How European Phone Brands Are Making a Comeback

How European Phone Brands Are Making a Comeback
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    Ever since Nokia sold its phone business to Microsoft about 5 years ago, European companies
    have essentially disappeared from the smartphone industry.
    But in the 40th episode of the Story Behind series, I'd like to argue that European companies
    are finally starting to make a come-back. Even if it is a pretty modest one for now.
    Europe used to be a front-runner in mobile phones.
    Nokia at its peak sold over 450 million devices, which is more than even Samsung sold at its
    peak, and many European tech giants like French Alcatel, German Siemens and Swedish Ericsson,
    were serious mobile phone makers too.
    That was until Alcatel sold its handset business to Chinese TCL in 2005, Siemens sold its mobile
    business to Taiwanese BenQ the same year, Ericsson sold its stake in the Sony Ericsson
    joint venture to Japanese Sony in 2012 and just one year later, Nokia too sold its phone
    business to American Microsoft.
    In just a few years, these titans of the mobile phone world were gone from Europe, supplanted
    by more aggressive and nimble players from the rest of the world.
    And with them, moved much of the expertise in making and selling phones as well.
    US companies now control all major mobile operating systems, while Asian companies have
    built unparalleled capabilities in designing and especially manufacturing hardware.
    It's a tough landscape for would-be European companies when they can't significantly impact
    software and can't possibly innovate as rapidly and as cheaply on hardware as their Asian
    competitors.
    But after a long period of drought, I think there's a couple of European companies
    who are starting to figure a way around this.
    I've actually interviewed 5 of the most interesting companies and studied many of the others and realized
    that there are 3 distinct strategies European companies have adopted.
    The first, and in my opinion least interesting one is what I'll call the regional champion strategy.
    French Wiko and Spanish BQ are the two companies I talked to, but there is also Wileyfox from
    the UK and a few others.
    And, uh, French here is in quotation marks for Wiko, as they were actually recently acquired
    by their Chinese manufacturing partner, but let's leave them in the conversation for now.
    So both of these companies make very standard, affordable phones, but unlike others
    ,they focus on just a few markets.
    Hence why I call them regional champions.
    Not a complicated strategy, but it seems to work, because both companies I've talked to
    sell phones in the millions,
    BQ is actually showing healthy growth figures and both claim to be profitable,
    which is more than the mobile divisions of companies like Sony, LG and HTC can say about themselves.
    Their most expensive dvices cost 3 and 400 Euros respectively, and they both run stock
    Android for the most part, although BQ has a few cool perks for geeks on top of that.
    BQ was the first phone maker to release an Android One device in a developed market,
    they also had a Ubuntu phone as well as a Cyanogen OS device and unlike most manufacturers,
    they are even quite speedy at publishing their kernel source codes to GitHub.
    So all in all, pretty cool, the BQ Aquaris X2 and X2 Pro review unit they gave me are
    definitely solid phones for the price, but just like the Wiko phones, they also ...,
    somehow just standard.
    The key strategic advantage these brands have is that instead of having to build and maintain
    a global brand like Sony, LG and the others, through expensive global marketing campaigns,
    sales channels and customer support systems, regional champions concentrate their resources
    on a few markets, where they achieve a pretty good position.
    Wiko claims to be number 2 in France, BQ is number 3 in Spain and both have a somewhat
    dominant position in a few other European markets too.
    It's much cheaper to acquire a good mindshare in just a few key markets, so they can undercut
    global brands like LG and Sony on price and still make a profit.
    Now, this is a solid strategy against classic brands, like the ones we have already talked about,
    but I'm not sure how well it's going to work against more aggressive players
    like Xiaomi for example.
    Just like India, where an aggressive tidal wave of Chinese companies
    have pretty much completely destroyed the regional champions of India,
    I'm afraid the same will happen to the European versions of these companies as well.
    Because they don't have very strong brands, they don't have very differentiated products,
    so the only thing they can fight on is price, and that, against Xiaomi will be, very difficult.
    Now, I wish them good luck, especially BQ, who apparently designs hardware, develops software,
    and even manufactures some of their hardware, such as their 3D printers in Spain.
    That's a rare thing and I would hate to see that go away.
    Okay. I'll call type two the Niche Brand strategy and it is a little more viable in my opinion.
    Fairphone and Blloc are probably the best examples of this strategy and the trick here
    is that unlike regional champions, these companies have a very unique niche product that has
    no direct competitors for now.
    Amsterdam-based Fairphone makes a phone that is modular, easy to repair, and has as little
    negative impact on the environment and the people in their supply chain as possible.
    You know, as many conflict free materials as possible, no child labor, you get the point.
    Berlin based Blloc has pretty standard hardware, but develops really unique software for it.
    I'll have an exclusive in-depth video about BllocOS once it gets a little more polished,
    so subscribe if you want to see that, but in short, they have completely customized
    Android to make it as distraction-free and as non-addictive as possible.
    I like the idea behind both of these companies, they are unique and for now
    they don't have very direct competitors.
    And a niche product is a high risk high return strategy.
    It's high risk, because nobody knows if sustainable devices or distraction-free software is
    something people actually want and even if it is, it's unclear whether these companies can actually
    build the stuff that they have envisioned.
    BllocOS is a cool concept and the team has made some great progress, but it's still
    far from the universal solution that Blloc envisions for the future.
    That is still years of hard work away and success isn't exactly guaranteed.
    In the same way, Fairphone has had unimpressive sales results in the last few years because
    they just couldn't produce phones fast enough with their complicated manufacturing processes
    and supply chain.
    So these companies are highly risky.
    But of course the return is high also pretty high.
    Because they don't have a lot of direct competitors for now,
    which means that the prices they can charge are also pretty high.
    Case in point, the latest Fairphone that has specs straight out of 2014 costs 529 Euros,
    plus Fairphone also makes money from selling components.
    The price of the Blloc phone at 359 Euros is much more reasonable, but still above what
    you'd pay for similar hardware from the likes of BQ or Wiko.
    Doing something unique allows companies to have decent margins.
    As I said, high risk, high return.
    So the regional champion and the niche brand strategies both focused on a particular niche.
    Either on a regional one or on a product one.
    And none of these companies can go fully mainstream, because just like other
    European smartphone makers as well, they have very limited control over both the
    software and hardware hardware of their devices.
    But, there is one European company who has the chance to go fully mainstream, I think.
    The Nokia strategy is the third and last on my list and believe it or not, it is unique
    to Nokia.
    The formula is actually quite simple.
    The Nokia brand name is so beloved and has such a nostalgia factor that even if all the company
    behind it does is create solid phones and sells them at reasonable prices, lots of consumers
    will want to buy them, the biggest retailers will want to stock them, the richest investors
    will want to fund them, the smartest people will want to become their employees, the biggest
    manufacturing partners will want to produce their phones, and yes, lots of YouTubers like
    me will give them free publicity by talking about them.
    The Nokia brand is still incredibly valuable.
    So HMD, the Finnish startup behind the brand's revival has a huge opportunity to turn Nokia
    into a mainstream global brand.
    The trick is that they need to get to a large scale before the nostalgia and
    the "Oh, Nokia is back" factor wears off.
    And so far they have done very well.
    They have sold about 10 million phones in their first year of existence, and it seems
    like they will do around twice as much next year, they are already in the global top 10
    and in Europe even in the top 5, comfortably surpassing brands like Sony and HTC in most
    major markets.
    They have established themselves in Europe, China, India and a few more key markets and
    they have a full portfolio of devices.
    All of that in a little more than a year.
    All they do for now is building solid phones with Android One and selling them at a reasonable
    price, but it seems like the Nokia brand and the very aggressive management team who knows
    that they have to expand as fast as possible before the nostalgia factor wears off, is
    working very well for them so far.
    I think they will soon have to start investing into differentiating their products, because
    even though I like their phones, I use the 7 Plus on a daily basis,
    if they don't have differentiated products, I doubt the growth will continue for very long.
    If HMD can innovate something meaningful though, I think they have a chance at making
    Nokia a global household brand again, in just a couple of years.
    And as a European, I'd really like to see that.
    Inheriting something as valuable as the Nokia brand name is like finding a cheat code in
    a video game.
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