The story of Motorola Inc.’s Razr handset has morphed of late from legend to cautionary tale.
Despite the device’s continuing, rampant sales, the company’s decision to radically discount the price garnered volume at the expense of profit. (Motorola’s other blunder: seeking share in emerging markets with slim margins.) The company’s infatuation with the Razr platform and failure to refresh it in a timely way sealed its current fate.
Motorola’s transition from world-beater to its precipitous plunge in market share (from more than 22% in the fourth-quarter of 2006 to a projected 15% in the second quarter of this year, according to CIBC) has underscored a perennial debate in wireless and other industries.
Is striving for a hit preferable to developing a diverse and consistently profitable product portfolio?
Swinging for the fence
According to several analysts, the two options may not be mutually exclusive pursuits. The odds favor creating a wide array of individually profitable products, any one of which could see the sort of market traction that would justify additional spend on marketing and advertising.
In that sense, perhaps the blockbuster/diverse portfolio dichotomy is a false one. But exploring the conversation shines a little light on the hyper-competitive field of product design and portfolio philosophy.
Motorola and rival Nokia Corp. are likely to pursue diverse, profitable portfolios, rather than chase the next blockbuster, analysts said.
Everyone would love to design and launch a smash hit, of course, but the ingredients and methodology remain maddeningly elusive.
“Every designer who sits down with a blank sheet of paper is aiming at a blockbuster,” said Chris Ambrosio, director of wireless device strategies at Strategy Analytics. “It’s a myth, though, that anyone has the foresight to predict a blockbuster.”
Aiming for the gap
In Nokia’s case, Ambrosio said, its market leadership means that it doesn’t need to risk the added costs or uncertain product development steps that might be required to chase the mythical beast known as the intentional blockbuster. Instead, Nokia innovates incrementally by maintaining the integrity of consistent, recognizable design elements, according to Ambrosio. This sober approach is in part responsible for Nokia’s global brand success, where its products’ functionality and look and feel communicate quality and style.
(For American readers who unwittingly bask in the glow of self-importance and discount the company’s efforts here, wake up and smell Nokia’s expanding global market share.)
Put the question to Kurt Walecki, director of strategy and portfolios at Nokia Design, and he will emphasize that his company’s success is based on understanding actual consumers, their behaviors and sensibilities. Incremental innovation guides product development. A blockbuster would be great, but chasing the elusive beast is no way to approach success on a global scale.
“Yes, it would be nice to hit something out of the park,” Walecki said. “But we’d want our homerun, so to speak, to be of intelligent design, beauty and brains-a blend of hardware and software. We’re able to fit our products to very specific customer segments in many regions in the world.”
“Take the four basic categories in our segmentation model-live, connect, achieve and explore-and then look at the world’s six major regions, each with their particular preferences,” the Nokia designer said. “Once you look at our 13 additional ‘user need’ segments, you quickly end up with an extensive product portfolio.”
(Asked how many handset models Nokia currently has on the market, Walecki murmured “wow” at the daunting prospect of calculating the number.
“That’s a difficult question,” said spokesman Keith Nowak. “We’ve been trying to pull that number together. Last year, for instance, we launched about 50 models.”)
Spreading the ball around
“We keep certain design elements consistent so you know it’s a Nokia product,” Walecki said. “Meanwhile, we differentiate other elements to fit the basic functional categories. A QWERTY keyboard says ‘heavy text messager and e-mailer.’ A big display says ‘great for browsing.’ So, I agree, Nokia is evolving over time its design DNA, its core, brand asset of design. That’s not to say we’re not innovating. But Nokia wants to ensure that designs work for the masses. We don’t want to simply be first to market.”
A sustainable, global portfolio is not served by shooting for the moon on paper, it seems. Walecki agreed.
“At the core of everything we do is a lot of consumer understandings and the trend in consumer experiences,” Walecki said. “We really focus on user-centered design. To us, it’s really ‘fit to purpose.’ So we get the data. We go out to more places and see more contexts than anyone knows. It’s all about observing and designing.”
In response to the perennial complaint that Nokia came late to the thin, clamshell party exploited by rivals, Walecki pointed to Nokia’s sustained business success.
“Yes, we lagged at one time in delivering thin clamshells, but at the same time we were delivering products to people in their countries in their own languages,” the designer said. “Our platforms are flexible. Our language packages can be readily loaded and that’s allowed us to sell into more countries faster than anybody.”
“Sometimes we incrementally move the design language ahead,” Walecki added. “Sometimes we allow it move ahead disruptively-as in some new products you’ll see soon.”
International game
In Ambrosio’s view, however, Nokia will not risk its market leadership by shooting too wide of its consumer-segmentation-guided market.
“Nokia maintains its rules for design efficiency for its financial integrity,” Ambrosio said. “It can profit at great volumes by making incremental improvements required by the global market. They don’t need to risk the next blockbuster design. Our U.S. perspective and Nokia’s current position in this market allows us to bash them, but the truth is, Nokia could put the U.S. in its pocket.”
An interview on Motorola’s portfolio approach was “impossible at this time,” according to spokeswoman Juli Burda. She pointed instead to remarks the company’s executives made at a May 15 product presentation in New York.
At that time, CEO Ed Zander introduced the Razr2, a feature-loaded model, and said: “It’s not just about form factors anymore.” Zander said that meant the use of Linux/Java to enable features, 3G connection speeds and advances in multimedia and messaging. The company will simplify its platforms to streamline its portfolio and that means addressing three consumer segments: everyday communications, feature phones and multimedia/messaging handsets. In music, the Rokr Z6 handset will become the vendor’s flagship music phone.
To some observers, the announcement was subdued as the vendor cleared its pipeline of Razr-related products and looked ahead to 2008 for post-Razr platform contributions to its portfolio.
Ittai Kidron, analyst at CIBC, put the matter into context with a note to investors earlier this month.
“We believe investors should focus on product portfolio and margin progress, yet not look for a game-changing (handset) model,” Kidron said. “A broad portfolio with a good number of decent-selling models is the target. It’s (now) a different game. A greater emphasis on a broad product portfolio, better 3G mix and no mega-hits should lead to better operating margins in the long run.”
“To a certain extent,” Kidron said, “this follows Sony Ericsson and Nokia’s business strategy.”
Analyst Rob Enderle, principal at Enderle Group, takes a somewhat contrarian line to the foregoing discussion.
“Until Nokia and Motorola learn that a ‘hit’ is the result of the product and the marketing, they’re playing roulette,” Enderle said. “Chasing a hit involves long odds, but they’re not doing anything to improve those odds.”
“They can sit back and wait for someone like Samsung, LG and HTC to come up and grab the market,” Enderle added. “One can argue
that those are the real innovators right now at the high end. There’s a risk to continuing to follow, if you want to be a market leader. People are fickle, they buy what they want. If you’re not selling what they want, you’re done.”
