Sony`s risky smartphone bet

Last Updated: Tue, Oct 09, 2012 19:43 hrs

Sony Mobile Communications, the wholly-owned subsidiary of Japanese electronics giant Sony Corp, recently announced an affordable smartphone, priced at Rs 9,999. This is a monumental decision for Sony, since it says two definitive things about the company: It is here to stay, in India, and is determined to become a player in the booming market for phones; and, it is willing to do so even if it means shedding its ‘premium’ label for which the brand is well known across categories.

CyberMedia Research estimates that more than 183 million mobile phones were sold in India in 2011. With the smartphone base at about 24 million in India, penetration is expected to grow over 77 per cent in 2012, which is why vendors are hell bent on grabbing a share of the market, which will primarily be driven by low-end smartphones offering dual-SIM capability and local apps, says IDC. With less than a two per cent market share and behind players such as Micromax and Spice, Sony realises that it’s now or never.

The ‘pillar’ of its business
Unlike South Korean major Samsung Electronics that has a complete product line, covering all price levels, Sony Mobile’s products, till now, were mainly intended for the mid- to high-end price segments. “Of all the global brands, Sony Mobile has about 60 per cent of its smartphones retailing at $315 (about Rs 16,000 and above), behind only Apple and Research In Motion,” says  a study conducted by Barclays. However, the majority of Indians are comfortable with smartphones priced between Rs 6,500 and Rs 13,000, which means Sony Mobile has already ceded the lion’s share of the smartphone market to Samsung and other competitors.

Yet, the new chief executive, Kazuo Hirai, has strongly emphasised to company shareholders his intention to make smartphones a pillar of its business. According to estimates issued by the company, Sony Mobile is expected to sell 33 million smartphones globally this year, up from 22.5 million last year and generate $23 billion in revenue from mobile devices, such as tablets and smartphones, in the year starting April 1, 2014. The company’s India mobile business was 15 per cent of Sony India’s revenue of about Rs  6,300 crore in 2011.

Sony India Managing Director Kenichiro Hibi believes that the brand has more than a fighting chance. “The single-SIM and dual-SIM Xperia Tipo (priced at Rs 10,449) smartphone models have been designed for selective markets like India,” says Hibi. “To further push ahead the penetration, we have brought in Vodafone to offer 500 GB per month, for three months. That should help customers explore the smartphone’s ability,” he adds.

In India, Sony is trying to push convergence where all of Sony’s content, hardware and software can be leveraged across platforms. Hibi says that Sony’s comprehensive entertainment content (its large collection of movies and music) to gaming devices like PlayStation, and imaging capabilities from its Bravia and compact camera segment haven’t been channelised on to the smartphone platform yet. “We are trying to integrate our existing resources on to our smartphones with pre-built apps and seamless connectivity between Sony hardware. This would make Sony devices stand out in the Android clutter. Besides, we don’t have to prove the goodness of each of these resources, as they are category leaders in themselves,” Hibi reasons.

With 90 million registered PlayStation Network users, Sony is readying a PlayStation Mobile platform that will take on Apple’s App Store. Sony Mobile is also reportedly focusing on integrating its Xperia smartphones with Sony tablets, personal computers and game consoles, allowing users to gain access to content seamlessly across devices — a long-trumpeted but so far largely elusive strategy. However, it’s too early to tell how things will pan out. “It remains to be seen whether this integration with service platforms will be only for apps, or whether devices would remain important in a vertically integrated set-up,” says an AT Kearney report.

While this sounds like an impressive onslaught, success for Sony is by no means a certainty. In fact, despite having a good brand recall with customers, the Sony Ericsson venture, over the past decade or so, ended up a failure. Even in 2008, Sony Ericsson had claimed that its goal was to become the third biggest mobile handset maker within the next five years. Instead, the company dropped from fifth to 10th position. Sony Ericsson’s failing primarily stemmed from its near-sighted approach that focused on the mid-section of the mobile market. In doing so, the company marginalised consumers gravitating to either the high end (Apple, BlackBerry and increasingly, Samsung), or those at the lower end.

Risky move?
In 2011, Sony decided to call off the decade-long partnership with Ericsson and acquired the 50 per cent share of the joint venture held by it for euro 1.05 billion. As smartphones and the new experience was all about media, video, pictures, music and gaming, it made sense for Sony to absorb the mobile business and for Ericsson to exit with cash to further its core business of selling and managing telecom infrastructure.

So, what should one make of Sony’s recent play? Alok Shende, founder & director (APAC) of consultancy firm  Ascentius, believes that Sony’s decision to go ahead with a sub-10k smartphone might be a risky one for the company in the long term. “Sony Mobile stands the risk to dilute the ‘premium-ness’ of its brand if it attempts to go lower than the Rs 10,000 tag in the smartphone market. Logically, the next price bracket for them to explore would be Rs 8,000 to Rs 9,000 and while that should open up a bigger market, it will also put them in a new battleground unknown to Sony.”

Shende cites how Apple refrained from launching low-cost PCs when netbooks were selling like hotcakes. “It’s because the company realised it had to maintain its premium tag to be able to sell the high-end PCs and mobile devices. It gave the brand a distinct flavour,” Shende reasons. He adds that Sony Mobile’s attempt to please a wider market is fraught with difficulties. “It can’t be everything to everyone in the mobile market. Nokia tried that and failed. But, the jury is still out on how Sony Mobile will fare if it continues to launch cheaper smartphones,” says Shende.

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