Industry Watch: Buy Cell and Hold

Industry Watch: Buy Cell and Hold

Phone makers put more choices into consumers' hands

Despite the iPhone's hype and impressive sales, it's actually not the best-selling mobile phone in the United States. Research firm NPD Group gives that honor to a far less obvious device: the Motorola Razr. Yeah, remember that? The Razr was not so long ago the shining apex of cell phone tech and design, now humbled into something resembling an industry baseline. But it's still outselling the iPhone.

Nokia, despite warning recently that it would lose market share in the fourth quarter of this year due to a softening economy, still commands 40 percent of the global market; Apple has just 5 percent. Research In Motion, maker of the BlackBerry, beats Apple, too, with 13 percent of the global market.

The cell phone industry may seem like it lives and dies by the latest smartphone, or more specifically, by the latest iPhone rumor. But while it's true that smartphones are rapidly gaining market share, they still only accounted for 19 percent of handset sales in the second quarter of 2008 while getting what seems like 100 percent of the love - consumer buzz, media attention - and in that context, the iPhone has been the most popular girl in town for two years running. So when it comes to marketing, technological advances and design, makers of other smartphones and low-end phones (an industry term that hardly seems fair) have to do a lot of work just to get noticed.

In a market that's growing more competitive all the time, Motorola, Nokia, RIM and Samsung are all pushing innovative products and marketing plans to match. And with the October launch of the G1, the first handset to be powered by Google's Android software, the iPhone might finally have a serious competitor, both in terms of industry influence and in the PR war.

Nice Reception
It's not the G1 itself that's the game changer, it's the operating system, and that's a key factor in marketing the phone. Android, while not as open as some third-party developers would like, does allow applications to work on what used to be a closed, proprietary system. And that, as the bustling iPhone App Store indicates, is the future. In a September review of Android, Portfolio writer Kevin Maney predicted, "In less than five years, pretty much all cell phones will be open systems that can download software off the Web and access anything on the Web." Carriers that cling to locked-up systems, Maney wrote, "are the walking dead."

T-Mobile, inspired by consumer excitement over the G1, tripled its production order for the phone and extended its presale deadline; presales were rumored at about 1.5 million before the Oct. 22 launch, though some industry observers were skeptical of the math. Even Google, famously committed to word-of-mouth advertising, is leveraging its gigantic influence for an online G1 campaign, while T-Mobile is behind a massive print, TV and outdoor effort, says Sajal Sahay, T-Mobile USA's director of product marketing. "This is the biggest launch we're ever going to do," Sahay says. Online, presales and registration have exceeded expectations, he adds.

Industry Watch: Buy Cell and HoldT-Mobile is positioning the open-architecture software as G1's differentiator, and its goal, Sahay says, is nothing less than to "drive an explosion of Web use on mobile phones. We want to drive the leadership in that area."

Meanwhile, other top players are unveiling touchscreen offerings, one of the major appeals of the iPhone. RIM introduced the BlackBerry Storm, its first touchscreen, which also operates worldwide on a 3G network. RIM didn't want to sacrifice the satisfying keyboard feel that the BlackBerry is known for, so the Storm launched with a touchscreen that attempts to produce a sound and feel much closer to an actual keyboard than an iPhone does; the online videos promoting it show man-on-the-street reactions to how the Storm feels.

Of the new touchscreen offerings, the Storm has fared best among blogger and news reviews. Samsung's Instinct, launched earlier this year and available through Sprint, was hailed by critics as a good-but-not-great alternative to the iPhone; customers complained about its poorly functioning browser, no comparison to Apple's version. The online campaign for Instinct, however, is show-stopping: The "Instinct vs. iPhone" online ads, animated like a video game, led users to the Instinct microsite, where they could watch videos of Instinct trouncing the iPhone in various contests, including icing the prettiest cupcake. The campaign feels smart, funny, and it takes a direct swing at the iPhone, something most other touchscreen campaigns avoided.

Motorola's Krave, available through Verizon, got kudos for its responsive screen and a clear plastic lid that's also interactive - making it both a flip phone and a touchscreen. The main menu is accessed with the lid closed; when the user opens it, a second-level menu appears.

Signal Loss
Of course, in a period of extreme financial instability, the cell phone industry is feeling it, too - innovations or no. In the third quarter of 2008, analysts cut their projections for 2009 industry growth by as much as 50 percent; a UBS analyst warned to expect only 3 percent global handset growth next year, not 6 percent as originally predicted. Cell phone owners are delaying new purchases and upgrades, holding onto old models longer. October saw renewed rumors that Microsoft might acquire RIM in a takeover bid as the company's stock dipped below the $50 mark. And the innovative phones themselves have sparked some back-and-forth among carriers; about 30 percent of this summer's iPhone buyers defected to AT&T from another carrier, NPD reported.

But overall, innovations in design and software are moving cell phone makers toward more open, more consumer-friendly iterations of their products, at all price points, and that, inarguably, is driving healthy competition and decent sales for the industry. Plus, marketers and consumers alike may be ready for the explosion T-Mobile is hoping for:
In September, the Mobile Marketing Association released a white paper to help marketers understand advertising in mobile applications, including mobile games, social networks, maps and directory services; the paper identifes and defines options for ads and ad servers, and describes consumer response and success drivers. Now marketers just need the mobile Web to become as easy to use and as effective as consumers want it to be.

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