The mobile handset market has witnessed several changes in the past three to four years. Innovation in developing faster and multitasking mobile handsets first led to the emergence of feature phones and then smartphones. The share of feature phones in total handset shipments dropped from 71.17 per cent in 2010 to 58.9 per cent in 2012, while that of smartphones increased from 28.83 per cent to 41.1 per cent, reflecting the shift in consumer preference towards smartphones.
This technological evolution has led to a shift in the industry?s competitive landscape, with major handset manufacturers such as Nokia and BlackBerry struggling to compete with Samsung, Apple and HTC in the smartphone segment. Although Nokia still has a large share in the handset market, its smartphone market share has been decreasing. According to market research firm IDC, Nokia and BlackBerry accounted for only 4.9 per cent and 4.6 per cent of the total smartphone shipments respectively in 2012. Analysts attribute this to the companies? inability to anticipate the potential of touchscreen phones supported by advanced operating systems (OS) such as Android and iOS.
Nokia and BlackBerry lose edge
Nokia had been selling smartphones for the past several years prior to the introduction of these devices with the touchscreen functionality. In fact, it was the first company to launch a smartphone ? N 9000 Communicator ? in 1996. It was also the first player to develop a prototype for a touchscreen handset with the internet functionality in 2004. However, the company?s board rejected the prototype as the potential of high-end smartphones was unknown at that time and the high costs associated with manufacturing such devices would have impacted profit margins. Consequently, the company decided to shift its focus back to feature phones that were generating profits owing to high sales volumes. Therefore, the idea of developing touchscreen smartphones was shelved and the smartphone and feature phone operations were merged. This strategy started impacting Nokia?s revenues following the introduction of Apple?s flagship smartphone ? the iPhone ? in 2007, which became an instant hit owing to its user-friendly interface, touchscreen functionality and iOS support.
Apple?s entry in the market even impacted the operations of BlackBerry, which had been a leader in the smartphone segment. Earlier, BlackBerry had established a loyal user base comprising business customers, especially owing to the security and reliability features of its email services. However, the company had no other distinguishing features on offer across its smartphone product line. With the emergence of the bring-your-own- device concept and social media, smartphones with bundled applications and the touchscreen functionality started gaining adoption. BlackBerry failed to adapt to this touchscreen transition in the handset market and started losing customers.
The iPhone had almost double the screen size as compared to other available smartphones, with no physical keypad. Apple not only provided an easy-to-use smartphone but also embedded several applications in the device, which revolutionised the use of smartphones. Among these applications, the iTunes store and Siri were the key demand drivers for the iPhone.
Nokia took several initiatives to counter this trend, but none of them succeeded. In 2007, the company launched its app store OVI but failed to attract application developers. It also developed the Symbian open source project with several other handset manufacturers, but even this project failed to compete with Apple?s iOS.
Despite Apple?s growing market, Nokia and BlackBerry retained their first and second positions respectively in the smartphone market in 2009. This can be attributed to Nokia?s and BlackBerry?s large presence in developing countries, where the sales volumes were still high. However, Apple reported higher profits.
The rise of Samsung
In 2009, Samsung accounted for only 3.2 per cent of the total smartphone shipments and was a notch below Apple, Nokia and BlackBerry. This was because Samsung was manufacturing only low-end smartphones powered by the Symbian OS and primarily focused on Asian markets.
However, unlike BlackBerry and Nokia, the company was aware of the future potential of the touchscreen smartphone market, owing to its partnership with Apple. Samsung had been the flash memory supplier for Apple for the past several years. In addition, the company had initially provided application processors for the iPhone. This had helped Samsung gain significant knowledge about the smartphone market.
In order to increase its market share, Samsung started making large investments in developing smartphones that could compete with the popular global brands. It also shifted from the Symbian platform to the Android OS, which is owned by Google. Being an open source OS, Android attracted interest from application developers across the world. It was Android?s huge application base which made Samsung smartphones attractive for consumers.
Following the success of its initial Android-based smartphones, the company released its flagship Android-powered smartphone, the Galaxy S, in 2010. The new device received positive market reviews and provided a fillip to the company?s future plans for the smartphone market. Since then, the South Korean vendor has adopted an aggressive strategy with multiple product launches every year to meet the demand of every customer segment. It also increased its spending on marketing smartphones in developed markets, which led to a surge in the demand.
Vertical integration is another factor that helped Samsung scale up operations rapidly. The company has an extensive supply chain for components used in manufacturing smartphones, which gives it a cost advantage and allows it to sell these devices at relatively cheaper prices. As a result of these efforts, the company?s share in the total smartphone shipments grew from 7.5 per cent in 2010 to 19 per cent in 2011.
Reviving the ailing smartphone companies
All this while, Nokia?s market share was falling rapidly. The company?s strategy to sell basic smartphones in developing countries, especially the emerging markets, failed to compensate for the decline in sales in developed markets as several small-scale handset companies had started manufacturing low-end smartphones. For BlackBerry, the reduction in shipments was partly compensated by the increased demand from emerging markets.
In a bid to revive its declining market, Nokia appointed Stephan Elop, former head of Microsoft Corporation?s business division, as its chief executive officer. Under his leadership, the company decided to use the Windows Mobile OS for its smartphones, abandoning the Symbian and its newly developed Meego platforms. Elop was of the view that Symbian lacked capabilities to compete with Android and iOS. Nokia decided to develop both high-end and basic smartphones based on the Windows Mobile platform under the Lumia brand. Meanwhile, BlackBerry commenced developing the next-generation QNX-based operating system, BB10.
In end-2011, Nokia launched its first Windows-based touchscreen smartphone ? the Lumia 800 ? before introducing several other smartphones in both the high-end and low-end segments. Among these, the Lumia 800 and the Lumia 920 witnessed high demand in the European market, which saw Nokia record profits in the quarter ended March 2013 after reporting losses for six consecutive quarters. In early 2013, BlackBerry launched its flagship Z10 and Q10 smartphones on its new BB10 OS.
It is too early to predict whether these devices will revive the fortunes of the two manufacturers. The launch of iPhone 5 and Samsung Galaxy S4 have already impacted the demand for Lumia as well as the Z10 and Q10 smartphones. In addition, product launches by HTC, Google and Sony are likely to pose significant competition in the near future.
Consolidation inevitable
While Nokia and BlackBerry are banking on new products for revival, market consolidation is imminent. These companies are facing competition not only from dominant players such as Apple and Samsung, but also from Chinese vendors such as Huawei and ZTE which are gaining ground in the low-end smartphone market and now plan to expand their product portfolio in the high-end smartphone segment. Further, these Chinese companies are making large marketing investments to improve their brand image, especially in developed markets.
In this scenario, regaining market share has become a challenge for Nokia and BlackBerry. With declining profitability and market share, these players have become potential takeover targets for the new entrants. While Microsoft and Huawei are reportedly keen on acquiring Nokia, Lenovo is looking to acquire BlackBerry. Therefore, both Nokia and BlackBerry should focus on offering smartphone devices at competitive prices to gain market share.
