The Real Contribution Of Symphony And Symphony’s Moat
This is a follow-up of my piece from the past month on Symphony titled Symphony, Disruptive Innovation, Poor Man’s Phone and Symphony’s Future. It received quite a reception. Many of you reached out to me and sent your feedback after the piece, thank you. If you want to check it out, you can here.
“While multinational companies like Samsung and Nokia led the initial growth of mobile phone technology in Bangladesh, it was local player Symphony along with a few other players that pushed the penetration to current level by introducing low-cost handset and establishing distribution networks in remote villages across the country.
The most important point that I missed in that piece was about the real contribution of Symphony as a company. I believe Symphony deserves a lot more credit for unleashing mobile penetration in the country, even in the remote villages where people had limited access to the mobile phone before Symphony.
Symphony started in 2008. It has two major contributions to the development of the consumer technology industry in Bangladesh: 1) it made, in the early days, access to mobile phone easier for people by offering affordable feature phones 2) and then when Smartphone came along, the company also pioneered in that space, particularly for the low-end customers.
This two development has helped to a few major events to take place later on. To my understanding, this was the second epoch of consumer technology industry and it was led by Symphony.
Unfortunately, Symphony has, so far, failed to take advantage of a mobile phone revolution that it has helped to happen, which many other vertical companies like Symphony, such as Apple, has managed to take advantage of through a string of innovations and strategic decisions.
I do understand that it does not make sense to compare Symphony with Apple, in fact, it is absurd. But if you look at the reality where millions of people use your device on a daily basis, it makes perfect sense. The only difference was Symphony did not have any of the leverage, unlike Apple.”
Symphony offered affordable mobile phones to people who did not have access to the phone before. It managed to build a strong distribution channel to the deep remote areas in the country making it easier for people to buy a mobile phone anywhere in the country. This has enabled Symphony to build a really great business which it continues to maintain even these days.
Mobile is an interesting platform. From Ajkerdeal Debuts A New App, Ajkerdeal’s Strategy and Why Ajkerdeal Is The Most Important eCommerce Company In Dhaka:
“Mobile is the ultimate platform. More so for a country like Bangladesh where mobile penetration is way higher than laptop or desktop penetration. Moreover, time spent on mobile is way higher than any other platform out there. Having said that, while mobile offers an unprecedented opportunity, it is incredibly difficult to make anything work on the mobile platform.
One of the reasons is, of course, the real estate is limited on mobile. You can’t have an unlimited number of apps even if you want to.
At the same time, a user can’t afford to use all the app that he/she does need or want to use on a daily basis which means a mobile-first strategy will be effective only if you understand the reality of mobile platform.
In simple, making sure that your app meets a fundamental need of your users and that it engages users are two important prerequisites for success on mobile.”
This unprecedented growth of feature phones and then low-cost smartphones has enabled a host of other mobile-based services to fly. bKash, albeit a major one, is an example of that. bKash started in 2011, essentially unleashing the third epoch of consumer tech in Bangladesh.
Apart from bKash, we have seen SMS banking to happen, we have seen a huge VAS industry to born at the intersection of mobile phone and operator. In fact, Symphony had enjoyed business during this period.
With the VAS business, there was a host of different things starting from education to sports to news. Now we are seeing ecommerce, ride-hailing and many other services that are enabled by mobile phone.
Simply imagine, if someone did not push the mobile phone penetration, none of these could have happened. This is where I think Symphony has played a brilliant role, one that can’t be ignored.
The Growth of Local Brands and New Challenges for Local Brands
“The 2nd wave of mobile phone market started in 2006 where local brands started to enter the market on the back of manufacturing facilities in China. These local brands would go to China and buy products and put their brand names on it and distribute in the local market. Since China could offer competitive pricing, these local brands could offer relatively low price compared to the international brands undercutting them in the low and mid-range segment of the market. This allowed local brands to gain market share quickly in many markets.
The 3rd wave is what we are seeing now where Chinese manufacturers are launching their own brands and entering the market in different parts of the world. Albeit not all the manufacturers, but some. Since they have been producing phones for the world, they have developed expertise and a deeper understanding of the markets.”
This part may sound less important if you consider the headline of the article which aims to talk about Symphony’s real contribution and its business moats. However, these above paragraphs tell us the genesis of the business of the local mobile phone brands in many countries including Symphony in Bangladesh and Micromax in India.
Apparently, Symphony outsources its manufacturing to Chinese phone makers. It has announced to start a local manufacturing unit this year which is important because of the recent changes in the taxation policy by the Government.
Outsourcing your manufacturing is a great business strategy. Apple makes its phones in China, H&M and all major clothing brands in the world make their products in Bangladesh. The leverage, it is cheap and cost-effective than doing it yourself. For Symphony the same logic applies, only it has other caveats as well.
Having a manufacturing upside only helps you when you have sufficient control over your product design as well a sufficient brand equity which Apple has but Symphony up until today does not. Apple designs the product in California and makes it in China because it is efficient. Symphony, mostly, does not design its own product, to some extent, its investment in R&D is meager and its brand equity is not that high.
“From Warren Buffet: “In business, I look for economic castles protected by unbreachable ‘moats’.”
The idea of moat came from the old days when a castle was protected by moats that circled it. The wider the moat was the protected the castle was against attacks of enemies.
If you are a modest student of history you know how importantly kings and military minds of the past treated a moat.
For a business, it is the same. Moats protects your business from competition and changes in the market and ensure sustainable profits.
Traditionally, moats are of a handful of types: 1) scale – for GP or Pathao or Android as operating system scale is a moat because it makes it difficult for competitors to compete for 2) network effect – that is also tied to scale and the product has to be something that unleashes network effect i.e. a social network, a mobile network even 3) IP – if you have a patent for an advanced phone that’s it 4) brand and loyalty – being a reader of this site you already know what it is 5) high switching cost – for instance, to some extent a mobile phone number and there are a few others as well
For instance, the scale is really not a moat for businesses like Walton or Symphony as well as network effect or switching cost because there is no network at the first place and if you don’t like a phone brand, you buy a different one next time.
However, for Walton and Symphony, brand image and customers loyalty is an effective moat and at the same time any regulatory advantage that you can use in favor of building your brand.”
The mobile phone business is one of the most competitive businesses in Dhaka now. A host of new and old multinational brands are now investing aggressively in the market. The dynamics of mobile phone business is such that it is hard to stay on the top if you are not innovating on a constant basis.
The disadvantage that Symphony had to endure in its early days was that the market was not demanding enough, particularly for quality and features. It could easily make money offering low-end phones with minimum innovation and investing in distribution.
However, over the past years, the market has changed. This is what Marc Andreessen calls the success of any company depends on the market, how demanding a market is that pushes a company to innovate.
The market that Symphony served initially was demanding but not of the high-quality products or innovation, rather of affordable products. Symphony did that efficiently. The failure on Symphony’s part is that it failed to see the future.
“As I said earlier, Symphony has built a great business. The company is doing very well even these days in terms of number. However, the challenges it faces today are around sustaining this success.
While Symphony has built a great business, it has equally failed to build a loyal fan base which Apple has or Oneplus has or even Xiaomi has, meaning Symphony’s competitive vulnerability is quite high.
Similarly, the company did a subpar job in building a high-end phone category that can significantly improve its profitability as well as improve its image in the market helping it retain its leadership in the low-end category by giving it a positing boost.
While it has been trying to do exactly that with Helio phone series for a while now, it seems the company has already wasted some crucial time.
Having said that, I’m hopeful that Symphony understands this reality in the market and is well on its way to addressing this challenge.”
As I wrote in my piece on Walton and its moat:
“For instance, the scale is really not a moat for businesses like Walton or Symphony as well as network effect or switching cost because there is no network at the first place and if you don’t like a phone brand, you buy a different one next time.
However, for Walton and Symphony, brand image and customers loyalty is an effective moat and at the same time any regulatory advantage that you can use in favor of building your brand.
This is exactly what I have noted above in favor of Walton. It has created an acceptance in the market, more work needs to be done there, but it has started off well. And it has taken the regulatory advantage that would give huge tax benefits before every other player which will give it at least price competitiveness in the short term and expertise competitiveness, in the long run, let’s not think about price competitiveness and other things.”
Symphony will continue to do great business in the next few years – although its market share has significantly dropped in the past two years – and then its ongoing struggle will deepen and will reach beyond fixing.
I would like to argue that the company should get serious about building and expanding its moats. To close, let’s see what Warren Buffet has to say about moat which I think will cement our contextual understanding.
“So we think in terms of that moat and the ability to keep its width and its impossibility of being crossed as the primary criterion of a great business. And we tell our managers we want the moat widened every year. That doesn’t necessarily mean the profit will be more this year than it was last year because it won’t be sometimes. However, if the moat is widened every year, the business will do very well. When we see a moat that’s tenuous in any way — it’s just too risky. We don’t know how to evaluate that. And, therefore, we leave it alone. We think that all of our businesses — or virtually all of our businesses — have pretty darned good moats.”
Latest posts by Ruhul Kader (see all)
- PRAN-RFL Enters Video Streaming Business, PRAN’s Strategy, And The Business Of Online Streaming - February 18, 2018
- Doctorola Launches Membership Service E-Sashto, and Doctoroal’s Business - February 4, 2018
- Ride-hailing Guidelines, The Business Of Ride-Hailing, And Tech, Aggregator and Technology Policy - February 1, 2018