Nothing to See Here (Premium)

Because the smartphone market has matured into a two-horse race, some enthusiasts are hoping for an upstart to somehow shake up the industry so that it can return to the rapid innovation cycle that defined its first decade. But this thinking is misguided. More specifically, I have bad news for anyone who believes that Carl Pei and Nothing can in any way make a difference.

But let’s start at the beginning.

The smartphone era started in 2007 with Apple’s introduction of the iPhone. As expected, the rest of the industry quickly course-corrected to copy this innovative device. Over time, one major alternative---Google Android---emerged, while all of the other competition---Blackberry, Motorola, Nokia, Windows Mobile, etc.---succumbed one by one. In 2021, 83 percent of all smartphones sold ran Android, while the remaining 17 percent were iPhones.

So there’s the market, right? Mostly Android handsets and some iPhones.

Not quite. In affluent western markets like the United States and much of western Europe, the iPhone often has closer to 50 percent share. And by many accounts, Apple reaps nearly 100 percent of the profits in the smartphone industry, thanks to its incredible margins. So the marketshare numbers don’t tell the full story.

OK, so that’s the market then, right? Some mix of Android and the iPhone.

Not quite. In most of the western world, there are two players, but they aren’t necessarily Android and the iPhone. They’re Samsung and the iPhone. Samsung controls roughly 20 percent of the global market by sales, and among smartphone makers, it is also the only company not named Apple that makes a profit doing so. More to the point, Samsung is the only major smartphone maker not named Apple that provides a full ecosystem of products and services to complement those phones. As such, many Android users are really Samsung users, and as the maker of Android, Google’s role is mostly reduced to creating the core OS, maintaining the platform’s main app store, and creating some key apps and services.

(The smartphone market is quite different in China, in particular, and in some other markets with which I’m not particularly familiar. For purposes of this discussion, I’m mostly referring to North America and western Europe here.)

Smartphones evolved rapidly in the wake of the iPhone, thanks to competitors trying to catch up to and then leapfrog Apple, and in part because the market was so new and had plenty of headroom for innovation. But in recent years, things have shifted. Through market failures and consolidations, there are fewer major players now. (And it is perhaps notable that three of the top five smartphone makers are from China, a market so large that it can float companies that most have not even heard of in the west.) And feature sets have mostly consolidated, with defined capabilities and price points across the low-end, middle, and high-end of the market.

In other words, the smartphone m...