The rise and rise of Apple

 

Reuters

Employees jump to celebrate during the opening of a new Apple Store in Chongqing municipality in China on Saturday. Last quarters, Apple became the number one smartphone maker (both by profit and market share) in China.

 

Phone business alone is now worth more than Google and Microsoft combined

The analogies, comparisons, juxtapositions and jokes regarding Apple’s latest quarterly results practically write themselves. 

A whopping $18 billion in profit, the biggest quarter in global corporate history! At least one business analyst pointed out that Apple had made more in 90 days than what 435 firms out of the S&P 500 each made in total since 2009. Another pointed to the fact that the company’s iPhone business alone is now worth more than Google and Microsoft combined. 

The amount Apple lost due to currency fluctuations last quarter (a cool $3.73 billion) is more than what Google made in profit last quarter ($2.83 billion). 

Decline of the West

What is strange though is that the biggest story of the last two years, in this particular industry, has been the decline of smartphone companies from the West.

Nokia plummeted before finding safe haven with Microsoft, which promptly killed the Finnish firm’s low-end feature phones in favour of its Windows Phone line, which is yet to find safe footing.

BlackBerry, much like Nokia, continued its stubborn descent, resulting, ultimately, in Canadian investor Prem Watsa throwing it a lifeline. Its two options right now are to convert itself into a company that focuses on enterprise and security, or be acquired; latest reports point to Samsung making a $7.5 billion buy-out offer. 

Motorola Mobility — which is currently staging a triumphant revival in countries like India — ceased to be an American company a few months ago; Chinese PC maker Lenovo is its new owner.

The decline of Nokia and BlackBerry, and the slow decay of Samsung is best juxtaposed against the success of Apple and the rise of China’s Xiaomi (now valued at $45 billion), Motorola and Micromax and Karbonn, which are now within arm’s reach of toppling Samsung in India.

What went so terribly wrong for the old guard? For years, the markets and business analysts jeered at Apple’s luxury, one-size-fits-all business model while cheering Samsung and Nokia’s constant attempts at making ever-cheaper phones. Yet last quarter, Apple became the number one smartphone maker (both by profit and market share) in China while Samsung is losing market share in markets ranging from South Korea to India. 

Pointers to future

There are two broad trends in the smartphone market that not only explain this but also serve as a guiding light for how the industry will evolve in the years ahead. 

The first is that with Apple conquering the luxury, high-end segment of the market and eating away at a majority of the industry’s profits, the corporate structure, marketing, and retail strategies of other smartphone companies simply have to change. 

A typical smartphone company’s management structure is quite bloated: the idea of a number of senior vice-presidents at the top and a glorified ‘General Manager-Sales’ for each sales zone or state in the country no longer makes practical or financial sense. Burgeoning market budgets and huge retail footprints are no longer sure-fire competitive advantages. 

Take, for example, the case of Motorola in India. The company managed to sell 3 million phones within the space of a year with zero retail stores, a minimal marketing budget, and a lean corporate structure. Not only does this speak volumes about the changing buying habits of the Indian consumer, but also carries an important lesson: smartphone companies need to be mobile themselves.

There is no better example of this than Micromax’s fascinating reaction to Xiaomi and Motorola. Confronted with cut-throat competition and a threat to its brand, Micromax acted decisively by forming a subsidiary, (Yu Televentures). Yu’s superior product could be posed directly against rival offerings with a similar online retail strategy even if the move ended up cannablising the company’s flagship Canvas series. 

Yu, which operates with the involvement of only one Micromax executive and is separate from the parent brand, is a nimbler way of competing with Xiaomi and Motorola without being bogged down by its parent company. 

User experience

Trends show how the way Apple operates isn’t too different from Xiaomi, Motorola and even companies like Asus. 

The success of Apple shows that if a company provides a product with an excellent user experience, customers are willing to pay a substantial premium and thus prioritise not on price but on intangible qualities such as fashion, design and delight. 

Apple delights its customers; CEO Tim Cook pointed out that last quarter, the company “experienced the highest Android switcher rate (people who switch from Android to Apple)” in three years.

All these point to a simple, inescapable fact: a majority of customers purchase Android smartphones only because they cannot afford Apple. 

Contrast this to the way Samsung, Sony and Nokia have tried to operate in the sub-Rs.20,000 range for the last four years: every time they stepped up on a stage to announce a product, the ugliness of trickle-down technology raised its head. Every product presentation included self-congratulating praise on how for the price of only ‘X’, the company had managed to squeeze in features that hitherto were only available in more expensive models. 

Cheaper price segments, were, therefore, treated as categories in which technology was somehow adapted and diluted to fit the price tag. 

Xiaomi, Motorola, Asus and Micromax do not build products that are flagship smartphones that have simply been crippled in order to be more affordable; they build differentiated products that truly delight their customers. The Moto G, Xiaomi Mi 3 and Micromax Yu stand testament to this.

When companies have products at every thousand rupees — starting from Rs.5,000 and ending at Rs.20,000 — you can be sure it stems from a need to cover all price points rather than a genuine desire to build a high-quality smartphone. 

It would be premature to state whether Apple’s position at the top will continue indefinitely. It does, however, deserve, its latest quarterly results: its influence on the smartphone industry is as significant as it was eight years ago.