Editor’s Note: Welcome to our weekly Reality Check column. We’ve gathered a group of visionaries and veterans in the mobile industry to give their insights into the marketplace.
In my last column, “Navigating consolidation in the network equipment industry,” I discussed consolidation in the global network equipment sector. Here, I’ll discuss the fragmented mobile device sector and the implications of looming consolidation.
Mobile device manufacturers are clearly at an inflection point. Similar to the PC industry of the last decade, a lack of differentiated products threaten to commoditize mobile devices, shrinking prices and profit margins. The constant influx of new mobile device entrants using open operating systems, standardized components, and low-cost manufacturing serves as a stark reminder that pirates are trolling the waters to plunder incumbents’ share.
Quite clearly, speed is no longer a competitive advantage. A recent study by my firm, PRTM, found that open source operating systems such as Android, particularly when combined with chipsets from providers like Qualcomm Inc., nearly halved the time to market for most complex smart phones. This is a big change from the past, when innovative devices like Motorola Inc.’s Razr ruled the market for long periods. Now, competitors now swoop in within weeks with “me too” products. Additionally, each of the 100-plus tablets released over the last three months in hopes of stealing a piece of the Apple Inc.’s iPad’s lucrative market are virtually indistinguishable.
The mobile device industry appears unprepared for the rough waters ahead, and the impact of greater competition is becoming increasingly evident. Nokia Corp. is grappling with lost market share and profitability, recently jumping into the arms of Microsoft Corp. Motorola and Sony Ericsson are struggling to maintain relevant product portfolios, and past stars like Palm Inc. have virtually crumbled altogether.
With estimates indicating that smart phones will constitute the majority of the mobile phone sales in some markets this year, manufacturers must hone their competitive swords. Some, including Apple, Research In Motion Ltd., and Hewlett-Packard Co., are integrating vertically to garner interest among developers. Others, like Samsung Electronics Co. Ltd., HTC Corp., and Motorola, are using shared operating system platforms to reduce their costs and bring affordable devices to the broader consumer market.
Which companies will take home the loot, and which will be looted? In our work with major mobile device companies, we see three key drivers of success: winning platform strategies, clear segments and innovative features.
Driver No. 1 – Winning platform strategies: As mobile devices become more data-centric, choosing the right platform strategy is increasingly important. This goes well beyond a decision about Android vs. Windows Phone. Target markets, and geographies, prioritized market segments and the component supplier landscape all must factor in.
For example, a high-end smart phone developer might utilize both Windows Phone and Android to create leading products for large enterprise users and high-end entertainment-oriented users. Likewise, another player might benefit from a strong relationship with a particular application processor supplier. A clear strategy is essential to a winning approach.
Driver No. 2 – Clear segments: Platform strategies and product road maps depend on market segmentation that allows manufacturers to target user groups with similar needs, usage patterns, brand values and purchasing behaviors. In an era of clone-like smart phones, products must be more focused than ever. In fact, as PC manufacturers are already finding out, it may be beneficial to go to market with unique brands for different segments.
A good segmented strategy example is the recently-announced Experia Play from Sony Ericsson. Rather than creating yet another Android-based smart phone, Sony Ericsson leveraged its strengths in gaming and entertainment to create a solution for a distinct segment: Serious users of portable gaming devices. The company is constructing not only the device but also the ecosystem of games and content to go along with it.
Driver No. 3 – Innovative features: Even with a strong platform strategy and the world’s best market segmentation, a device manufacturer’s market success will be short-lived without ongoing the delivery of innovative new features. Manufacturers need to fill their innovation pipeline with feature concepts that are informed by the voice of both current and targeted customers, as well as a rich understanding of their current and future device uses.
At Mobile World Congress, for example, LG Electronics Co. Ltd. demonstrated its latest innovation by launching a smart phone with a 3-D screen, allowing customers to both record and play back 3-D imagery, similar to what they can already do with some big-screen televisions and video cameras. But innovations don’t always have to be technologically complex. Last year, HTC integrated a “kickstand” into their Evo product for Sprint Nextel Corp., highlighting the appeal of the device’s gigantic, crisp display for watching video and projecting photos. Similarly, the company added a button which launches Facebook onto its new Salsa and Chacha products, appealing to avid Facebook users. Sometimes the little things can make a big difference to consumers.
As consolidation looms on the mobile device horizon, manufacturers must move quickly to shore up their capabilities. By focusing on platforms, segments and features, they can ward off the pirates and set themselves up for enduring success.
My next and final column in this series will probe the drivers of global and regional consolidation among wireless service providers.
Dan Hays is a partner in the services, electronics, and software practice of PRTM, a global management consultancy focused on operational strategy and innovation. Hays works with communications service providers, equipment manufacturers, software companies, and media firms worldwide to drive growth, boost profitability, and set new standards for market leadership. Hays welcomes your comments at dhays@prtm.com.
