On Emerging Markets and The Future of Ecosystems
The smartphone industry is one of the most rewarding businesses out there for the manufactures involved, and while companies like Samsung and LG offer much more than just phones, their smartphones are arguably some of the most important products in their repertoire. Samsung’s S6 unveiling alone raised so much optimism among shareholders that Samsung stock is predicted to rise substantially and redeem the company’s debilitation over last year. The multi-billionaire industry, however, has changed dramatically since its early year.
The increasingly desirable target demographics don’t reside in the United States, Europe or first-world countries. The importance of rich markets remains, and flagship releases on the top-end are still as competitive as ever, if not more competitive. But at the same time, low-end smartphones are providing the manufacturers involved in “emerging markets” a lot of revenue. Low-end smartphones are not necessarily of poor quality, and the “budget” term should be understood as an inexpensive pricing bracket and not an indication of the level or quality of the technology.
So where do the so-called “emerging markets” come in? Countries like Brazil and India as well as some regions of Asia and the Middle East have seen very high market penetration in the last few years. This is because of several factors that are often discussed, but I usually find myself in conversations that miss one of the most significant aspects of the change of course: the future of integrated ecosystems.
OEMs and Emerging Markets
As the richer nations get saturated with smartphones, and as these phones become more and more future-proof, OEMs are forced (by the market itself) to compensate by looking somewhere else. While the 2-year-contract and subsidized phone sales model of the United States does wonders when it comes to fueling the capitalist process of yearly flagship releases, the growth in contract-free alternatives be it from big carriers or Mobile Virtual Network Operators are drawing away from this advantage. Given the consumerist tendencies of North America plus its high level of affluence, however, the flagship game will remain a big part of every manufacturer’s repertoire.
With this being said, we see that low-range and mid-range phones are becoming increasingly popular in the line-ups of the usual OEMs. Take the case of Motorola, which is perhaps one of the biggest and also earliest exponents: their 2013 Moto G brought with itself a revolution in the public perception of what a cheaper phone could achieve. I personally purchased a Moto G and to this day I still remember the feeling of amazement I had when sliding through its interface, which was displayed in a very respectable HD screen. The price was hard to match and it still is in some markets. But what Motorola did, many were doing and many do better.
If you look at Chinese or Indian manufacturers, you’ll find some very strong companies with solid devices, many sold for prices that slash the premium flagship model of the West by almost half. The Chinese giants like Xiaomi and Huawei offer quality products that amass brand loyalty for their quality or offerings. In the case of Xiaomi, they have one of the biggest and strongest fanbase of any smartphone manufacturer, but their problem right now is that said fan-base is extremely localized in China.
This is where expansion comes in: Xiaomi is looking to penetrate the United States, as is Huawei which has already begun the process with their upcoming Huawei Watch. Other manufacturers like Micromax in India are gathering strength and forming partnerships to expand their reach and the quality of their products. Companies like Samsung and LG are increasingly tailoring towards mid-range phones, be it through channeling their efforts into decent devices or slashing prices. Sony has slowed down their flagship releases and is also focusing on other, cheaper line-ups. Then you’ve got the Android One exploding in every place it is released, and new companies solely dedicated to providing good prices, like OnePlus, achieving fame in a short time. All of this is not just about securing short-term profits (for most players, anyway), but also about establishing a long-term foundation for what’s to come.
OEMs and Emerging Integration
While smartphones will most likely always remain a source of profit, the business itself has a global saturation limit at which it’ll begin stagnating. While many reputable analysts predict that there will be around 2.5 billion smartphone users by 2015, saturation is approaching as fast as the companies’ attempts to increase their market share grow. The United States is already approaching said limit and is expected to hit it within the next two years. Most developed countries will follow shortly. This is one of the main reasons why emerging markets are so important, but at the same time, having a strong customer base is important for emerging integration in the technological ecosystems of these markets.
The simplest case to explain would be Microsoft: their Lumia line of phones has been a success in the low-end, and markets like Latin America see high adoption rates for Windows Phone devices. The fact that so many people are buying into Microsoft’s mobile OS benefits them in the long term, not just because they might become invested into it (by applications or simply getting used to it) but because their upcoming Windows 10 release and future developments will have a clear focus on the integration of multiple devices and multiple ecosystems, all together in a Microsoft environment. And in this way, Microsoft gadgets, computers and gaming consoles will be interconnected to offer a more seamless experience with additional commodities and services accessible through Microsoft software only.
Samsung is doing something similar, but their approach is actually more focused on hardware than software UX (what a shocker!). The Korean giant is one of the biggest betters on the “Internet of Things”, which is a concept denoting a higher level of interconnectedness between devices, from gadgets to home appliances. If there is a company to benefit from an Internet of Things, it is Samsung: they provide all sorts of electronics and I’m sure many of you have a Samsung appliance somewhere in your house. Connecting all of these devices would be a powerful business strategy for Samsung, particularly because of how substantial their market shares are for every market segment. And smartphones would play a central role in such a future, as they can act as the controlling node as well as possible calculation centers for these future electronics.
Google itself is also expanding their services and platforms as well as strengthening the Android brand-name. The myriad of cute Android ads on TV, YouTube and New York Square is just the beginning, and advertising is something Google typically excels at. Their incursions into self-driven cars and Android Auto will make sure Android is in charge of your commuting. Their Android OS for televisions be it through integration or stand-alone devices like the Nexus Player or Chrome Cast aim to grab your living room. Chromebooks are becoming more and more popular in classrooms, and they are pretty much the epitome of a Google-only device. Their newest offerings are remarkably inexpensive and show a focus on affordability like their Android One project.
Other companies like (HTC and their Vive) are trying to expand their brand to other platforms or segments that can be integrated with their products, services or brand. So as a trend, it seems that the focus is not simply going into emerging markets, but also platform expansion and the interconnectivity of the platforms.
With technology becoming more and more important in our lives, these platforms and their connectedness remain pivotal for the growth of the mobile industry. And by locking consumers into certain services as well as expanding their brand, companies can assure that once smartphone saturation occurs in most places they have something to transition to that still fuels their smartphone industry – but now with an even bigger meaning in the brand itself. Just like Samsung’s ecosystem is tailored towards Samsung devices (Allshare screen casting, for example), in a world where every device is connected, such practices would hold a lot more value.
Emerging markets are also key to the emerging integration because they have huge user-bases and in some cases, strengthening economies that would allow for future purchasing power to enable further market penetration. If the Internet of Things or other kinds of ecosystem connectivity largely depend on smartphones to even begin being substantially useful, getting as many smartphones into as many markets as possible would make a really good investment for what’s to come in technology. What we cannot wait to find out is what comes after the integrated ecosystems are settled – but that’s something we will touch on some other day. For now, it is important to remember that the biggest players in the industry think years if not decades ahead, and the process of planning a market strategy is non-linear. Emerging markets will be extremely valuable assets to have a share in very soon, so expect the focus on affordability to grow.
How do you see the mobile industry developing in your region? Tell us below!