Friday, July 06, 2012

A race to the top, or to the bottom?

In the last few weeks, announcements and rumors have been flying about technology leaders launching new mobile computing products:

  • Microsoft jumped into the tablet business with its Surface tablets for Windows RT and Windows 8.
  • Google announced its Nexus 7 tablet, built by Asus.
  • Amazon is rumored to be announcing a replacement for the current Kindle Fire in late July or early August.
  • That was followed a couple of days ago by rumors from reliable sources that Apple plans to announce  a 7" to 8" iPad in September or October.
  • Yesterday, Bloomberg broke a story that Amazon is working on a smartphone to be built by Foxconn, and is trying to acquire patents in order to protect itself from the widespread litigation between smartphone and software vendors.
Assuming that all the rumors are true, it means that Amazon, Apple, Google and Microsoft will be competing directly against each other with tablets and (with the exception of Microsoft) smartphones. The margins on mobile devices are very low--only Apple has figured out how to make solid margins on its hardware. Samsung is making money because it manufactures so much of its own products, and it sells so many of them. No one other than Apple and Samsung makes money on smartphones. As for tablets, Apple makes excellent margins, but according to the latest hardware cost breakdowns, Google is just about breaking even on the Nexus 7, while Amazon is making a small gross margin on its Kindle Fire.

If Apple jumps into the 7" tablet market, will it compete with Amazon and Google on price, or will it add features that they don't have, such as 4G support, in order to command a higher price? How does Amazon expect to differentiate its smartphones from the pack of Android models? When Microsoft's Surface tablets make it to market, will they be competitive?

With everyone cloning everyone else and making incremental improvements, are we nearing the point where there are no clear lines of differentiation for anyone? If:
  • Everyone has access to the same components, 
  • Everyone's trying take advantage of whatever gaps have been left by their competitors until they get filled, and
  • Android Jelly Bean's user experience is finally competitive with iOS and Windows RT,
Doesn't that mean that competition will inevitably come down to the number of apps available, customers' investments in libraries of apps (which affects switching costs) and price? That's a market that looks very much like personal computers.

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