Can Xiaomi, Samsung, HTC and Microsoft challenge Apple in services and become lifestyle companies?

Phil Goldstein220px; height: 52px; border-width: 0px; border-style: solid; margin: 1px;" width="220" />

BARCELONA, Spain--Apple (NASDAQ: AAPL) is not publicly here at the Mobile World Congress conference (it never comes here or to other industry trade shows), but the running cliché is that even though the company isn't physically present its influence is palpable, usually in how the iPhone forces other handset makers to react. This year, perhaps more than any other though, I think that Apple's influence is being felt in another way: lots of OEMs are seeking to emulate and put their own spin on Apple's success as more than just a device maker but as a services provider and maybe even a lifestyle brand.

Very few smartphone companies have managed to actually develop (by themselves or in partnership with others) and sell services that make consumers value them as more than just a devices company. China's Xiaomi is one of them and a handful of others are trying.

It will take a great deal of investment and success is definitely not guaranteed. I think the OEMs would be wise to pick a few discreet areas where they can offer a differentiated experience that adds value to consumers' lives. If they don't have the resources to develop services themselves they should partner with service-oriented companies that do have those resources, experience and cachet with consumers.

Xiaomi, Samsung Electronics, and Microsoft (NASDAQ: MSFT) are seeking to create devices and services that are designed to work best as self-contained ecosystems, but few companies can do that. HTC, for one, is not trying to lock users into an HTC world. Moreover, just because something is self-contained doesn't mean it will actually create value for consumers. The goal of a devices company getting into services should always be to enhance a customer's digital experience by making devices and services talk to each other seamlessly, or providing ease of mind, productivity improvements or superior multimedia experience.

It makes sense on a number of levels for device makers to want to be--and be seen--as more than just smartphones companies. First, smartphones are becoming more commoditized in terms of hardware, average selling prices are dropping around the world and margins are falling in tandem, forcing companies to look for ways to offset those trends. Second, if consumers are buying wearables, accessories and high-margin services as well as phones, those are ancillary revenues the company wouldn't otherwise have. Third, if a consumer identifies so positively with a company that he or she sees the company as part of their daily lives, that likely increases brand loyalty and a willingness on the part of the consumer to recommend the brand to their peers. A fourth reason is that a lifestyle company can more readily lock a customer into its devices and services ecosystem. In fact, if a brand has successfully transitioned to being a lifestyle company, then its customers will most likely willingly embrace that choice, or at the very least see the utility in doing so.

Apple was a lifestyle brand well before it announced its first wearable, the Apple Watch. With iTunes, the iPhone, iPad, Apple TV, iCloud cloud storage and its AirDrop service, Apple has offered its customers a seamless and integrated digital experience. Apple improved upon that integration with its latest Mac operating system, Yosemite, which can talk with iOS devices such that text messages show up on the computer screen.

To fans, Apple is not just a smartphone maker but the company that organizes and manages their digital life.

Here at MWC we are seeing attempts by other device makers to emulate this strategy. Here are some examples:

  • Xiaomi: A few weeks after Xiaomi said it would launch an online U.S. store to sell products like its Mi Band wearable fitness tracker and earbuds (but not smartphones), Hugo Barra, the company's vice president of international operations, said during an onstage appearance here that the company will do the same in Europe. However, while Xiaomi's international expansion plans get a lot of press, what the company has done in its home market of China is most impressive, especially for its "fans" in their teens and 20s. As Ben Thompson wrote in January in Stratechery, MiUI, Xiaomi's software layer, ties together all of its products--including TVs, Internet routers and air and water purifiers. Xiaomi is "integrating everything itself and selling everything one needs on Mi.com to a fan base primed to outfit their homes for the very first time," Thompson wrote, calling it "absolutely a vertical strategy" akin to Apple's. The company also sees itself as more than just a smartphone company. "We increasingly see ourselves as a lifestyle brand," Barra said, according to CNET.
  • Samsung: For a few years now Samsung has sought to emulate Apple's services strategy within the Android ecosystem by doing things like having its smartphones and tablets connect to TVs (including non-Samsung TVs) to choose video content via its WatchON service. Here at MWC, the company announced Samsung Pay, its new mobile payments system on the Galaxy S6 and S6 Edge. Samsung claims the payments system, using the magnetic secure transmission technology it bought along with LoopPay last month, will make the service work in more than 90 percent of retail locations. Samsung claims its new system is secure, and we'll have to see how much the forthcoming Android Pay API makes it unnecessary, but it's clear Samsung wants to enhance the value of its phones through services.
  • HTC: In addition to launching its new flagship One smartphone, HTC announced the GPS-enabled Grip, a wearable aimed at hardcore athletes. The gadget is designed synchronize performance data with Under Armour's UA Record platform, allowing users to access analytics on their training and performance along with a social network of fellow (and even professional) athletes, nutritionists and trainers. The Grip works with iPhones and other Android phones. The partnership with Under Armour makes sense, since the company has credibility with athletes that HTC does not necessarily have. HTC also announced the Vive, a virtual reality headset designed in partnership with Valve, which promises to deliver immersive VR experiences for gamers and consumers generally. The Grip and Vive are part of HTC's strategy to push into connected health and fitness, home, multimedia and digital imaging arenas. "We want to be seen as a brand that's invested in our customer and solving problems in their daily lives or adding value to certain pieces of their life," Jason Mackenzie, HTC's president of the Americas, told me. "We'll do that on our own sometimes and we'll do that with partners were it makes sense on others."
  •  Microsoft: Microsoft revealed more of how phones will work on Windows 10, its forthcoming software platform that will work across a wide range of devices and deliver a seamless application experience. Its new PCs will have its Cortana digital assistant, which can remember reminders that then get synched automatically via the cloud to Windows Phones. The company's new "Project Spartan" web browser will synch bookmarks and history between Windows devices. "That is the differentiator that I believe Microsoft has over anyone else, which is a common experience, common set of services [and] applications across any device--phone, tablet, PCs, Xbox on your TV and Surface Hub," Microsoft's Chris Weber, ‎corporate vice president of mobile device sales, told me. "The goal is to make sure your data, your content, your experience is all seamless, whether it's things you're doing outside of work or things in work."

It's clear smartphone makers are trying to differentiate themselves through services. Being a lifestyle company is an extension of that. They want a prominent place not just in your pocket and your hand but in your life. But the companies will need to provide value and not try and overestimate their strengths with consumers; that's why partnerships like the ones HTC is striking can be key.

"You can either get sucked into a pure price play or you have to get a lot more creative in how are you differentiate your brand," Mackenzie said. I couldn't agree more. The question is whether device companies can provide services and products to consumers beyond smartphones that actually make their lives better. --Phil

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