What We Talk About When We Talk About Economies Of Scale In Tech

Next Story

Billionaire Jewelry King Launches TaskWorld, A Management Tool All About Performance

Editor’s note: Ben Bajarin is a principal at Creative Strategies where he focuses his analysis and research on the consumer technology industry and consumer technology products. Follow him on Twitter @BenBajarin.

When I joined the Industry Analyst community in 2000 the industry was much smaller. For those in the business and analyst community who were in the field decades prior it was even smaller still. Early in my career as an analyst I was studying the semiconductor industry as it related to markets like PCs, mobile phones (not smartphones), digital home and a few other consumer-facing segments.

In those days, the PC was the talk of the town. It was on a steady growth stream and the only question we would debate internally is how much the industry would grow in the next few years and how many more PCs we would sell in the years to come. The PC crossed the 100 million in annual shipments mark in 1999 then crossed the 200 million annual shipment mark in 2004. I recall discussions with many of the PC vendors and major suppliers of semiconductors and there was so much excitement that the industry would sell 200 millions PCs every year from here on out. The big question was when would we get to 300 million?

Well, that happened in 2009 and shipments have never gotten over 400 million since.

During those days, the industry felt larger than ever. Hundreds of millions of PCs were being shipped each year and exciting growth in computing was taking place. Now, today, when I give industry presentations and keynotes at events, my language has shifted from hundreds of millions to billions and trillions as I talk about the industry going forward.

The economies of scale of the global technology industry are often lost and under-appreciated by many industry commentators. Several things have happened in a short amount of time, which has led to the remarkable economies of scale we are now talking about in the technology industry.

The first is that the industry itself has matured. When you see more evolution than revolution coming from leading companies, then you know a segment has reached a nadir of sorts. This does not mean revolution isn’t possible or still doesn’t happen — only that it is less frequent. Think about the automotive industry for example. This is one of the most mature industries and do we see revolutionary products frequently? No, and this is why it can no longer be expected to be a frequent thing in the technology industry.

Mature industries act differently once they have matured and then march on toward post-maturity. You can look at consumer electronics, packaged goods, automotive and even all the way back to railways and shipping industries. The markets that make up industries when they mature act differently as well. Primarily when an industry matures the consumer of the products of those industries understand more about what they want from the product or service and start searching out things that serve their unique needs, wants, or desires. This is what opens the door for broader competition and segmentation, and it is when this happens that the competitive dynamics within a market often change.

The second is that the tech industry has gone global. Thanks to the industry being mature we can now bring nearly every class of consumer technology product to the masses at a variety of price points. The power of local manufacturing in China, and the growing capabilities of India, Latin America and other countries are accelerating the pace of the industries growth and bringing with it challenging implications for foreign brands.

Case in point, a company I love to study based in China named Xiaomi recently unseated Samsung and Apple to take the top smartphone sales spot in the month of December, according to Kantar. This is quite remarkable for a local Chinese upstart fewer than four years old.

The result of the industry maturing and going global is the foundation of why we are no longer talking about millions but billions of annual device shipments and billions of connected devices in use in the marketplace.

My firm estimates that by the end of 2014 there will be over 4 billion PCs, smartphones, and tablets in use. I forecast that by the end of 2018 the annual sales of smartphones will be approximately 1.8 billion. Every time I think about this single number it astonishes me. Every year, almost 2 billion smartphones are sold. Astounding. There may not be a single product with this kind of total addressable market.

Things start to sound even crazier when we start talking about the Internet of things. We are counting down the time before we hit 50 billion connected objects. That number will be quickly eclipsed by 100 billion connected objects as we march toward an inevitable future where we have 1 trillion-plus connected objects in the world. These connected objects will surround us in our homes, cities and workplaces, and will even be embedded into everyday objects like our household appliances, cars, beds, shoes, sports equipment, and clothing.

There is tremendous opportunity ahead for everyone participating in advancing the technology industry. This is not a zero-sum game where for someone else to succeed someone else has to fail. This fact is a core trait of a mature industry. This industry is large enough to sustain a number of healthy growing companies all thriving for decades to come.

Those of us who write about, observe, analyze, and work in this industry are on a journey. However, on a journey the scenery changes. And while this industry is mature, there is still much change that will take place in the years to come. I believe we are just about halfway through this journey and this adventure will be filled with twists and turns for decades to come.

[Image via Shutterstock]