Creative Destruction in the Smartphone Market

With the mobile phone market already saturated in the developed world (see past HS Dent discussions of S-Curves), operators and manufacturers alike have looked to the smartphone “trade up” market for growth. Just as there were winners and losers in the original race for mobile phone supremacy, there will be winners and losers in the smartphone race as well.

Nokia, the Finnish company that emerged as the biggest seller of traditional phones, jumped out to an early lead in the smartphone market. But that lead is being chipped away at an alarming rate by upstarts like the Apple iPhone and the various phones that use Google’s Android system.

While the iPhone gets most of the headlines, it’s days in the sun might be limited.  Android, almost overnight, has surged past Apple to become the number three global smartphone operating system and number one in the United States!

The parallels to the 1980s personal computer wars between Apple and IBM are obvious.  Most techies agreed that Apple made a better product than IBM.  But while Apple kept tight control over the manufacture and sale of computers that used its architecture and software, IBM opened its own to cloning.  The result was an explosion in the IBM compatible “Wintel” standard and a long period of comparatively slower growth for Apple.  This is why it is Bill Gates, not Steve Jobs, who was the richest man in the world for most of the 1990s and 2000s.

Is Apple making the same mistake again?  It would appear so.  Given the number of handset makers currently making phones to world with Android, its hard to see how Apple can maintain technological superiority at an affordable price.  But it’s not just Apple.  Nokia too is being rather pigheaded by insisting on using its own Symbian system.  Perhaps the company’s management is too proud to discard a project that they have invested so much time and money developing.

At any rate, as students of economic history, all of this will be fun to watch.  In the world of mobile communications, we’re watching the creative destruction process happen before our eyes.  In the end, we’ll all have better–and cheaper–phones to show for it.

Charles Lewis Sizemore, CFA
Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy

Read the original story at H. S. Dent