Apple, Samsung & The Great Cluster

A lot has happened since the advent of iPhone in 2007, birth of long tail of startup brands in smartphone space to end of an era for the then market leaders either in form of acquisitions, mergers or exits from the market. We have seen it all and reached a stage where the market is dominated by just couple of big brands with lion share and everyone else is competing within themselves. However, there is enough growth still left in smartphone space which could change the current polarized landscape in the next cycle. But the long-term growth won’t be easy for these long tail brands as the growth potential is entirely dependent on one important factor: unique business model.

The Great Cluster

The Smartphone Cluster

 As we can understand from the chart above:

  • The market is divided into two parts now — one half dominated by Apple & Samsung and the other half dominated by hundreds of other brands. Its a natural distribution of premium-high tiers competition in one half vs. mid-low-tier in other half. Though Samsung tries to compete in both the halves but the first ‘high-value’ half is critical for generating healthy operational profits
  • So, Apple & Samsung have captured nearly half of the market and the market share performance have become highly interlocked & a mirror image of each other, see-sawing between the two every quarter in that half of the market. Together they have captured two-third of the industry revenues
  • The other half of the market what we call as “the great cluster
  • Out of the great cluster, the next top ten smartphone brands (with combined 33% share), it has been an immense struggle to grow past 3-5% individual marketshare
  • The key reason being these firms have been outcompeted by Apple & Samsung’s stronger business model comprising of effective vertical integration capabilities, ecosystem play and marketing muscle to lock-in a segment of market within their respective brand promise
  •  Out of these next top ten brands we believe a few brands are well-positioned to have real long-term chance to break out of the cluster as they can pivot to stronger business models quicker than others
    Microsoft Mobile – Nicely positioned to ramp up with a strong ramping ecosystem, marketing muscle and mult-screen strategy 
     – Stronger vertical integration capabilities with broader consumer electronics portfolio and growing experience curve in smartphones design
  • Xiaomi – Xiaomi has been able to disrupt it has a business model which has worked successfully so far with certain help of clever marketing and leaner go-to-market strategies
  • While brands such as Lenovo will no doubt move up the rankings with the help of Motorola acquisition to third spot in the coming quarters but Motorola’s Xiaomi like go-to-market strategy is not backed up by a stronger content/services/custom OS play making it unsustainable to lock-in users for a long time
  • On the other hand Sony can ramp up banking on synergies across its broader business but current weaker operational performance needs to be improved to successfully leverage the assets (content, consumer electronics, etc)
  • Brands such as Huawei which have a strong corporate footing in enterprise side but with limited focus on consumer side it will find it difficult to break out of the cluster
  • So the rest of the traditional brands which do not have a business model yet will find it difficult to grow consistently just based on winning small specs, design differentiation, pricing and advertising battles
  • These brands will have to either acquire, merge, be acquired or eventually exit from the segment or find a strategy to build a sustainable business model to grow and lock-in the user base

It is very important for any company to break out of  this cluster and fuel growth. We at Counterpoint help companies by not only offering insights and advising on competitive landscape to form tactical short-term strategies but also help them to identify, develop and execute winning long-term strategies to outgrow competition, strengthen operational performance in this rapidly-evolving business environment. Reach us out at for custom insights, engagement or workshops.