Do you love your smartphone? Of course you do. It's transformed your life in the past five years (except you hate having to fish it from your pocket every time you just want to check the time).
Apple and Samsung love them too. The two consumer-electronics giants now account for a whopping 81 percent of gross profits in handset business.
IHS iSuppli analyst Lee Ratliff reports that in 2007, the year the iPhone was introduced, gross profits for the smartphone industry were $13.4 billion. Last year, they rose to $75.3 billion, or the equivalent of $116 in gross profit per smartphone.
Apple has a 36 percent share of all handset revenue and 52 percent of all gross profits. Samsung's rise has been similarly startling. Its profits have risen eight fold in recent years and last year its gross profits share was second only to Apple at 29 percent.
Mice, crumbs What does this mean for other competitors in the space? Bad news. Former phone kingpin Nokia has a tiny 4 percent market share and the remaining brands have no more than 3 percent each.
The position now held by Apple and Samsung is unprecedented even in an industry known for consolidating profits, and such concentration of power could signal an industry soon to be dominated by duopoly.
"Could signal?" I think the day is already here.
And Good for You...
The Apple-Samsung duopoly is great for their profits but is straining
distributors. The good news is that it won't last forever, unlike Coke and Pepsi.
And this is a problem for the supply chain and distributors in particular right now because of the dominance in consumer electronics by the smartphone manufacturers -- particularly Apple and Samsung -- the distribution business is skewing into this very high-volume very low-margin model. No one wants to turn down that kind of business of course, but it presents longer-term issues in terms of investment and profitability for the supply chain.
Two-edged sword For people, a duopoly can seem like a good thing. It reduces choices in a chaotic world and simplifies one or more processes -- your own personal supply chain optimization if you will.
But duopolies have big downsides.
Think Republicans and Democrats. Think Coke and Pepsi.
Think Intel and AMD in the desktop microprocessor market. That was essentially a cartel until ARM came in with low-power, highly functional processor IP and blew up that cozy world. We now compute on $400 machines instead of $1,600 machines.
And for the supply chain in particular in North America, FedEx and UPS are the shining duopoly at the moment. Yes, they're the greasy wheels of the supply chain, but because they have such a stranglehold on ground shipping in the United States, they can raise prices 5 percent to 6 percent every year.
Larger companies can pass on this increase to consumers, which isn't a great outcome. But what about the small to midsized companies using their services? This is a problem.
Right now, the existence of Apple and Samsung is a boon for consumers and a challenge for the larger electronics industry in the supply chain.
The good news is that we know from even a casual reading of electronics history that this likely won't last the way the Democratic and Republican parties have. Or Coke and Pepsi.
Some disruption lurks just around the bend. What is that disruption? What are your thoughts? Take the poll.