6.5 Market Disruptions in The Smartphone Industry

Marcos Antonio de Lima Filho, PhD.

The emergence of the touchscreen slate architecture left some companies unable to respond quickly. RIM came up with the BlackBerry Storm in 2008, just over a year after the iPhone. It was an adaptation of the BlackBerry OS for touchscreens. Despite the timely response, the poor execution meant a flawed product that many customers returned, with enormous costs for Verizon and RIM (Gans, 2016). Nokia already had expertise with touchscreen devices. However, another shift would leave Nokia unable to respond: as the Android operating system gained momentum, it pushed other proprietary systems to the corners of the market (see Figure 6.5.1), specifically Nokia’s Symbian OS. Nokia then partnered with Microsoft, which Android also threatened. Under this cooperation, Nokia would push the Windows Phone platform on all of its smartphones.

Figure 6.5.1 The Rise and Impact of Android

Android’s dominance came with a hefty cost for alternative software platforms, namely: Nokia’s Symbian and Series 40; BlackBerry OS; Windows Phone; as well as Samsung' and Sony Ericsson' proprietary systems.

Numerous smartphone manufacturers benefited from the rise of Android, such as Samsung, LG, Sony, HTC, and Others. The Android platform also facilitated the entry of several Chinese players into global markets, specially Huawei, Oppo, Xiaomi, OnePlus, Vivo, and Realme. The new dominant design had a significant impact on RIM (BlackBerry) and Nokia, and these Chinese entrants further complicated traditional industry incumbents, like Sony, HTC and LG.

Nevertheless, this was not enough to deter Android’s market expansion. The synergistic strategy resulted in losses for the mobile and devices division of the Finnish company, which was then bought by Microsoft in September 2013. Later on, this venture resulted in $11 billion in write-offs for Microsoft and the destruction of 27,650 jobs (Richter, 2016). HMD Global then licensed the Nokia brand and finally introduced Android-based smartphones in 2017.

While BlackBerry, Nokia, and Microsoft were investing (and failing) in their proprietary software platforms, Samsung jumped into the Android momentum early on (and succeeded). Because it is an open platform, Android has also opened the mobile sector to a large number of new players, notably Chinese companies (Huawei, Xiaomi, Oppo, OnePlus, vivo).

On the other hand, Apple’s proprietary iOS created an effective safeguard against the competition. Android users had plenty of manufacturers to choose from, driving competition up and prices down. In comparison, iOS users had only Apple as a choice. Since then, the smartphone industry has consolidated around these two disruptors: the iOS and the Android platforms.

The iPhone, the Android, and then China. These three waves of disruption have changed the mobile industry at a rapid pace. These shifts are a perfect representation of the Schumpeterian notion of creative destruction. Even billion-dollar companies were impacted by these disruptions.

Therefore, how could a theory of disruptive innovation provide so little explanation? The current paradigm regards most of these strategies as sustaining innovations, despite their highly disruptive impacts. The theory explains little about how two entrants (Apple and Google) were able to challenge traditional players with sustainable strategies. Christensen claims that “incumbents succeed when they launch sustaining innovations” (Raynor, 2011). If this is true, why have Nokia, BlackBerry, and Microsoft’s smartphone ventures failed? The theory falls short in providing explanations for the significant events that have transformed the aviation and smartphone industries. Most concerning is the fact that these cases contradict several theoretical predictions, including some that were formulated by Christensen himself.