The Mobile Device Business Model May Be Changing

Seven Tablets with a Business Edge

Yesterday, I wrote about the $38 UbiSlate 7Ci tablet that will be offered next year by Datawind through as-yet unnamed physical and online retailers.

The stated reason for the product and its price, according to Datawind CEO Suneet Singh Tuli, is that budgetary constraints shouldn’t keep anyone offline. A parallel development, which also was pointed out in the post, is that the smartphone markets in developed economies are growing saturated. The tablet market eventually will follow.

The big players increasingly are looking to developing economies for customers. The dynamics of these markets are quite different, however: They are based on commodity or near-commodity devices that turn a profit based on volume. Per-unit margins won’t be what they have been to date. That is a significantly different world.

Putting two and two and two together – the demand for low-cost devices, the existence of local vendors and ecosystems in these regions and the disappearing high-end market in developed regions – suggests that new players may start showing up in North America and Europe. If a vendor is set up to sell low-cost/low-margin smartphones and tablets in a developing nation, there is no reason that it can’t sell to the cost-conscious in the United States and to other nations with mature economies. Indeed, these vendors can go after what until recently was a vibrant feature phone market in addition to the poor.

It starts with chips. ITWorld lays out the dynamic: Samsung and Apple design their own chips and other common brands generally use chips from Nvidia and Qualcomm. Below that level – generally serving the “white box” devices such as PronoTec, KingPad and Dragon Touch – are Chinese chip makers Allwinner and Rockchip, the story says.

The improving quality of the lower-level chips is attracting customers who do more business in the west. While the story positions the growth of these chip makers as a way for name vendors such as HP, Toshiba and Huawei to save money in serving their existing customers, it clearly also makes it possible for the PronoTecs and KingPads of the world to take a look at western markets.

On the device front, a vendor to watch is Huawei. Its ties to the Chinese government have kept it from selling networking gear into the U.S. market (though it recently got good news from the British), but AllThingsD suggests Huawei may have its eyes on the smartphone sector. Indeed, the story says that it has tried before with little success. The trend away from device subsidies and an aggressive marketing campaign may give the company the opportunity it needs, the story says.

It is too early to even call this a trend. It seems, however, that the raw ingredients and precursors to a significant change in the rather circuitous way in which devices are distributed may soon be at hand: The traditional market is nearing exhaustion. Quality in lower-cost components is rising. A low-cost device ecosystem exists, albeit offshore. And, finally, demand is growing: The Centers for Disease Control and Prevention says that about 55 percent of adults below the poverty line are mobile phone-only, an increase of 2.9 percent compared to a year ago.