Emerging Markets III – Mobile

iPhone Dominates Emerging Markets for SmartPhones not based on Functionality

Cell phones are ubiquitous. Smartphones are not. Countries are different from the US in the role that the carriers play and how consumers buy cell phones. GSM is the world standard. In this context, this reporting sought to understand the role of smartphones and the competitive dynamics around the iPhone.

Retail

The phone retail market is a significant business if judged by the number of outlets in many countries. The world is dominated by GSM which also implies a lower linkage between the phone contract or usage and the phone owned by the individual.

These dynamics are directly reflected in retail. We saw many phone shops with walls of phones, mostly behind glass. In all the countries visited the commanding position of Nokia was evident. Nokia has a range of product and the sheer numbers of phones which overshadows the competition.

The positioning of phone accessories was also interesting. In general, the phone stores had more accessories than the operators. What stood out was that the accessories were branded with the brand of the phone. We saw little in the way of independent brand accessories. Thus, there is a strong phone brand identity. Multiple comments were made about which phone brand is best and what is to be avoided. The carriers seemed, from a consumer perspective, much less important that the phone manufacturers.

The small phone shops have also become computer shops and others also camera shops as discussed earlier in converged retail. We also saw xBox 360 in a shop in Baku, Azerbaijan. Many phone stores are a retail point of presence well beyond phones.

It was interesting that the greatest number of phone stores, by a simple measure of stores per block, was in Chisinau, Moldova. Based on another conversation, this country is in the early staged of mass market cellular roll out. However, the stores in the more developed markets were dominated by carriers and looked more like a bank with “pull a number” for service queues.

Overall we saw little penetration of smartphones. A key tipping point we used was the presence of Blackberry phones. These surfaced in Baku, Azerbaijan but we saw little presence in other countries. However, our assessment is not definitive. A sales person in Belgrade, Serbia said the Blackberry is not popular here.

The Google Android phones are making progress. We saw them in Baku, Azerbaijan in a prominent display. A mobile store in Belgrade, Serbia stated that an Android phone from Samsung and HTC costs 1/3 of the iPhone cost. He felt the Samsung phone was the better choice because it came with 1,800 free apps.

The T-Mobile store in Budapest, Hungary was selling Mac computers in addition to the iPhone, with a service arrangement very similar to the US, i.e., a 2 year contract. It is possible to purchase a standalone iPhone but this is expensive and clearly T-Mobile would rather have a contract tied to the phone purchase.

Phone Accessories

iPhone accessories were everywhere. In spite of the fact that no Apple reseller was authorized to be an iPhone outlet they had iPhone accessories. Apple has a strong lead here via the Apple Reseller channel. iPhone accessories were available in stores in countries which did not have a carrier relationship with Apple. On multiple occasions the Apple store managers touted the revenue and margin value of the accessories. But this was not restricted to just Apple brand accessories. The Apple image means that a common look to high quality accessories was present. An example, cited was the Griffin brand.

iPhone Competition

The iPhone provided an excellent context for the smartphone competitive environment.

The consistent messages which resonated in many countries include the following.

• It was immaterial if the iPhone had an approved carrier in a given country. We found no countries where the iPhone was not in use, the one possible exception maybe Kosovo.
• There were many ways to get an iPhone.
• Changing the SIM card was readily done to allow the iPhone to operate on any network.
• With few exceptions, the primary reason for the purchase of iPhone was as a personal fashion statement. Many paid little attention to the apps. One individual stated it is just a good phone.
• The costs of purchasing an iPhone boarded on ridiculous – Germany, Kuwait, and others – cite prices of 1000 €.
• Many of the Apple Premium Resellers would like to sell the iPhone but are restricted due to carrier arrangements or the fact that the iPhone is not authorized in their country.

An Apple Premium Reseller in Sarajevo, Bosnia Herzegovina provided an example of how far buyers will go to get an iPhone.
In Bosnia you cannot have an iTunes account, but in Croatia you can. This serves as a barrier to adoption but many individuals are creating accounts in Croatia to get around the limitation.
This store also sells the iPhone which they import from Italy.

An usual store was visited in Tbilisi, Georgia which sold and serviced only iPhones. There was an extensive stock of phones from Europe and the US – virtually all current models. Behind the counter was a service technical who looked more like a watchmaker taking apart iPhones. All the phones were not authorized but everyone knew who the carrier of choice was to use the iPhones on. The shop sales person called the iPhone a pocket computer.

In Tbilisi, Georgia we saw a young man in a fast food restaurant with an iPhone. He had it carefully turned so that the Apple logo was visible. He likes the iPhone because the phone is good. There are very few apps on it. This was his fashion statement.

iPod
A number of resellers stated that iPod sales have fallen off significantly.

iPad

The iPad was announced by Apple during this effort. We were surprised at the neutral response to the product. The responses fell into these areas.

• Lack of functionality. Most cited was the lack of multitasking. Other factors included the lack of a camera and no GPS.
• A number stated: This will be physically large and remains uncertain what will it be used for.
• All the Apple stores stated they would carry it but were reserved on how many to stock.

It remains to be seen if the iPad will have the enormous consumer draw the iPhone has. Its ready availability, at least in terms of the WiFi version, could well truncate some of the fashion appeal based on the hard to get iPhone

Assessment

It is significant that even in markets where the iPhone is not approved for sale it has had an impact. Price does not seem to be a barrier. But the ownership desires are quite different than the US and mature markets. The strength of the phone comes from the image it projects and not from what it does outside of making phone calls.

From a competitive position this presents risks and opportunities. One is to bring to market a phone which has the appeal of the iPhone but at the same time is widely distributed similar to other GSM phones. The Google Android phones are attempting to accomplish this but it is much too early to tell. Its market appeal is based on price.

It is not to be underestimated the role of brand image. Apple has this, Google does not and Microsoft does not. A positive brand image can do much to support sales and gain market share.