One of the open questions regarding the future of the global smartphone market involves two paths. Path one: the market becomes a race to the bottom. In other words, smartphones are primarily bought and enjoyed as interchangeable hardware devices that run on generic software. According to this thinking, smartphones are nothing but interchangeable cheap devices that enable you to access content. The real battle is the content that you consume when you’re connected through your phone. Path number two involves argues that consumers would be loyal to the operating system, if not the hardware that runs those operating systems. The content is secondary. The primary source of loyalty is the operating system or the hardware.
While there are lots of evidence to support both these lines of thinking, market trends to indicate that the former school of thought is correct. Analysts’ eyes are focused on the Chinese market because trends in the Chinese markets might translate to global trends as far as smartphone consumption patterns are concerned. The focus on China, as embodied by companies like Xiaomi, is to crank out as many cheap handsets as possible and retain people based on content. This strategy is paying off handsomely for Xiaomi. Considering the fact that this is a three-year-old company, it has managed to snag more than 30% of the gigantic low-end Chinese market for smartphones. This development along with the fact that Huawei, another large Chinese smartphone manufacturer, is putting the pedal to the metal as far as smartphone shipments are concerned should alarm Apple and Samsung. According to Huawei, it’s going to be pumping more than 100 million units to overseas markets. The most alarming part of this announcement is that Huawei is not going to focus on the low end; it’s going to focus on high end customers.
How will it do this? Of course, it can’t compete based on brand. Apple has got that sewn up. It can’t compete based on features because that’s Samsung’s strong point. It would have to compete based on offering high-end features but at a lower price. This triggers a race to the bottom, and this is precisely why Apple and Samsung shareholders should be concerned about the future of the smartphone market.
Personally, I see this all playing out to the advantage of smaller, faster, and nimbler companies like Xiaomi. Xiaomi is a very smart play because they focus on the content. The specific hardware and the OS aren’t as important as the actual experience of the smartphone user. Pay attention to this small Chinese company. It looks like it’s going places in a hurry.
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