An in-depth look at a market of 80+ million mobile phone shipments
For the most part, it’s tempting to say that the Indian phone market is a mix of the Western phone market and the Chinese phone market. But that statement isn’t true. The real statement to be made is that the Indian mobile phone market is unique, using constituents of the factors which impact both the Western market and the Chinese market.
Confused? Here’s the thesis. The Indian market has phones from the major global manufacturers such as Samsung, Apple, LG, HTC, Sony, Motorola, Microsoft (formerly Nokia). Then it has phones from Chinese manufacturers such as Xiaomi, Lenovo (the company which now owns Motorola), Huawei, Oppo, OnePlus, Gionee, Alcatel, ZTE, Vivo, etc. And then are the phones from the Indian companies such as Micromax, Intex, Karbonn, Lava, iBall, Spice, etc.
Phones from the third type of company are in reality of the second type of phones (that is, originating from Chinese OEMs). All Micromax, Karbonn, etc. do is to take a Chinese phone, re-brand it, install their own UI skin, and call it a new device. Case in point: the Micromax Yu Yureka was a re-branded Coolpad F2 4G.
This means that, it’s not like the Western (US/EU) phone market. There, availability of Chinese phones is just not there. Meaning, if you want the latest Xiaomi Mi4, you’ll have to import it. And that applies for all Chinese phones with the exception of Huawei phones, which last year launched several high-profile flagships in Europe (and is planning to enter the US market again).
Then you have the whole story of a contract-based purchase model.
So not like the Western market then. What about China?
China of course, is the world’s biggest phone market. It has phones being sold from international manufacturers as well as Chinese manufacturers, including the ones which supply phones to Indian companies. But the model of sales is once again different (contract-based and full retail)
Doesn’t match the West, doesn’t match China, what is it then? The Indian phone market, folks. And now about the mechanism of sales…
The mechanism of phone purchases in the Indian market
Explanation of the contract system used in the West: Contract? What contract? We don’t have contracts here. And it’s true. Phones in India – in fact, all consumer electronic devices in India – are not purchased on a contract basis. Meaning, we certainly don’t pay INR 12,000 (the equivalent of $200) for a flagship phone and then sign our life away for two years, in the end paying more than INR 100,000+ for it.
Of course, a part of the monthly bill of that contract-based system is actually for mobile data, and the specific amount for the phone subsidised fee isn’t shown in it. Which means that a buyer doesn’t actually know how much he’s paying for a phone monthly for 24 months after the single down payment of $200. It could be bigger than he’s realised (it generally is).
And then there’s the contract part of the equation. Locked to a single carrier. Can’t move to another carrier without paying substantial amount of fees. Want to upgrade mid-way? There are more fees for that. And even when the contract period ends and you pay the full price for the phone, the bills continue. The amount doesn’t change.
There are issues with the availability of phones on a carrier, poor unlocking policies, etc. Lots and lots of issues.
All that is non-existent in India. Do we miss such a system?
Of course not. Sure, there are positives with the contract-based system (where phone availability is in the hands of the carriers) such as low initial down payment, which is lower than the full retail price (although it ends up more expensive in the long run).
Also, in this way, all flagship phones are the same price. And they’re not that much more expensive than budget or mid-range phones. So in theory, buying flagship phones is much easier, and nobody cares about mid-range phones anymore.
But you know what? This sort of system is only dominant in the West, and they themselves hate it. They’d like, as they call it, dumb pipe utopia.
Funny thing is, we already have it. At least, we used to have it, before all the net neutrality worries and the transformation of the Indian telecom industry from “terrible” to “abominable.”
What about the monthly installment system?
There’s another system now used by countries like the US, the monthly installment plans. India has something similar with EMI, although there are some differences.
It exists when you pay off your phone in monthly installments (in India the options are either 3 months or 6 months). It worked great a few years ago, but after 2013, it’s not the same as buying phones at full retail, since you have to pay extra interest. (In the US the plans are as it is, interest-free, and the period stretches for 24 months like a contract).
The real deal in India though, is buying phones at full retail.
In India, phones are sold at full price without SIM card
Here’s the deal. When a phone is launched in India, it’s sold by brick-and-mortar retailers, online retailers and marketplaces (like Flipkart, Amazon, Snapdeal), and in some cases by the manufacturer through its own physical stores (for e.g. Samsung stores). Carriers don’t come in the picture. At all.
So you’re not going to find annoyances like a carrier logo plastered on the back of your phone, and a SIM card is not included (SIM-free). Which automatically means that you don’t have a mobile data plan.
You buy a phone through any channel (official or imported) and then you buy your own SIM card from any carrier like Airtel, Vodafone, Reliance, etc. Then you buy a data plan. A very clean process to be sure. And since no subsidisation was done in the first place, you don’t have to pay it off over a period of 2 years.
And you can upgrade your phone anytime, change your carrier by simply changing the SIM card (as all phones are factory unlocked), and hence save a lot of money. By paying only for the full retail price of the phone plus monthly mobile data, your overall expense is an order of magnitude lower than it would be if you signed a contract.
The downside? Flagship phones are expensive, and they’re getting more expensive every year. Samsung launched the Galaxy S6 on April 10 internationally. In India, it costs INR 50,000 for only the 32GB variant. The 64GB version is even more expensive at INR 56,000. And let’s not even speak of the Galaxy S6 edge.
Samsung isn’t the only one guilty here – all of the global manufacturers are. HTC on April 14 launched the One M9+ for INR 52,500 (the One M9 isn’t coming to India at all).
In 2015, a flagship phone launch pricing is expected to be INR 50,000 if you’re a global company, INR 30,000 if you’re Chinese, and INR 20,000 if you’re Indian. It’s preposterous to say the least.
There are a lot of people who simply cannot afford to buy a flagship phone in this manner. It’s not value-for-money. It’s overpricing, nothing more and nothing less. EMIs used to bridge this gap, but they’re used less these days because of extra charges.
So less people buy flagship phones, and suddenly the gap between the budget phone sector and the flagship phone sector widens a lot, giving room for a mid-range phone sector.
Then you have smartphones costing less than INR 10,000 – these are the budget phones. Between INR 10,000 – INR 30,000 there’s a large mid-range category, including lower mid-range, upper mid-range and affordable flagships (a term popularised once by Google and then by OnePlus).
And from INR 30,000 going all the way to INR 80,000 there’s the flagship phone category.
If we analyse all these market variables and the overall purchasing power (PPP) of the Indian economy, there’s a natural conclusion to be made. Budget phones sell the most in India.
The Galaxy S6 may well be a bestseller for Samsung, but it’s never going to sell as much in India as it will in the US or other developed markets. The price is too high for a lot of people, and for all flagship phones, substantial price cuts and / or waiting for a full year for the price to come down is the only solution.
So much for the mechanism of sales in the Indian market. Next, we come to the question: are smartphones finally popular than feature phones?
Feature phones still remain more popular, but smartphones are growing faster
This is nothing new. If you want WhatsApp, for example, you can’t have it in an INR 1000 feature phone. You have to pay for a smartphone. But equally important is the fact that even after everything, smartphones still aren’t as cheap as feature phones, and that makes all the difference to a dwindling group of people.
In Q4 2014, smartphones made up 35% of the overall Indian mobile phone market. Good? Better, but good enough.
The reasons why feature phones are more popular are many. For one, they’re cheaper. They’re also more durable and have way longer battery life. They have actual buttons. They’re still important to a particular section of consumers.
Takeaway: Because of the full retail price phone sales mechanism, feature phones remain more popular, and in smartphones, the budget smartphones are the most popular.
The players in India’s mobile industry
Looking at market share reports, here are the top players in India’s overall mobile phone market (comprising of smartphones and feature phones):
- Samsung – 17% market share: Of course one would expect Samsung to be at the top in terms of market share – this is the company which made the stunningly successful Galaxy S3 after all – but the answer isn’t that simple. Micromax and other Indian companies have pegged away at Samsung’s top spot, and Micromax in particular is close. The latter may not have a great reputation, but it sells usable phones at affordable prices, a strategy which still seems to have evaded Samsung. While low-end is still a sector which Samsung needs to address (they have no Xiaomi-style competitor to date), for the high-end in 2015 they have a capable device, the Galaxy S6.
- Micromax – 15% market share: When you think of Micromax, you think of budget phones. You think of poor after-sales service. And you think of slow MediaTek processors. Even after these critiques, Micromax phones continue to sell. Although they badly need a new flagship, the recent Yu company formation and the Yureka phone (made in collaboration with Cyanogen) seems to have done well. However, Micromax still has a long way to go before its reputation becomes good enough, and its phones become legitimate competitors to phones from Xiaomi, Samsung, LG and the rest of them.
- Microsoft (formerly Nokia) – 10% market share: Nokia’s Devices & Services division was bought by Microsoft in April 2014. Even after that, Windows Phone remains respectably popular in India, although most of the attention is concentrated in low-end Windows Phones like the Lumia 535 and the sales are concentrated in Nokia-branded feature phones which continue to sell to a specific category of customers. The performance of high-end devices such as the Lumia 930 remains troubling. Not to mention the overpricing of mid-range phones such as the Lumia 830.
- Lava – 8% market share: Although phone selection varies, the Lava Iris X8 shows that they can also jump in the affordable good phone sector.
- Intex – 8% market share: The same applies here. The quality of the phone selection varies, but is mostly similar to Lava. (That’s why currently they have equal market share).
This is the top five for the overall phone market. When we solely look at smartphones, Samsung is still at the top with 22% share followed by Micromax with 18%, Microsoft disappears, Intex inches ahead of Lava (8% and 7% respectively), and a new competitor – Xiaomi – is in the fifth position, with 4% market share (read below for more on Xiaomi).
Let’s take a quick look at the companies grouped together under the “others” heading…
- Apple: One can’t speak of smartphones without mentioning Apple at some point. But it doesn’t take much to see that India is not the ideal market for the ultra-expensive iPhones sold at full retail price. Sure, it’s still popular to some extent, and popularity has only been increasing. And Apple is interested with profits, not market share (which, at around 2%, is poor). In the last completed Apple fiscal year, they sold 1.1 million smartphones.
- LG: Again, after Samsung, Indian brands and Xiaomi have had their say, there is precious little of the pie left even for Samsung’s home rival LG. They aimed for 10% market share in India at the end of 2014, obviously that didn’t pan out, the key is the budget market. The budget market more than the high-end market. Someone at LG needs to read this.
- Sony: Sony is facing $2 billion in losses partly through the mobile & TV division globally, but in India they showed a lot of growth in 2014. Are they going to sell off their mobile division though? The question remains unanswered.
- HTC: At times it feels like HTC doesn’t care about market share in India. It’s negligible. The company – renowned for design, software experience and premium hardware – was always poor at the budget sector, although they’ve been picking up pace throughout 2014. However, the news that their flagship phone the One M9 will not be launched in India is perplexing to say the least.
- Motorola: After leaving the Indian market hurriedly in 2012, Motorola got purchased by Google. The result was their astonishing comeback to India in 2014, resulting in a great brand image. The Moto G and E showed that you could still have great phones at affordable prices at the international level, and the software experience was unmatched. The company is now owned by Lenovo.
- Xiaomi: This Chinese company started up in 2010, had huge success in their home market, entered India in July 2014, and the rest, as they say, is history. The Redmi 1s was a pioneer for a good smartphone experience at INR 6000. They’ve forced Indian brand Micromax come up with new ideas such as the Yu community brand to match the Mi experience. Unfortunately the Mi4 wasn’t priced at the same competitive level, but with the upcoming Mi4i, there’s still a chance that they stay true to their roots.
- Lenovo: The Lenovo A6000 and now the A7000 are the competitors the Redmi 1s and the Redmi Note needed. Now adept with the flash sales phenomenon and growing fast, Lenovo is a force to be reckoned with.
- Huawei: The company had a hit with the Honor Holly (another Redmi 1s competitor) and the Honor 6. With good designs and good software, Huawei has what it takes to match and even better Xiaomi.
- OnePlus: After months of anticipation, OnePlus entered India in December, bringing the OnePlus One. There are a lot of pros and a lot of cons to this device, and the whole company, but you can’t write them off at all.
- Asus: Zenfone 2. Come on, Asus, launch that thing already.
So here you have it, a mega detailed look at the intricacies of the mobile industry in India, covering the sales mechanism, the feature phone and smartphone divide, and the major players.
What we see is that if global manufacturers hope to pick up sales and profits in India, they’re going to have to launch better budget devices. Also, they’re going to have to reduce the prices of their flagship phones.
On the other hand, we also see that if the Indian and Chinese brands have any hope of matching the outreach and overall brand image of the global manufacturers, major weak points such as after-sales service, software experience, etc must be dealt with.
Can the two sides do that? It remains to be seen.
And for the consumers, despite several setbacks to the price mechanism, I still believe that we have a lot to look forward to, and a lot to be (mildly) astonished about.