Smartphone war moves at killer speed
Something odd happened one rainy morning in April in downtown Sydney. A coach with blacked-out windows pulled up outside the Australian city’s Apple store, disgorging protestors chanting ‘wake up, wake up’ at the bemused staff – and waving placards with the same call to action. Five minutes later, the protestors were driven away in the mysterious coach, on which the words ‘wake up’ were also emblazoned in huge letters.
No one is admitting responsibility for the stunt. But the technology industry is convinced it was the work of one of Apple’s competitors, with Samsung the chief suspect. After all, industry watchers gossiped, the Korean company was due to launch the latest version of its best-selling Galaxy smartphone just a few days later.
In fact, the perpetrator’s identity doesn’t really matter. The point is that someone had sufficient chutzpah to take Apple on at its own game. The iPhone manufacturer is, after all, one of the world’s marketing heavyweights and this stunt smacked of the irreverent adverts Apple used to run mocking PCs. It also underlined a reality even mobile telecoms insiders don’t always appreciate: that in this industry, even market leaders perceived as utterly dominant are vulnerable to attack from nimble and quick-witted rivals – and that complacent market leaders can be overtaken far more rapidly than in almost any other business.
Just ask Nokia. While Apple was fretting about a little local difficulty in Sydney, the Finnish company was announcing it had slipped to a loss, just as new figures revealed it is no longer the world’s largest mobile phone manufacturer. Four years ago, it had 40 per cent of global phone sales, more than twice the share of its nearest challenger, Samsung. By April 2012, Samsung’s sales were higher.
Or ask Research in Motion (RIM). The Canadian company behind Blackberry was in such a spin that within 24 hours of new chief executive Thorsten Heins unveiling RIM’s turnaround strategy earlier this year, his lieutenants were out in force trying to explain their boss’s message, so confusing had the world’s media found Mr Heins’s presentation. RIM’s share price has tanked more than 70 per cent over the past year.
What’s fascinating, however, is that while one admires the branding phenomenon that is Apple and the business savvy that Samsung exemplifies, the demise of Nokia and RIM has actually been driven by their own shortcomings. In mobile telecoms, just as in any other industry, it is strategic failure that changes the status quo. The only difference is the speed with which it can happen.
Nokia’s first mistake was to completely underestimate the impact of the iPhone’s launch in 2007. Apple’s product has been phenomenally popular, but more importantly it changed the smartphone industry – the app-based phone is now the standard model and touchscreen control is practically obligatory. Nokia’s Symbian smartphone operating system had been successful but it was blown out of the water by Apple – something Nokia failed to recognise until switching to Windows in 2011.
That was far too late and Nokia’s failure to adapt had the additional negative effect of cementing its reputation as an old-fashioned brand with little ability to innovate. Its bloody-minded persistence with Symbian was also in sharp contrast to Samsung, which launched its phones on several systems at once, including Windows and Google’s Android, which would quickly emerge as the industry leader.
Even when Nokia did try to adapt, it made a mess of things – launching a new operating system to compete with Apple and Android, only to abandon it in favour of Windows. It also forgot to fight on all fronts – as a consequence, competitors in the market for more basic phones, which are less lucrative than smartphones but sell in huge volumes in many parts of the world, stole share from it too.
It has been a similar story at RIM, which also totally failed to spot the evolving nature of its marketplace. Once, the company’s insistence on going it alone was attractive, with corporate customers attracted to its secure, encrypted network. Forays into the consumer sector had some success. Unfortunately, RIM’s devices were outshone by rival offerings and a vicious circle began – app developers build products for Android and Apple phones, not for Blackberry, which makes them less desirable in the consumer market.
Hence RIM’s announcement in April that it would once again begin concentrating on business customers – but the penny has dropped too late. RIM’s corporate customers have now moved on too, with many businesses happy to give staff access to the company’s software via their own mobile devices. And Blackberry’s secure network looks less attractive following outages that wreaked havoc for its customers last year.
One can feel some sympathy for these companies. In other industries, businesses get longer to adapt their operating models as the market environment changes. But in mobile telecoms, decline can be swift and comebacks are difficult, particularly once, as at Nokia, profit turns into loss. ‘Profitability is the canary in the coalmine,’ warns Horace Dediu, an industry analyst. ‘A loss maker is seen as a maker of damaged goods.’
As for RIM, Will Draper, a telecoms analyst at Espirito Santo Bank, thinks the writing is on the wall too – and that the Canadian company’s best hope of survival in the longer term is being taken over.
‘They really should be thinking of partnering or merging with another handset manufacturer,’ he says. ‘There are so many problems with the design and the operating system – those two things together require enormous investment to bring them back to parity with Apple and Android and I think it’s beyond them.’
However, it’s not just the future of these household names at stake, but also less well-known businesses in the mobile telecoms supply chain, many of which have made the mistake of getting too close to one particular company.
For example, Geneva-based ST Microelectronics saw its sales plummet last year – it supplies handset chips to Nokia. Texas Instruments of the US, which relied on Nokia for 85 per cent of sales in certain parts of its business, had a similarly awful second half of 2011.
There are few second chances in mobile telecoms. That Australian flash mob – Samsung stooges or not – had it right. A business in this industry that expects the status quo to endure had better wake up. The lesson of Nokia, RIM and the rest is that falling asleep at the wheel is likely to result in a potentially fatal crash.
Potential winners and losers in the world of mobile telecoms
Arm Holdings: Own a smartphone or a tablet computer? Then you own Arm technology too – the British company’s chips are in every device on the market. As it grows, so too will Arm.
Anite: The British company provides testing systems for mobile telecoms, offering exposure to network providers and e-commerce.
Broadcom: Apple depends on California’s Broadcom for components. It makes chips combining bluetooth, GPS and wi-fi communications functionality.
Nokia: See main text – the Finnish company may survive its current travails, but only as a much smaller business.
Siemens: The German industrial conglomerate’s performance is being pegged back by its mobile telecoms joint venture with Nokia, into which both parents have had to pump new funding.
Apple: A controversial suggestion, but Apple’s dominance in smartphones is over-estimated by British and American investors. Apple has to run just to stand still.