South Africa will see a blend of mature market characteristics combined with elements of a developing market, which will allow for high growth, an influx of lower cost handsets and a keen awareness of brand and status.
Close to two million mobile handsets are sold per day. The global market for these is now worth more than US$100 billion, with trends in handsets bringing massive implications for other players in the mobile ecosystem.
The research programme for this study involved 40 key stakeholders, including handset suppliers, network operators, content/gaming providers, software developers and digital camera manufacturers. The aim was to develop an all-round view of the handset industry's development, and devise a roadmap to future success factors.
Each of the three emerging business models - global leaders, low-cost competitors, and niche vendors - will have its own strengths and weaknesses.
Global leaders will be able to take advantage of their scale and scope to compete on both price and differentiation to defend their position against low-cost competitors, while their global reach and brand awareness will allow them to offer premium devices.
With the increasing commoditisation of mobile handsets, low-cost competitors will enter the market with a 'me-too' strategy, keeping costs low by using network operators for distribution in mature markets and competing only locally in growth markets.
Premium/niche vendors will circumvent price competition by offering devices that are highly differentiated on design and brand.
The research focused on four questions: what are the potential scenarios for development; what are the major drivers and inhibitors of future growth; what are the major strategic groups and business models; what are the strengths and weaknesses, and strategic recommendations for handset manufacturers?
The study reached six first-level conclusions on future development:
1. Convergence redefines the market and ramps up competition, as the formerly clear borders of the mobile handset industry break down.
2. Software replaces hardware as the most important component, with handset differentiation no longer driven solely by hardware design.
3. Worldwide growth varies between regions and segments, with wide variations between potential growth rates.
4. A three-tiered market segmentation develops - a small high-end market for state-of-the-art handsets, a non-voice market (games/camera/enterprise/music), and a voice-centric mass-market.
5. Distinct strategies emerge for the different market segments, ranging from intensive R&D at the high end to heavy price competition in the mass-market.
6. Innovations have a diminishing marginal utility as the duration of sustainable competitive advantage through innovation reduces.
Assuming these conclusions are right, the mobile handset market will increasingly resemble the established pattern and mechanics seen in consumer electronics or PC markets. To position themselves for this shift, handset providers need to evaluate how this market will develop in the future, as success factors will vary depending on which scenario emerges.
The Figure below mapped out the industry's landscape based on the two dimensions of future growth and industry concentration, by analysing industry development over the period from 1996 to 2005 and adding some simulation of future development.
The various possible combinations of these two dimensions create a portfolio of four scenarios - and the curved timeline illustrates the industry's progress through them. In the mid-1990s the industry was still in its 'Gold Rush' phase, with tremendous growth and very low concentration as new players rushed in. At the end of the 1990s and early 2000s the industry moved via a 'Gilded Cage' into a 'War of Attrition,' as reduction in growth was accompanied by increasing concentration, with the biggest players claiming a rising share of the market. During 2002-2004, growth increased again due to advances in underdeveloped markets (Asia, Latin America, Eastern Europe and Africa) and the advent of breakthrough innovations such as coloured displays.
Accenture's expectation for 2005-2008 is for modest growth in high single digits along with a slight decrease in concentration, as competitive new players - especially from Asia-Pacific - come in. These characteristics will drive the industry into an overall scenario we call 'Paradise Lost'. Crucially, the mobile handset industry's 'Gold Rush' is over. Cost pressure, commoditization of innovations, device complexity, regional growth differences, and modified market conditions will demand clear positioning and specific business strategies as well as a slight tendency towards collaboration and M&A.
Looking beyond the next two or three years, Accenture anticipates a 'Wars of Attrition' scenario as growth slows down and concentration increases once again. This will drive a shake-out and wide scale industry restructuring, including strong M&A activity as the market matures.
Since Accenture formulated these conclusions, it has used them as a basis for assessing the implications for each type of participant in the mobile handset ecosystem, ranging from network operators to suppliers of digital cameras.
Mark Joseph is Senior Manager of the Communication and High Technology operating group at Accenture, a global management consulting, technology services and outsourcing company with more than 123,000 people in 48 countries.
