Mobile Industry

After the revolutionary of the phone industry in 1990s, where the phone able to send SMS. The manufacturers began to work together with the content produces and entertainment industry in order for them to increase more features to the phone. This forced the companies to support increasing R&D expenses. They then began to outsource the components and applications using their economy of scale in order to focus on the more value added activities such as their core strength, which are R&D, marketing and sales. This allowing original design manufacturers (ODMs) develop and sell their prototypes to the handset companies. Although this help the handset companies to reduce the cost of both R&D and designing. It also helps to diversify their phone range quickly. However by educating the ODMs, they are turning them into their computers. Together with the increase in the number of features in the phone nowadays, causing the PC makes to step into the handset segment. The handset industry became an intense competition, as everyone is potential to become a customer.

The design of the handset became important as soon as the features of the phone became less distinct, the customers then began to buy their phones according to their lifestyles. According to Haikio 2002 claimed that the mobile phones have been increasing think as a fashion accessories. The handset companies often have partnership with the fashion houses such as LG Prada. Fashion is changing fast according to trends, it also hard to cover different segment at once. So the companies often innovate new technology to gain more customers. Most of the current handsets released their new model every year. In order for them to keep up technology with their competitors and avoid changing too fast causing them to spend too much on the R&D and not getting enough sales to cover up their expenses. Hence as the changes are happen fast, the companies often find that their former strategies are no longer successfully leading them to success effectively. They then tried to find their new market that then eventually will disrupt the existing market. In the mobile industry, the functional phones had been disrupted by the PDA phones, and it then disrupted by the smartphones.

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The handset industry is consistent of customers ranging high demanding one of high end and less demanding one at low end. It is illustrated using the bell curve on the right side below. The dotted lines are the customer’s level of satisfaction of the phones. It is slowly changes over time and the lines that are steeply incline representing the innovation from the companies. Steve jobs claimed that the customers often do not know what they want. Hence those lines have to be steeper due, as they have to innovate their handsets faster than the customer satisfaction using their advances in technology.

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As the lines are moving in the trajectories lines, it will over exceed the customer satisfaction, leading to an increase in the customer demands making them be more willing to pay the handset at the premium prices. As the level of customer of satisfaction changes and the new disrupted technology rises and exceeding the new customer satisfaction. The customers are then will be moving the segment from using the old technology to the new technology E.g. the moving of feature phones into the smartphone segment. Then the rest of the R&D of the old technology became redundant causing the company to spend wastefully. The new technology line started higher as the result of first mover, hence the companies studied the old technology and integrate it into their new technology, causing them to save their time and money.

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In order for the companies to avoid the innovation gap, avoiding the downfall of the revenue. The company often start the next technology, while they are gaining the revenue from their current product. At first the line of S-curve is not steep is because of the demand is still little as they are in the innovators and early adopters period, causing them to have low volume. This will cause them to have higher cost at first, as appeared in the economy of scale graph on the right, but over time, the cost to manufacture will decrease as the volume is gained.