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INSIGHT: Microsoft hits "smart money" market with new Lumia launch

INSIGHT: Microsoft hits "smart money" market with new Lumia launch

Between Samsung having ongoing budgetary woes from cheaper Asian competition and Microsoft calling the Lumia 830 an ‘affordable flagship’, 2014 was the year that flagship phones ceased having all the limelight in the smartphone world.

Between Samsung having ongoing budgetary woes from cheaper Asian competition, the rise of Xiaomi and Microsoft calling the Lumia 830 an ‘affordable flagship’, 2014 was the year that flagship phones ceased having all the limelight in the smartphone world.

Vendors and other players in the value chain began scrambling for the high sales volumes and not-quite-so-razor-thin margins that the midrange offered.

This year looks to be no different, with initial quarterly announcements earlier this year and new launches at MWC (Mobile World Congress) look set to continue this trend.

Sony, Microsoft, LG and Acer are among the other brands hoping to get success by targeting this segment.

However, this may not be all it’s cracked up to be for many vendors. Low margins rule even at the mid-range of the market these days, particularly for hardware.

Going on figures published last year, Xiaomi has an estimated 2% margin on its device sales, which is not going to be enough to satisfy brands more used to premium prices.

This is particularly true for Sony, which is now discarding sales volume as a key metric for business success, focusing further on profitability.

Microsoft and Huawei have hit closer to the smart money in the midrange – their offerings for Lumia and Honor have recently focused on emphasising the software platform, which is also where Xiaomi makes its money.

Monetising software is both a differentiator and the largest driver of profit for midrange phones. However, as the Kindle Fire Phone has shown, this has limited mileage as a strategy for long-term growth in established markets.

This is because in markets dominated by postpaid (on-contract) devices, device churn is higher.

This means that there’s less time to get software-driven money out of any given user before they potentially switch to a different brand, which is also more common in the midrange than the premium price band.

The best place for these devices is therefore where prepaid phones dominate, which in the current market climate is Asia.

Given this, it’s probably a good thing that the latest designs also tend to come with dual SIMs.

It’s not that the market has forgotten more mature regions, it’s just not where the profit is any more.

By Dave Curtis, research analyst, Juniper Research

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Tags smartphoneXiaomiMWC 2015samsungMicrosoftJuniper ResearchNokia

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