The Smartphone Manufacturers Are Turning into PC Manufacturers. But Should They?

October 31, 2011
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Kevin Tofel from Gigaom seems to think that even though HTC has seen incredible growth so far, also proven by their latest quarter results, they might start seeing flat growth very soon, and I tend to agree with him on this. If they want to keep growing, HTC will need to re-evaluate their strategy very soon.

HTC has a few problems that will expand in the future, from higher prices compared to competition for similar specs, the rise of inexpensive smartphones from Huawei and ZTE, to lack of patents and having to purchase a lot of technologies to put into their phones, while others like Samsung can build them themselves.

But I think the biggest problem not just HTC, but also Samsung and others will face in the future, is the commodization of their devices. Worst of all? It’s not Android causing most of that. It’s themselves who are going down that path by following the strategies of the PC makers.

Just like in the PC market, they’re trying to flood the market with different devices that are actually more or less the same – all in the name of releasing something “new” to give them an extra temporary sales boost. But just like a drug, in time it starts losing effectiveness, and it ends up hurting them instead the more they do it. It dilutes their brands and confuses the customer, while reducing their margins and increasing the complexity of their business (thus rising costs).

HTC is one of the worst offenders here, but Samsung is doing it more and more, too. Take the Galaxy line for example. At first there was only one Galaxy – the Galaxy S – which actually meant something for people, and to a point, it still does, with the Galaxy S II selling even faster than Galaxy S. But Samsung is already on their way to erode the brand, by dividing it into 4 main categories, which I think it already confuses most people: Galaxy Y, W, R and S.

And now, they’ve already started splitting the S one, too – S II (original), S II LTE version, and S II HD version. That’s without mentioning the T-mobile version which has a very different CPU inside, so it’s sort of a different phone, too.

They’re going down a very bad path here, which will result in confusion for the customer (which version is the right one?), frustration (that a 5% better version is out 2 weeks later), lower profit per model, and higher costs of managing all these different devices, especially when you take into account that they have to (or should) upgrade all of them to the latest versions of Android, at least for a while.

I wonder if they even realize they are going down this path. My guess is they don’t and they can’t see the forest from the trees. They’re stuck dealing with this sort of strategy quarter after quarter, that they can’t even think about the long-term bigger picture strategy anymore.

The more devices they push out like this, without real identities, and looking much like 3 other devices they’ve already released, the harder it will be for people to recognize the devices themselves. HTC should follow Samsung’s strategy of releasing one blockbuster phone per year as their flagship. They might’ve tried doing that with Sensation, but I think they should’ve tried harder. They really need to focus hard on a device like this, to make sure it can’t be beaten for at least several months.

When Samsung releases a Galaxy S phone, it’s usually the best one for the next 6 months or so. Unfortunately, Samsung is starting to get addicted to this “sales boost” strategy, too, and if they keep releasing an updated version of the Galaxy S II every 2 months from now, people might be disappointed with the Galaxy S III, because it will look like just an incremental improvement compared to the latest upgraded model of GS II, rather than a dramatic improvement, which is what people are waiting for and what they want.

That sales boost strategy has kept the PC manufacturers on razor thin profits, and it’s what will happen to the smartphone manufacturers, too, if they keep this up. This is not about what OS they are using. They would do the same with any OS. It’s about how they go about making their devices every year. If they want to have devices that people love talking about and promote to their friends, and devices that have real identities, they need to make fewer of them, that are really good, and get updates for a long time.

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