How Will Alibaba Group Holding Ltd Outplay Apple Inc. And Other Smartphone Makers?

By: Troy Kuhn

Published: Jun 25, 2015 at 6:26 am EST

Alibaba Group Holding Ltd. (NYSE:BABA) will be making a hefty investment of $1 billion to acquire a stake of approximately 25% in the Indian smartphone maker, Micromax,according to Mint and as cited by Bloomberg Intelligence (BI).

Collaboration between an e-commerce giant like Alibaba and a smartphone maker can be mutually beneficial, just like Apple Inc.'s (NASDAQ:AAPL) purchase of iTunes and how Chinese smartphone maker Xiaomi operates the Mi Store, an online market which deals in mobile appliances. Xiaomi has further diversification plans to enter the content market by investing in Internet TV programs.

This is not the first investment by Alibaba in a smartphone company. In February 2015, Alibaba made an investment of $590 million in Chinese smartphone maker Meizu. Continuous investments by Alibaba in smartphone makers indicate that the Chinese giant is ambitious to expand the distribution of its mobile operating system, Yun OS, and challenge other leading operating systems in emerging markets, including Google Inc.'s (NASDAQ:GOOG) Android, Apple's iOS, and Microsoft Corporation's (NASDAQ:MSFT) Windows.

According to John Butler and Matthew Kanterman from BI, Google, Apple, and Microsoft could be at risk of losing market share for their mobile operating systems if Alibaba's own Yun OS gains ground.

According to International Data Corporation (IDC), Google's Android had 84% unit share of emerging-market smartphones in first quarter and 78% globally, suggesting a large opportunity for Alibaba if the Chinese tech giant is successful in gaining traction and taking away market share from rivals.

Changing Dynamics Of The Smartphone Market

High-end smartphone companies such as Apple may need to look at the changing market dynamics, as organic gains in this segment are cannibalized by high-quality, low- and mid-priced devices. This risk is apparent in the high quality of, and the broad array of features offered on, many of the latest versions of low-end devices.

BI analysts wrote: "It is also apparent in the relative growth of the different price bands, with gains in low-end shipments of 48.2% in 2014, while high-end shipments rose just 6% and mid-priced devices 8%."

The steady evolution of low-end smartphones has elevated them to challenge even the most premium and high-end devices from Apple, Samsung, and other leading players. TCL, Microsoft, Xiaomi, and other makers are offering high-quality, feature-rich, all-metal devices with high-resolution screens, priced below $250, and significantly below the price tag of $658.50 — the average selling price for an iPhone.

"With price now becoming the disruptive force in the industry, it may be time for concern at Apple and Samsung as well as others in the high-end segment," said the analysts.

Alibaba's Competitive Space

Several leading players in the smartphone market are now adapting to the changing market dynamics in order to grab a larger market share, and Alibaba would be competing against these companies to establish its foothold in the market.

Microsoft and TCL were among the companies who announced new low-end smartphones at the Mobile World Congress in March, attempting to capitalize on the strong growth in this price segment. Microsoft also unveiled two new low-end handsets, the Lumia 640 and 640 XL, while Lenovo, Acer, and LG also introduced low-end smartphones.

Source: How Will Alibaba Group Holding Ltd Outplay Apple Inc. And Other Smartphone Makers?