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Apple Needs Bigger Guns to Fight the Global Smartphone War

Harsh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The fight amongst the plebeians in the smartphone war is quite interesting as I pointed out in the first part of this series. While it seems Nokia is already on the road to redemption with its mix of premium and budget Windows Phones, Research In Motion (NASDAQ: BBRY) would be unveiling its potentially soul-saving BB10 platform later this month. But the royalty in the smartphone empire belongs to two companies, Google (NASDAQ: GOOG) and Apple (NASDAQ: AAPL).

2012 turned out to be a year when the Google Android army, led ably by Samsung, managed to go one up on Apple. As a Gartner study reveals, Android’s market share grew by almost 20% in the third quarter of 2012 from the previous year while iOS shrank by 1.1%. The study doesn’t put both Google and Apple on the same footing, considering Apple had just released the iPhone 5 while the best-selling Android device was already in the market for around 5 months.

In a more updated report by Kantar Worldpanel ComTech, it emerged that Apple clocked its highest-ever share in the U.S. at 53.3%, thanks to the iPhone 5. Undoubtedly, the iPhone can further extend its lead once the holiday numbers flow in, but on a global basis Android is still the clear winner. This means that the problem for Apple is not in the U.S., but in the global market.

As I said in the previous part of this series, I spent some time with an iPhone 4S. The OS was clean, the phone snappy and everything worked perfectly. Gameplay was superb and apps were great. Being the tinkerer that I am, lack of customization like that on Android did pinch me, but the phone worked like a breeze and was one of the most efficient devices I have ever used.

A Pricey Proposition

So what ails the iPhone? Well, it’s pricey. The price might not be a problem in Apple’s home market, as it sells for $199 on contract for the 16GB model while the same model costs $649 without contract. But the situation is quite different in the world’s most populous nations, China and India. In China, China Unicom and China Telecom ask for deposits of around $947 and $928, respectively, for iPhone on contracts initially.

The subsequent credits depending on the contract length do make up for the upfront payment and the initial success of the phone in China indicates that it would be a hit there. But absence from China Mobile’s network, the biggest in the country, has hurt Apple so far as it has seen its revenue share from the region decline. Moreover, how many consumers would mind forking out such a heavy amount initially when they have lots of great alternatives available is a question that still remains to be answered.

Budget smartphones are a huge hit in China and the likes of Xiaomi, ZTE, Huawei and others are sitting on about 70% of the market. The reason behind their popularity is the low price at which they sell, and also manage to deliver a premium experience at one-third the price of an iPhone. The market is occupied to such an extent by the Chinese phone companies that even Samsung, with its low-end offerings, might find it difficult to compete.

The situation in India, the world’s second-most populous nation after China, is even worse. Firstly, there is no contract system in the country, and the iPhone 5 costs a whopping $837 to make matters worse. This is higher than a Samsung Galaxy Note II, which costs around $688 dollars. Sky high pricing has effectively made the iPhone an elite-class luxury product in India while Samsung’s Note II and Galaxy S III continue to sell in good numbers. Apple’s share of the Indian market is a measly 1.2% while Samsung commands 51%.

Thus, exorbitant pricing in India and a rocky road in China makes it difficult for Apple to succeed in regions where 36.5% of the total world population resides. In addition, the company continues to trail Samsung in Europe according to Kantar Worldpanel, with even the two-year old Galaxy S II beating the iPhone 5 in the U.K.

Keep The Wheels Moving

But this doesn’t seem to be the only problem for Apple’s most successful device. After the iPhone 5 was released, many said that Apple released a new phone with minor improvements and lacked innovation. Apple might have thought why change something that’s doing well, but this is one of the reasons why RIM is in a quagmire now.

The BlackBerry maker’s outdated OS was taken over by iOS and Android, and it is currently fighting to save itself. Apple should always keep RIM’s misfortunes in mind and it needs to keep the wheel of innovation moving. Minor improvements won’t work as Android has come of age and is perfectly positioned to compete with the iPhone, and Samsung’s ambition of shipping close to 400 million smartphones indicates in that direction.

The smartphone arena is buzzing with innovation with Android continuously evolving and new platforms such as Sailfish OS, Firefox and Ubuntu along with Samsung’s Bada and Tizen looking to impress. Under such circumstances, Apple would need to deliver something outstanding with the next iPhone like it did when it released the iPhone 4.

Moreover, one more reason why Samsung has continued to march aggressively is because of its fast global roll out of devices, apart from streamlined pricing and compelling features. In comparison, the iPhone 5 took around three months since its September launch to cover the globe. Apple needs to make a concerted and strategic push into global markets if it has to keep its astounding growth story intact for a long time.

Final Words

Meanwhile, Google’s Android OS has maintained its supremacy handsomely, beating iOS and other platforms to pulp. But even Android isn’t infallible, and the possibility of more platforms coming into the market would make the going difficult for it. Samsung and Google have gone hand in hand so far, but there’s a possibility that the two of them are shadowboxing at the moment.

Tune into this space again for the final part of the series, and see what threatens the popularity of Android the most. It’s not just Apple, it’s not just Microsoft, but the two pioneers who have taken Android to its current heights as well that threaten its dominance.

TechJunk13 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Google. Motley Fool newsletter services recommend Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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