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<b>Molly Wood:</b> In chase of Apple, smartphone makers shift strategies

The Mobile World Congress in Barcelona saw phone makers try something different to compete with the iPhone. But that might not be enough

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Molly Wood
Big phones, small phones, cheap phones, expensive phones, curved phones - and all of them hoping to take a chunk out of the iPhone.

Many of the world's top smartphone makers used the huge industry trade show held in Barcelona this week, Mobile World Congress, to entice buyers around the globe.

But despite the conspicuous absence of Apple, its iPhone was the clear target of those announcements. And the iPhone seems unstoppable. A little over a month ago, in what is becoming a familiar pattern, Apple reported record iPhone sales, including an 83 per cent increase in sales in China versus the same period last year. According to a report from Canaccord Genuity, an investment firm, Apple might earn as much as 93 per cent of the profit in the entire handset industry.

So, what does that leave for everyone else? A dogfight over scraps.

"They're the kings of the hill," said Ben Wood, mobile and wireless analyst at the research firm CCS Insight, referring to Apple. "They are sustaining gravity-defying margins at a time when most other manufacturers are struggling just to break even. There's so little margin left for everybody else that it's just intensifying the competition."

That dynamic was clear at the show, where device makers were trying different strategies to separate themselves in the chase for second place.

Samsung, probably Apple's strongest competitor, turned to its most iPhone-like devices yet. The new phones, the Galaxy S6 and Galaxy S6 Edge, have all-glass unibody designs, superhigh-resolution screens, fast processors and a focus on cameras, fingerprint technology and a forthcoming mobile payments service.

The phones look more polished and luxurious than previous Galaxy models. The strategy, said Jan Dawson, chief analyst at Jackdaws Research, just might revive Samsung's smartphone sales, which have recently trailed off.

Like many other companies at the conference this week, Samsung tried to push its devices as the best option for businesses. Samsung promoted its Knox service, which is basically an app that allows you to keep work apps and services separate from personal information on a single phone, and more than once suggested it was a phone that information technology managers would love.

Again, though, Samsung will be going into an area of strength for Apple.

"Apple's already secured a substantial position in the enterprise," Wood said. Just last month, the Mobility Index Report from Good Technology, a mobile device management company, reported that almost three times more new iPhones were activated in the workplace in the last three months of 2014 than Android phones.

And Apple has been trying to make even more enterprise inroads, announcing a deal last December with IBM to create apps and cloud services that are more business-friendly.

Dan Bieler, an enterprise and futures analyst at Forrester Research, said companies were hoping that the business-to-business market will make up for slowing consumer sales, because even if companies do not make as much money on each sale, the sheer number of sales is appealing.

"That's a space where, interestingly, Microsoft has a massive opportunity," Wood said. He said chief information officers "say they can buy three or four highly capable mid- or low-tier Windows phones for the price of one iPhone."

To that end, Microsoft introduced two new lower-cost Lumia phones at Mobile World Congress, and Microsoft's executive vice-president of the devices division, Stephen Elop, said in an interview that businesses were in his sights.

"We want to have a business phone, properly connected with what is typically Microsoft infrastructure," Elop said. "Microsoft is very strong in security and data centres, and businesses have built custom applications around them, and all of a sudden they say there's no way we're going to spend this amount of money for an iPhone 6 or Samsung."

The strategy of lower-end models, he said, is "very deliberate on our part."

Other manufacturers plan to make different sales pitches to businesses. The phone company Blackphone and the privacy communications company Silent Circle this week announced the second iteration of their privacy-oriented phone.

The companies said some 70 per cent of their revenue stream came from bulk orders from businesses. But with each Blackphone 2 expected to cost $649 - about the price of an iPhone but without many of the same bells and whistles - businesses have to be take privacy pretty seriously.

Still other enterprise-oriented phone makers are hoping to sell either phones or services. BlackBerry, which introduced the throwback BlackBerry Classic last year, showed off a lower-cost, all-touch-screen device at Mobile World Congress called the BlackBerry Leap.

Phone makers are also keeping an eye on growing markets like China and India. But in China, too, Apple is in a strong position, close to overtaking the disruptive electronics maker Xiaomi in terms of market share in the country, according to some reports.

Samsung's sales in those countries, meanwhile, is being eroded by Xiaomi, Lenovo and Huawei. (Huawei, a Chinese phone maker, introduced a 5.5-inch phone called the Honor 6 at Mobile World Congress, along with a well-received smartwatch).

Worse for phone makers: once people actually have an iPhone, they're less likely to switch away. Smartphones have always locked in buyers with their ecosystems to some extent, but Apple's layer of services is more powerful than ever, between music and app sales, cloud storage of precious digital items like photos and eventually even control over your smart home or your car.

None of that is to say the iPhone will be ascendant forever. Actual hardware is less and less important these days, and the services more and more important, so Apple will have to get services like maps and messaging right - as well as more complicated services like HealthKit and HomeKit, its frameworks for collecting health and fitness data and connecting to smart home devices.

© 2015 The New York Times News Service
 
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper

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First Published: Mar 05 2015 | 9:44 PM IST

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