Smartphones coupled with mobile services and apps (mobile ecosystems) have been the protagonists of the latest disruption tide for well over a decade.
The smartphone industry accounted for more than $380 billion in revenue last year and more than 1.2 billion devices sold. IDC expects the market to grow to $451 billion annually by 2018.
Yet despite these extraordinary numbers, and despite the fact that there are an estimated 8 billion smartphones still to hit the market in the next 5 years, this industry is technically over.
The smartphone market has reached maturity, and year-over-year growth is declining gradually, with manufacturers working with cut-throat margins and one single player monopolizing gains, seizing an estimated 93 percent of industry profits, according to investment firm Cannacord Genuity.
No need to guess—just look around you. Most likely, you have one or more Apple devices on your desk or in your pockets. When a technology goes over 50 percent penetration, the remaining audience is composed of a late majority of followers and laggards. This is the technology version of the bell curve.
In other words, with smartphone penetration well over 70 percent in more developed countries like the U.S., the saturation point was exceeded a long time ago, and the 8 billion in shipments to happen in the next 5 years are driven by emerging markets. The move to less penetrated explains why Chinese smartphone giant Xiaomi is now valued at $45 billion and expected to pursue an IPO. It also explains shorter product life cycles with little incremental innovation, and that implies less profit. If you wondered why Apple is moving quickly into wearables with the Apple Watch, this should help explain that move.
What Apple and Blackberry have in common
I've been myself involved in the mobile industry for nearly two decades (with Nokia and BlackBerry). This is what has happened:
From a software perspective, operating systems turned competition into a mobile ecosystems war, which ended in a duopoly—Google's Android capturing a majority of the volume, and Apple's iOS taking the profits.
The Apple case is ironic. The iPhone leveraged carrier distribution and the telecom services industry despite being their biggest "over the top" (OTT) services disintermediator. Services have been the ultimate disruptor, driving adoption, smartphone penetration and, ultimately, dragging sales of hardware with them. Apple is today's example; BlackBerry was a pioneer with this asymmetric model—service and user experience first—driving device preference after.
In its very early days, BlackBerry didn't even have intentions to get into the hardware business. The company originally engineered the messaging service, but there were no keyboard devices to support it. BlackBerry's messaging proposition evolved into the incredibly popular mobile push email, which Wall Street embraced, ultimately buying anti-fashion qwerty devices as a necessary "accident" to have real-time email. It turned into a phenomenal hardware business for BlackBerry, fostered by carrier-driven sales of push email services embedded in their data plans.
Apple and many others follow the same pattern.
Think of smartphones as the entry point to the online world. Now, wouldn't it be better, easier and more convenient to access your digital world without the constraints of a small screen?
Everything outside the realm of your smartphone's touchscreen now constitutes the domain of disruption for this industry. To put it bluntly, our heads can't continue down-staring at our screens. Something must be done to fix this, and the basic technologies to do it are already there.
Early signs can be seen even embedded in your device already.
