It remains to be seen if Apple win the watch market however they safely have the smartphone business firmly under control says Kantar Worldpanel ComTech
As the annual Mobile World Congress begins to wind down in Barcelona, Kantar Worldpanel decides to stir things up with its quarterly report on the market share of mobile phones.
The news is mixed; Apple continues its rampage in the Chinese market with a quarter of phones sold in the PRC being iPhones while Android slips in Europe but picks up market share in the US.
At the top end of the market it’s clear Apple is beating Samsung and the other manufacturers are deciding to avoid entering the battle of the market at all, instead focusing on lower and midrange devices.
Competing at the price points which don’t interest Apple may not be easy though suggests Carolina Milanesi, ComTech’s Chief of Research & Head of US Business; “while mid-tier consumers might be more accessible than high-end ones, manufacturers will have to work harder than ever to stand out in an increasingly crowded marketplace.”
Diversifying away from a tough smartphone market is one reason for the focus on watches at Mobile World Congress although even in that market Apple is about to launch a blitz around its upcoming product.
It remains to be seen if Apple win the watch market for the moment though they safely have the smartphone business firmly under control.
Samsung are staking a lot on their new Galaxy 6 smartphone
Having seen its dominance of the smartphone market eroded by a resurgent Apple and a range of upstart Chinese vendors, Samsung has announced it will launch its Galaxy 6 smartphone on March 1 reports the Sammobile website.
The new phone is reported to boast a curved screen measuring somewhere between 5.1 and 5.3-inches a fingerprint sensor and a 20 mega-pixel camera, which compares well to the iPhone 6’s eight mega-pixel camera.
While the proposed specs are impressive, the company has a challenge ahead as consulting firm IDC reported its smartphone shipments dropped 11% year on year last quarter in an market that grew by quarter.
Top Five Smartphone Vendors, Shipments, Market Share and Year-Over-Year Growth, Q4 2014 Preliminary Data (Units in Millions) source IDC Research
Vendor
4Q14 Shipment Volumes
4Q14 Market Share
4Q13 Shipment Volumes
4Q13 Market Share
Year-Over-Year Change
1. Samsung
75.1
20.01%
84.4
28.83%
-11.0%
2. Apple
74.5
19.85%
51.0
17.43%
46.0%
3. *Lenovo
24.7
6.59%
13.9
4.75%
77.9%
4. Huawei
23.5
6.25%
16.6
5.66%
41.7%
5. Xiaomi
16.6
4.42%
5.9
2.03%
178.6%
Others
160.9
42.9%
120.9
41.31%
33.1%
Total
375.2
100.0%
292.7
100.0%
28.2%
*Lenovo + Motorola
24.7
6.6%
19.5
6.7%
26.4%
While the numbers for the Chinese manufacturers are impressive, Apple’s shipments should also worry Samsung given the two companies are fighting for the top end consumers in the European and North America markets.
For Samsung its smartphones form a central part of its Internet of Things strategy so the success of the Galaxy 6 is critical to the company’s future plans, particularly given the lukewarm reception to the Tizen based Z1 phone on the Indian market last month.
Samsung’s China Crisis
With Samsung struggling with both its high end Android smartphones and its lower priced Tizen devices as Chinese manufacturers like Lenovo, Xiaomi and Huawei steal market share, the company desperately needs to hit the mark with the Galaxy 6.
Google as well has a stake in Samsung’s success as the Chinese manufacturers are increasingly turning to open source versions of Android for their smartphone systems. A flagship device for Android to counter the iPhone 6 is desperately needed to keep consumer and developer interest in the Google Play store and for Google’s consumer IoT ambitions.
The stakes are high for both Google and Samsung, the South Korean giant getting a mis-step with the Galaxy 6 could see it following the faded fortunes of its Japanese competitors.
It’s early in 2015 but year shaping up as being one where beacon technologies start rolling out in meaningful numbers as Facebook joins the rush.
Beacons are, as name suggests, small radio devices that signal their location to smartphones and wearable computers. If someone has the right software on their system, the beacon can alert them about anything from shopping offers to the presence of hazardous material.
The biggest potential market for beacons currently is the retail sector along with stadiums and concert venues although the industrial aspects shouldn’t be underestimated. Along with sports stadiums some of the more enthusiastic early adopters have been mall owners and local shopping strips as they see the opportunity of delivering more value to customers.
A question facing retailers and shopping centre owners is whether we’ll see competing networks of beacons being deployed as Facebook, PayPal, Apple and dozens of other companies rollout their own technologies. We may end up with a situation where businesses get sick of being nagged to install multiple devices for their shops or workplaces.
There’s also the problem of crosstalk as the different beacons interfere with each other. In places like shopping malls multiple transmitters could prove confusing for even the smartest smartphone.
Again we’re seeing how silos are developing across the Internet of Things sector as vendors release products tied up in their own proprietary standards.
As the cost of beacons has come down – many are available for under a dollar – the ability of vendors to offer networks has increased dramatically, over this year we can expect all the big players to release their own systems in attempt to control a slice of the market.
For beacons to really succeed in the marketplace it’s going to be necessary for vendors to agree on common standards. If we end up with a rag-tag collection of competing networks, then the promise of the technology will surely be lost.
Bigger smartphones are redefining media consumption, how does Google and traditional media companies respond to this?
Last week Google and Facebook announced their quarterly results with the search engine giant continuing its worrying slowing of advertising revenue. The respective changes of the two online services show how online advertising is changing.
While Google slows, Facebook is showing accelerating growth for its advertising, driven mainly by mobile users, illustrating the shift in internet usage from desktops to smartphones.
In its 2014 New Digital Consumer report, market research company Nielsen observed that US consumers in 2013 were spending more time accessing the internet on their smartphones than on personal computers; PC use had fallen seven percent to 27 hours a week while mobile use had surged 40% in 2013 to 34 hours.
Television still remained dominant with the combination of live and time shifted TV viewing making up 144 hours of the average American’s week, although it did fall slightly.
Those figures are a year out of date and there’s no doubt the numbers have accelerated since then. One of Tim Cook’s triumphs at Apple has been the release of the iPhone 6 and the larger form factors in the current generation of smartphones is a response to consumers’ demand to watch video on their devices.
Bigger Android, Windows and Apple smartphones will only seen even more people using their mobiles to watch video and surf the web.
Which puts Google’s predicament in sharp focus; we are definitely in the post-PC world yet their revenue still overwhelmingly comes in from desktop users while Facebook’s is increasingly coming from mobile consumers.
A strength Google has is that its revenues still dwarf the social media upstart’s – Google’s income is currently six times greater and its gross profit margin doubles that of Facebook’s – giving it plenty of leeway to change.
The question is where do the new revenues come from? Probably the biggest opportunity Google missed was in replacing the Yellow Pages franchises with their own local small business listings with Google Your Business (aka Google Place and Google Plus for Business) being lost in a confused and bureaucratic corporate strategy.
Compounding the problem for Google in the small business space is Apple’s entry and while Apple Maps is no contender against Google’s far superior product, an integration with Apple Pay would give Apple far more rich data to enhance listings with – not to mention more of an incentive for merchants to sign up.
With the changing web, Google are going to have to change as well. If advertising is going to remain the mainstay of their business then the company needs to find a way to capture smartphone users.
It could be worse however, a report from consulting firm Strategy Analytics estimates print media’s share of advertising revenue fell another seven percent this year. Time is running out for newspapers.
While print is ailing, the advertising battleground is mobile digital although TV still dwarfs the market. How this evolves in the next five years will define the next generation of media tycoons.
The performance of Apple and Microsoft in recent years show two very different management philosophies.
The stunning quarterly results of Apple announced yesterday compared to Microsoft’s indifferent performance illustrate how the fortunes of two different business cultures have changed.
Apple yesterday announced a spectacular result for its quarter finishing at the end of last year with revenues up 30%, profits by 38% and Earnings Per Share just short of fifty percent.
The announcement was an emphatic vindication for Tim Cook and his management team who made some big bets on the larger form factor iPhone 6 which paid off spectacularly with shipments growing 46% to 74.5 million and revenue reaching $51.2 billion, over two thirds of the company’s total sales.
One notable aspect of Apple’s success is the difference with Microsoft’s and this shows how different business cultures come in and out of fashion.
The Triumph of the MBA
For two decades Microsoft’s licensing business model was dominant and this confirmed the MBA view that companies should do everything they can to move design, research, manufacturing and distribution out of their operations – the virtual corporation where there was no inventory, few costs and even fewer risks was the ultimate aim of the modern manager at the turn of the century.
Microsoft encapsulated this philosophy with its licensing model, while the company made massive sales with huge margins – as it still does – all the business risks in the computer market were carried by resellers and equipment manufacturers. For many years the markets loved this.
Apple tinkered with the licensing model under John Sculley in the mid 1990s during Steve Jobs’ exile but was never really serious about giving away its hardware capabilities and in 2001 moved into retail with the opening of the first Apple Store.
Coupled with the App Store, Apple have come to control the entire customer journey from marketing, design, purchase and ongoing revenue after the product is bought.
King of the new Millennium
While the 1980s and 90s were the time of triumph for the Microsoft model, the 2000s have been good to Apple as shown by the revenue and profit figures.
Apple and Microsoft Revenues 2000-2014Apple and Microsoft Profits 2000-2014
The key inflection point in these charts is, of course, the iPhone’s release in 2007. Apple caught the wave of change as computer use switched from personal computers to smartphones and is now the dominant vendor.
For Microsoft the success of Apple is bittersweet; the company had a smartphone operating system in Windows CE but it was too early to the market and the devices vendors went to market with were, at best, substandard.
Microsoft’s failure with the smartphone was also echoed with tablet computers and exposed the licensing model’s reliance on vendors to supply and support decent products, even today Microsoft’s hardware partners struggle to release decent tablet systems.
Cloudy on the web
Another problem that exposed Microsoft’s weaknesses was the rise of the web where hardware and operating systems really did matter so much any more. Along with pushing out personal computer lifecycles it also had the consequence of allowing other systems into the marketplace, notably Linux and Google Android.
With OS X, Android and Linux systems no longer hampered with the compatibility issues that irritated non-Windows users in the 1990s the market was open to adopting those systems. While the PC market has remained quite loyal to Windows, although the Apple Macs are showing serious growth as well, Microsoft’s system has barely any marketshare in other device segments except servers which are also declining as business increasingly move to cloud services.
Apple have shown in the computing and smartphone business that controlling the hardware products is as important as supplying the software, a lesson that Microsoft now acknowledges with its restructure into a ‘Devices and Services’ company under former CEO Steve Ballmer.
Under current CEO Satya Nadella Microsoft is focusing on cloud services which also aren’t as profitable as its legacy operations but see it competing with companies like Amazon and Google who don’t boast the profits from their online operations that Apple makes from its hardware.
Microsoft aside, the lesson Apple gives the technology is pertinent for its competitors in the smartphone space as well; companies like Samsung, LG and the army of Chinese handset vendors are going to find their markets tough unless they can take control of their software development and distribution channels – relying on Google for Android and telcos to get their phones to customers leaves them exposed in similar ways to Microsoft’s partners in the last decade.
In the battle between business models, Apple is the current winner and shows throwing all of your business operations over the fence to partners and licensees is a risky strategy. How those lessons are applied in other sectors will test the limits of both management philosophies.
Microsoft is making the shift to the cloud and devices, but those markets are turning out not to be profitable.
This morning Microsoft announced its quarterly results and, once again, they confirmed the company’s move into the cloud, a transition that means the company has to deal with reduced margins in once immensely profitable markets.
While Microsoft’s earnings beat analyst estimates, the stock still dropped on out of hours trading on the US markets. The reason being margins showed a slight decline and the impending release of Windows 10, which will be free for customers upgrading, portends a further fall in income.
The fading of Windows is best shown in the results for the company’s Devices and Consumer licensing division which covers licensing of the operating system and is the second biggest contributor to Microsoft’s revenues and profits. The segment’s takings are slowly declining although surprisingly the division’s margins are standing up.
Microsoft division performance 2014-15
Windows’ decline shows the post XP recovery Microsoft was hoping for the division has failed to materialise beyond a bump last quarter, as the company explained in its media release;
Windows OEM Pro revenue declined 13%; revenue was impacted by the business PC market and Pro mix returning to pre-Windows XP end of support levels and by new lower-priced licenses for devices sold to academic customers
With company making various versions of Windows 8 and 10 free, it’s hard to see the division doing anything but accelerating its decline as fewer people actually pay for the operating system.
Fading margins
Also illustrating Windows’ falling fortunes is how the Computer and Gaming Hardware division’s revenue threatens to overtake the Devices and Consumer Licensing group’s contribution. The problem for Microsoft with this that the manufacture of Xboxes and Surface tablets only boasts a profit margin of 12% against consumer licensing’s 93%.
Last week at its preview of Windows 10 Microsoft showcased its HoloLens virtual reality technology, while impressive it’s unlikely to boast margins any better than Xbox consoles or Surface tablets. At best it will be a trivial contribution to the company’s bottom line.
Microsoft Margins by operating segment
Percentage margins
Q1-14
Q2-14
Q3-14
Q4-14
Q1-15
Q2-15
Devices and Consumer Licensing
87%
90%
87%
92%
93%
93%
Computing and Gaming Hardware
15%
9%
14%
1%
20%
12%
Phone Hardware
n/a
n/a
n/a
3%
18%
14%
Devices and Consumer Other
21%
21%
21%
17%
17%
23%
Commercial Licensing
92%
92%
91%
92%
92%
93%
Commercial Other
17%
23%
25%
31%
33%
35%
Dwarfing both divisions in both revenue and profit is the Commercial Licensing segment which also boasts fat margins of 93% and accounts for nearly half the money coming into the organisation. Commercial Licensing remains static and provides the bedrock for the company’s cashflow.
The big growth area remains the cloud with the Other Commercial division, which includes most of the online and professional services growing steadily. While showing growth, this part of the business boasts a relatively low margin of 33% so any market moves from Enterprise licensing to the cloud will have a sharp effect on the company’s bottom line.
Mobile black holes
Of all Microsoft’s divisions, the problem remains the Phone Hardware segment with low margins, declining sales and a shrinking market share. Reports released overnight indicate that over a third of Lumia devices sold are not being activated which may indicate distribution channels are having to deal with unsold stock.
Compounding Microsoft’s poor position in the phone marketplace is the resurgence of Apple’s iPhone, particularly in the Chinese market where Microsoft is failing dismally. Global market share figures are indicating Apple may soon overtake Samsung as the world’s largest smartphone vendor while Android systems are coming to dominate the global marketplace.
Tomorrow Apple will announce their results and we’ll see how the two companies are travelling, the contrasts will almost certainly be striking. For Microsoft, even if they do manage a shift to mobility and the cloud, they are unlikely to repeat Apple’s success in reinventing themselves.
Links of the day include how jaywalking became a crime, where Chinese tourists go and a lost Mars lander found on Mars.
Where do Chinese tourist like to travel to? One of today’s links looks at where the modern PRC tourist likes to go. Other links include how jaywalking became a crime, Samsung’s attack on the low end Indian smartphone and how disguised Starbucks may be popping up in your suburb.
Kicking off today’s links is an examination of how Zappos’ CEO and founder Tony Hsieh is carrying out a daring experiment on the management structures of his company.
No-one can accuse Zappos’ founder Tony Hsieh of thinking inside the box, his experiment with new form of management called holacracy is another example of how he tries to do things differently. Whether it will be successful or not remains to be seen.
Vox tells of how cars took over our cities’ streets during the early Twentieth Century. It’s an interesting description of the political, social and economic forces at work as the effects of the automobile started to be felt by our communities.
“It was a heroic failure.” Britain’s Beagle space mission to Mars ended in mystery when the lander vanished just before Christmas 2002. Now it’s been found. I find this story quite touching.
Like McDonalds, Starbucks is facing structural changes in its market. One of the ways both companies are responding by launching experimental new stores. Some of which might be near you without you knowing.
Just as the car changed the Twentieth Century the smartphone may well be one of the critical technologies that shapes this era. Cheap phones in emerging markets are the equivalent of the Ford Model T a hundred years ago.
Samsung’s move is a response to the Chinese manufacturers who are dominating that market. That Samsung is using their own Tizen operating system rather than Android which most of the Chinese companies use is something worth watching.
As Chinese manufacturers look to emerging markets as their economic future, the country’s tourists are exploring the world. This article laments how those PRC travellers are ignoring London and the UK but also has some interesting observations about the destinations they prefer.
