Mr Operator: How do I get my handset into an operator?

After my call for questions for Mr Operator, I had one in today:

Question:

What does it take for a smaller handset manufacturer to get ‘into’ the operator stores? Aren’t consumers bored of Nokia or SonyEricsson (like you are Ewan)? Or is it all based on size and rebates and not on market innovation?

A bit of disclosure – I work for UK handset manufacturer Onyx, who launched the Liscio and have other handsets in the pipeline.

I’d be really interested to hear what Mr Operator has to say.

Thanks for taking the time and for being brave there, Mr Reader. I sent this over to Mr Operator who had a bit of time this evening to answer.

Now over to Mr Operator:

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Volume. Volume. Volume.

Background:

An MNO is not a Vertu stockist. They simply cannot afford to have stock sitting round, gathering dust. Every day teams agonise over the mix of devices, OS, colours, etc, fine-tuning their offerings to best meet their target markets.

Behind the scenes there’s a hell of a lot of work to support a new device, even one from a major vendor on a stable, long-standing OS like S40. The logistics of bringing a new handset to market is measured in the millions of dollars/pounds/euros. The marketing collateral, the call centre training, the in-store fitout, the distribution, returns and repair process.

Pushing a machine of this size and complexity in a new direction is not easy.

If you look at a pretty average MNO, say with 5 million customers in a country, they will typically range about 15-20 handsets. Maybe more, maybe less, but the volume tail falls away rapidly beyond the 20 mark. With customers updating handsets every 18-24 months, that means they go through around say 2 million handsets a year. Bring that down across the range and you’re looking at around 100k per model. Of course, the low-to-mid tier S40 devices from Nokia currently have the lion’s share of this, so maybe they are up around the 500k mark, with top-end music & business devices much smaller, say 20-30k each. But you get the idea.

Any way you slice it, you are looking at big numbers. With an average price of say US$150 for a mainstream S40 device, that’s around $15 million up-front hardware cost *minimum* to range an average device. Plus your previously-mentioned internal costs – which have to be factored in for cross-department charging purposes.

So you can see why MNO’s sweat the details on a new handset. Why everything, from the colour and shape of the icons to the tactile feel of the surface to the unboxing process to the boot-up screen must be as good as possible, to convey to the customer a nice experience. You want zero returns. Returns cost big bucks – especially if you can’t pass it back to the vendor.

If you are being asked to take a punt on a new device, a new brand, maybe even a new OS, you have to either have a contract chiseled in stone or the vendor’s children in a vault that it will sell. Otherwise you are asking the MNO marketing department to place their collective necks on the block and hope that the customers like these new, unheard-of devices enough to pay off the axeman.

Sometimes MNO’s do this themselves, for example the Huawei-made Vodafone-branded value range, or Hutchison’s Amoi-built Skypephone. These are long-term plays, where the MNO has complete control over the experience, and the devices are dirt cheap, built for voice’n’text with a comparatively low-spec camera etc. You won’t see these going head-to-head with the N-Series or Walkmans.

And then there’s the customer’s dogged loyalty to an OS, once they get used to the look & feel. Many customers are ‘Nokia people’ or ‘Sony people’. They don’t like change, unless it’s a really compelling sell on price or features. So no, customers aren’t ‘bored’, just they can’t be arsed learning something new.

The answer:

For a small vendor to get into the MNO stores, they need a design, a concept, an implementation that so utterly blows away the top 5, at a price and contract T’s & C’s that it is a no-brainer. I’ve never seen one yet, but would love to. We are talking almost iPhone-style differentiation. A twisting of the cube that redefines what a mobile should be.

The question is, if you came up with such a thing why go through the pain of making it yourself? Why not license it to one of the big 5, kick back and rake in the royalties?

It is literally the case that a vendor sometimes cannot give away devices to MNO’s, if the fit isn’t right. The saved CAC (Customer Acquisition Cost) in not forking out $150 to buy the device may well be wiped out by the amount of customer bad will and brand damage a shoddy device could generate.

This is why, across over 700 GSM MNO’s, with many billions of customers, you see the same handset vendors and the same devices over and over again. I doubt any other consumer device industry is so dominated by such a small number of players. Basic economics tells us if there’s money on the table someone will grab it. In the mobile handset world, Apple recently said “Sod this”, built their own table and have done well in their chosen space. But with a market valuation eclipsing Google and enough spare cash to buy quite a few countries, they can afford to take some hits.

Not so your average MNO or small-scale handset vendor. Hence why the foil to risk inherent in innovating needs to come from within MNO’s, in response to a business plan. Vodafone & Hutchison have probably taken losses to get their bespoke devices to market, but that will be in the plan. But you don’t foil risk with a shiny sales pitch up against the sheer mass of the big 5, the customers brand loyalty and the marketing manager’s desire to keep her bonus & job.

Not that it should be doom & gloom on the micro-vendor front. Far from it. Look at the market for bespoke cars. Or beer. Or watches. There are a significant enough number of people who value something different, something special. Most are happy with a Mondeo, but a small number want a Morgan. Horses for courses. Just don’t expect to see loads of Morgans outside your local Sainsbury’s any time soon.

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Thank you Mr Operator!

If you’d like to put a question to Mr Operator, drop it in an email to me, subject ‘Mr Operator’. You can ask anything. Big theme, small curiosity. Has there been a question that’s been burning in the back of your mind? Get it answered.

Mr Operator is going to do his best to answer all questions. It might take a few days or a week or so depending on his work commitments. Try him out?