Buying Marketshare-Things to consider with iPhone, Android and others
Buying marketshare
Some interesting analysis about what happened and continues to happen to Nokia, especially interesting in light of there WP7 deal.
It will also be interesting to keep in mind given the massive growth of Android in terms of pure marketshare while there appears to be little to no profits. I'm sure everyone here understand average selling price and how a lower one can help a company have gain larger marketshare. The reason linked to this and noted it was because I've not heard it put the way it was worded here and I liked the phrase, "buying marketshare." It takes the mind from one of thinking of marketshare as only associated with profit and moves it to the expense side as well.
First as iPhone owners, it is clear Apple hasn't been purchasing marketshare. Nothing about their current or prior sales shows this.
The thing I like about this is conceptually when discussing with someone about why a certain platform has grown so much is that you can throw out phrases like buy one, get one and and they usually get dismissed. They will say Apple's margins are too high or that the other companies are more efficient. Yet if there isn't a profit being generated, you can tell them, that they have to consider the marketshare an expense that isn't reflected in their cost of components. Why does Apple have all the profits? It is because all their competitors have the very large expense of purchasing their marketshare.
Quote:
A major reason why the investors were demanding OPK to step down was because Nokia's profits were dwindling. Nokia had not followed Ericsson, Motorola, LG and others into making losses, but Nokia used to be a powerful profit factory in mobile phones. Now that was Apple, and Nokia was struggling to keep its head barely above the water. The profits were becoming razor-thin.
Now lets go back to history. From Q1 to Q2, Nokia profit margin and ASP for smartphones declined, but its market share grew! From 37% to 39%. We know after Q2, Nokia's market share has been in free-fall and its average sales price and its handset profit margin has not recovered in similar proportion. What does this tell us. I think I know the answer for the market share crash. I think the evidence is overwhelming and the pattern is perfect. OPK had been buying market share into early 2010, by propping up an un-sustainable level of market share - by heavy discounts and/or marketing support of carriers/operators.
This is what I mean. The 'real' market share for Nokia in Q1 should have been about 35%, but Nokia offered big discounts to the major carriers, said, 'sorry the N8 is delayed, please keep selling Nokia phones' and this boosted Nokia's market share artificially to 37%. But it hurt average sales prices and profit margins. Then the N8 and new Symbian OS is delayed further during Q2, and Nokia comes back to the carriers and say, wait - hold on, please keep your order levels as what they were and we'll double our discounts for you. The real market share should have been about 33%, but Nokia props up the sales with huge discounts, selling most phones effectively at zero-margin - and cause the real market share to grow to 39%. But the profitability of the handset unit is near zero.
The Board finds out about this, and decides to stop the practise and issue an edict, no more buying market share. Nokia's real market share now starts to fall. It should have been 31% in Q3, but falls to 33% (some delaying factors) and with no further massive discount actions - the market share continues to fall to 29% today. It is where Nokia's market share should have been 'naturally' and meanwhile, Nokia's handset unit is returning a reasonably healthy profit margin of 12% and the average sales prices are significantly up in the past half year.
Obviously Nokia Board is not satisfied that OPK used such means, and fires him and hires Stephen Elop to come to run the company. Stephen Elop is told the reality, he is not alarmed knowing that there was false performance in the company, and its real market share in smartphones without the 'bought market share' is somewhere in the 30% range. He is not alarmed and he continues the same rules, lets compete on real prices and real products, lets not buy market share.
There is an interesting twist to the story: T-Mobile. Remember T-Mobile USA announced it would be selling some Nokia phones, and then it suddenly withdrew that. I was very puzzled by that - it does speak to me, that there was an internal deal, Nokia promised the phones at some deep discount, or else, Nokia had bundled some big marketing campaigns sponsored by Nokia to help T-Mobile. After the new CEO came in and ended such practises, T-Mobile is upset and cancels the launch. This makes sense. But remember also, OPK had previously committed to recovering US market for Nokia, so the easiest way for Nokia to do that, would have been to try to buy market share in the USA, by discounting deeply its phones for the US market.
I think this is the reason. I think all evidence fits the theory, and no other viable suspect can fully explain, why Nokia market share grew from Q1 to Q2, then suddenly in Q3 and again Q4, Nokia market share fell like we've never seen in the mobile industry. I think it was a house of cards that Nokia had tried to build - probably well-intentioned, thinking that as the N8 and Symbian S^3 was delayed (again) that they needed to do this. It fits perfectly with the corresponding price changes, profitability changes and the management change. I think what we now are witnessing is a 'correction'. The Nokia market share in smartphones of about 35% in 2010 was an unsustainable illusion, propped up by enormous price cuts. It was not sustainable. The real market share level is closer to 30%, perhaps 29% or less. Still biggest in the world but far less dominant. The Nokia Board saw what was happening, did not appreciate it, and fired the CEO and hired a new guy to take the company onto a more sustainable, healthy path. I am pretty confident this is what has happened, but I am very interested in your view, what do you think?
A major reason why the investors were demanding OPK to step down was because Nokia's profits were dwindling. Nokia had not followed Ericsson, Motorola, LG and others into making losses, but Nokia used to be a powerful profit factory in mobile phones. Now that was Apple, and Nokia was struggling to keep its head barely above the water. The profits were becoming razor-thin.
Now lets go back to history. From Q1 to Q2, Nokia profit margin and ASP for smartphones declined, but its market share grew! From 37% to 39%. We know after Q2, Nokia's market share has been in free-fall and its average sales price and its handset profit margin has not recovered in similar proportion. What does this tell us. I think I know the answer for the market share crash. I think the evidence is overwhelming and the pattern is perfect. OPK had been buying market share into early 2010, by propping up an un-sustainable level of market share - by heavy discounts and/or marketing support of carriers/operators.
This is what I mean. The 'real' market share for Nokia in Q1 should have been about 35%, but Nokia offered big discounts to the major carriers, said, 'sorry the N8 is delayed, please keep selling Nokia phones' and this boosted Nokia's market share artificially to 37%. But it hurt average sales prices and profit margins. Then the N8 and new Symbian OS is delayed further during Q2, and Nokia comes back to the carriers and say, wait - hold on, please keep your order levels as what they were and we'll double our discounts for you. The real market share should have been about 33%, but Nokia props up the sales with huge discounts, selling most phones effectively at zero-margin - and cause the real market share to grow to 39%. But the profitability of the handset unit is near zero.
The Board finds out about this, and decides to stop the practise and issue an edict, no more buying market share. Nokia's real market share now starts to fall. It should have been 31% in Q3, but falls to 33% (some delaying factors) and with no further massive discount actions - the market share continues to fall to 29% today. It is where Nokia's market share should have been 'naturally' and meanwhile, Nokia's handset unit is returning a reasonably healthy profit margin of 12% and the average sales prices are significantly up in the past half year.
Obviously Nokia Board is not satisfied that OPK used such means, and fires him and hires Stephen Elop to come to run the company. Stephen Elop is told the reality, he is not alarmed knowing that there was false performance in the company, and its real market share in smartphones without the 'bought market share' is somewhere in the 30% range. He is not alarmed and he continues the same rules, lets compete on real prices and real products, lets not buy market share.
There is an interesting twist to the story: T-Mobile. Remember T-Mobile USA announced it would be selling some Nokia phones, and then it suddenly withdrew that. I was very puzzled by that - it does speak to me, that there was an internal deal, Nokia promised the phones at some deep discount, or else, Nokia had bundled some big marketing campaigns sponsored by Nokia to help T-Mobile. After the new CEO came in and ended such practises, T-Mobile is upset and cancels the launch. This makes sense. But remember also, OPK had previously committed to recovering US market for Nokia, so the easiest way for Nokia to do that, would have been to try to buy market share in the USA, by discounting deeply its phones for the US market.
I think this is the reason. I think all evidence fits the theory, and no other viable suspect can fully explain, why Nokia market share grew from Q1 to Q2, then suddenly in Q3 and again Q4, Nokia market share fell like we've never seen in the mobile industry. I think it was a house of cards that Nokia had tried to build - probably well-intentioned, thinking that as the N8 and Symbian S^3 was delayed (again) that they needed to do this. It fits perfectly with the corresponding price changes, profitability changes and the management change. I think what we now are witnessing is a 'correction'. The Nokia market share in smartphones of about 35% in 2010 was an unsustainable illusion, propped up by enormous price cuts. It was not sustainable. The real market share level is closer to 30%, perhaps 29% or less. Still biggest in the world but far less dominant. The Nokia Board saw what was happening, did not appreciate it, and fired the CEO and hired a new guy to take the company onto a more sustainable, healthy path. I am pretty confident this is what has happened, but I am very interested in your view, what do you think?
Some interesting analysis about what happened and continues to happen to Nokia, especially interesting in light of there WP7 deal.
It will also be interesting to keep in mind given the massive growth of Android in terms of pure marketshare while there appears to be little to no profits. I'm sure everyone here understand average selling price and how a lower one can help a company have gain larger marketshare. The reason linked to this and noted it was because I've not heard it put the way it was worded here and I liked the phrase, "buying marketshare." It takes the mind from one of thinking of marketshare as only associated with profit and moves it to the expense side as well.
First as iPhone owners, it is clear Apple hasn't been purchasing marketshare. Nothing about their current or prior sales shows this.
The thing I like about this is conceptually when discussing with someone about why a certain platform has grown so much is that you can throw out phrases like buy one, get one and and they usually get dismissed. They will say Apple's margins are too high or that the other companies are more efficient. Yet if there isn't a profit being generated, you can tell them, that they have to consider the marketshare an expense that isn't reflected in their cost of components. Why does Apple have all the profits? It is because all their competitors have the very large expense of purchasing their marketshare.
Comments
The kicker: it pushes Apple and Google to make better products, while MS just wastes its stupid and ill-begotten money.
I've used many versions of Windows for mobile devices and it's always sucked. I'm sure they'll fail. IE is on its way out. Windows on mobile is, too.
Apple makes good products, albeit closed on mobile. Google makes decent mobile products that are open. MS makes crappy product that are extremely closed and anti-competive. I hope MS gets screwed on this! Then we all win!