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Apple-Samsung Duopoly: Great for Consumers, Lousy for Business

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.

Ratliff writes:

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.

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.

11 comments on “Apple-Samsung Duopoly: Great for Consumers, Lousy for Business

  1. Nemos
    March 26, 2013

    Duopoly is bad but better than monopoly, so it is a necessary bad if we want to have a balance in the supply chain , furthermore we need some period of stability in the market instead of a competition war all the time.

  2. mfbertozzi
    March 27, 2013

    It is good in principle, but I don't think the story will last again; products' price from those vendors are really high and other competitors are coming and they are bringing on the field good solutions.

  3. HM
    March 27, 2013

    I think its very healthy. When you have a good competition, consumers can ensure that they wlll always be the winner. Apple and Samsung both are very competitive. Samsung has an edge in Asian market. Apple is very classy.

  4. Eldredge
    March 27, 2013

    Usually there is a more competitive situation when more than two players have a real presence in the marketplace. It will be interesting to see what happens in the smartphone arena in the future.

  5. Himanshugupta
    March 27, 2013

    Unlike electronics, automobile industry has so many players and everyone seems to have identified its forte and market. I hope the same happens to electronics but i guess the main problem with electronic industry is the fast changing environment. In automobile industry one can drive the same car for a decade without really worrying about the new models but the same is not true with electronics.

  6. Himanshugupta
    March 27, 2013

    @mfbertozzi, i agree with you that the premium of the smartphone is very high and for basic purpose we probably do not need such high end hardware and software. Today's smartphone hardware need seems to be due to high end gaming and image processing software requirements. 

  7. Brian Fuller
    March 27, 2013

    @Nemos… “if only” as people might say. I think stability is a thing of the distant past. I don't see any change to the increasing “eat or be eaten” ethos in the electronics business, do you?

     

  8. mfbertozzi
    March 28, 2013

    Well, it is right; at the end the driver is the trade-off involving budget available and enduser's needs. For those reasons, I suppose most people, as you have mentioned, don't need in principle top performer device; basic features cover several services then in the future other vendors bringing devices cheaper, could break the field dominated by Apple-Samsung (as of today…).

  9. Ravenwood
    March 29, 2013

    I miss the point about this all being lousy for business, so I'll re-read the article. In the interim it seems to me business is excellent both from the hardware, software and service providers' points of trade.

    Lousy for Business, or, You Snooze/You Lose  – Nokia is going the way of other complacent corporations (e.g., Digital Equipment Corp., Wang, Kodak). Maybe Blackberry will join that list of has-beens before long. I think business will always be lousy for companys who lose their vision or chose to serve their stockholders better than their markets.

     

     

  10. Brian Fuller
    March 29, 2013

    @Sparky, that's a good point. It got me thinking about your corporate examples. Those companies were disrupted by technologies that were emerging right before their eyes. There's something about the human DNA in most companies that makes it difficult to chart a new, radical course when necessary (hence startups). 

    Savvier companies will grow by acquisition where they can't grow organically. 

    Any bets on whether Apple will, over the next 5-10 years, grow by big acquisitions (which it's not done much of in its history)? 

     

  11. Ravenwood
    March 29, 2013

    re: Any bets on whether Apple will, over the next 5-10 years, grow by big acquisitions 

    If Jobs' essence carries-on I see no big acquisitions. As you stated Apple has no history of large acquisitions, preferring instead to achieve domination through innovation. I do see interesting alliances, however (caution – humor alert): Victorinox-edition iWatches. Great global branding and more applications than a Swiss Army Knife. More far-out? OK, Apple enters the communications market by acquisitioning Iridium then introducing the worlds first satellite-direct line of tablets and smart phones. No more cable, WiFi, 4G. AT&T and Verizon, are you listening? I'm ready to sign-up for iPad 7 with iSky service.

    Oh-yeah, one last thing: It has always been Jobs who told us what we wanted. If Apple proves it lost it's vision when we lost Steve Jobs, they may indeed consider buying other people's ideas. Apple certainly has the cash to buy whatever/whoever they want. 

    – Sparky

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