A company hits “phenomenal record-breaking” sales with its latest product in Ohio. The CEO proudly promises to launch within days in North Dakota, Vermont and Wyoming. Would investors or the industry see this as a savvy strategy? Unlikely.
Welcome to Ohio.
While I have nothing against the folks in Ohio – or no more than anyone else who grew up in Michigan – it’s difficult to take Apple seriously as a global company. “First weekend” sales for the new iPhone 6 are universally hailed as an indicator of Apple’s latest smartphone success.
While “Bendgate” and the withdrawal of iOS8 have slightly marred the celebration, much less coverage has been given to Apple’s failure to get approval for it’s launch in China or Samsung’s decision to launch it’s Galaxy Note 4 in China first. The graph below shows the US for what it is: a mid-sized slow-growth market. Apple’s press release says the phone was on shelves within three days in Canada, France, Germany, Australia, Hong Kong, Japan…. And will soon be available in roughly 20 more markets. But among these first 30 priority markets, we find no mention of the largest and fastest growing ones. In domestic terms, it’s as if California and Texas were not among a firm’s US launch priorities. How might financial markets treat such a firm? Would competitors take them seriously?
In 2014, US consumers will buy roughly 85-90 million smartphones at “subsidized” prices built into their cellular contracts. At the same time, Chinese customers will purchase nearly 300 million smartphones, paying cash upfront at prices ranging from $200-600. India will top 200 million. Which markets do you think should drive the growth strategies, product priorities and marketing investment of a true global leader in smartphones today?
Innovator or Slow Follower?
The most notable innovation with the iPhone 6: larger screens to compete in the “phablet” segment soon projected to account for the majority of smartphone sales globally. In 2015, the category that others (e.g. ATT, Dell) invented and that Samsung fully established with its Galaxy Note, is forecast to overtake traditional (sub 5-inch) smartphones. If this much-debated phablet mania holds, Apple may now have an opportunity to be a player.
Where will the growth come from? Over the next three years, the North American share of the phablet market will drop from nearly 60% to less than 30%. Asia – led by China – will not only replace the US as the leading market within the next planning cycle of most firms. It will be larger than both the US and Europe combined. In the time it takes to conceive, design, build and launch most new products, the global smartphone market will have turned upside down.
Samsung chose to launch it’s Galaxy Note 4 in China before the US. Having watched Samsung’s China market share slide in the face of intense competition from Xiaomi, Lenovo and other local firms, the Koreans no doubt face a struggle. But at least Samsung seems to know where the bigger opportunities and most threatening sources of competition reside.
Will Apple be able to climb out of its second-tier position in the world’s largest market? Cupertino is now working with all the Chinese mobile providers after years of dithering. It now has a smartphone with broader appeal to global consumers, albeit one developed at speed unlikely to qualify Apple as a fast follower. Better late than never? Perhaps.
The looming market battle in China during the 12-18 months following launch of the iPhone 6 may well decide whether a globally recognized market leader and one-time innovator can survive the next decade and compete effectively in the Asian Century.