The Toughest Industry- Smartphones: TechWars Part 2

Why would any company try to enter the Smartphone market? It is so competitive! Ok, just for fun let’s assume you put millions of dollars into developing an average smartphone with the latest hardware specs. Even then, you are going to be pouring more into marketing and building a brand that has to stand up against companies like Apple. You’ll be burning through cash like no tomorrow. Oh… and if that doesn’t kill you, wait until you get the numbers on your customer retention and acquisition costs down the road (remember those are not one time costs). Especially if you come up with a new smartphone with no previous track record. Recently, I had the opportunity to talk to a bunch of people in the smartphone industry, including the former Hardware Marketing head of Google, who worked on the original Pixel smartphone. Something that really stood out in our conversation was the Red & Blue Ocean theory. This theory really hits home in trying to explain the landscape of the smartphone industry with a simple analogy.

Red Ocean Theory

By definition this theory defines the Red ocean as the existing industries in an otherwise known market space. Companies battle head to head within defined and accepted industry boundaries. The red ocean is analogous to a shark infested waters where the sharks are fighting each other for the same prey, which are customers. Of course, you can guess the sharks to be Apple, Samsung and Google (and a few other ones, but let’s focus on the big 3). The rules of this type of competition are known by all parties involved, and the aim is to beat the competition in order to acquire a greater share of the market. Red oceans become  extremely crowded, reducing the potential for profits and growth. To stay in competition, companies focus on building advantages over their competition (hence a smartphone release yearly). All gains are at the loss of another company and wealth is captured and redistributed instead of being created. As a result, wealth becomes very limited.

Blue Ocean Theory

On the other hand, a blue ocean is a metaphor for those industries that may not exist or are not known about. This unknown space is not contaminated with competition and demand has to be created here and not fought over. The opportunity for growth and profitability is huge and rapid. The rules of competition and operation have yet to be clearly defined and this renders competition irrelevant. So, in other words the blue ocean is a wider, deeper and unexplored market space with untapped potential. Okay well this theory sounds so much better. Why can’t every company just do this?

For a couple reasons:

1.    Getting Way Off Track – Companies get too carried away in their "genius products" and forget their own strengths, values and mission. This may result in them drifting too far away from what they are good at or their core strengths, risking complete failure. Not to mention a waste of money.

2.    Forgetting About The Underdogs– The blue ocean strategy encourages a company to compete against the dominant players in the industry. This thinking may lead a company to overlook the less dominant, but more promising and emerging players who can grow to become serious competition.

3.   Not finding any Fish – This is when a company realizes that there is no fish (customers) to catch…. There may simply not be a market viable enough to sustain the company’s (long term future. And the risk with innovation comes with the doubt. Consumers may not like or even care about your product because they don’t see the value in buying into something new when something proven and something they already like exists in the market. This really has to do with the small number of early adopters willing to buy a company’s new product. Working on the Xbox for a good number of years has shown me the struggle of bringing new technology to consumers. Microsoft wanted to change the gaming world with Kinect (a sensor that tracks body movement that allows you to play video games with out a controller, and navigate though the Xbox interface via voice commands). Unfortunately, gamers did not like the new shift and stuck with the traditional controller. In fact, with security being a pressing issue in the tech world, people claimed the “Kinect ‘s eye”, as people would call it, was a spying on you 24/7. Yeaaa… It didn’t end to great. Microsoft discontinued packaging the products with the Xbox about 2 years later.

So I’d stick to the red ocean theory unless I had something very unique, provides value and that no one else is doing. It isn’t impossible. A great example of a company doing this is Cirque du Soleil. 

Best Way To Win In The Smartphone Industry: The Brand

To put it in perspective, brand is a huge factor when it comes to winning in a space like this. Apple definitely does not put out the best quality of products for the premium price they charge, but it’s the brand people fall in love with. It really has to do with the years of brand reputation and marketing genius to pull of what Apple has done. I believe another company who has done this and has even surpassed Apple as the branding king would be Nike.

Think about it…. Nike and Apple don't waste valuable branding time/money on telling us about their products. They show us how you should feel when you use their products. You don't see a Nike commercial telling you the benefits of their new shoe design and new compression pads. They show you athletes hustling in the game. You don't see Apple commercials showing you the specs of their newest device. You see someone walking down the streets listening to music to iTunes, blocking out the noise of the world. Nike standardized themselves as the brand for sports and Apple did just that with Phones. The proof is in the sales, even with the premium pricing. When it comes to a brand people love they will pay almost any price to have it. And don’t get me wrong, people are rational, but when was the last time you heard an Apple buyer give you a good reason to get the newest iPhone beside the sole reason that it’s new. And yes, I know I am definitely going to get it from Apple fans for that comment!

Second Best Way To Win In The Smartphone Industry: Product Innovation

As I mentioned before, the smartphone industry has been plateauing in this area in recent years. The last industry shattering revolution in phones was back in 2007, when Steve Jobs introduced multi-touch and the on-screen keyboard. It was the marriage between software and hardware to create a useful and exciting experience. Fast forward to 2017 and making the screen bigger every year is innovative….. Like give me a break. It’s funny how originally phones were made to be small and mobile but after 2007 they just got bigger and bigger! Innovation is where companies are struggling the most and it’s exactly at this point in time where anyone has the opportunity to enter this market and capture consumers, much like Apple did in 2007, by introducing something truly revolutionary.

Enter Google.

Now even though Google is not a new company, they still are new to the smartphone game. Okay maybe not new, in fact they have been in the game for a while, licensing their Android OS to other phone manufacturers. More specifically though, Google just started creating their own phones in terms of hardware. Now why would they do this if they are so successful making Android available to the masses? Well, they realized that software wise they hit a ceiling, where they couldn’t really innovate without directly integrating with the hardware. Which they could not originally do if other parties such as Samsung, One Plus and LG are making the hardware and just slapping on Android like a cheap phone case. So, Google stepped up and decided to breathe life back into innovation just like Apple did 10 years ago and really marry the hardware and software. Only this time they would push towards an AI (artificial intelligence) first experience.

Part 3

So how is Google going to blow you away with their next phone? And what’s their strategy when it comes to capturing Apple-like consumers? I will go into detail of exactly how Google is changing up the game in the next article of this Tech Wars series. So stay tuned!