Xiaomi, which does not sell their phones in retail stores, has truly mastered web-only retail biz, I have been told. They also go out of their way to disclose all the parts and components used in their phones so that they gain "credibility" and "transparency" -- in the eyes of consumers. I'd call it a pretty savvy strategy on their part; but it also feeds into the hardware spec-based feeding frenzy among mobile users.
No, you aren't going out on a rim to state that. I quite agree. But that doesn't mean a) ordinary consumers won't fall for hardware specs ( and they do because that's the first thing they see); b) parts and component suppliers will take advantage of it.
I have recently seen Xiaomi's Mi3 gaining immense popularity in India...you would need to wait after registering in order to buy the phone. With in minutes the stock gets over. Two main factors: Almost same if not better specs as iPhone and the price, which is almost 1/3 as compared to iPhone's price. As far as the user experience, I guess it is quite satisfactory...and after all now a days we change our phone every two years...hence it makes sense. I had feel of Mi3...I am tempted...thought I would wait for the Mi4.
I don't think the game is to get the margins, but to erode the margins that are there to gain market share. Every new company initially has to create a cheaper product and flood the market to get initial market share and then start injecting more quality and features hoping to increase their market share of the higher margin products while slowly abandoning the cheapest sector of the market to the newer, hungrier, leaner manufacturers.
The "problem" is that with technology there is a comparession of the design cycles and the heavy hitters aren't even making the products anymore and don't even own any of the hardware development - cpu's, display, memory... so there is little to differentiate (insulate them) other then the software and some of the design of course, but that can and will be duplicated as you can see witht he feature creep - and overrun already in China. Apple has to feel like they have an increasingly large target on their back.
@chrisnfolsom I think a question to ask here is the inverse of what you posed below (i.e., can Apple survive with the lower margins?) That question would be how long the Apple wannabee's need to play in the market before commanding the same margins as Apple does? I think it is going to be a long time, perhaps a generation!
It is like asking if Hyundai can ever dream about becoming BMW? If a product is perceived as a cheaper yet reliable alternative, there is no hope for bigger margins. Hyndai may stilll get better $$ figures but will need to sell many more! This is what is emblematic of Chinese smart phone companies. When you flood the whole world with cheaper products, the perception of 'cheap' stays in people's minds.
This reminds me of a line from one of my favourite authors, Oliver Wendell Holmes: "A mind that is stretched to a new idea never returns to its original dimensions!"
@chrisnfolsom, whenever we discuss Apple and its products then we also put some light on the margins that this company has been able to sequeze from its products. And since the start of this century, whatever Apple has come up with has been a trend setter. I do not know for how long they can differentiate their products as uber and cool but one thing that i would wish is that they do not compromise on the quality and customer focus.