By Alexei Oreskovic and Poornima Gupta
SAN FRANCISCO, Sept 8 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
Apple Inc and Google Inc's Motorola are
among those trying to score style points as game-changing
technological innovation becomes harder to achieve in the
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 Co Ltd's market share.
Time to bring out the paintbrush.
Apple has invited reporters to an event on Tuesday 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 Inc
, Dell Inc and Nike Inc.
"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
Smartphone shipments grew 52 percent 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 Corp
, 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 percent 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 Ltd 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
"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
percent. While that is below Apple's 35 percent-range on mobile
devices, it is above those of Samsung and many other phone
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."