As Asia-Pacific markets take over, the tech landscape is about to shift

As Asia-Pacific markets take over, the tech landscape is about to shift

Summary: If you think you understand how technology markets work, prepare to adjust your thinking. Western markets, which have dominated for the past decade, are slowing. The biggest growth is in the East, where the rules are completely different.

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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.

Topics: Mobility, Apple, Google, Hardware, Microsoft

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33 comments
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  • It has been seen for quite a while...

    And that new market won't be using Microsoft as they can't afford it.
    jessepollard
    • I don't understand this comment

      can't afford what - the phones? They're relatively inexpensive. Ed noted that small tablets are one of the favoured computing form factors, and Windows is free to OEMs on those... I think it would be hard for Microsoft to improve on that pricing.

      Frankly, I think the East bodes well for Microsoft. Unlike Ed, I think it bodes fairly well for Apple as well. He is right that Apple only sells to luxury buyers, and Apple's share will be a good deal smaller. But the East adds, in raw numbers, millions and millions of luxury buyers, exactly the sort of people Apple wants. So share will go down, but dollars should go up.

      If Apple has a worry here, it is that loss of share can translate into loss of influence.

      As for Android, the only big headache there is Google's China troubles.
      Mac_PC_FenceSitter
    • Analysis is somewhat flawed

      To assume the east is not as sophisticated as the west therefore tables will be the device of choice is not very accurate. The east will still need the ability to use full OS but the majority cannot afford it and that’s why tables are so attractive. Tables are just a starter device which is like buying your first car..enough to get by but easterners will get to a point where full OS will be necessary to fulfill educational and personal needs. Tables are attractive now because it’s cheap but eventually like the west where most have both a tablet and a PC, it will be the same in the east.
      rgatl
      • I don't think you and I read the same article

        Ed didn't say that Eastern consumers are buying tablets out of poverty, and I know of no evidence from any other source that suggests this is so.

        Asian consumers may have any number of reasons for preferring tablets - an elevated need for mobility, homes that are more compact, less invested in the legacy PC industry as a culture... any number of reasons, as I said.

        Most of these reasons suggest the "like the west where most have both a tablet and a PC, it will be the same in the east" premise of your comment may not in fact bear itself out.
        Mac_PC_FenceSitter
  • It's almost like you didn't actually read this

    So eager to comment. -1
    Ed Bott
    • Come on Ed

      It's jesspollard, known ABMer and anti Microsoft troll across multiple tech sites. What else was he supposed to say.
      hoppmang
    • Jesse can read?

      Can he?
      otaddy
    • Completely agree with you Ed

      We can debate all the reason why Eastern markets are not wedded to the same ideas of IT we have here in the West. Bottom line is, be those reason fiscal, cultural, or environmental...they are now irrelevant. And that is by no means a bad thing, we should be looking at this as an opportunity for celebration as we have an emerging society that is largely a blank page, and is perfect test bed for new technologies. This should be especially true for those companies that deal in low margin "consumption" devices and for those that live in the cloud.

      In the West we have to face facts, the PC is dying and taking all the systems with it that made it a huge success. I can see the seachange everywhere I go, in public and in my own home...where often I am the only person who is using a laptop and everyone else is on their tablet. I see it when I am sitting in the Cheesecake Factory and am playing around on my smartphone...and so is everyone in the place. The future of computing is in the cloud and software as a service.

      In the East they don't have to a have a technological revolution. They can just adopt the new cloud based lifestyle from the get-go. Who needs a giant laptop with a full OS, when all most people want to do is to stay connected and consume media. Even at work, we deal increasing with the manipulation of large chunks of data which can be collaborated on by everyone simultaeneously....no need for a piecemeal response where you are constantly emailing back and forth the smallest changes. So let's buck up and take advantage of this new era, and let's have American businesses lead the charge.
      matzah37
    • Looking at it another way

      It's more to do with the current advances in semiconductor technology where the processing power has vastly increased yet power requirements have fallen, allowing you to have a powerful device that you can carry around all day.

      For many years now the Asia pacific market has actually led western markets in technological change and adoption. After all something like 90%+ of all consumer electronics originate from that market.

      The world is an ever shrinking place and so are our devices.
      Alan Smithie
  • This is where Ubuntu Touch

    is headed first and I think the "true convergence" devices running Ubuntu Touch have an advantage, considering how well received Ubuntu has been in markets like Chine. The Chinese government has already asked Dell to ramp-up 1,000 more stores that sell Dell products with Ubuntu pre-installed.

    Android is obviously also well suited and positioned for these markets, but what Ubuntu is able to offer across devices is a pretty big deal in Asia as well.
    BoxOfParts
    • Where's the edit button????

      I meant to saY:

      "This is where Ubuntu Touch

      is headed first and I think the "true convergence" devices running Ubuntu Touch have an advantage, considering how well received Ubuntu has been in markets like China. "
      BoxOfParts
  • But Android Is Not Free...

    And many if not all of its most important OEM's are already paying royalties to Microsoft. So, with Windows now being free for 9-inch or smaller devices, I do think that the Windows OEM's do have an opportunity to compete effectively and meet these markets with cheaper tablets and smartphones.
    deMaelstrom
    • Android is free

      Because no chinese company is paying microsoft royalties, nor do they give a flying fck about paying royalties to half of the western companies. And since they aren't in the USA they can't be sued in a western court where a company thinks its can patent rectangles. So they will actually have to compete fairly with features and abilities for price, instead of artifically inflating competitiors prices with lawsuits over BS patents that should have never existed in the first place.
      Jimster480
      • I thought the article was about

        Western companies trying to compete in Asia-Pacific markets.
        You know the ones who are already paying royalties.
        thekman58
      • Jimster480, I call you a liar

        http://www.zdnet.com/after-hon-hai-microsoft-adds-zte-to-its-hitlist-of-android-patent-licensees-7000014451/
        WilErz
  • Given photos of Hong Kong and China's urban areas

    How long are they going to be called "developing" or "emerging", since they are starting to meet and surpass many developed countries in a number of fields. Or so we're told?
    HypnoToad72
    • There are lots of folks in China

      And they don't all live in those high-rises in Shanghai and Beijing. China's economy will likely outstrip the US's in the coming years, but their population is about 4 time that of the US. Wikipedia shows a Chinese per capita GDP of somewhat more than US$6000, while US per capita GDP is nearly US$50k.

      It's still "developing", but it will eventually be "developed" - but that's probably at least a decade away.
      Flydog57
  • The real question

    Is not how successful western companies will be at making inroads into Asia, but how well they can resist Asian companies from dominating in the west.
    krossbow
    • Its both

      The problem is that most american companies are greedy and most of the market here is just swayed by advertising. And most things are about "less is more", since thats not the way it works in Asia, slowly the western companies will lose markshare as more and more people wake up and realize how much "more" they can get for their money.
      Jimster480
      • right, and the Asian companies are white and fluffy

        grow up already. the world is built by greedy people. that includes corporations. doesn't matter where they are from. you may get more for your buck from Asian companies now but only because this is how they compete against the western. don't count on that lasting, though. as soon as the greedy western companies go out of business the prices Asian companies charge will immediately go up. this has happened with the shoe industry already and the same will happen with any other industry as well.
        vpupkin