The Global Handset Industry is set for Self-Destruct

If a person does the same thing over and over again, each time expecting a different outcome, we call that insanity. If dozens of companies in a multi-billion dollar market do it, we call that the global handset industry.

Let’s say you make a product, and you have a lot of competitors, dozens, hundreds. Prices are falling. More people are piling into the market. Now it is time for you to design a new product. Do you experiment with a radically new form factor? Let a single designer attempt to craft a finely honed product that stands out for its quality? Or do you come out with a product that is just a modest upgrade of last year’s product, with no distinguishing design or features?

Well, when you put it like that…..

Really, I am kinda dumbfounded. That handset OEMs seem to be on a path of self-destruction. I visited every major OEM’s booth and dozens of smaller vendors. I am sure I missed one or two interesting devices with some novel feature, but at some point, I can only stare at identical black, plastic slabs for so long. There is nothing new or differentiated out there, and this cannot last.

I have to admit, at one point, I almost lost my temper. A couple times actually. The industry seems to be in some very complicated form of denial. And there seem to be a couple common threads to their excuses.

One handset OEM manager wanted to blame Chinese handset vendors, complaining that they were just copying what everyone else is doing. The lack of self-awareness in that statement was hard to fathom. In fact, the only companies that seem to even to be trying to do something new are the small China OEMs. They are now selling a wide variety of ruggedized phones. One vendor even had a new line of flip phones, some Android powered, some not. Full credit for trying.

By far, my favorite excuse, one that I heard multiple times, was that the industry’s declining fortunes was Apple’s fault. If only Apple was not doing so well and sucking up all the industry’s profits. I understand that excuse, I used it in sixth grade. It was not my fault that I got a B in math, the homework was just so hard, and algebra is really hard. Not my fault.

I suppose, if you want to get abstract about it, you could blame Google. They are not that helpful to their handset partners. I mean, other than providing an operating system for essentially free, saving everyone else hundreds of millions of dollars of R&D. But other than that they are not helping.

I know I am ranting. And in all fairness, the OEMs are constrained in many ways in what they can offer. Google does restrict home page hardware. Many companies in China can operate on very thin margins because they have a special, ultra-low cost of capital. And the carriers, well, let’s just say they are not part of the solution.

Nonetheless, something has to change. In the next five years, a lot of companies are going to have to exit the market. Even the big names are vulnerable. Time to make some bold bets, there is nothing left to lose.

I have a few suggestions, and if they ask around, they will probably find some more ideas. But make no mistake, these are risky ideas. They may not succeed, companies need to experiment, and that risks failure. Some companies are going to try new things that will flop, and that flop will force them to shut down. But if everyone continues on the same path, they will close anyway.

So here are my rough ideas. Offered up for free, but if they work, buy me a nice dinner, or find me a comfortable board seat somewhere.

  • A QWERTY keyboard Android phone. There are still millions of Blackberry users, and lapsed Blackberry users. The easiest way to spot a banker or investor at MWC is to look for the people with Blackberry’s. I spent $60 on a Typo cover for my iPhone, it works OK, but dampens the design of the phone. A full-powered, well-designed high-end keyboard phone could sell millions to some of the biggest spenders out there. I can say conclusively that no one is making these. I know because I have scoured the world looking for a design. None of the big OEMs are making one. I even tried to hire a design house in China to build one. But there is no demand in China for such a phone, too hard to type Chinese characters on one. There have been a few other attempts, contact me if you want to know what those did wrong, but there is definitely a big opportunity out there.
  • Find a really good designer, someone with product expertise from some other kind of product. The kind of person who designs things in their spare time because they see the world differently, but who also has a proven ability to deliver real products. Then let that person have total 100% control. Keep their team locked away from the salespeople, marketers and management. Let them design their vision of the perfect device. Quality can still stand out in this market.
  • For the big OEMs, fire everybody. Stop spending millions on cute software tricks and unneeded features. Build a solid phone using stock Android. Tell Google about it and see if they will put it in the Nexus line-up some year. Warning, this will not save the company, but it will maximize the profits that a company can harvest before the market gets really bad, and then exit gracefully.
  • Try to build a brand-new youth oriented brand, completely unrelated to the core brand. Use every social media trick to generate enthusiasm. Sell the phone online only to save costs and avoid having to deal with the carriers. Maybe launch some other consumer products tied to it somehow. The only thing is that this cannot be attempted in China. Xiaomi and One Plus are already far down this path. But other regions are open to the approach – India, Africa, Western and Eastern Europe, the Middle East. Lots of regions with untapped consumer loyalty to find.

Not the best set of options, I know, but there are not many other choices left. In fact, it is time to either make these bets or go home. Or just give into the illusion, and pretend everything is going to be fine.

3 responses to “The Global Handset Industry is set for Self-Destruct

  1. Hi Jonathan,

    just for kicks I went around Hall7 picking all the brochures I could find from the “Shenzhen” booths. “Impressive” is one way to describe it. Apart for the wide adoption of Mediatek it is mind-boggling to figure out how an OEM can manage a portfolio of 20+ phones whose differentiation is limited to 0.5” display increments or trading straight corners for round corners… How does one do a price segmentation for this? 5$ increments? And BTW, speaking about innovations: I saw one with an integrated selfie-flash, I’m surprised no one thought of that one yet…


  2. I’ve been thinking that they also want to recycle the main os and this way sell the same phones all over again, but with another operating system – be it a android derivative, one without google services or something else completely. (m$ whispering and waving wads of cash-carrot & patents-baton in the dark corner for both scenarios..)

Leave a Reply