The iPhone Did Not Disrupt the Mobile Handset Industry

Yesterday, I wrote about how smartwatches would be a sustaining innovation relative to the watchmaking industry, but instead by a disruptive innovation relative to the smartphone industry.

To illustrate my point, I described how smartphones were a sustaining innovation (and not disruptive) to the mobile handset industry, and how smartphones were instead disruptive to PCs.

Since many people will understandably have an issue with smartwatches disrupting smartphones, I think I should go into a bit more detail. Instead of going into logic, I will give my understanding of what happened when the iPhone entered the market (Christensen’s mistake) and examine the parallels with the Apple Watch.

  1. Smartphones did not disrupt the mobile phone market: Many people think that the iPhone disrupted the mobile phone market. Disruption means that new entrants successfully displaced the incumbents. While this is certainly true that one entrant, Apple, gained 8.4% market share of total mobile phones, if you look at the other players, the mobile phone market is still mostly comprised of incumbent companies that used to sell feature phones. These companies were fortunate that Google provided Android for free, so that they could easily and quickly develop their own smartphones. Some may note that Blackberry and Palm almost completely disappeared. I would argue that if you look at the total mobile phone market, they were never more than a small niche so they weren’t really incumbents at all. As for Nokia, they simply bet the company on the wrong horse. If they had chosen to use Android, there is little doubt that they would have still been a force to reckon with.
  2. Smartphones disrupted PCs: To understand this, you have to lump smartphones and PCs together to create a “personal compute market”. Ben Bajarin has done this, and the following chart shows what has happened. PCs have clearly been overrun, and importantly, neither Microsoft itself nor any of the PC OEMs (with the exception of Lenovo which is very agile at M&A) successfully made the transition to smartphones. This is what disruption looks like.
    Ben BajarinさんはTwitterを使っています Microsoft s journey of computing platform share through the years http t co taFsFr1sZp

Here, I’d like to look at this in a bit more detail. The thing is that if we take a look at the mobile handset industry before and after the iPhone, there certainly has been movement in the dominating players. At first glance, it would look like there has been some kind of disruption. However, as I will point out below, the truth is that disruption came from cheap Asian manufacturers and not from Apple.

Gartner Says Worldwide Mobile Phone Sales Increased 16 Per Cent in 2007
Source: Gartner 2007

Gartner Says Sales of Smartphones Grew 20 Percent in Third Quarter of 2014
Source: Gartner 2014

The Handset Industry Was Disrupted By East Asia

In the above tables, we see Nokia’s rapid decline and Samsung’s ascent. We also see Motorola and Sony Ericsson disappearing from the scene whereas LG maintained its position. Huawei, TCL, Xiaomi and other Chinese and Indian OEMs rose quickly.

This is the combination of a few of events;

  1. Korean manufacturers rapidly grew their presence, overtaking Western and Japanese firms. Korean companies simply made high quality devices and components cheaper than their rivals.
  2. Mobile handset users in both China and India exploded. To cater to these huge markets, homegrown companies sprung up and were successful. The rise of Chinese and Indian manufacturers is simply a result of the explosion of these markets.
  3. Nokia made a very large bet on the wrong technology. Nokia correctly understood that it would not be able to differentiate if it went with Android. However, there was not yet a good alternative OS so Nokia decided to bet on Windows phone in the hope that it would arrive in time. It didn’t. I’m sure that few people would disagree that Nokia would still be relevant if they had adopted Android.

Regarding item 1), this is exactly what Japan did in the 1960s and 1970s, disrupting US electronics and automobile manufacturers. Emerging industrialised nations capitalise on cheap labour and new factories to create high quality products at low cost. Just as Japan initially started out as a cheap, low-quality manufacturer, but quickly moved up the ladder to become a high-quality one, so has Korea in the last decade. The rise of Samsung in particular is simply a consequence of this.

The role of Apple in this is that it created a shake-up. It created a fast changing environment where every company was scrambling to produce a device capable of competing with the iPhone. These environments typically favour quick-moving entrants which have nothing to lose. In the case of Japanese electronics companies, it was the transition to transistors that shook up the environment. In automobiles, it was the oil shock that shifted attention to more efficient cars. Likewise, the iPhone did not directly disrupt the phone industry but instead created a volatile situation which the Koreans could then exploit.

Regarding item 2), this is again very obvious. When the vast majority of smartphone hardware is being made in China anyway, it is natural that Chinese firms would create their own brands. The iPhone has nothing to do with this.


  1. The iPhone did not disrupt the mobile phone industry.
  2. The mobile phone industry was disrupted from the low-end by Korean manufacturers which were climbing up the ladder from cheap, low-quality to cheap, high-quality.
  3. The iPhone only served as a catalyst for change. It did not directly influence the direction of the shift.

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