by TM Arun Kumar

Smartphones? Dumb Move

Jul 23, 20134 mins
BusinessConsumer ElectronicsEnergy Industry

At a time when even established smartphone players are struggling, HP and Lenovo announce their entry into the market. Right now, it seems like a dumb strategy.

Arun has covered the IT industry in India since the time 80386 was cutting edge, MS DOS was the predominant desktop OS, and Internet was still a few years away.

What makes traditional PC vendors think they can succeed in the smartphone business?

Afew weeks ago, newspapers, news Websites and magazines screamed a headline: HP eyes smartphone market. HP to re-enter smartphone market, proclaimed another. Lenovo to enter smartphone market and Lenovo enters smartphone market, thundered others a few weeks before that.


Nothing unusual or surprising there. Companies routinely look for the next area or opportunity for growth and enter those after careful analysis of their potential to succeed. However, it’s a different matter that many a time, the analysis might be wrong or their potential to succeed in their new venture overstated. But we’ll get to that a little later.


Now, HP and Lenovo entering the smartphone market is not very surprising. Their traditional PC business is, to put it mildly, not in the pink of health, and things on that front are projected to only get worse before getting any better, if one goes by the forecast of analyst firms like IDC and Gartner.


At the same time, the smartphone and tablet markets are booming as the tech consumption patterns in consumer IT space change. Given that scenario, it is but natural that PC manufacturers are clamoring for a slice of the growing tablet or smartphone pie.


So far, so good.


But, the real question is, what makes traditional PC vendors think they can succeed in the smartphone business? There is no denying the fact that there is a market out there to be tapped into, but do these companies have the firepower to launch compelling products that consumers would be eager to buy? And this question gains even more importance, considering the fact that vendors like HP and Dell have already in the past entered the smartphone market, failed miserably, and in the process, got their hands burnt and suffered huge financial losses. Case in point: HP’s Slate and Touchpad, and Dell’s Streak.


However, traditional PC vendors venturing into the smartphone and tablet arena would argue that they do have the component sourcing ability and manufacturing prowess to come out with the products that the market demands. And it is not that they haven’t successfully targeted and serviced the consumer market in the past, so why can’t they do it again? And to an extent they are correct, but only to an extent.


Yes, they might be able to produce the tablets and smartphones, but how are they going to reach the consumer? The smartphone distribution model is a little different from the old PC distribution model because in many markets, especially in the US, mobile operators play a huge role by cross subsidizing handsets with locked in contracts. As a result, the operators have a greater say in determining which handset the end-user buys. So, how are the new aspirants going to crack this open?


Besides, history is loaded against them. Take a look at the current smartphone kings: Apple and Samsung. While the former got booted out of the PC market (I know Mac fans will vehemently say that a Mac isn’t a PC), the latter didn’t have a PC legacy worth mentioning. And whom did they boot out in the mobile phone market? Nokia, which essentially was a paper company! And, did Nokia have a great background in the telecom or technology market?


And whom all did Nokia muscle out of the mobile phone market? The established telecom giants of that time, that is Siemens, Alcatel, Ericsson and the likes. And did those telecom giants succeed in the mobile phone market in spite of the fact that they were established telecom players? Again, sadly for them, no.


So, the point is just because there is a market and you have some background in it, doesn’t necessarily mean you will succeed. Also, these companies are rank outsiders who have little or no background in the area that has succeeded, especially when it comes to new and innovative tech products.


And finally, it is not that the market is devoid of any competition at all. On the contrary, it is rather crowded. Think of companies such as Micromax, Lava, Spice, etcetera, and what they are doing to the market. These new players will also have to fight the bigwigs like Apple and Samsung. Do these HPs and Lenovos really think they can come up with products that can command a premium in the market like Apple or Samsung do?


Smart move or a dumb strategy, only time will tell. But, at this time, it seems like the latter.