Finnish national pride was dented last week with the acquisition of Nokia's phone business by Microsoft. Nokia was a key player in the development of GSM cellular phone technology. The world's first commercial GSM call was placed over a Nokia network in July 1991.
At the start of 2007, Nokia dominated the global cell phone market with an astonishing 61 per cent market share. But that same January, Steve Jobs unexpectedly announced that Apple was launching a new phone, a new music player and a new internet access gadget.
But rather than three separate new products, they were combined together into just a single device: the iPhone. Instead of Nokia-stye finicky keypad buttons, the iPhone had a novel touch-sensitive screen on which a keyboard could be displayed only as and when necessary. By April 2011, Apple was shipping as many phones as Nokia. In 2012, Nokia’s global market share had dropped to about 10 per cent.
The introduction of the smartphone by Apple fatally damaged Nokia’s prime global position. Today, what are the potential next wave of smart devices, which could disrupt established market leaders?
Smart spectacles perhaps? Earlier this year, Google Glass was released for testing and public evaluation. A light and flexible frame includes an optical head-mounted display. The display "floats" in front of the visual perspective of the wearer, overlaying the field of view with information such as time, directions, results of searches and queries, and so on. Glass can also snap photos and record videos. Glass is undoubtedly a status symbol and fashion icon – as indeed was the iPhone at its launch – for some digerati. But it is equally viewed with suspicion by others as a gimmick and impractical.
How about a smartwatch then? Sony launched its SmartWatch-2 last June and Samsung launched its Galaxy Gear just last Wednesday (September 4th). Google, Apple and Microsoft are all working on their various prospective offerings, concurrently with some small independent vendors such as Kreyos, Omate and Pebble.
As well as being a time piece, a smartwatch will run apps, track location, and may monitor physical activity (akin to a pedometer). The Gear includes a credible camera. Its microphone and speakers are an accessory for a Samsung phone in your pocket, so that you can talk – Dick Tracy- like – to your wrist. No doubt smart watches will also rapidly become digital status symbols. Detractors will argue that limited battery capacity (the Galaxy Gear needs recharging every day) and fragility (just how rugged do you expect your watch to be?) may render early smartwatches quixotic.
Well, how about a smart TV? The definition of what comprises a smart TV is broad – anything beyond the traditional ("dumb") TV. Smart TVs have been around for some time – I was bemused to find an internet post referring to a November 1990 issue of Popular Science on the topic. As I noted in this column on July 29th last, the business model of the TV industry is ripe for disruption. Hi-tech companies such as Google, Apple, Intel and Microsoft are all trying to break into the global TV market with innovative devices to grasp control of the domestic living room, and indeed the entire electronic home.
Back in 2007 as a new entrant, Apple completely disrupted the mobile phone market. The iPhone moved from beyond just a status symbol to a practical device for consumers worldwide. In the imminent markets of smart spectacles, smartwatch and smart TV, major players will no doubt compete for dominance. However in turn, this makes it extraordinary difficult for unknown brands, and start-ups, to build a leadership position.
Apple was already a brand, and already well established, before breaking into the mobile phone market. Can established companies, but without global brand recognition, break into the global consumer market ? In particular, will well-established Chinese companies – such as Alibaba, Baidu, Lenovo and Xaoimi – break into the global smart device market? And can start-ups such as Kreyos or Pebble in the smartwatch market or Atheer Labs or Meta in the smart glasses market really emerge to become global market leaders?
The emergence of Chinese companies as global consumer brands could be interesting. "Made in China" has connotations for the Western consumer. Chery (cars), Lenovo (computers) and Huawei (telecommunications) have had various challenges in the global market. Instead for the Chinese, acquiring established western brands may be a more prudent route. Volvo (cars) by Geely, Sunseeker (luxury yachts) by Dalian Wanda, Fisher&Paykel (domestic appliances) by Haier are some examples where global brand leaders have become Chinese owned.
Top Chinese companies may have considerable balance sheets to under- take acquisitions. A leading example, Alibaba may soon enter the public markets. Its IPO is expected to value the company of the order of $100 billion, approximately the same value as Bank of America. Alibaba would then be one of the top 30 most valuable companies in the world.
And can start-ups possibly compete against global brands, in stagnant consumer markets which are ripe for disruption? In my view, it seems unlikely. To emerge as a global consumer brand, a pure start-up – with a limited balance sheet – would have to create an entirely new market hitherto completely overlooked by the established players.
It would have to become a globally dominant fashion icon extremely quickly, grabbing global market share, before the established major corporations realised what was happening.
A more prudent strategy for a start-up would seem to be to ride the coat-tails of at least one major established brand, by providing critical technology and know-how which enables a disruption of a specific stodgy consumer market.
