Shiny gadgets, big and small, drive the Consumer Electronics Show in Las Vegas. In that sense, the show levels the playing field for a few halcyon days in early January in the desert. Mobile handset vendors, for instance, present their wares amid fierce competition for the senses.
One would not guess, venturing across the show floor, that mobile handsets are the top-selling consumer electronics device in the world. It would appear that humans, instead, draw much-needed sustenance from a variety of 100-inch-plus TV screens, where the largest crowds gathered, mouths agape.
The CES environment also levels the playing field among handset vendors. All mount a campaign designed to dazzle and-despite the thunderous music, eye-catching models and surging crowds-they appear to succeed. All the handset vendors at CES-regardless of market position, financial health or strategic outlook-seem perfectly capable of conjuring the “wow factor” and developing the potential mega-hit handset. That syncs well with their clients’ dreams; carriers envision that mega-hit-or, at least, a well-balanced portfolio of appealing devices-shaping their own competitive trajectory.
Thus, for instance, LG Electronics Co.-with only 6 percent of the handset market, but the top CDMA position in the U.S. today and around the world last year-garnered a moment in the sun with its new LG 9400, a swivel-screen mobile TV device, featured in Verizon Wireless’ announcement about full-length, live, mobile TV programming.
Harsh realities
If, however, you ask handset vendor representatives practical questions about competitive issues, declining average selling prices and margins, a cloud flits across the sun. Facial expressions change, if ever so briefly. No one enjoys being shaken from a pleasant dream. Yet most interview subjects at CES respond instantly with practiced assurance that their device is superlative, their business plan sound, their setbacks temporary and their lofty goals attainable.
Skepticism, anyway, is easy. In contrast, the ingenuity, technical prowess, intestinal fortitude and renewable optimism exhibited at CES, which drives the high-tech industry in general and the wireless industry in particular, requires heavy lifting. So most handset vendors not only dance in the Las Vegas “sunshine”-more accurately the strange glow from the overhead lighting and the nearby, big-screen TVs-but take the tough questions in stride.
The path to the consumer
The single thread that emerged unbidden from conversations with the top-tier handset vendors at CES was-in so many carefully chosen words-the issue of carrier dominance in the U.S. market. With innovation emanating primarily from the handset vendors and their hardware, software and content partners and handsets’ ascent to the top of the consumer electronics heap, there’s a natural tendency to seek a direct path to the consumer.
Top executives from Nokia Corp., Motorola Inc. and Sony Ericsson Mobile Communications L.P. all sincerely emphasized the ongoing importance of the vendor-carrier relationship in the U.S. Yet the message in all cases bore a touch of diplomacy, perhaps because it was accompanied by mention of the emergence and evolution of “alternative channels”-vendor-oriented online retailing, vendor-branded retail brick-and-mortar outlets and other channels. While that obviously is not breaking news, the topic now bubbles to the surface with increasing regularity and frankness.
And, to be sure, the alternative channel strategy is not universally pursued. Asian manufacturers-particularly Samsung Electronics Co. Ltd. and LG-pride themselves on delivering exactly what the U.S. carriers want and do not mention alternatives.
The alternative channel strategy would appear, however, to answer several vendor needs: brand-building, a more robust business model independent of the carriers’ role and proper valuation of their products, in contrast to the distortion caused by carriers’ handset subsidies. Efforts to rectify this distortion may be the most crucial to handset vendors, as it offers a long-term opportunity to address the decline of average selling prices and eroding margins.
Clearly, too, pride in innovation plays a role. Handset vendors, as the repositories of intellectual property and the creators-or at least managers-of their own or third-party innovation, want recognition and reward for blazing the way forward. With Apple Inc. and its iPhone joining the fray in a rapidly converged world, vendors (including Apple, which abhors discounting) appear to think that alternative channels are a critical addition to the carrier-client model.
That certainly seems to be the case for Nokia, which dominates the global market, but struggles in the U.S. “We’re exploring alternative channels,” said Nigel Rundstrom, sales and channel management for multimedia in North America, “and the channel environment is evolving.
“We still make mobile phones, but ‘multimedia computing devices’ is where we see the world moving-that’s the future,” Rundstrom said.
In a wide-ranging interview with Scott Durchlag, vice president in Motorola’s product and “xperience invention” department of the mobile devices division, alternative channel development is mentioned, though mostly in the context of the global market.
One hears a similar refrain from Sony Ericsson.
“One of the challenges for us, going forward, is to restate the value proposition,” said Paul Hamnett, vice president for sales, North America at Sony Ericsson, in reference to the subsidies that color that proposition.
Therefore, some higher-end Walkman-branded handsets will continue to sell through Sony Style retail stores in the U.S. to help achieve that, according to Cherie Gary, Sony Ericsson’s vice president for corporate communications.
In contrast to these three vendors, it appears that players still focused on building brand awareness are focused on meeting carriers’ customization requirements.
“The mobile phone market is not just about the product consumers want, but what the carriers need-we do that really well,” said Jon Maron, director of marketing for LG Electronics MobileComm USA, Inc., the U.S. arm of the Korean conglomerate.
With mobile phones the best-selling consumer electronics device in history, his company plans to infect consumers with a desire for all things LG. A handset featuring techno-marvelous, mobile TV can lead consumers to LG’s myriad other consumer products, such as the truly stupendous giant plasma- and LCD-screen TVs that mesmerized the CES crowd. “We’re building a bigger brand picture than just mobile phones,” Maron said.
This mantra contrasts with Nokia, which has impressed upon its carrier clients that its own consumer research can illuminate the path forward. In Nokia’s thinking, carriers need what consumers want.
At CES, however, contrasting philosophies only emerge in the relative peace of interior meeting rooms.
The show floor is a field of dreams where anything is possible and handset vendors play that to the hilt.
