Fallen Smart Phone Giants Look for Love in the Bottom of the Market

Fallen Smart Phone Giants Look for Love in the Bottom of the Market

Oh, how the mighty have fallen

First, it was Nokia, the onetime worldwide leader of smart phone sales, stumbling badly into single digit market share and then finding a modicum of success last year in the most unlikely of places: The very low-end of the market, where sub-$100, contract-less smart phones rule. But Nokia isn't alone in blazing a trail to the bottom of the market. This week, two other formerly dominant industry players, Blackberry and Motorola, announced similar plans to revitalize their own badly damaged businesses.

Will it work?

Nokia's former CEO, Stephen Elop—who later oversaw the purchase of Nokia's smart phone business by Microsoft—once infamously referred to the firm's Symbian-based phones as "a burning platform," one that at the time was quickly shedding both share and profits. "We missed big trends, and we lost time," he wrote in his Burning Platform memo to Nokia employees in 2011. "We now find ourselves years behind."

Elop did what he could to turn Nokia around. His decision to adopt Windows Phone rather than Android was controversial, but well-argued and well-intentioned. It did nothing, however, to reverse Nokia's downward spiral. And the firm continued to lose share, and money, over the intervening couple of years until Microsoft swooped in and bought the company's smart phone assets (and, in my opinion, its soul) before it could fall apart completely.

But there was a bright spark of hope in Nokia's last year as a standalone maker of smart phones. Suddenly and unexpectedly, the firm's sub-$100 Lumia smart phones started selling well. The firm commanded double digit market share in several key countries in Europe, South and Central America and Asia. It found success in a part of the market that the market leaders—Samsung and Apple, primarily—had either ignored completely (Apple) or had relegated to other companies.

The key to Nokia's success in the low-end of the market isn't just that the phones are inexpensive. It's that they are still full-featured, with unique personalities. They aren't knock-off versions of more expensive devices, as cheap Samsung devices are. By respecting the audience, Nokia belatedly found success.

It was too late to save Nokia, though Microsoft will surely continue down this same path in selling these devices going forward. But Nokia—sorry, Microsoft—will find that the low-end of the market is going to get a lot more crowded.

This week, Motorola announced a new entry-level smart phone, the Moto E, which combines mid-level specs—a dual-core (rather than quad-core) Snapdragon processor, 1 GB of RAM, and a smallish 4.3-inch display—with the latest Android version, and some surprisingly nice details. It features an all-day battery, is water resistant, has micro-SD storage expansion, and has interchangeable color shells for a personalized look. It costs just $129 in the US, with no contract, and will be heading to other markets soon.

And this week, Blackberry, which once ruled the US smart phone with the same type of dominance that Nokia wielded in other parts of the world, launched its own budget smart phone, albeit specifically for the Indonesia market. The BlackBerry Z3, Jakarta Edition is based on the high-end Z30 phone but costs less than $200. It is being made in partnership with FIH Mobile, a contract manufacturing giant in that country. The custom-made Z3 is seen as a test of this part of the market, and if it's successful, it could be used as a recipe for relaunching Blackberry in other markets too.

While the low-end of the market promises higher volumes, as Nokia has discovered, it also leads to lower margins in a market in which margins—for everyone but Apple—are already razor-thin. And that's a problem for independent, cash-strapped firms. Which explains why both Nokia and Motorola have been bought and sold in recent months by richer firms like Microsoft, Google and Lenovo. It may also explain why Blackberry, which has chosen thus far to move forward alone, has even fewer options. 

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