By most accounts the latest smartphones from Samsung and HTC rival or exceed Apple’s iPhone for hardware fit, finish, durability, and features. Yet, it’s Apple’s iPhone which is increasing marketshare and sales, while the premium Android-based smartphone manufacturers suffer due to competition from cheaper Chinese knock off makers. In other words, Apple’s iPhone owns the premium end of the smartphone product spectrum, while all other scramble for the few percentage points of profits which Apple leaves on the table by not producing a low priced iPhone.
This trend has created a disproportionate profit for Apple, at the expense of Samsung, HTC, Lenovo, and others, who share less than 10-percent of the industries meager leftover profits. That trend is somewhat reminiscent of Microsoft’s dominating rule over the PC industry in the 1990s and early 2000s. The Windows and Office publisher made tens of billions in profit over the years, but the lack of differentiation among PC makers– they all installed Windows and Office on their machines, drove prices into the ground, which made it difficult for them to turn a profit.
Here’s my fear about this trend. Microsoft became complacent and completely missed a leading role in the nascent mobile device industry. Apple could become complacent, too, and while the company claims tens of billions in profits at the expense of competitive manufacturers, annual product upgrades are incremental improvements which do not have the disruptive innovation of the original iPhone in 2007.
Microsoft garnered enormous profits for nearly two decades while product innovation suffered. Today’s mobile device industry is larger than the traditional PC industry and Microsoft, which dominated the latter, has a meager presence in the former. A similar trend is apparent with Apple the leader in mobile device profits, while all competitors exist on technology table scraps.
Apple Watch is an innovative, attractive profit, but it’s less than a new product category– iPhone and iPad– than it is a functional accessory. As with Microsoft’s ruling empire of Windows and Office kept software prices high, Apple’s rule over mobile device industry profits forces competitors to build lesser and less expensive products, invest less in R&D, and gamble on the next great thing. That bet-the-farm gamble is what Apple did with iPod, iPhone, and iPad.
A complacent, conservative Apple opens the door for a well managed competitor to bet heavily on technology which Apple ignores. Samsung says curved screen are a game changer, but I don’t see it. It’s hardware, not software. Customer buy mobile devices based upon the basics; price and features, or functionality and ecosystem; the latter of which is the premium segment which is owned by Apple.
Like Microsoft, Apple is causing the same trend in the industry, and hundreds of millions of customers could be impacted if, 1) Apple sticks to incremental innovation vs. disruptive innovation, and, 2) one of Apple’s competitors is first to market with the next great thing, just as Apple was with the iPhone in 2007.