Case Analysis 1
The last few weeks have been marked by much excitement when Samsung announced it would be releasing its Samsung Galaxy 8, which is lauded to be the most attractive smartphone so far. Not to be left behind, Samsung’s chief competitor, Apple, is also poised to release its iPhone 8 around the same time. The above scenario is replicated in every industry today, as companies strive to outperform their rivals with products that feature the latest technologies. Businesses move to newer technologies to create higher profit margins since older technologies tend to depreciate over time. For example, an iPhone 6 would cost much cheaper compared to the newer more advanced iPhone 7. However, as companies pursue the newest technologies to impress their high-end market, they tend to ignore the lower-end customers and the mass market. Neglecting the low-end market presents a major threat to established technology companies: competition caused by the entrance of new companies to address the needs of this market segment. This paper examines the factors that make emerging companies take over markets that were previously dominated by more established competitors. The case study of the Microsoft operating system (MSOS) versus Apple (iOS) and Google Android system will be used to elaborate on the factors. Between 1980 and 2012, Microsoft dominated the personal computer software market. However, as from 2013, Microsoft witnessed a diminished control of the said market, owing to the increased use of iOS and Android in tablets. At the same time, it is crucial to note that tablets can perform the same tasks, if not more, just like personal computers. As well, the case study of how Samsung has overtaken Apple in the US smartphone market will also be used.
Background and History of the Concept
Microsoft is a giant computer software manufacturer that was founded in 1975 by Bill Gates and Paul Allen. For nearly 30 years, the company dominated the market for desktop operating systems. MS operating system, popularly known as Windows, remains the most commonly used OS for personal computers. Between 1980 and 2012, no serious rivals were available in the operating systems market. This situation granted Microsoft a monopoly. Some of the competitors included Linux, UNIX, and Mac OS. Hill, Jones, and Schilling (2014) state that Microsoft’s control of the market stood well over 85 percent throughout the three decades. Further, a network of developers who created products that were compatible with MS Windows solidified the company’s dominance over the market. Unknown to Microsoft, the emerging smartphone operating system would threaten the software company’s position as the dominant OS business.
Smartphones became popular toward the end of the last decade. By 2012, the mobile phone market was flooded with different types of smartphones operating on Android, iOS, or Blackberry (Dignan, 2013). Collectively, these three platforms controlled 90 percent of the Android operating system by the end of 2015. While Microsoft also joined the smartphone business, its operating system (for Windows Phone) accounted for only 3 percent of the smartphone OS market. At first, Microsoft did not face a direct threat from the growing smartphone market since the company’s dominance was in the world of personal computers. However, the smartphone OS was successfully integrated into tablets. At the same time, the same tablets gained increased usability to the extent that they could perform the same functions as personal computers. Presently, Android has overtaken Microsoft as the most popular OS. Android controls 37.93 percent of the world OS market, with a 0.02 percent lead over Microsoft’s 37.91 percent (Hills et al., 2014). While this margin may seem small, it is important to note that Android controlled only about 2 percent of the OS market in 2012. Android is fast replacing windows as the preferred OS for personal phones and computers.
Technology is an integral part of today’s world. It dictates how people lead their lives. Besides making life easier, it also makes the cost of production in industries cheaper. However, the consumer market has benefited most from emerging technologies since they enable better products to be churned out every day. This way, what was new yesterday becomes obsolete today. Indeed, the advancement of new technology has existed since the origin of humankind following people’s endeavors to lead better lives. However, the intersection of business and technology has created a scenario where technologies advance faster relative to the rate at which customers can adapt to the new changes. This situation is caused by the competitive nature of businesses today. At the same time, companies must keep creating new features to maintain an edge over their competitors while also taking advantage of the new technology to sell their products at a premium price.
New technologies are usually expensive. As such, companies use them to target customers who are willing to pay a premium price. As the former CEO of Intel, Andy Grove once explained, companies use new technologies to attract high margins (Phillips & Hwang, 2016). Just beneath the high-end segment, is the mass market that constitutes customers who are not prepared to keep up with the fast-changing world of technology. Customers in the mass-market segment are unwilling to spend on the latest technology, as they are still adjusting to the previous one. For instance, users of Apple’s iPhone 6 and iPhone 5 constitute the mass market while the high-end market is comprised of those who are currently using iPhone 7. The latter group is also targeted by the incoming iPhone 8. Few iPhone 6 and iPhone 7 users will be ready to shift to iPhone 8 at once. In addition, at the lowest end of the spectrum are the low-end customers who cannot afford to purchase the newest technologies. Low-end customers are the most forgotten segment of any technology market.
The low-end market has been termed as “segment zero” because of the low margins involved. The company in question does not cater to them because its products are much more expensive relative to what customers in this segment can afford. Because segment zero consists of a small often-negligible portion of the company’s market, it is easy to overlook. During the late 1990s, Intel’s segment zero consisted of customers who could not spend $1000 on a computer processor (Hills et al., 2014). Since this percentage of the market was so small, it became easy to ignore clients in this category since the company focused on the top-tier market. Grove’s theory as cited in Hills et al. (2014) suggests that such forgotten customers become the focus of cheap technology by other technology companies and hence the reason why new companies join the market to address the needs of a forgotten customer base. More established manufacturers might often not notice the new entrants because they are engrossed with their top-tier market, and partly, the mass market.
The low-end technology by the new entrant will often find a market within the segment zero of the established company. With time, the low-end technology may then move up the market trajectory to reach the mass market. The reason why the new cheaper technology moves up is that it is also advancing faster relative to what the customers are ready to catch up with (Dignan, 2013). Once it reaches the mass market, the older company realizes that its customer base is under threat by the new entrant. At the same time, the once low-end technology does not seem to manifest his or her status any longer. Indeed, the new cheaper technology can transform customers’ preferences in the high-end segment. When Android and iOS were first entering the market, they targeted the customer base that had been frustrated by Microsoft’s Windows. Frustrations could have ranged from not being able to afford personal computers to the difficulty of use. With the new smartphone OS, users can access fast internet without requiring a personal computer. Further, the ease of use of this new technology is exciting to many people. Right from the beginning, the smartphone led huge numbers of people to try it, even those who had not registered any disappointments with Windows. Hence, the smartphone OS was fast infiltrating into the Windows’ mass market. Mobile web/apps present other advantages over Microsoft’s Windows, including the anytime/anywhere phenomenon facilitated by the portability of smartphones.
The simplicity of Android and iOS renders Windows undesirable among many of its previous users. This situation has caused the latter platform to drop in sales across the world. The most installed apps in Windows 8, namely, Chrome and iTunes, are both from companies whose primary goal is to drive Windows out of the market. Additionally, software developers are disappointed by the fact that Windows cannot command the same interest from customers as it did in the earlier days. Previously, every time Microsoft released a new Windows version, developers would create numerous apps and software that would work with the new windows. Of course, developers were interested because there was a ready market. However, the excitement around Windows has since disappeared. The same developers are now creating mobile apps for Android and iOS. This tremendous shift has resulted in a major drop in the market share for Windows OS.
Apple and Google identified a gap in the form of a frustrated Microsoft customer. Many of them belonged to the low-end market of the giant software maker. Ideally, Apple was not as dedicated to this market segment as Google. The reason for this assertion is that Apple was making expensive products, perhaps more expensive compared to Microsoft. On the other hand, Google decided to make products that were cheaply available for its targeted users. Indeed, Android apps are available free of charge and in large numbers at the Google play store. Hence, Google’s Android has emerged as the more popular smartphone OS. Further, it was Google’s idea to transfer the smartphone OS into tablets and subsequently, computers. Today, the Chromebook is one of the serious competitors of Windows desktop. Besides running fully on Android, it can perform nearly all tasks that were traditionally limited to desktop PCs.
The Chromebook has become a suitable replacement for desktop PCs. For one, it is cheaper compared to a laptop, a situation that has made it appealing to cost-conscious customers. While competitors such as Dell, HP, and Apple concentrated on selling high-margin PCs, Google was dedicated to offering cheap, yet quality computers. As explained earlier, these low-end customers have no use for fast computers with fast processors, particularly, because they cost a fortune. In other words, a low-end customer would rather purchase a low-functionality Chromebook at $250 compared to a $1000 HP laptop, especially if he or she has no interest in a feature like the corei7 processor.
Within the smartphone market, there have also been major transformations. To begin with, the term smartphone was solely associated with Apple’s iPhone because the company was the first to create smartphones. Nevertheless, just like Microsoft, Apple ignored its low-end customers by churning out highly-priced and high-margin smartphones. This situation led to a market gap for cheaper smartphones. By September 2008, Google was successfully engaged in developing the Dream (the first Android smartphone), which utilized a Linux-based Android OS. By 2009, major players such as Samsung and HTC were releasing fully functional Android phones based on the Google platform. Because these phones were affordable compared to the iPhone, they received a huge and instant market base. Further, compatible apps were made available at the Google play store. The combination of cheap and user-friendly phones helped to propel the Android OS to its dramatic success in the period after 2012.
The war of dominance between the two giant cellphone manufacturers, Apple and Samsung, can further illustrate segment zero in action. Apple’s iPhone runs on iOS while Samsung’s smartphones run on Google Android. Apple has a tradition of concentrating on high margins while neglecting low-end customers. This tradition can be traced back to its oldest PCs in the late 1980s. On the other hand, Samsung strives to accommodate its entire customer base by releasing various flagships simultaneously. This way, Samsung was able to target Apple’s low-end customers who could not afford the highly-priced iPhones. At the same time, Samsung’s smartphones continued on a steeper trajectory relative to Apple’s low-end customers. By 2014, Samsung Galaxy S5 was already penetrating Apple’s mass market. By late 2016, Samsung controlled 28.8 percent of the US smartphone market against Apple’s 23 percent (Stephan, 2017). The war between these two companies continues, even as they are set to release their latest flagships by the end of April 2017. Apple is fighting from the point of disadvantage, having already lost a portion of its market to Samsung.
The knowledge about segment zero can help any technology company to avoid losing its vital customer base to a competitor. Microsoft’s failure to anticipate the changing trends in the software market cost the giant its title as the leading OS (and other supportive software like word publisher) manufacturer in the world. Similarly, Apple’s neglect of its low-segment customers invited Samsung to lure these clients with cheaper yet user-friendly Android technology. Thus, technology companies must maintain a keen eye for their low-segment market and produce low-end products to meet their needs. In turn, this strategy would solidify both their mass market and the high-segment clients.
Dignan, L. (2013). Android, Apple iOS flip consumer, corporate market share. Web.
Hill, C. W., Jones, G. R., & Schilling, M. A. (2014). Strategic management: Theory: An integrated approach. Boston, MA: Cengage Learning.
Phillips, F., & Hwang, G. G. (2016). Inflection points and industry change: Was Andy Grove right after all? Web.
Stephan, K. (2017). Exploding Galaxies: How to do recalls right. IEEE Consumer Electronics Magazine, 6(2), 99-100.