Samsung, the world’s No.1 smartphone maker by shipment, just reported a shocking decline of its global net profit, profit margin and market share for its mobile division in Q3 2014, compared with just a quarter ago. Per the WSJ report, Samsung shipped about 79 million smartphones in Q3 and saw its market share fall to 24.7% from 35% a year earlier. The upstart Chinese mobile device maker Xiaomi Inc. (the name in Chinese “Little Rice” is from an indigenous idiom of WWII) , which was founded only about 3.5 years ago, tripled its global handset shipment and rose from 2.1% to 5.6% global market share, now the No. 3. Apple remained No. 2, with a 12.3% share, falling from 13.4%. Samsung also lost its No.1 smartphone seller position in China.
The speed of changes in worldwide mobile market, both in handsets and mobile apps can surely cause dizziness. This is an industry that tolerates no mistakes. Competitions are hard-charging on talents, innovations, strategies, speed of executions and boldness.
Xiaomi hired Google Android executive Hugo Barra last year to help expand its global markets and it is moving fast. Xiaomi understands the Chinese buyers of mobile phones very well. It often uses ARM-based fast gaming processors from partners such as Nvidia or Qualcomm, and adopted Google’s free Android platform for quick development. Its newer models got great reviews and sold out online (their low-cost selling channel) within minutes. Their price is often less than half of those sold by Samsung or Apple.
Samsung may have made a strategic error in China as they failed to shift their position. For an expensive smartphone offering similar features and speed, fewer people are willing to pay double, especially with an average replacement rate only around 2 years. On the other hand, Chinese typically buy unlocked phones at full handset prices instead of locking into a long contract with a designated carrier, unlike the practice in the US market. Thus Xiaomi’s pricing strategy certainly gained an upper hand.
Apple at the moment is still enjoying its first entry advantage on many smartphone innovations and its premium brand recognition built up during Steve Jobs’ time. Apple owns its popular technology platform, a significant advantage that Samsung is lacking. It also tries to keep up with constant innovations and strategies. For example, its latest Apple Pay is trying to compete on another value chain – making an iPhone an indispensable daily tool instead of just a high-tech toy or communication device.
On the mobile app side, the number of new mobile apps created every day is staggering. The Finnish company Rovio Entertainment Ltd, once made the stellar mobile game Angry Bird, is now facing the trouble of coming up with another killer app to maintain the revenue growth. This year it had to trim its staff and change a CEO. No single company is likely to dominate the mobile app market because the next killer-app developer or startup could pop up from almost any open garage in the world. In addition, majority of the mobile apps are free today (or have to) despite the development cost. In fact the total app revenue only occupies a small share of the total mobile market capital. Sustained growth for a mobile app company is hard as it constantly requires new striking apps and ingenious money-making ideas.
This is definitely not a market for the faint of heart. The pace of the market may be breathless, but it’s a global vast and open field that favors amazing plays by amazing players, those who can gather brilliant minds, move fast, hold bold visions and execute right-on-target strategies.