nobody eats Apple's profit (as the Apple's shipments are still on the rise).
WielTukhut: I disagree. With all due respect the great 10-year run Apple had through last year, the company's market value has fallen by 38 percent due to its recent lack of innovation and slowly descending market share. Simly put: there are better, cheaper phones on the market. While Apple continues to collect a nice margin on gear sold to well-heeled fans, it is heading in the wrong direction as others are nibbling around the edges of its lunch, prepared to gobble.
@Tom Murphy: The article talks about units (market share), I talk about profits, as market share is irrelevant.
So I talk about profits, you start talking about stock market value, which is as irrelevant as market share.
What has market value to do with how good a company performs??? Everybody knows that stock market value is determined by people and companies manipulating stock prices (as they only make money with stock prices going up and down a lot - either way -, as long as stock prices don't stay stable).
What I say in my post is that profits and only profits matter, not market share (or stock market value). Where is the wrong direction you are talking about? Their 12 percent year-on-year growth??? Because other companies except Samsung give smartphones away (as they are not making any profits by selling smartphones), it does not mean that Apple (or Samsung) are going in the wrong direction.
WielTukhut: Profit margin is important, but so is the size of your market. And I didn't see Apple fans writing off the equity markets as being totally corrupt last year when the stock crossed $700 a share. Apple may do very nicely with a smaller piece of a bigger pie given their fat margin, but the move towards lower-cost phones suggests there is serious concern about this inside Apple.
Apple is highly respected for its past innovation, and I hope it can regain its edge there -- I truly do. Because once it starts playing the margin game, it will find itself on a slippery slope with narrower margins.
The only company that has any hope to stand through the coming commoditization of smartphones is Apple.. Sure it will have lower market share.... But so is the case with the pc market. and look what happened. The major share of profits in pc industry is collected by Apple. Dell, HP, Lenovo gets a few leftovers. Rest of them work for free.
eewiz: make not mistake....Apple's fat profit margin on its phones are the very reason why it is losing market share. At some tipping point, it becomes uneconomic to make them, and the trend away from high-priced phones seems to be accelerating. By then, the iWatch or another amazing gizmo had better be ready to wow the masses because Apple's future will hang in the balance.
Wondering: Does it make sense that Apple is spending billions on a new corporate headquarters right now? Is it fiddling while Rome begins to smolder?
First of all, there are strong rumours of a cheap lower specs iPhone coming out. which indicates that they are willing to work with lower margins. And if tablet sales is any indicator of smart phone sales, people will still chose the cheaper iPhone over similar priced Android phones with better hardware specs.
"At some tipping point, it becomes uneconomic to make them, and the trend away from high-priced phones seems to be accelerating. "
Your point about the tipping point is very valid. But the thing is, Apple makes only very limited number of device models, its pretty easy for them to hit this tipping point. Lets take the example of notebooks. Apple has 6 models and all of them share pretty much the same manufacturing process. If you want to buy a good build quality notebook, you will find that Apple's price is cheapest in the category. When I did a comparison myself for an ultrabook, I found the similar quality windows devices cost atleast 2X that of Apple's notebook(thinkpad X1 carbon, sony Vaio a few models). These companies find hard to hit the tipping point because they sell 20 different models.
Inshort Apple will always have the volume for the tipping point.
Inaddition, the only company in smartphone market which has strong brand affinity from its customers is Apple. Samsung/HTC/Sony doesnt have it. People will change Android phones based on who gives the best hardware spec at the cheapest price.
EE Wiz, You said "In short Apple will always have the volume for the tipping point."
I truly admire Apple's past innovation and Tim Cook's masterful hand in managing the supply chain. That said, "always" is a word I've learned not to use in the tech world. Better, faster, cheaper is what keeps the industry moving forward. Companies in the past that depended on fat margins a big name to keep them ahead learned that the hard way. Apple has legions of fans and a boatload of cash, so right now it's their game to lose.
I think you make a good point eewiz. Despite all the growth in smartphones, only Apple and Samsung make any money at it. The rest of the companies can knock themselves out trying to take market share from Apple, but that's not necessarily going to equate to profit.
If the lunch does not have variety to cater the entire market segment it will not be accepted by all, Apple has failed to supply the models that can be affordable to different level of purchasers. Most of the others are being able succeed by providing many variant of their models of Smartphone. So it is natural that Apple's Lunch will be surely getting eaten by others.
Oh Yes, there is absolutely no problem of survival for them as Apple has missed the major market where the largest number of mobile phones are being sold, that is China and India. For this market place everyone with products are accepts because of larger market.
@eewiz- OK, that's a good point. But even their lower cost iPads and iPods are pretty expensive compared to the many $200 tablets and music players like Sandisk's Sansa, which can cost as little as $30.
Dylan, My guess is that most people who buy iPhones would start buying cheaper iPhones. There is a group that opts for the most-expensive models, but most won't go that way. And if Apple starts competing on margin, it's basically an admission that its phone is comparable to others to the degree that price is a main differentiator.
Company cultures that are successful at one business model tend to suffer and striuggle when they are wrenched in a different direction, although sometimes that wrench is necessary as the previous business model may be coming to the end of its natural arc.
So Apple might suddenly embrace narrower margins ...but that could undercut its premium-price culture (and spending habits) and make the brand less cool. The result could be a loss of sales at the high-end without the guarantee of any sales at the lower end.
People might then turn around and say that company had shot itself in the foot but it would not necessarily be true.
Maybe the thing Apple should do is invent something based on smooth user experience and premium price but in a completely different field...such as ....i don't know...personal health and wellbeing.
Apple should be aware of this obvious logic. However, they may be considering it as leftover and not fresh lunch.
Conceiving innovative product in consumer market is challenging and the way Apple does it, needs lots of money, energy and time. Designing and testing of new processor, custom ICs and revoluionary UI is daunting task. Soon Apple will have more of product for others to follow.
"Soon Apple will have more of product for others to follow."
Can you elaborate on what you mean by this.
Are you predicting more iterations of (hi hum) iPhone ...or do you think some fresh and innovative products are about to.come from Apple?
@peter: It will be innovative, path breaking novel products. What are those? Apple team is so innovative that their dreams and imaginations are far ahead of time that it exceeds that of rest of us sum together.
Look at history of three decades. I do not have any Apple product, but I venerate Apple and its designer as demi-God.
_hm: Like you, I have no Apple products, but I respect and admire the innovation behind the Mac, iMac, iPod, iPhone, iPad and other products. Alas, that was then, back when Steve Jobs drove the company with the passion of a madman. When he passed, many wondered if Apple's innovative era had ended. Now we hear rumors of an iWatch. Really? Is that it? That sounds like one too many iGimmicks, already. Like many fans, I have to wonder what else is coming from the magic kingdom, or if the magic is gone just as Apple is building a multibillion-dollar castle.
@Tom: Steve Job was indeed great. But if you look at wonderful achievements of Apple products, it must be much bigger team at work with many Steve Job like genius working in background. I wish they get same freedom as they got with Steve.
But the past is not always a guide to future and all organizations, and businesses have their natural arc which is hard to extend or re-invent when the time comes.
But it also seems that a lot of that success resulted from a focus on user experience, when UX was not thought about by technology-push companies, and a focus on consumer design for products that had been utilitarian.
Basically Apple reacted to the consumerization of electronics far more viscerally than others and it largely came from the top down.
Now that the rest of the industry has caught on to those things the playing field has been leveled and Apple is, at least in part, living on brand momentum. And brand momentum without new successes to propel it runs out at some point.
@Peter, Apple had the advantage of being the first player but that advantage is long gone so coming with new and innovative iPhone will not add much to their leadership. But i heard that they are coming up with iWatch (or something) which might replace the normal watch. It will be interesting to watch how they perform in this traditional marketspace.
While I'm quite excited in general about the possibilities of wearable devices going forward, like Peter I'm somewhat skeptical of the iWatch (at least as a "watch" product per se). (I happened to watch a financial program this weekend where one of the recommended stocks was that of a watch company (Swatch), and my reaction - as far as the idea of adding it to my own investing watchlist - was "I'll pass on this one.")
I think that Apple in part has been able to charge a premium because of its "cool factor." Really, how many other products in thsi category have "fan boys?" So yes indeed, it will be interesting to see what happens if/when Apple starts competing on price--does that make a brand no longer the cool player it once was?
It always takes time for a brand's coolness to wear off. And how long may depend on the particular market and how marketing is conducted.
In fact there are well known trajectories and timetables for taking brands in at the top with low volume and premium price and then gradually move down market hitting higher volumes at thinner margins...
I believe the sports shoe makers have this down to a fine art. But they also understand that as they move a particular model from cool and expensive and then make it affordable by the masses...they leave room at top for the next premium model.
I think Apple has already lost much of its "cool factor." (Its stock certainly has.) However it has a powerful ecosystem, and - like Microsoft in its day - this can continue to be a compelling advantage over competing platforms.
But Cook was an operations guy and I think that this is why some people worry on Apple's behalf that maybe it has lost the visionary self-belief that it had under Steve Jobs.
One example was that Steve Jobs said Apple would not compete at the smaller tablet size because it was important that Apple do few things very well and remain differentiated and easily identifed as premium.
As I remember it almost immediately on taking over Cook ok-ed the launch of the iPad Mini to compete against Samsung and others.
The thing about looking at the smartphone maket in terms of units is a good part of the current growth is simply from vendors making traditional "feature" phones that now have enough features to be called smartphones. While this is great for increasing units, it doesn't help so much with revenue or profit as these phones are inexpensive and have very low margins.
While Samsung sold 80% more Smartphones than Apple last quarter, they only generate 3% more revneue from Smartphone sales and Apple ended up with 40% more profit. According to Strategy Analytics Apple ended up with 57% of all Profits from Smartphone sales....with a unit share of 17%.
BUT there is lots of precedent for markets where the competitor comes in undercuts on price, sometimes at a loss to gain marketshare...and then when the competition retreats starts to make money from position of market share strength.
While there might be lots of precedent, I'm not sure why you think companies that have been trying unsuccessfully for years are all of the sudden going to start eating Apples lunch.
Btw: I don't really think those are good comparisons. Corporate bean counters decide what memory to include in a product and where to make/buy semiconductors. Consumers decide which cellphone, tablet or PC they want to buy.
In all this pontificating about who is going to eat Apple's smartphone lunch, people seem to be overlooking the fact that for many consumers, it's not just a phone they're buying, it's an ecosystem -- an OS, third party apps, interoperability with other devices (tablets, IPTV settop boxes, etc.), and access to audio & video content. Once a consumer has invested time & money into a particular ecosystem -- whether it's iOS or Android (or some other, if indeed there is some other), including other device purchases besides the smartphone, he is far more likely to choose to stay with that ecosystem when he makes his next smartphone purchase.
It is not as simple as the derogatory term "fanboy" implies (and why is that term only used in reference to owners of Apple products?). One may, for example, be far more impressed with the quality of the camera on a particular Android phone, but if he has already made a significant investment in iOS apps, other hardware like an iPad, Apple TV, docking station/boom box, etc., and has already invested the time to learn and to make all these devices share content and interoperate, he is more likely to buy the next iPhone, despite it not having the industry's best smartphone camera or whatever.
The same is likely true for Android "fanboys" with regard to resistance to switching to Apple.
Frank: I'm not sure I agree. First, as many others pointed out, Apple seems to be going for a different consumer than Droid (or Windows or RIM or whatever). Second, people are incredibly fickle about phones. Aside from the Apple zealots, who seem to have a religious passion for Apple products, I know a lot of Apple folks who are switching to Droids. Some of it is due to price, some of it is features, some of it is Java or NFC. It's just anecdotal, but aside for those "Apple fanboys" you mentioned, I'm not sure there's a lot of loyalty out there. I think it's a sign that we're all looking for something faster, better, cheaper -- nobody is satisfied, though everyone sees the potential.
What do you say, readers: Whatever brand you use -- Are you completely satisfied with the state of the art in mobile phones? Or do you want...more? Would you change your OS to get it? Or are you tied down by your apps?
For established purchasers of the Apple iPhone ...that have many apps....and possibly content tied to those apps...then switching away becomes very hard.
But for much of the smartphone market growth we are talking about new users who are probably not going to do a thorough ecosystems before making a purchase decision.
I myself do not have a smartphone but am aware of the app stores.
From where I sit they appear to be an opportunity to spend money on largely pointless activities. Most of the useful activities seem to be covered by a dozen apps that are free and are available in any ecosystem.
So for me the "strength" of the apps ecosystem is irrelevant to any smartphone brand decision I might make.
@Peter: So for me the "strength" of the apps ecosystem is irrelevant to any smartphone brand decision I might make.
I sort of agree -- I pretty much use my cell phone for making calls -- sometimes I use its web browser (Of, and I did download the "whip" sound effect app after seeing it on The Big Bang Theory). Also, I don't use my cell phone as an MPE player or anything like that.
Mostly I use my iPad for anything to do with Apps and Music ... in this case the ecosystem is bvery important to me. One thing that is nice about having an iPhone is that it's the same OS and GUI as my iPad, so I don't have to fight with that side of things.
Frank makes a good point. There are probably as many Android "fanboys" as Apple zealots at this point. And many of the former appear to have chosen Android because it isn't Apple, with its closed ecosystem. So for a significant part of the user base it may well be more of a "different strokes for different folks" scenario.