1 Underappreciated Advantage That Apple Has in Smartphones

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The smartphone market is one of the most brutal competitive landscapes known to consumer electronics companies. Fortunes rise and fall all the time, with today's darling being tomorrow's pariah. Just look at how quickly Taiwanese OEM HTC fell from grace, as Samsung roared from behind to leapfrog its fellow Google (NASDAQ: GOOGL  ) Android vendor.

One reason that the rivalry is so intense is that smartphones face relatively short upgrade cycles compared to other form factors. Consumers tend to buy new smartphones every two years as soon as their eligible for a carrier-subsidized upgrade. In comparison, TV upgrade cycles are upwards of seven years, and the average consumer hangs on to a new PC for about four years.

Carriers rule
There's also another important determining factor when it comes to the smartphone wars though: carrier distribution. Since carriers are a necessary evil and serve as distribution middlemen between consumers and OEMs, their sales efforts are remarkably important with nudging the consumer this way or that way.

Needham & Company analyst Charlie Wolf recently took note of this fact since smartphone market shares can crater with "brutal speed." Wolf believes that carriers have "exceptional influence" on what phones customers choose because their retail stores are the primary distribution point for many smartphone OEMs.

The analyst notes that when carriers decide to "punish or simply ignore a brand," the platform can "rapidly die." Wolf points to BlackBery (NASDAQ: BBRY  ) and Nokia (NYSE: NOK  ) as two prominent examples. BlackBerry 7 unit sales suffered leading up to its BlackBerry 10 launch, while Nokia's transition away from Symbian toward Microsoft Windows Phone has similarly been painful.

Palm is another perfect example of how OEMs can live or die by carrier ambivalence. When Verizon suddenly backed out of Pre exclusivity talks in favor of its Droid campaign, relegating Palm to ink a deal with the much smaller Sprint Nextel, it was a death knell for the turnaround candidate.

In the meantime, Google has offered numerous incentives for carriers and their sales reps to push Android. For example, Google has offered to split fees related with Google Wallet with carriers, while it also offers carrier billing for content purchased from Google Play. Walk into any carrier retail store and you'll inevitably find a slew of Android offerings that overshadow perhaps a single iPhone display.

How does Apple (NASDAQ: AAPL  ) stand apart from nearly all of its rival smartphone makers?

A direct advantage
Apple is one of the only smartphone vendors that operates its own retail stores and sells directly to consumers. Most iPhone sales are conducted directly, either through Apple's online store or its retail stores. Consumers simply can't go to a rival's website to buy a smartphone directly -- they're instead pointed to a carrier or third-party retailer website.

The reason why Apple initially decided to open its own retail stores in the first place a decade ago remains the same: it can control the buying experience. At the time, Steve Jobs was tired of Macs being sold through third-party electronics retailers, since the average sales rep wasn't well educated on Apple's value proposition. On top of that, the sales reps might have different incentives to push other brands over Apple.

These days, instead of the big box PC store selling Macs that Apple doesn't want to rely on, it's the carrier retail store selling iPhones. Since Apple has been able to minimize the carrier influence on the overall relationship with a smartphone customer, in part thanks to its broad retail network (approximately 250 stores in the U.S.), it also minimizes its reliance on carrier sales reps that don't have Apple's best interests in mind.

That's another department where other smartphone vendors have little to no hope matching the iPhone maker.

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Read/Post Comments (7) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 18, 2013, at 9:34 PM, MrZ2357 wrote:

    I agree, carrier support or lack thereof will make or break phone sales for a particular vendor.

    Here is the thing though, go to ATT home page and go to VZ home page and what is the first thing you see?

    I-Phone? nope, its the Z-10.


  • Report this Comment On March 18, 2013, at 10:36 PM, Rathmon wrote:

    You guys have no idea- the biggest advantage Apple has is..... the aftermarket parts arena. A big part of my small tech business is fixing broken items, and 90% of that is iDevices. For $100, or less, I fix iPod Touch, iPad, and iPhone broken screens. There's a plethora of vendors that sell aftermarket parts (low to high quality), for a decent price, so companies like mine can charge a labor cost that customers don't mind paying for a fix. However, due to the lack of even low quality aftermarket parts, I can't fix a Samsung product for less than $200, which a majority of customers balk at. HTC never made a phone worth fixing- and while Samsung makes products better than Apple, they are paperweights when broken, and that's a big issue to the common person.

  • Report this Comment On March 19, 2013, at 6:34 AM, RandomMeaning wrote:

    "Here is the thing though, go to ATT home page and go to VZ home page and what is the first thing you see?

    I-Phone? nope, its the Z-10."

    Yes, BlackBerry is spending quite heavily on marketing. I've seen more online, TV, and print ads for the Z10 than any previous BlackBerry device. Nothing wrong with that, it's expected of any major launch. The question is how long they can keep it up? Certainly Apple outspends Blackberry on advertising but they aren't the direct threat. Samsung outspends Apple by about 3-1 and is willing to fund spiffs to grease the hands of sales reps. Microsoft spent $1.5 billion on their launch. How much cash burn can Blackberry afford in their efforts to buy market share?

  • Report this Comment On March 19, 2013, at 6:44 AM, RandomMeaning wrote:

    Blackberry has one serious disadvantage. They have a few rogue agents posting in just about every comment section. That might work if these agents weren't acting like BlackBerry Uber Alles storm troopers trying to shout down anyone who isn't praising the BlackBerry.

    That's bad enough because it creates ill will toward the company but in their zeal to prove their faith they create unrealistic expectations of success for the BlackBerry. According to many of the posting these people have written after many articles, anything less than total domination is a failure. They expect nothing less.

    This mistake is further compounded by presenting false and/or misleading information to support their claims. Anyone the least bit familiar with the market easily observes these false prophecies and wonders "what's wrong with BlackBerry? Who are these guys?"

    Short version, a few posters are on a crusade but don't seem to realize that they are doing more damage than good, all in the name of the company who's branding they are damaging.

  • Report this Comment On March 19, 2013, at 9:02 AM, cbglobal wrote:

    Yep, Blackberry has A FEW rouge agents. The other million posters are Apple agents. LOL

  • Report this Comment On March 19, 2013, at 11:38 PM, RandomMeaning wrote:

    "On March 19, 2013, at 10:32 AM, GandalfRulesAll wrote:

    iCloud should be called iHype, as it is more hype than real. Everything Apple is old tech and useless. The future is Blackberry's. Apple is dead. Here's the real question:

    Which stock will hit $100 first? BB or AAPL?

    Long BB."

    Proving my point exactly. Bad enough that you make BlackBerry appear deranged, I think you actually believe what you post in spite of reality. BlackBerry really doesn't deserve your "support".

  • Report this Comment On March 21, 2013, at 2:04 PM, hiddenflem wrote:

    Samsung and blackberry fans are disproportionately represented on every board I've read. Kind of like the Ron Paul fans during the election.

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