Why are domestic mobile phones obsessed with building an "ecosystem"?

[[131986]]

Once upon a time, China's smartphone industry has evolved from hardware competition to "sentiment" and now to "ecological love". It seems that if the relevant mobile phone companies do not play "ecological", they will be outdated and have no future. And our media also often comment on whether the mobile phone companies are competitive based on their ecology, or praise them, even though they themselves (including the companies) may not fully understand what the "ecology" of these companies is, or how these "ecologies" will bring these companies considerable revenue and profits in the future.

Those who are familiar with the smartphone industry know that the companies that make the most money, or strictly speaking, can be said to make money, are Apple and Samsung. Although Samsung's profits have declined for several consecutive quarters, in the last quarter, the two companies together took more than 100% of the profits of the global smartphone industry. What's important is that almost all of their revenue and profits come from the sales of mobile phone hardware itself.

Some people may say that we are using Apple and Samsung to suppress others, or even say that they are not comparable. But what we want to say is that, first of all, most of our companies that use the banner of "ecosystem" target the above two companies in their publicity. Secondly, the above two companies are representatives of the two major smartphone industry camps. Therefore, as long as we are in the mobile phone industry, these two companies are inevitable, whether from the perspective of our subjective competitors or from the objective industry category. Then, someone will say that Apple has achieved its current status because of its ecosystem.

However, we want to tell those who have this understanding that, let alone smartphones (iPhone itself), even from the perspective of Apple's entire revenue and profit sources, hardware accounts for more than 90% of its share. The so-called ecosystem brings Apple revenue and profit of about 10% at best. Of course, we are not denying the importance of the ecosystem here, but just clarifying that, at least in the Apple ecosystem that ordinary people think of, the ecosystem actually serves the hardware, and the revenue and profit brought to Apple by the ecosystem itself are negligible. This is completely opposite to what some of our domestic "ecological love" companies currently say that they do not expect to make money from the mobile phone hardware itself, but make money from the ecosystem around it.

Another typical example that proves that Apple is hardware-centric is that recently, the data released by App Annie***, a global application data analysis website, showed that in the first quarter of this year, the total number of application downloads from Google Play was 70% higher than that from Apple's App Store, but the latter's application download revenue was about 70% higher than that from Google Play, an increase from 60% in the third quarter of 2014. The reason is that the hot sales of iPhone 6 and iPhone 6 Plus have driven the growth of Apple's App Store revenue.

After analyzing Apple, let's look at Samsung. Samsung's previous fall is a well-known fact in the industry. But the most fundamental reason is that the mobile phone hardware itself lost to the quality of iPhone hardware and the cost-effectiveness of Chinese mobile phone companies' hardware. It has nothing to do with the so-called lack of Samsung's ecosystem in the industry. This is also proved by the fact that Samsung's recently released Galaxy S6 and Galaxy S6 Edge are popular this year, and the pre-order volume has exceeded 20 million units.

The reason is simple. Is there any substantial change in the so-called ecosystem of Samsung today compared with the previous Samsung? Of course not. Judging from media reports and relevant authoritative comments, it is precisely the hardware innovation of Galaxy S6 and Galaxy S6 Edge compared with the previous Galaxy that is the main reason for their renewed popularity. As Keon Han, a top analyst at Credit Suisse, said: The market, operators and even users all agree that the new series is different from any previous series, because the S6 series is the best in Samsung's history in terms of design and specifications. Since the star analyst's previous recommendations have brought rich returns to the investors who followed him, this comment is still representative and authoritative. What's important is that these comments mainly refer to the mobile phone hardware itself.

Through the above simple analysis of Apple and Samsung, the two representatives of the smartphone industry, since mobile phone hardware itself can bring huge revenue and profits, why are our domestic companies ashamed to talk about these, and have a special liking for the so-called ecosystem?

First, the brand premium ability of our domestic mobile phone companies is limited, or the gap between them is not big. This can be seen from the fact that most domestic mobile phone companies in the market almost use "price-performance ratio" as the most differentiated competitive advantage of mobile phone hardware itself. But everyone knows the truth that "cheap products are not good, and good products are not cheap." Specifically in the mobile phone industry, although the configurations seem to be the same, the gap between accessories of different manufacturers is still not small. In fact, this can be seen everywhere in our daily lives, so I won't list them one by one here. What is important is the lack of real core competitiveness related to hardware behind the brand premium.

Secondly, it is precisely because of the lack of innovation mentioned above that in order to win the recognition of investors and users, the "ecosystem" of making money through services and applications instead of relying on the mobile phone itself has become an excellent excuse and a way to confuse users' understanding of mobile phone hardware innovation and pros and cons. Especially for investors, the establishment of an ecosystem takes time and is more credible, so they continue to invest in a mobile phone business that actually loses money.

***From the perspective of publicity, it is easy to attract attention in the name of "ecosystem" and make oneself different from competitors. However, most of the media and commentators we have contacted are vague about the "ecosystem" of some manufacturers. As for whether it can become the main force of revenue and profit in the future, they are even more puzzled.

What is even more contradictory is that it is precisely these manufacturers who think that mobile phone hardware is not important and love "ecosystem" that are fighting for the ranking of shipment volume. Of course, the logic behind this is that these so-called "ecosystems" are actually centered on mobile phones. Since they cannot earn considerable revenue and profits due to cost-effectiveness, they should at least perform well in market share (without market share, how can they become the core), otherwise how can they justify the "ecosystem" with the industry and investors? But then again, since mobile phones are the core of the "ecosystem", and even the core cannot make money, how can they become the core?

In addition, judging from the current "ecosystem" manufacturers, most of their revenue still comes from the mobile phone hardware itself (not to mention the profits), which does not show the main role of "ecosystem" at all. Yes, in the future, but how far is the future? The answer is still "the future".

To sum up, we believe that the "ecological love" of China's mobile phone industry since the beginning of this year is a typical reflection of the lack of core competitiveness and lack of innovation in our mobile phone industry. It is an excuse to cover up the fact that their so-called mobile phones are not cost-effective and are not profitable. It is the product of China's mobile phone industry taking a radical approach at the end of the road of competition.