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Why HTC is closing cellular operators’ brands
One Ring to rule them all, One Ring to find them,
A good ODM/OEM manufacturer should always consider possibility of building its own international recognizable brand. Taiwan manufacturers were remaining a production plant for quite a long time, they were a farriery behind those brands for whom they were making different types of devices. There are only few examples of successful IT brands from Taiwan, most successful of them are: Asus, BenQ, GIGABYTE. Most end-users don’t even know that their latest purchase on which they see such logos as Apple, Dell, HP or Toshiba, were in fact made by Compal, LiteOn or that very same Asustek.
Such international labor division was fine for both manufacturer and its vendor. End-user don’t really care who in reality is producing the device, as long as it is qualitative and had set of desired specifications. Quality guarantee is played by known trademark. It was going this way until Taiwan manufacturers gained enough experience and money. At the moment following tendencies are spotted: Taiwan companies are moving production to China, leaving only R&D divisions in their homeland. On the other hand, big ODM/OEM manufacturers are aiming to conquer market with products released under their own brands.
Taiwan manufacturers who produce mobile terminals are no exception, they also want to make a direct path to consumer’s wallet. Asustek was planning to go global, but it’s still unknown outside Asian region as mobile phone manufacturer. BenQ was trying so hard to conquer international market, that it acquired Siemens’s mobile division a year ago. There haven’t been anything besides ambitious plans and huge losses for this symbiosis so far. In future we will see attempts of High tech Computer (HTC) company to make a brand of the same name world-known. In order to do that company will have to break the habits and traditions, by restructuring business model that has been built by HTC itself for many years, which became an example for other ODM/OEM companies to follow. Is the game worth it? Let’s try to find it out.
Long-long time ago, on a Formoza island…
HTC was formed in 1997. It turned out that this company found common language with Microsoft, and acquired Hardware Platform Development Partner status based on Microsoft CE OS. Before communicators were introduced, company was working actively on developing Pocket PC segment, where it is still considered number one Pocket PC manufacturer in the world. Hewlett-Packard, Fujitsu Siemens and Dell are manufactured at HTC’s factories, but shrinking and slowly dying Pocket PC market is not so interesting for HTC anymore.
Starting from 2001 company started developing ODM/OEM production. Idea is simple – offer a cellular operator producing a functional device under its own brand, and software customized too. Operators liked this idea, we can see devices produced by HTC in line-ups of all big international operators (at the moment there are more than 20 operator and distributor brands that are actually devices produced by HTC).
For further discussion we should stop on next moment a little longer. Key role was that only operator’s logo was present on device’s case. That’s why operators agreed to HTC’s offers so quickly and easily. It’s not hard to decide which to choose: Nokia’s brand with operator’s logo nearby, or completely unfamiliar Asian brand. At that moment HTC had neither will nor possibility to produce devices under their own trademark or work on their promotion. Main task was getting maximal amount of operators into their hands. And we have to admit that HTC did a finest job on that.
In the beginning devices branded by O2 were different from their analogues, the very same T-Mobile devices only with brand name and small software modifications. With time HTC was experimenting more and more on devices outlook and with time some operators received exclusive covers. A base (chassis) was taken as basis (it is called playform in HTC) and later on design, color, certain features (like presence of WiFi for example) were added, modified, removed. In the end we get a “new” product.
So why had the company decided to create a standalone Qtek brand? A will to conquer those markets on which operators are not that strong players in retail market, a will to create their own brand? The answer is so simple, that it’s even funny. Not all planned and produced devices were shipped to operators. Remainders should have been sold after all, this is how Qtek brand appeared in such short terms. At that moment nobody was thinking about global domination or something of the kind, there was a logistic optimization task and that’s it. Company Carrier Devices (now called I-mate) came to help, it was created by Jim Morrison who was taking active part in O2 XDA project, first HTC device targeted for operators. Company introduced Qtek 1010 model, later on Qtek and I-Mate brands parted ways.
It was a long time since when in 2004 one of HTC owners decided to start Dopod company in Taiwan, its main activity was promoting this brand on Asian market.
Epoch of feudal division
Despite difference in design from brand to brand was beginning to show, consumers were often overloaded by amount of brands and mixed one with another. There can be several operator models, as well as Qtek and I-Mate devices in one country at same time. Due to functional richness dissociation of brands was HTC’s devices only shortcoming.
Consumer gets puzzled in choice of identical models with different brands. Part of users who are not ready to spend time in doing research prefer choosing alternative device with well-known brand (such as Nokia or Sony Ericsson). Customer loyalty level is low, since choice is based only on feature preferences, and not the brand ones. In case Samsung would release anything like it in terms of features or even better – user will instantly switch to them in case there will be a need to change his device. We found a similar situation when you want to buy system case (tower) – you care about specifications more than brand. Loyal users of HTC devices are a small layer of “power” users, who follow updates on new products and clearly realize that there’s 1 manufacturer behind all those brand names.
There’s even no reason to speak about lack of single price policy. Price wars benefit the consumers, but as margin goes down devices become less interesting for retail sellers and distributors. This is the situation the company is moving towards new page in its history.
Road to monarchy
This company is not run by some dumb managers, they know about cannibalization effect pretty well, and they do know that such situation cannot last long, at least for market without strong operator influence one brand name should be left.
Idea of placing everything under one brand is the only valid one. However we shall list advantages of such decision anyway:
Company is not being completely honest with us by saying that switch to HTC brand will not bother devices targeted for operators. In press-release we got a pretty transparent statement “company will continue to support operators devices and OEM partners as key action strategy”. In reality all operators will have to switch to HTC brand or look for other manufacturer.
Done with operator’s yoke!
Before official announcement of new brand HTC’s executive director, mister Peter Chou held meetings with all key operators. He was giving clear allusion to fact that appearance of HTC brand on their devices is inevitable. Prior agreement was given by DoCoMo, Vodafone, Orange. T-Mobile managed to get a “time-out”, but this is temporary action. O2 operator, who has almost decided to look for alternative solution (take O2 XDA Atom as example, it was made by Quanta).
Time to make an ultimatum for all operators was strategically ideal. On one hand company’s devices have proven to be good in perception of buyer and operator. Company has grown enough to convince operator that it is able to build and support its own brand relating on its own finances. On other hand HTC doesn’t have any direct competitors among Taiwan companies (those who are trying to position themselves as ones are lagging behind by 1 technological year from HTC, especially in terms of 3G), this means that even if operator has the will, he will not be able to make a switch of ODM/OEM partner. Direct competitors from Samsung, Sony Ericsson for HTC’s product are still missing. It turns out that even though there’s no big will for that, operators will have to agree to conditions put by HTC.
By launching their own brand company had clear vision that it had to control its products shipment. In Asian region former acquisition of Dopod (subjectively Dopod was in control of HTC anyway). At first company will release 60% of Dopod’s shares, and later on remaining 40%. Overall sum of this deal is estimated at 150mln USD.
As for European Market, almost simultaneously with announcement of new brand an acquisition of Dangaard Telecom distributor by Nordic Capital, an investment company was announced. Dangaard Telecom is one of two key distributors of HTC’s products). Formally HTC had no relation to this action. A coincidence? It’s kind of hard to believe that HTC has nothing to do with this. Overall deal sum is not announced, but we have to point out that Dangaard Telecom’s sales in previous finance year were 1.6 billion euros.
Introduction of own distribution channels – a 100% positive effect for the company, possibility to seriously drop price for end-user (margin of intermediaries for HTC products is around 24-25% as average from Taiwan FOB price, and you should also add customs, distributor’s percents, retail seller’s percents).
Rebrandering in Taiwan style
At first company’s logo was looking simple and modest, their slogan «Engineering Mobility» was basically reflecting company’s activities.
By the end of 2005 company decided to change its brand and its concept. Slogan became “Innovation” Arc which connects two “o” letters formed a smiley. But this was unsystematic image change, company went on using its old logotype in most of documents and even at official web-site.
New slogan is not original at all and color scheme switched to grey-green one. I won’t take risk to judge about artistic value of this work of design, but judging by first feedback this logo looks rather unclear and it raises perplexity.
So what’s shown on the logo in reality? A task for designers was as follows – show how mobile phone is transferred from one hand to another (Nokia’s influence, anyone?). Well, it even now became hard for me to see this action in the logo.
Numeration of models is in letters, instead of digits. First models received following names: HTC TyTN and HTC MTeoR (Motorola’s affection with its RAZR?). Sounds wild, but I guess we’ll get used to that with time.
Faith in Victory
HTC is super serious about entering market with one single brand. This decision is totally valid, a lot of diversified brands was turning into inefficiency of management, high cannibalization coefficient.
By choosing right moment and time company made an ultimatum to operators about switch to HTC brand. Statements that operators and OEM business remain prior for company is nothing else but attempts to assure and relax investors. After few days since Dopod’s acquisition company has list more than 2 bn dollars in capitalization (share price dropped by 20%). Investors have the right to be aware of short-term perspective of sales drop.
I-Mate’s fate has not been announced yet, but this player has no better conditions than operators do. Either it will agree on HTC brand or will have to look for new ODM/OEM operator, and that’s what the company is doing at the moment.
Situation with Dopod is uncertain. It should also be moved into new brand, but at the moment it takes leading positions on domestic market with strong AD support and lack of competitors.
Company has targeted into conquer of market share on mobile terminals market. Single brand is the only valid decision which is approved in long-term perspective. In short-term perspective it will affect negatively on sales, several operators will decide to drop the idea of switching to this brand, consumers will have to learn about new brandname (investor’s reaction to this action is a confirmation of this fact). Company has margin of safety it can even go into negative numbers for some time. Last year’s net profit was 363 mln USD.
Side effect is this – new HTC’s policy will allow a lot of Taiwan manufacturer to try taking vacancies in model line-up of international operators like O2.
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