Wang: It's now risky to play it safe in commoditized smartphone market

By Jefferson Wang

joe madden

Jefferson Wang

After repeatedly hitting the snooze button, 2016 is proving to be the year that the top smartphone makers are waking up to the harsh realities of a commoditized market.

Industry-wide, we're finally seeing evidence that manufacturers have learned that a great device on its own no longer matters. Some are actually proving there is still room to make impactful innovation on the phone itself. Others that don't want to slash prices are making more creative business decisions and choosing to bundle additional hardware to build more value around high-end flagship devices. Some newer entrants and other manufacturers that have seen the writing on the wall have entered what IBB Consulting calls the "good-enough smartphone" market, where manufacturers offer top specs and quality but undercut typical premium flagship pricing to reach a micro-segment.

Then, there are those manufacturers that continue to play it safe. Last week, HTC launched the 10, its latest flagship smartphone and follow-up to last year's M9. It sports top specs, a gorgeous design and industry-leading sound performance but will launch with a $700 price tag and limited distribution.

The consumer press is lauding HTC for bringing a great device to market. Not that this matters, really. Recently, HTC has earned a reputation for making great devices that few people actually buy. There is little reason to expect HTC's fortunes to change this time around as HTC has hamstrung itself with top of the market pricing, limited distribution and no eye-catching features. These are especially head-scratching moves considering how innovative and imaginative HTC is proving itself in other areas of its business, most notably the HTC Vive virtual reality headset.

The same goes for any other device maker using yesterday's playbook in today's mature and competitive smartphone environment.

Every device needs a story

Consumers aren't blown away by specs anymore. In fact, specs have largely lost all meaning as just about every phone can now pack in capable performance. In a commoditized market, a well thought out combination of innovation, bundling and micro-segmenting creates a story that attracts consumer attention and best positions a smartphone for success.

Innovations like a wide-angle camera, modular design, and curved screens are easy to see and feel. If a consumer walks into a store, a salesperson can quickly demonstrate these innovations to get an instant reaction.

Bundling can also help fight the persistent downward pressure on pricing. Smartphone accessories are typically high-margin products that can drive total package profitability. Another bundling strategy is to include peripherals from an adjacent product line that represents a potential opportunity, such as virtual reality head-mounted displays.

Going after specific market segments can also be a strong component of a compelling story. Whether appealing to cost-conscious consumers, finance and government users that prioritize security or people who need rugged phones for a tough environment, carving out a sizeable niche is proving effective for some manufacturers that don't have mass market ambitions.  

Manufacturers, like HTC, which continue to focus only on pointed refinements and do not incorporate a combination of the above strategies are in trouble. Better battery life, improved build quality and a sharper camera are important, but no longer exciting. They're what keep consumers happy once they actually buy the phone, but won't demonstrate the value or interest that drives purchases.

Standing still will soon mean standing alone

Earlier this year when Samsung launched the Galaxy S7, it announced that all pre-orders would come with the company's Gear VR. LG launched its flagship G5 boasting a modular design and availability of "friends" or companion accessories that could complement functionality of the G5, such as an advanced camera module, VR Headset, 360° camera, and Rolling Home Bot.

According to Bloomberg, sales of Samsung's S7 are expected to top nine million units sold in the first month alone - triple the S6's sales last year. This success is also being attributed to Samsung lowering the price of the Galaxy versus the S6 and putting it on sale a month earlier than last year.

The Wall Street Journal praised the LG G5 for focusing on reinvention and not just refinement, calling it the blueprint for the future of the smartphone. It remains to be seen whether this strategy will be successful, but what's important is LG is trying something new.

Elsewhere in the market, we're seeing companies like Motorola (Lenovo) and Google bringing lower-cost, high-spec phones to market, differentiating on price through a clean Android experience. Even Apple jumped into the "good-enough" arena with the iPhone SE to help move additional iPhones.

Playing It Safe Is Now Anything But

Most smartphone makers have come to terms with the fact that even playing it safe isn't safe anymore. Over the next few years, we expect to see more manufacturers build unique innovation into the device itself while also leaning on smart business strategies that will thoughtfully create the perfect story to attract discerning consumers. Those that don't will ultimately be forced to close the book on their smartphone ambitions.

Jefferson Wang is a senior partner with IBB Consulting, leading the firm's wireless and mobility group's work with network operators, device manufacturers, and content providers on technical and business strategy from product innovation / concepts through launch.

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