I’ve just spent a few days in the Old World, about as far as you can get physically from Silicon Valley, surrounded by 300+ other reporters and analysts from all over the globe. At the IFA Global Press Conference, held on the southern coast of Turkey last week, this large group spent two days trying to understand how worldwide markets are changing and how technology is transforming lives.
Many US tech writers are blinded by a sort of upscale provincialism. Doesn’t everyone zip from meeting to meeting by summoning an Uber using their iPhone? Doesn’t everyone already own a MacBook and an iPad (or two)? Haven’t Apple and Samsung effectively divvied up the smartphone market, leaving no room for new players?
In the wealthiest sections of the US, those stereotypes are probably accurate (or close enough). But the Asia Pacific markets are just getting started. As GfK Asia Pacific analyst Gerard Tan noted in a fascinating presentation, that region contains 61 percent of the world’s population. And they’re following a distinctly different trajectory than their Western predecessors.
Some takeaways from Tan’s presentation:
Tablets are the new PCs. The market for notebook PCs dropped 13 percent in this region last year, while the market share for 7-inch and above tablets grew from 30 percent to 45 percent. And there’s no sign that either of those trends is temporary.
Tablets are also the new TVs. “Across emerging Asia,” says Tan, “video streaming and available programming are [slowly] taking the consumer eyes away from a TV-viewing family experience to a more personal activity.” In the Asia-Pacific market in 2014, GfK estimates that two tablets will be sold for every flat-panel TV. On a related note, it’s no accident that sales of oversized smartphones, or phablets, are growing faster than the rest of the category, because they make that sort of personal viewing easy.
PC prices are plunging. The average price of a notebook PC dropped 12 percent in the past three years; measured in US dollars, that’s a drop from $816 to $715, which means PC makers are not only selling fewer machines, they’re bringing in less revenue for each sale. In a cutthroat, low-margin business, that’s bad news for smaller players. Lenovo, which has mastered the art of profiting in low-margin markets, isn’t complaining.
The average price of a tablet is dropping too. Three years ago, tablets were mostly large, luxury devices, selling for an average price of $745. In 2014, that average price has been cut in half, to $374. The market dynamics are different from PCs, though. It’s those smaller, cheaper (under $200), consumption-oriented devices, many of them made by "white box" manufacturers in China, that are fueling growth.
So who wins and who loses in this brave new world?
Among the current, established leaders, Apple is perhaps on the shakiest ground. Its high-end products appeal to a much smaller percentage of the population in emerging markets, and so far there’s no sign of a low-cost iPhone or iPad.
Android-based devices are likely to be extremely successful, if only because the operating system is free and already ubiquitous. It’s less clear whether Google can continue to convince device makers to adopt its flavors of Android or whether forked, localized, Google-free alternatives will dominate.
Microsoft and its just-acquired Nokia mobile business, now renamed Microsoft Mobile, are a complete wild card.
In the Western world, Microsoft’s success has been dominated by Windows PCs running Microsoft Office. Western businesses are likely to continue spending heavily in that category, which is good news for the company's bottom line. But that model doesn’t work in emerging markets, as the former CEO of Nokia and now head of Microsoft’s devices group, Stephen Elop, admits.
“The vast majority of people do not have, nor will they ever have a personal computer,” Elop said in a release announcing the close of the Nokia acquisition. “They haven't been exposed to Windows or Office, or anything like that, and in their lives it's unlikely that they will. And yet through the mobile phone business we have an opportunity to introduce what we like to call the next billion people, the next billion people to connect to the Internet, to Microsoft…”
Those billion people aren’t going to use PCs or Macs or iPads. Instead, they’re likely to buy multiple small, cheap devices. It’s likely the next four billion devices will come from those markets, whose customers are extraordinarily unlike the wealthy Western buyers that defined the first wave of the mobile computing revolution.
In the developed West, where habits and market shares are already clearly defined, the game is easy to understand and hard to change. But in the East, there’s a new game, with a new set of rules. And, most importantly, a brand new clock that’s only just started.
Disclosure: The IFA organization subsidized my travel to the 2014 Global Press Conference.