Last week’s news that Chinese smartphone maker Xiaomi had lured Google’s Android executive Hugo Barra caused a ripple in the tech press but it was the extra-marital affair of founder Sergey Brin that captured people’s attention for longer. Barra’s move, though, heralds a new phase in the evolution of the smartphone market. Indian and Chinese brands are now substantial in their own markets, dominant in some cases. The world stage beckons. Apple and Samsung will need to be more nimble to deal with them.

Xiaomi is now 6th in the China market, by sales, behind Samsung, Lenovo, Yulong Computer Telecommunication Scientific, ZTE and Huawei Technologies, according to the Post. There is no Western company on that list. Xiaomi is only three years old and still pre-IPO, with a valuation of around $10 billion. TechCrunch put that in perspective last week:

“Xiaomi is now on par with Lenovo’s market value of $10 billion and almost twice BlackBerry’s current market valuation of $5.5 billion.

Meanwhile over in India, the Indian tech press is discussing an IDC report that puts local brand Micromax as number two in the Indian smartphone market with a 22% market share, compared to Samsung at 26% (Karbonn, of India, is third with 13% share). Micromax is also very big in the feature phone market. Although that market is declining relative to smartphones, it also a big platform for upselling smartphones. And the market is growing quickly with a 200% increase in smartphone sales in 12 months, making growth faster than in China.

The Times of India points out that the Indian market is very strong on Phablets and Samsung has neglected that form factor here, while Apple, of course, does not make Phablet sized phones (yet). Local buyers also tend to prefer Dual Sim. Samsung is having to discount heavily to maintain its lead there.

There is nothing especially groundbreaking about Micromax designs. The same can be said of Karbonn, the low cost competitor. According to Know Your Mobile India, the cheapest Karbonn smartphone comes in at 3,500 Rupees or about $53. So this is about price, and cramming in as much of the functionality of an Apple or Samsung phone as possible to meet local buyer needs. Design values are high enough without being innovative.

Xiaomi has different tactics and aspirations, preferring higher-end phones with stronger design values but low cost marketing (like using the microblogging platform Sina Weibo and wafer thin margins (if any) on the device. It’s plan is to make money on the services around the phone, which is especially smart when you see Lenovo carving out a market around its music services. Micromax owes a portion of its growth to its relationship with cricket.

DNA, an India tech publication, puts the advantage of a local vendor down to fast product development cycles – a single quarter – compared to Apple’s two years and Samsung’s 1 year (but declining). That means very little product innovation but astute supply chain management and flexible local assembly.

What’s clear is that the big two in smartphones, in the western tech press, Apple and Samsung, are still the big two in terms of margin. These are the companies that make money. But there is a determined group of companies like Xiaomi and Micromax that see a different kind of future, based on the life-time relationship with smartphone customers or very lean businesses (Micromax employes only 1900 people).

There’s a lot that can go wrong with that – the growth of wearables could leave the smartphone as a personal data center, with functionality spread around wearable and peripheral devices (like iBeacons or sensors in sports devices and other familiar products). Innovation could still be core.

In reality the smartphone has to morph – there are numerous pressures for it do so so, like the availability of new materials (flexible, durable), the vast amount of information they will be required to display, the opportunity of a second tier market in wearable devices, and the growth of app-centric home pages like Facebook Home that are capable of sequestering revenue from the app stores of the OS owners,  and the sheer longevity now of high margins at Apple and to a lesser degree at Samsung.

In that context there seems to be little movement in the business model of the two market leaders. It is still about slab and app. We will find out later this week if Samsung is out to change that with the Galaxy Gear Smartwatch. But if Apple and Samsung don’t disrupt themselves soon there is a new ecosystem growing that will do it for them.

By: DocMemory
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