What is Microsoft’s future in the mobile space? It’s a question that’s generated more than a few column inches over recent years. Now with Redmond agreeing to sell the feature phone division to Foxconn and licence the Nokia name, things have perhaps started to get a little clearer.
First, the bad news. IDC is predicting Windows Phone’s market share for 2016 will stand at just 1.2% this year – that’s down from 2% last year, 2.7% the previous year, and 3.3% in 2013. The firm is clearly not getting any OEMs on board for future devices anytime soon, and there was no mention of new Lumias in the Foxconn announcement – just that it would support current devices. From this – and speaking to a few experts for an upcoming feature – I think the smart money’s on a Surface handset.
Surface has done pretty well in the tablet/laptop space – albeit after a few iterations. And a high-end Surface handset would show off the best features of Windows 10 Mobile, as Microsoft finally harmonises its OS across all platforms. It could have crack at competing with the Samsung Galaxy range and potentially the iPhone. Whether this is enough to prop up Microsoft’s mobile hardware business is unsure, however, and more job cuts could be on the way.
A Surface smartphone could appeal in particular to business executives and the like, according to IDC analyst Susana Santos. “It’s a strategy that makes sense, but it takes time. It’s too early to say if it’ll work or not. It certainly won’t help with its volumes. These devices are more expensive and not as easy to sell,” she told me.
With the business market set to rise only to 20% of the global smartphone market, according to IDC, this is also a concern if Microsoft can’t persuade those BYOD consumer/employees to migrate away from their iOS or Android handsets. It’s been said many times before, but Microsoft is in many ways still a victim of its lack of vision a decade ago, which let Apple and Google steal the hearts, minds and wallets of consumers.
And what of its chances of getting those sought-after OEMs on board?
“Of all companies, Microsoft knows the value of a developer and application ecosystems, but has been poor to drive this agenda in the mobile realm. I’d expect it to continue with Windows phone, but play mostly in the higher-end,” Quocirca’s Rob Bamforth told me by email. “The words it has used seem to indicate an interest in mobile computing devices, with telephony capabilities, rather than emphasis on ‘handsets’, so I think that means higher-end pricing and positioning – and perhaps a closer connection to Lync/Skype for Business and Skype Meeting. Perhaps we might be looking for a Skype Surface.”
The question is whether Redmond can maximise its IP and engineering talent in this space, “gluing the bits together in a way that Apple seems to mange elsewhere”, according to Bamforth. If it can, it’ll be the greatest comeback in the history of computing.
Daily deals giant and one-time darling of Silicon Valley, Groupon, is having a hard time of it. An IPO in 2011 raised a whopping $700 million, apparently more money at the time than any US firm since Google. But more than four years after the flash deals specialist was valued at nearly $13 billion, there’s very little to celebrate.
In September, the firm announced over 1,000 job cuts as part of its ‘One Playbook’ plan to cut debt and kick-start growth. Its CEO has moved across to chairman and the firm is quitting several markets including Morocco, Panama, the Philippines, Puerto Rico, Taiwan, Thailand and Uruguay. In November the firm’s shares plummeted 27% after it forecast 2016 revenue of $2.75 billion-$3.05 billion, below analyst estimates.
So what went wrong? I’ve been chatting to analysts for a piece in IT Pro (Hong Kong) about this and the general consensus is that it shouldn’t have IPO’d when it did. IDC Retail head of Europe, Spencer Izard, told me that the firm simply can’t keep up with the demand for high quality deals on a daily basis, so it’s failing in turn to meet the insatiable growth demands of shareholders.
For Gartner’s Sandy Shen, it’s a vicious circle. Groupon is not coming up with consistently good deals, so customers are leaving. Merchants see these falling customer numbers and the fact that most are only after that one deal and aren’t returning, so they also lose interest.
For Miya Knights, global technology research director at Planet Retail, there’s simply too much competition for the firm these days, and not just from bricks and mortar stores, which have lowered their prices to match the web.
“Groupon was first to the flash deals party, but has certainly not been the last. The space it occupies has been filled with direct, global and local competitors that offer deals across a wide range of categories, like Wowcher in the UK. More niche, specialist deal sites, for hotels, holidays, and home furnishings etc. have also emerged to fill the space,” she told me by email.
“Groupon’s figures, however, show it still has a loyal customer base and that revenues are strong. It’s just that its business model is broken: it does not generate enough revenue from its daily deals, which is where the margin lies, and relies too heavily on selling goods at discount prices, where the margins are tiny.”
So is there any hope for the site? It’s now trying to rebrand as an online marketplace, but with the likes of Amazon and eBay also playing in that space, the future doesn’t look too rosy.
Apple had a rip-roaring second quarter, as I’ve just reported here for IDG Connect. But the financials were about more than putting yet more dollars in the bank. In years to come, the quarter may well be seen as a tipping point – the point when the Cupertino giant came to rely way too much on China.
Although sales in China have yet to surpass the Americas, that point is not too far away. But the quarter did see iPhone sales from the Middle Kingdom overtake the US, and it also witnessed total revenue from China leapfrog that of Europe – two pretty significant milestones.
Apple is in a position that its American rivals and counterparts – Google, Microsoft, Amazon, Facebook etc – would dearly love. They’ve all been either banned or investigated for anti-trust dealings – in other words harangued by the authorities. These firms face an uncertain future in the world’s soon-to-be largest technology market. But while Apple is largely loved by consumers still in style-obsessed China, its days too could be numbered.
Certainly the government has been making life difficult for US tech firms over the past year or two. The revelations from NSA whistleblower Edward Snowden has given it the perfect excuse to request stringent security checks on products destined for the public sector market. It’s a de facto ban for many providers. Beijing is trying to do the same with the banking industry. And it will get its way, eventually.
What does it mean for Apple? Yes the firm is a large investor in the country. But that won’t count for much if or when Beijing wants to apply some pressure. Apple has already been forced to comply with its unpalatable censorship demands, withdrawing apps from its store. It was notably silent when the authorities launched a Man in the Middle attack on iCloud last year. And CEO Tim Cook was forced to make a grovelling apology when a state TV-led witch hunt found issues with its customer service in the country. Cook has reportedly also agreed to give the government access to its source code in a bid to pacify regulators and ensure its devices are approved. This in itself could backfire if Beijing uses that intelligence to create backdoors to spy on Apple users outside the country.
Then there’s the issue of growth. China is not necessarily the license to print money many think it is for Apple.
IDC analyst Xiaohan Tay told me smartphone growth will begin to slow in the country over the coming years.
“Most of the growth in the smartphone market will come from the lower end segment of the market. As Apple is a high-end product in the China market, most of its growth will come from replacement users which are the Apple fans, as well as those who may be using the higher end Android phones at the moment,” she added.
“The new iPhones were a hit in the Chinese market as consumers were awaiting the release of the larger screen sized phones from Apple for the longest time, and this helped to drive growth in the past two quarters since the new iPhones were launched in China.”
Growth will continue, but at a slower rate, although the Apple Watch represents a great opportunity to arrest that slide, she added.
“The die-hard Apple fans as well as the middle and upper-middle class consumers in the cities will help to sustain the growth,” said Tay. “I believe that Apple’s high prices actually makes its phones more desirable for the consumers. Owning an iPhone represents a status symbol that the average consumer wants to work towards.”
Plenty of positives for the future for Apple in China, then. But what the Middle Kingdom giveth it can also taketh away. In my opinion, Cupertino had better disperse its eggs into other BRIC baskets if it wants to avoid a nasty surprise down the road.
Last Friday I reported how China’s smartphone market had hit its first major slowdown in 27 months, as the growth engine of Asia slowly matures.
Well, I’ve been back to the analyst house where those stats came from to ask specifically who the biggest handset winners and losers are in China at the moment.
Unsurprisingly Samsung remains number one with a market share of 19 per cent, followed by local players Lenovo (13 per cent), Coolpad (11 per cent) and Huawei (10 per cent).
Apple rounded out the top five with a 7 per cent share – which various reports have shown was a one per cent improvement on the previous quarter and signs that things are picking up in China for the US giant.
Well, I’m not quite so sure. IDC senior research manager Melissa Chau told me that the biggest year-on-year movers were actually Lenovo (+57%), Coolpad (+36 per cent) and Huawei (+26 per cent). Samsung posted not unimpressive 20 per cent growth, but Apple’s year-on-year share actually dropped 2 per cent.
By comparison, its nearest rival, home-grown star Xiaomi, notched impressive 91 per cent growth to take sixth place with 6 per cent of the market.
So will Apple be worried? Well yes and no, according to Chau.
On the one hand the Cupertino giant has always been a high margin business, making way more money on handsets than Xiaomi and most of its Chinese rivals. To that extent it doesn’t need to shift smartphones in volumes quite so great.
However, the counter argument is that Apple needs to be seen as an attractive, popular platform, for the sake of its ecosystem.
“It is relevant to look at shipments because they affect Apple’s market power; it’s ability to attract developers,” Chau explained.
“Apple must walk a fine line making sure it doesn’t drop so far down that Android is the only ecosystem in China. It won’t be a risk it’s taking this or next year but it needs to watch [this trend]. That’s why it makes sense to launch a lower cost model there.”
You can’t argue with this logic. With Xiaomi’s low margin, high volume strategy potentially lifting it above Apple the last thing Cupertino wants is to be left floating outside of the leading pack, even if it is still hovering up revenue in one of its biggest markets.
Much has been written about the potential sales lift Apple’s recently announced deal with China Mobile – the world’s largest operator by subscriber numbers – will give it. However, as Chau told me, this might have been overplayed by some commentators – after all, we’re not talking about a new iPhone model here.
“Given the model has been out for some time I’m not sure the bump will be as significant as people are making out,” she argued. “The bump will come with the next iteration of the iPhone.”
All at Apple will be hoping that creates more buzz than its last major launch here. Or it could seriously be time to go back to the drawing board.
Lenovo is the number one PC maker in the world and rapidly gaining popularity in the smartphone space, where it’s second in China, yet it’s been forced to delay its planned entry into the US mobile space by up to 3 years.
Reports from CES last week had Lenovo execs lowering expectations in front of the media rather than the usual ambitious predictions and bravado that characterise the world’s biggest consumer electronics show.
However, at CES Lenovo’s Americas president Gerry Smith told journalists it could be another 2-3 years, and that the firm was waiting for the “right time”, the “right product” and looking to boost marketing/branding spend first.
It’s certainly a given the firm will eventually take on Apple in its own back yard, but with PC sales tanking globally, why such a long lead time?
I spoke to some local analysts to find out.
IDC’s Melissa Chau argued that it comes down to brand recognition and industry partnerships.
“The biggest challenge any smartphone player has in breaking into the US has to do with partnerships. Even Nokia found it a problem building the right relationships with carriers and I wouldn’t be surprised if Lenovo is finding the same,” she told me.
Lenovo needs also to find a unique selling point – something to differentiate it from the likes of Huawei, ZTE and others which have already shown they can produce decent handsets for US punters at low cost.
Canalys analyst Jessica Kwee was more optimistic, arguing that Lenovo already has good brand recognition thanks to its Thinkpad laptop line.
“Lenovo is one of the most well-known Chinese brand with a good brand image even in the US, which may help it do better than some of its Chinese peers when it does launch its smartphones there, although there are plenty of other reasons that will help determine its success, such as the products, channels, marketing and timing,” she told me.
In the end there’s nothing wrong with a company like Lenovo taking its time before launching into an important market.
But I have a feeling that it will make a move sooner rather than later. Giving your rivals – especially Chinese ones like Huawei – a 2-3 year head start is never wise, let alone in a fast-moving and highly competitive space like the US smartphone market.
Well, it’s a name which may well become more familiar to tech-watchers in 2014 if its sales predictions for the year turn out to be more than the usual new year marketing hype.
The Shenzhen-based firm, which is slightly better known under its Coolpad brand, said it’s hoping to shift 40 million 4G handsets this year in China, in addition to 20m 3G devices.
Some local media reports have the company claiming this will help it topple global leader Samsung in the 4G stakes, even though the Korean giant is currently way out in front in the Middle Kingdom with a market share of nearly 20 per cent – almost double that of Yulong.
They would appear to be a combination of mis-reporting and vendor hype, though, as Samsung told me it hasn’t even released any predictions on how many 4G handsets it will sell this year.
A Lenovo spokeswoman, meanwhile, said: “It’s not our practice to comment or make prediction on unannounced products.”
That aside, however, Coolpad has been gradually creeping up the smartphone rankings in its home country over the past few years, largely without the media attention that has greeted Huawei, ZTE, Lenovo and, of course, Xiaomi.
That might be because it has neither Xiaomi’s flair, Huawei’s big bucks, nor ZTE’s propensity to court controversy.
It’s currently third in the rankings just behind Lenovo, according to IDC stats for Q3 2013. If it’s to continue to climb it’ll need to make sure it’s competitively priced relative to Samsung, around the 1-2,000 RMB mark, IDC’s Bryan Ma told me.
Apart from that, “speed to 4G” will also count, he added. To this end, Yulong has already struck a deal with China Mobile to sell its TDD/FDD-LTE handset the Coolpad 8920 and there’ll certainly be more to follow.
So will the firm join Huawei, ZTE and others in aggressive overseas expansion? Well, it already is selling in markets like the US, but headway there has been more difficult given its low brand recognition.
It might have overtaken Apple in the Middle Kingdom last year but 2014 will be a tough year for Yulong and its parent company China Wireless to make an impact abroad – that is, outside of emerging markets where the appetite for cheap smartphones is greater.
A couple of weeks ago I wrote how Asia would be the key to Microsoft’s success with its soon to be acquired handset business and Windows Phone. Well, new IDC stats out this week confirmed the importance to Redmond of one of Asia’s biggest markets, India, but also that it may struggle without the Nokia brand.
India is now rated by many analysts as the fastest growing smartphone market in the world.
The numbers speak for themselves. The largest democracy on the planet has a population of over 1.3 billion but smartphone penetration of only around 10 per cent – in this it’s some way even behind China and has huge growth potential.
The question is who’s going to capitalise? Well, at the moment it’s the same old story of cheap, local Android handset providers. In India Karbonn and Micromax are two of the most prominent.
Windows Phone was a surprise second place in Q2, however, with a market share of 5.3 per cent, according to IDC. Granted, this is way behind Android’s 90+ per cent, but still above iOS and BlackBerry and remember that percentages translate into 500,000+ units.
The key to success going forward, however, will be how it handles the Lumia, according to IDC analyst Kiranjeet Kaur.
She told me that although Nokia sells the Lumia 520, 620, 625, 720, 820, 920 and 925 in India it has been the 520’s low price point of around Rs 10,000 (£100) which has made it popular.
Microsoft can’t rely on the Lumia range to continue attracting buyers in the future though, because the all important Nokia brand will soon be removed.
“People buy the Lumia because they’ve had an association with Nokia for many years and see it as a good brand,” she said. “But if the [acquisition] deal goes through in the next few months I’m not sure how quickly Microsoft can do the rebranding.”
Time will tell whether this makes a big difference. It has to be said that Nokia was far from coasting in India. Despite winning the country’s Brand Trust Report for the third year in a row in February, it has been mired by tax problems and slowing sales.
Still, India remains Nokia’s second largest market after China, according to IDC, so the next 12 months will be a key test of whether Microsoft can continue the momentum and take on the likes of HTC and Samsung in the mid-range as well as stealing a bit of share from domestic players at the lower end.
It will be an uphill task.
It was Microsoft and Nokia’s big week this week and I’m sure the two will be hoping to hog the headlines going forward as much as they did over the past seven days. Now some might have unkindly described the alliance as “the sounds of two garbage trucks colliding”, but I’ve been getting the low down on why the deal should matter to APAC, or more realistically, why APAC should matter to Microsoft.
Let’s get one thing straight, APAC is essential to Microsoft’s future success in the smartphone space, not just because it has the world’s largest and fastest growing market – China and India respectively – but because Nokia has a really good legacy footprint there thanks to its feature phone biz.
The problem for Redmond, however, is that we’re not talking about feature phones any more, but smartphones. These markets are increasingly demanding smartphones, albeit low-end handsets, not feature phones. It’s why local players like Huawei, ZTE, Micromax and others are growing at such speed.
Nokia’s stock is greatest in India, where it has been voted most trusted brand for two years in a row, despite on-going tax problems with the authorities. Yet according to IDC’s Melissa Chau its relationship with operators isn’t particularly great anymore, so to large extent Microsoft is going to have to start from scratch here.
Building a budget Lumia will be vital and Chau told me Microsoft could do two things to help achieve this:
- Remove licensing charges – at the moment it’s built into the cost of the phone – which would wipe about $10 off per handset
- Use its combined internal expertise now with software and hardware to tweak Windows Phone so that it can run on hardware specs more suited to a lower price point.
It also needs to sort out Asha, she told me, starting with making the handset more attractive by sticking some Microsoft apps on it, and then hopefully in time transitioning those customers to a low cost Lumia.
This ain’t gonna be easy. The competition is fierce out there and with Nokia’s star waning and a severe lack of apps in the ecosystem the best Redmond can probably hope for is cementing it in third place behind the deadly duo of iOS and Android. With four of the Lumia’s top selling markets in APAC (including no. 1 and 2) however, it must make the region a priority.
Time will tell how successful it is, of course, but time, as we all know, is probably something Micr-okia doesn’t have.
Just as the global PC market seemed to be getting back on track, Asia Pacific looks to be faltering.
Yes, IDC on Thursday released its predictions for Q2 shipments in the region and the results show a one per cent decline over 2011, with HP and Dell the biggest losers.
The irony in all this is that IDC is blaming economic turbulence in the West as a major cause for consumers and enterprises to tighten spending, thus sending shipments down.
It’s an interesting observation because it really highlights the global, interconnected nature of the economy, and by extension the IT market, today.
We know from the global meltdown of 2008 exactly what happens when the economic dominoes begin to fall in one region – eventually everyone gets sucked in to a lesser or greater extent.
Asian companies with risk exposure in the West or multinationals with offices in Asia may both have found recent economic sluggishness in the markets they operate in outside of Asia Pac has led to greater caution inside the region, which could partly explain the PC stats.
On the consumer side, meanwhile, IDC analyst Avi Sundaram told me the following:
This is more of a sentiment issue. Weakness in Western economies has affected growth in Asian countries as well, with GDP numbers going down across the region in the first half this year. This, in turn, has affected consumer confidence as well. Admittedly, it is not something specific to PCs, but given how PC buying is still a discretionary expenditure out here, consumers are pulling back on all such non-essential spending, including PCs.
So whether it’s shipments to Western countries being hit or the knock-on effect of economic woes in the West leading to lower spending inside Asia Pacific, bad news in the US and Europe may mean bad news for Asia.
It’s all one messed up, interconnected global market.
If nothing else, this should all serve as a reminder to the IT leader in the West that they need to keep an eye on what’s going on all over the planet and not just their home market to effectively manage risk, spot emerging trends, and basically do their job properly.