Bloomberg recently TV interviewed Marc Andreessen, the guy who’s famous for co-founding Netscape and currently works as a VC at his own Silicon Valley VC shop, Andreessen Horowitz.
Towards the end of the interview, he was asked what’s big for 2013. After saying that tablet growth would still be huge, he followed up with this quote:
"The other thing I think I'd point to is the $50 Android smartphone is about to hit the market worldwide. Smartphones are about to be put in the hands of another 3 billion people who don't have them. And that's probably the single biggest thing that's happening right now."
In the developed world, we tend to think of Android as Samsung Galaxy S3 and S4, the new HTC One, maybe some Sony, and throw Motorola in for good measure. Yeah, we hear about cheaper hardware, but rarely do we stop to think about what it means to emerging markets.
And, yes, Android is used for some pretty awesome and powerful smartphone hardware. But Android is also about to kill the feature phone. Dead. This means Nokia’s Symbian, and every other less-powerful proprietary feature phone out there. They are all toast. (Insert BlackBerry and Windows Phone jokes here. But that's not what we're talking about.)
Who’s going to make these phones? There are already lesser-known brands in India and China cranking out cheap Android phones. And then there’s Samsung and LG, who make all sorts of hardware that we never hear about. Same went for Motorola, too.
What we’re talking about here is the commoditization of smartphones at the low end of the market and taking the carriers out of the equation. If you’re old enough to remember how regular household landline phones were sold a couple of decades ago, you basically walked into the phone company’s retail store to buy (or even rent) a phone. Eventually the quality of other products (sold in other stores) improved, and phone companies stopped trying to control the sale of phones.
I remember 10 years ago talking to my friends in the investing community about how this trend would eventually repeat itself in the land of mobile. But with advancing radio technologies (2G, then EDGE, then UMTS, then HSPA, then HSPA+, and finally LTE), it never really happened.
In fact, back in those days when a new radio technology was deployed by carriers it was often a year or two before handsets hit the market to take advantage of the technology. Remember how long it took for 3G phones to hit? It was way after UMTS deployment began.
But today these technologies are fairly mature. And in developed markets where 2G, 2.5G and sometimes 3G are available, the radio code is stable, the chipsets are cheap, and there is no good reason for carriers to be a bottleneck to cheap access to decent smartphones. So it makes sense that in emerging markets, during 2013 and 2014, the next 3 billion people are going to start to become connected to the mobile Internet. The ramifications of this are pretty awesome. It’s widely known that wireless internet connectivity helps boost a country’s GDP faster than just about anything else.
Some might say that Google (and Android), are playing a big factor in catching these developing markets up to where they should be. I think that’s true. And I also think it will be very profitable for Google to do this. Its services drive revenue, and Google is pretty much set to dominate in emerging markets.
Think of how tough this must be for Microsoft. When Nokia partnered with the Redmond giant, they HAD to know Symbian was going to disappear at the low end of the market within a few years. They had a chance to push Windows into the low end quickly, to avoid this brutal ending. But they didn’t do it. They entered the race at the top of the market, and things aren’t going well.
Sadly for Microsoft, I think we’re now seeing a story unfold where Google wins the low end, Google and Apple are winning the top end, and everyone else is fighting for a relevance, or ownership of a niche segment of the market.
"Chris Umiastowski is a former sell-side equity analyst at Orion Securities and TD Securities. Before that, he was an engineer for Nortel Networks. Chris is co-host of the Mobile Nations Stock Talk podcast."
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