Thursday, September 19, 2013

In the first part, we have discussed the importance of the (mostly) un-subsudized emerging markets. Now, we will use the Indian smartphone market as a proxy to better understand the emerging markets in general and find out the reason why HTC keeps on struggling.


 


Previously, we also discussed about Sameer Singh’s user based segmentation. For the purpose of our study, I  expanded it as follows:
Communication oriented devices : less than 4.5 inch screen
Computing oriented devices : more than 5 inch screen
Bridge devices : between 4.5 -5 inch screen (these devices offer a compromise between computing potential offered by larger screens and practicality offered by smaller screens).

We will then combine the expanded version of Singh’s user based segmentation with my price based segmentation, derived from observations on emerging market consumers’ purchasing preferences: 
Now let's try and get a deeper understanding of the mobile war in the emerging markets.

A brief look at the current Low End sector in India


IDC reported that 67% of smartphone shipments in India were sub $200 phones. This is a typical characteristic of a growing smartphone market as former feature phone users upgrading to smartphones are more likely to start with entry level devices in the price range. In the past the term “entry level smartphone” used to be synonymous with crappy devices and equally crappy user experience. However, as you can see in the following chart, that is no longer the case as a large number of phones in this category are now decently spec’d and running on multi-core platforms; some even come with IPS LCD displays. 


By combining the two types of segmentations, we can see that consumers looking to get the “best bang for the buck” in this price range are catered for by devices like Karbonn’s Titanium S5. The device has a 5 inch IPS screen, powered by a 1GHz quad core Snapdragon 200 with 1 GHz or RAM and 8 megapixel BSI rear camera. Although it only has a qHD resolution, its specs should be enough to provide users looking to do some heavy content consumption with a decent experience for less than $200 as the screen alone has a higher resolution  than Samsung’s Galaxy Grand which costs at least $100 more.

Looking at this segment this way, we can also see why Nokia’s Lumia 520 has managed to rise to the top of India’s Windows Phone market in just a few months time as mentioned here. This phone offers a compelling proposition for consumers looking for a decent communication oriented device in the rice range.
For consumers stuck with a sub $100 budget, the Xolo A500 offers a decent communication oriented option with  1 GHz dual core processor and a 4 inch screen for less than $15 more than Nokia’s Asha 501 feature phone.
The lower mid range
The midrange sector comprised of devices priced between $250 - $500. This is an important sector as it represents the next step for former entry level consumers. A manufacturer can be considered successful if they manage to not only retain their existing customers, but make them upgrade to devices in the higher price segment that offers more profit margin to the consumers. Thus, in an emerging market where a large number of consumer had only just begun to make the switch from feature phones, the midrange segment is a very crucial sector. This segment is where majority of the exponential growth of phablet devices in the coming years as predicted by analysts at Barclays will happen.
To better understand this important segment in India, and other emerging markets, we divide this important sector into two groups; the lower midrange sector with devices ranging from $250 to $375 and the higher mid range sector between $375 and $500. 
As we can see below, this sector is currently crowded with devices catering to all three types of usage pattern preferences.
Furthermore, this sector allow us to compare the strategies of  some big brand  manufacturers as well as finding out which companies are poised to make a mark in this price group and which are clueless.
Lets start with the lower midrange group:
Based on price V computing potential (primarily indicated by screen size) 
We can see that there are plenty of options in this price group for people with any kind of budget. 
Consumers looking to maximize their investment are well served with a number of respectable computing oriented models. Those who are looking to have the biggest computing potential can choose the Karbonn Titanium S9 with its 5.5 inch HD IPS display, while those demanding more performance can go with theultra thin (less than 6.9 mm thick) Xolo Q1000S with its higher clocked Mediatek Quad Cores and 13 MP rear camera for around $20 less than the Titanium S9. Serious gamers can choose the Tegra 3 powered Xolo Play T1000, although this one falls into the “bridge” segment, offering better pocketability with a 4.7 inch screen. It is important to note that the gaming oriented Xolo Play T1000 is the cheapest in this group, which is a testament to Xolo’s cunning strategy at targeting price sensitive university student gaming fans.
In this category we can also see examples of why Lenovo is one of the top phone makers in the world. While the brand might be more known for its laptops in North America, their smartphones has been making quite a splash in a number of developing markets for the past 18 months or so. In Indonesia, the only Chinese phone brand I know of which has had models that required people to fill out a waiting list to get is Lenovo. We can see why as in the lower midrange segment alone, Lenovo has two strong contenders. The Lenovo S820 is a carefully designed 4.7 inch 720p IPS screened phone  with a 13 MP rear camera which is equipped with a curved front glass to provide better swiping experience. I’ve held one in person, and I can tell you, it is a bit better in terms of built quality than my Galaxy Note and Galaxy Note 8. The S920 carries the S820’s design and combined it with a bigger 5.3 inch display and 7.9 mm thickness which makes for a very nice to hold pocket computing device.
Lenovo S820
Lenovo S920

For those who are more partial to big brands, Sony and Samsung have them covered in this price bracket with the 5 inch screened Xperia C and Galaxy Grand, although none of them comes with 720p display that their Indian and Chinese counterparts offer.
In this segment, HTC’s and Nokia’s offering stand out as the only communication oriented models in a sea of 720p pocket computing powerhouses. Imagine you live in India, and you have got less than $300 to pay for a phone, would you chose a small screened WVGA device with 1 GHz dual cores and relatively miniscule RAM? For 5 bucks less than the Desire XC you can get a 5 inch 1080p quad core phone from Lemon! If the name puts you off you can choose among the barrage of other 5+ HD phones on the list.
Samsung’s phone capable tablet is included here because lately  some consumers looking to get the most mobile computing potential for their money has opted to  go with phone capable tablets.  Samsung’s entry level Galaxy Tab series fits the bill quite nicely in this regard.

The upper mid range

Moving on to the $375-$500 bracket, Indian consumers are again spoiled with a choice of super sized power houses that are relatively affordable. Extreme pocket computing fans can choose either the second cheapest model on the list, Huawei’s 6.1 inch Huawei Ascend Mate, or the most expensive model in the bracket, Samsung’s Galaxy Mega 6.3. If they are willing to settle for a “smaller” 5.5 inch screen, Lenovo’s 1080p Clovertrail powered monster, the K900, is a great choice and quite possibly is the most powerful model in the group. This highlights the strength of Lenovo’s emerging market strategy yet again.
The standout underperformers here are HTC’s 4.5 inch qHD Desire 600 and Sony’s Xperia M because not only that both are relatively smaller screened devices, but more importantly, both has specs that would have been more acceptable in the previous price bracket.
At 4.3 inch, Samsung’s S4 Mini might be a bit of a tough sell, but, with respectable internals, it provides an option for consumers looking to have a more pocket friendly, communication oriented device in the price range.
As was the case in the previous price bracket, Samsung’s phone capable tablet, the Galaxy Tab 3 8.0 provides an option for consumers demanding to get the most mobile computing potential out of their budget.

Unfortunately for HTC, this group only further compounds their weak emerging market strategy.

The high end

Although this is not necessarily what we are particularly interested in with this article, here is how the high end market currently looks like in India. 
Screen size v price
This price group shows another company that is hilariously off the mark when it comes to catering to consumers in the emerging market, Apple. They are pitting their communication oriented device with pocket computing Behemoths like the Sony Xperia Z Ultra! Still confused as to why the iPhone’s market share is historically negligible in the emerging markets? To put insult to injury, even Samsung’s recently announced flagship will be around $200 cheaper than Apple’s when it hit India later next month.
Another important point to note is that for people looking to maximize their investments, again, Samsung has a phone capable tablet in this price range. Believe it or not,  the world’s most productive phone capable small tablet is the cheapest one in the group.
Conclusion
Our little discussion describes the reason why a company that produces one of this year’s most highly acclaimed phone is struggling. HTC simply does not have a winning strategy for the all important emerging market where phones  non subsidized and prepaid plans dominate the market.
Whereas in the developed markets, it is normal for consumers to expect flagship devices for $200-$300, in the emerging markets that kind of money only allows for phones in the lower mid range price bracket. Thus, it is understandable that most people would want to maximize their significant investments by getting devices that offers the most computing potential. In this regard, large screened, multi core phones fit the bill nicely.
Does that mean that there is no room in the non subsidized markets for midrange priced communication oriented phones? As a matter of fact, there is and one of the reasons for that is the same reason why we have put examples of phone capable tablets in the price groups.
We have elaborated the reasoning behind the growing preference towards larger screened, computing oriented devices. Phone capable tablets such as those from Samsung’s Galaxy Tab line or Asus’ Fonepad provide alternatives for consumers who demand the most possible computing potential for their money. Of course using real tablets as primary devices comes with its own trade offs. Obviously, the primary trade off to make in adopting the lifestyle is in practicality. People who opted to go with the phone capable tablet route will most likely need a secondary device to use in situations where it is not practical (or safe) for them to use their tablets.  Hence this group of consumers are prime targets for smaller sized phones. From my observations, usually these people will look for smaller phones in the lower price bracket compared to their tablets. For example, thos who opted to get the $300 Galaxy Tab 3 7.0 will be more likely to choose a sub $250 communication oriented phone to use as their secondary device whereas those who use the upper midrange Galaxy Tab 3 8.0 will be more likely to chose a secondary phone from either the lower midrange or upper low end group.
With that said, HTC is not the only company out there who are currently hopeless at riding the growth wave in the emerging markets. Although in a much better financial state than HTC, Apple is even worse. All of Apple’s  phones are communication oriented devices that  occupy the upper layer of the high end price group. It is almost silly looking at the high end chart above and see the 4 inch iPhone going head to head with the likes of Sony XPeria Z Ultra and Samsung’s Galaxy Note 3.
This explains why China Unicom just reported that the demand for Apple’s iPhone 5C and 5S had shrunken by two thirds compared to last year’s demand for the iPhone 5 as mentioned here.
Unless these two companies radically change their strategy in the emerging markets,  be prepared to hear more bad news in the future about  HTC and Apple.