SAN
FRANCISCO: Bright colors, funky textures and personalization are coming
to a smartphone near you as mobile phone makers turn to fashion to buoy
sales in a crowded market.
Apple
and Google's Motorola are among those trying to score style points as
game-changing technological innovation becomes harder to achieve in the
maturing business.
Since the first touch-screen iPhone hit the
market in 2007, software features have become easier to replicate and
improvements in speed, weight, display size and resolution have become
routine. The explosion of me-too products is already hurting profit
margins and nibbling at Apple and Samsung Electronic's market share.
Time to bring out the paintbrush.
Apple has invited reporters to an event where it is expected to
introduce new iPhones in a much broader palette of colors, perhaps even
gold.
One-time leader Motorola, now owned by Google, is trying to win back consumers with the
Moto X, relying partly on customized colors and, soon to come, engravings and unusual casing materials such as wood.
Robert Brunner, founder of design consultancy Ammunition and a former
Apple industrial design chief, said personalization is a well-worn
tactic employed when a product's uniqueness fades.
"As
something becomes embedded in lifestyle and as it starts to become
commoditized, people look toward more superficial design things to
differentiate or at least reach more people," said Brunner, whose
clients have included Amazon.com,
Dell and Nike.
"And colors are the classic. If you do it at the right time, it will create a significant increase in sales every time."
Much of the speculation around new iPhones this year has focused on
colors and material, in marked contrast to previous years when hopes ran
high for a breakthrough feature.
Personalization is key
The consumer electronics industry lives and dies by innovation, and
resorting to aesthetics is at best a stop-gap measure until frequently
talked about new technologies such as fingerprint identification,
holographics or flexible displays become reality.
Smartphone
shipments grew 52% in the second quarter, according to research firm
IDC. But the market is getting crowded, with everyone from Alcatel
Lucent to China's Huawei producing an abundance of look-alike phones
based on Google's Android software.
Consumers face a sea of
"rectangles that are black and white" that all use similar software and
capabilities, said Carolina Milanesi, an analyst with research firm
Gartner. "So you need that instant hook in the store to get people to
pay attention, and that comes from the fashion and style."
Nokia's phone business, soon to be part of Microsoft, was one of the
first to try color. Nokia's Windows-powered Lumias came in a variety of
shades from blue and red to yellow, helping boost shipments by 76% in
the second quarter and outpacing the overall market's growth rate.
"We have always believed technology is highly personal, highly
individual," said Yves Behar, the chief creative officer at Jawbone, who
has designed a successful line of customizable gadgets including the Up
wristband and Jambox wireless speakers. "We get more people wanting to
customize their Jambox than we get people not wanting to."
Making more stylish phones, however, can increase production costs and
make inventory management and demand forecasting more challenging. Also,
taste varies from region to region. So success in the fashion game
requires mastering new supply chain and manufacturing skills.
"If you try to predict in advance precise numbers, it is a sure way to over stock or under stock," Behar warned.
Built to order
In 2010, Apple had to delay the launch of the white iPhone 4 twice,
citing manufacturing challenges. While the company did not provide
details, speculation ranged from color-matching difficulties to an issue
with the device's back light.
More recently, Motorola delayed
offering the personalized engravings it promised for the Moto X, and the
special wood panels that consumers can choose for their phones will not
be available until later this year.
To help with logistics,
Motorola is using a Flextronics International contract facility near
Dallas that can custom-build phones and ship within 6 days. Its
long-term target is 4 days.
That kind of customization requires
a completely different supply chain system, said Massachusetts
Institute of Technology professor David Simchi-Levi.
Instead of
optimizing for the lowest cost components, a build-to-order model needs
to focus on speed, said Simchi-Levi, who has previously consulted for
computer maker Dell, which popularized the model in the 1990s.
Done right, the build-to-order model can generate richer margins and
provide flexibility to respond to demand: maintaining stockpiles of
components means lower cost and less risk than keeping inventory of
finished goods, Simchi-Levi said.
Analysts have said the impact
of Motorola's new strategy on its profit margins is unclear. Mark
Randall, the company's senior vice president of supply chain and
operations, said it knows a build-to-order model will not be easy but is
convinced that is the right approach for today's market.
"We
decided on this approach ourselves, relying on some market research but
also our own instincts. We thought it was time to get away from just
having a white or black phone."
Tried and tested
In the 1990s, cellphone makers relied on aesthetics to stand out. Phone
makers pumped slider phones, flip phones and "candy bars" in the hope
of getting a hit like the sleek Motorola Razr.
Some compared
the industry's evolution to watches, which rely on 50-year-old quartz or
centuries-old mechanical technology and are the epitome of a business
that hinges on fashion.
"Mobile phone makers are going to some
of the watch suppliers to get the kinds of finishes and the quality feel
that have been in the luxury watch business," said Gregor Berkowitz, a
consultant who specializes in consumer electronics design.
Swatch Group, one of the world's largest watchmakers, shows how lucrative fashion can be, analysts said.
"The company benefits from being vertically integrated," Morningstar
analyst Peter Wahlstrom said. "They have the designers in-house. They
own the manufacturing, the distribution, they control the brands and
pricing very well."
Swatch, which owns Breguet, Omega, Flick
Flack as well as its namesake brand, boasts operating profit margins of
25%. While that is below Apple's 35% -range on mobile devices, it is
above those of Samsung and many other phone makers.
But while
fashion can provide a nice way for phone-makers to buoy sales for now,
smartphone companies ultimately need unique technology to maintain a
long-term advantage.
"The way we think about technology
companies is in terms of sustainable competitive advantages, or economic
moats," said Wahlstrom. "It's not sustainable unless you have the
intellectual property or patent support behind it that really creates a
barrier to entry."
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