Telecom Finally Has its "Fashion" Moment: But Apple Owns It

When Apple set out to revolutionize the phone handset business, it might not have foreseen precisely how much change it would cause.

Not the least of the changes is a shift of power within the retail business, as mobile service providers for the first time have lost the ability to dictate what devices users can use, and what features devices should provide.

On the other hand, some of us have argued that the key marketing problem for any telecom service provider always has been that nobody really "loves" their service provider, and identifies with the service, in the same way that people routinely identify with their autos, clothing, perfumes, shoes, hobbies or sports.

What telecom has needed, in that vein, is a way to create, for consumers, that high emotional bond.

Apple's iPhones have become that bond, for the first time in the industry's history.

Of course, there is a bit of a downside: the emotional bond is with the device, created by Apple, still not the service. But the change is significant. The Apple iPhone now personifies the value of the communications connection. But other changes, for handset suppliers, would seem to be coming.

The reason is that handset profitability, more than anything else, now is shaping the global smart phone business, one might argue.

Globally, Apple and Samsung have, over the last 12 months, surged to the top of the charts in terms of smart phone sales volume, according to Strategy Analytics.

In the past, the “smart phone” category has not been significant, as all devices were feature phones or basic phones.

As the market begins to shift to a smart phone buyer pattern, differences in firm strategy and execution have lead to a rapid change in market leadership.

Global smart phone shipments grew 54 percent annually to reach a record 155 million units in the fourth quarter of  2011, according to Alex Spektor, Strategy Analytics associate director. That apparently has proven to be a decisive change.

In the past, Nokia has been the global share leader, but Nokia has not been able to translate that prior success into smart phone success, where Apple has changed the game and Samsung apparently has been able to keep pace.

Apple overtook Samsung to become the world’s largest smartphone vendor by volume with 24 percent market share. Apple’s global smartphone shipments surged 128 percent annually to 37.0 million units, as distribution of the iPhone family expanded across numerous countries, dozens of operators and multiple price points.”

Apple took the top spot for share on a quarterly basis, but Samsung became the market leader in annual terms for the first time with 20 percent global share during 2011. With global smartphone shipments nearing half a billion units in 2011, Samsung is now well positioned alongside Apple in a two-horse race at the forefront of one of the world’s largest and most valuable consumer electronics markets, Strategy Analytics says.

In contrast, Nokia’s smart phone market share was cut in half from 2011 to 2011, dropping from 33 percent in 2010 to 16 percent in 2011.

That is one reason there has been so much focus on the Nokia partnership with Microsoft, as many would argue the Windows Mobile operating system represents the best shot Nokia will have to avoid collapse.

The other observation of note would be that profitability might now be emerging as the key differentiator, even though design and consumer demand clearly are driving the market overall.

Samsung’s most-recent quarterly earnings also set records. Samsung Electronics Co declared $4.7 billion in quarterly operating profit. jumping 76 percent year over year.

Between them, Apple and Samsung earned fully 81 percent of all profits in the mobile handset business. 

Apple in the fourth quarter of 2011 shipped 37 million smart phones worldwide, up 117 percent from 17 million in the second quarter. This represented the strongest sequential quarterly growth among the top-five smart phone brands, according to IHS ISuppli.

“Samsung advanced in 2011 because of its strategy of offering a complete line of smartphone products, spanning a variety of price points, features and operating systems,” says Wayne Lam, IHS senior analyst.

On the other hand, the market share battle between Apple and Samsung reflects the competition between the two leading smartphone operating systems and ecosystems: Apple's iOS and Google's Android, says Lam.

“The relatively small growth of Sony Ericsson and Motorola may indicate that the Android smart phone market is becoming too crowded as the various licensees compete for limited consumer mind share and shelf space,” Lam says.  

Aside from the obvious potential implication that there simply is not room in the global smart phone business for more than a few providers, the value of particular handsets, and their suppliers, seems destined to grow. 

People increasingly want, not so much the ability to use mobile communications, but iconic devices that use the networks. A hundred years ago, that was not the case. People just wanted the service. 

These days, the service is a feature of what has become a "fashion" item; a statement about values and lifestyle. At long last, the industry has managed to create high emotional involvement. As it turns out, though, the involvement is with the iconic devices, not the services. 

Tablets appear to be the next connected device to make that leap.