They were crushed in the marketplace by a dual punch in the (insert your favorite body part here) by Apple’s market disrupting and innovative iPhone design, and Google’s response in the form of a free copycat product The smartphone market will never be the same.
What Price Disruption?
Think about what took place from 2007 to date. Apple’s iPhone took over most of the industry’s profits, leaving Samsung to take the rest.
That left every other smartphone manufacturer struggling for relevance and profits in an industry upheaval of monumental proportions.
Still, it wasn’t just the iPhone that did the deed. It was Google’s ability to modify Android OS to mimic the iPhone, and then making it free to cell phone manufacturers, that changed the industry.
That, my friends, is true market disruption on a scale not seen since most traditional PC makers shipped MS-DOS as the only personal computer operating system.
Traditional product market has rules which border on the law of gravity. How does a new product unseat a market leader? The rules are clear.
Rules That Don’t Break
The newcomer must match the market leader’s features, but sell the product at a much lower price. Otherwise, where’s the incentive to switch from old to new? At the other end of the scale it’s more difficult.
The newcomer’s product must be far and away better than the market leader’s product features and usability, but priced similarly. That creates an incentive to switch from old to new, and that’s what Apple’s iPhone and the copycat Android OS did to the smartphone market.
I don’t think the advertising industry is sufficiently robust and profitable that anyone can afford to ship free hardware (both Google and Android are trying by selling hardware at near cost of manufacture) but free software has already altered the industry landscape.
Apple, forever the premium segment product maker, officially is designated a hardware company. Software is included free so customers will buy the hardware.
The Redmond Sinkhole
Meanwhile, Microsoft, which made billions in profit by selling Windows and Office to hardware vendors, struggles as the market paradigm shifts. Besides Microsoft, what incentive is there for a manufacturer to make a Windows smartphone or a Windows-based tablet?
Android’s more than good enough operating system is free to manufacturers, and Microsoft is the former tech giant completely left out of the post-PC mobile device era. That’s the disruption that free can bring to an industry.
Free, of course, has costs. Microsoft reportedly makes a few billion dollars a year on Android patent licensing deals, making it the third most profitable company in the industry, but well behind Apple and Samsung. Even Google doesn’t make as much profit on Android as Microsoft makes.
The nearly-free hardware model pushed by Google and Amazon has yet to bear the significant profit fruit harvested by Apple. However, a truly free smartphone that mimics Apple’s hardware designs and carries Android’s ecosystem could disrupt our favorite Cupertino company.
I’m not holding my breath waiting for free to disrupt Apple, though.