Add-ons propel profit : Accessories extend brand and bolster bottom line

Gadgets beget more gadgets, leading to fun, safety and productivity for consumers and profit for all.
What’s not to love about that?
New figures for the accessory market place its ascendance in context and underscore how handset vendors and network operators have positioned their high-margin, non-handset offerings to extend their brands, up-sell consumers and raise average revenue per user.
The two largest handset vendors, for example-need we mention names?-have taken slightly different tacks to brand their accessory offerings in a reflection of their own read on consumer trends. But first, the latest market figures.
The handset accessory business is expected to generate more than $32 billion in revenue this year-significantly higher than the market for smartphones, according to ABI Research. That’s up nearly 40% from $23 billion last year.
In ABI’s recent study, memory cards ranked first among accessories, followed by headsets, batteries and chargers, data connection kits for downloading content and “carrying”-related products such as phone cases and straps.
If these rankings surprise, perhaps it’s because the numbers include both accessories provided “in-box”-a battery provided with the phone, for instance-as well as “after market” products such as headphones purchased separately, said Shailendra Pandey, analyst at ABI. About 77% of the accessory sales forecasted for this year represents after-market sales; the remaining 23% represents the value of accessories provided in-box.
Pandey said memory card revenue figures may reflect uses other than mobile phones-if a memory card product can be used by a mobile phone, but has other device uses, its revenue would be included, he said. Headset figures include both wired and Bluetooth devices.
After-market sales of accessories provide the highest margins, according to Pandey. That tends to include memory cards and headsets, which overall are less likely to be included in-box. Conversely, the after-market sale of batteries and chargers are declining, due to their typical inclusion in-box, he said.
More useful means more ARPU
But both in-box and after-market channels contribute additional benefits to the vendors-increasingly, handset vendors such as Nokia Corp. and Motorola Inc.-by providing consumers with the means to fully exploit the functionality of, or increase the personalization of, their handsets. Accessories tend to be branded by either the vendor or its carrier partner, a key opportunity to extend brand presence. These “extras” also raise the overall value of a retail handset transaction and, Pandey said, tend to be purchased at the same time as the handset. Perhaps most attractive of all, subscribers who fully utilize their handset’s functionality tend to rack up higher ARPU-a recurring revenue stream avidly sought by carriers.
Original equipment manufacturers such as Nokia and Motorola often use original design manufacturers for manufacturing their accessories, but typically provide intellectual property and design guidance to maintain quality and credibility, according to both companies. ODMs also sell their own products to handset vendors and network operators for the latter’s branding, which saves the ODMs from investing in brand-building, marketing and distribution, Pandey said.
Great way to boost margins
Among memory card vendors, SanDisk Corp. leads the market with 20% share of self-branded products, though it may double that share through the ODM-style sale of cards to other brands, Pandey said. Toshiba and ATP Electronics Inc. follow. In the headset space, Motorola has a leadership position in Bluetooth-enabled headsets, with GN Netcom/Jabra, Plantronics, Nokia and Sony Ericsson Mobile Communications in pursuit; some or all also manufacture corded headsets as well.
Positioning accessories to appeal to consumers while reflecting a practical business approach is embodied in Nokia’s branded “Nokia Enhancements.” According to Pam Norris, head of enhancement sales for North America at Nokia, her company is in an “entry mode” in the United States accessory market. But the Finnish company seeks to meet consumer demand for performance, personal expression and value in its accessory line. Like rival Motorola, Nokia does not break out financial numbers for its accessory business, other than to acknowledge that it is a profitable play.
Nokia just launched a Bluetooth headset at AT&T Mobility (the BH-801) that offers ear buds for women with a stylish neck strap for when the device is not in use. (Men get a pocket clip.) Nokia is taking a lead in addressing the female demographic demand for stylish accessories, according to Norris.
“That’s a value add that addresses style on top of functionality,” Norris said.
Outside the U.S., headsets are increasingly bundled in-box with handsets to meet hands-free driving requirements and awareness, Norris said. That definitely helps drive ARPU, she said. Anything to do with music or automotive cellular applications (including chargers, speakers and navigation) is hot right now, according to Norris. Nokia ensures that all its branded products are the result of Nokia IP and design, even if manufactured by an ODM, she said. Partnerships with known leaders in other industries also play a role; top-line stereo headsets may feature technology from Sennheiser, well-known in the audio field for headphones and microphones, for example.
“Accessories are a great place to earn margins,” Norris concluded.
At Motorola, Scott Martin, senior director of marketing for MobileME, said that the company’s approach is all about enabling the “consumer experience.”
“We aren’t really in ‘accessories’ anymore,” he said, making a semantic distinction to stay on message. “We’re focused on products that are critical to extending experiences.”
In that sense, “Motorola placed a big bet” on obtaining leadership in wired and Bluetooth headset sales, which has paid off, Martin said.
Motorola has a leading position in Bluetooth headset sales, he said, which is the technology that consumers prefer to use. Although wired headset penetration is about 70%, usage only reaches about 20%, he said. Motorola has attained more than a quarter of the global market and half the U.S. market in Bluetooth headsets, Martin said, referring to market figures from Strategy Analytics.
Accessories drive innovation
Motorola is innovating in power sources as well, according to Martin. The company’s “Portable Power P790” allows on-the-go consumers or road warriors to recharge from a 3 x 2 x 1 inch, previously charged unit. In the automotive space, the company’s Bluetooth-equipped “Music and Hands-free System T605” offers music or speakerphone connectivity between the handset and a car’s audio system.
On the mobile music front, the company is seeking to build a “branded ecosystem of accessories” around its Rokr Z6 and Z8 handsets, which will be the vendor’s music platform going forward, according to Kenneth “Casey” Keller, chief marketing officer, quoted in a recent BusinessWeek profile.
The accessory space offers “explosive growth,” higher margins for handset bundles and higher ARPU for its carrier customers, Martin said. “Attachment rates”-the rate at which consumers snap up accessories along with their handsets-in some markets are soaring to 50%. “It’s a strategically important business,” Martin concluded.