Why Carriers Still Hold the Key to Handset Sales

Mobile network operators may be seeing their long-held dominance in the space fade as newcomers like Apple and Google expand in the mobile sector, but when it comes to selling handsets, carriers still hold the key.

That’s a lesson Microsoft should have learned last week, when it pulled the plug on the Kin, a two-phone lineup that debuted on Verizon Wireless just a few weeks ago. The handsets drew some positive reviews (Gizmodo called them “The best handsets you’ll never buy”) and quickly became cheap thanks to desperate price cuts, but they  failed to gain traction due largely to a lack of promotion by the nation’s largest carrier. And as Kevin noted last week, the Kin was a feature phone whose sales were shackled by Verizon’s full-featured data plan pricing — an albatross that might not have existed if Microsoft had better relations with the operator.

Microsoft isn’t the only company taking its lumps for weak carrier relationships. While there’s no shortage of reasons Nokia continues to spin its wheels in the West, many of the company’s troubles can be traced to an inability to bend to the will of North American carriers.

Google’s Andy Rubin, meanwhile, conceded last month that his company’s bold experiment to sell the Nexus One directly to consumers failed “to fundamentally change the way phones are sold.” (That fact seems to have eluded co-CEO Eric Schmidt, who last week, in a fit of delusion, said the company killed the Nexus One after less than six months because it was “so successful.”) Google’s marketing — which consisted primarily of a link on its home page — failed to live up to the phone’s impressive capabilities, and the lack of a brick-and-mortar presence prevented users from laying their hands on the device before they purchased it. It’s becoming clear that Google killed the gadget for fear of further alienating carriers and other industry partners that are vital to the success of Android.

But perhaps no manufacturer illustrates the importance of carrier marketing efforts the way Palm did with the launch of its Pre two years ago. Palm’s own ads for the smartphone were criticized as creepy and uninformative, and Sprint — which also had a lot riding on the gadget — inexplicably declined to offer much help. Palm’s webOS is widely acknowledged as a top-notch smartphone platform, but the lack of effective marketing sealed the company’s fate.

And no operator is better at hawking handsets than Verizon Wireless. Its $100 million ad campaign for the Motorola Droid launch was an unqualified success, fueling Droid sales that outpaced the Nexus One by a factor of nine in its first 74 days on the market. Also, Verizon’s aggressive “buy one, get one” promotion played a huge role in the success of RIM’s BlackBerry Curve, which made headlines last year by outselling the iPhone in the first quarter of 2009.

Of course, the iconic iPhone is a glaring exception to the rule that carriers must be actively involved in marketing for a handset to become a hit. Apple continues to demonstrate remarkable promotional savvy with its smartphone (and now with the iPad) by creating eye-catching commercials that tell consumers exactly why they should use the company’s products. That has been a huge blessing for AT&T, which enjoys the benefit of added subscribers without incurring the steep costs of advertising. (It’s also worth noting that the monogamous relationship between AT&T and Apple also paved the way for an affordable monthly data plan for the iPad, until the carrier did away with its unlimited data offerings several weeks ago.) But there’s a downside for AT&T too: By letting Apple do the heavy lifting, AT&T has failed to fully co-opt iPhone marketing and present its own brand alongside Apple’s iconic name.

There is only one Apple though, and other manufacturers have neither Cupertino’s promotional acumen nor its deep pockets. Smartphone companies can help themselves, to be sure, by marketing their brands to consumers directly, as HTC has done effectively with its “You” campaign. But even as the Apples and Googles of the world elbow their way into mobile space, network operators are crucial to successful hardware sales. Astoundingly, that’s a lesson some manufacturers have yet to learn.

Question of the week

Will manufacturers ever be able to effectively sell phones directly to consumers?
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