Sprint and Palm are betting the Palm Pre
will pull them both out of a deep rut. Will they hit the jackpot?
Sprint and Palm are making waves these days with the June 6 release of the Palm Pre. The ailing duo are preparing to test the AT&T/Apple business model, wherein an exceptionally appealing iconic device simultaneously sells oodles of handsets, grabs loads of new subscribers and sends sales of data plans through the roof.
Whether Sprint and Palm can achieve the same heights as AT&T and the iPhone remains to be seen, with price point, network parity and a complex macroeconomic environment all playing a part. One thing is for sure: Carriers are increasingly aware of their customers’ insatiable appetite for shiny gadgets.
APPLE & AT&T: NEW PARADIGM OR EXCEPTION?
When AT&T brought the iPhone to market via an exclusivity contract with Apple, few had any idea what it would mean for the carrier and Apple, much less the industry. Of course, through the perfect vision of hindsight, the move appears to have been nothing short of pure genius on the part of Ralph de la Vega and AT&T.
Sales of the iPhone 3G – 1.6 million handsets sold in AT&T’s first quarter of 2009 – appear to have kept the company in the black during a recession that has been less kind to other major players that are watching their market shares slip. In the same quarter, and in no small part due to iPhone users’ data cravings, AT&T saw a 38.6 percent increase in wireless data revenues, more than double the total for the first quarter two years earlier.
In a March 17 press release from Apple announcing the company’s new iPhone OS 3.0, Apple stated that there are 30 million iPhone and iPod Touch devices worldwide. Seventeen million of those devices are iPhones operating on AT&T’s network.
Those are impressive numbers, but as Sprint and Palm try to recreate the iPhone magic, it’s prudent to remember that while the first-generation iPhone was released to a good deal of hype, at the time it was still just another unproven device. Early iPhone adopters groaned about lack of cut-and-paste and Flash capabilities, and many claimed AT&T’s network wasn’t ready for the media-rich demands of the iPhone.
While the new iPhone OS is just getting around to offering the cut-and-paste capabilities (no Flash, however), AT&T has managed to right its network in such a way that it can deal with skyrocketing data demands and still offer decent voice service. That improvement has led to a certain degree of parity among the major networks, and that could be one of the reasons devices are becoming increasingly important to carriers as a way of differentiating their brands.
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| Collins: OEM, carrier relationships are more complicated these days. |
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NETWORK PARITY
In Yankee Group’s April 2009 U.S. Consumer Survey, just 12 percent of respondents indicated that concerns about network coverage and reception would convince them to leave their provider, says Chris Collins, senior analyst in the Yankee Group’s consumer research group.
Collins says that Sprint, AT&T and Verizon Wireless offer comparable networks and the differences between them are increasingly negligible. The Yankee Group has seen evidence to suggest technological parity, but he also asserts that marketing has just as much to do with consumers’ conception of network quality.
Verizon claims to have the largest network. AT&T claims the fastest. And Sprint touts the most dependable, Collins says. “So the fact that network quality no longer has the same ability to influence consumer behavior as it once did is one reason why the competitive battlefield has shifted to exclusive distribution of iconic devices, thus increasing the power of OEMs,” he says.
OEMS TAKE THE UPPER HAND
The “power of OEMs” has grown considerably, and for the first time, carriers are going to the device manufacturers to develop relationships instead of the other way around. For instance, the most recent rumors of Verizon talking with Apple about a CDMA version of the iPhone is anything but par for the course.
“Historically, the device OEMs had to work with the carriers. While that’s still true, I think the relationships are a little bit more complicated,” Collins says.
Citing a more sophisticated consumer base, Collins suggests that the game truly is changing. “I think the consumer has a much higher sense of what they need and want. The market has matured, and for the carriers, it’s become more about stealing share than making new market share,” says Collins, suggesting that devices are one of the surest ways carriers can steal customers away from competitors.
THE ELEMENTS OF ICONIC
So what makes a device iconic? It’s not an easy question to answer. Kevin Burden, practice director for mobile devices at ABI Research, says exclusivity can help nudge a device into the iconic category, noting that there’s nothing new about the strategy.
“The exclusivity deal wasn’t something that was invented by Apple and the iPhone. RIM used to do this all the time with certain BlackBerry models. There’s a number of different values to this. You do kind of create the allure of a forbidden fruit. The handset manufacturers benefit because it develops a kind of aura around a certain device,” Burden says.
Pre At-A-Glance
The Palm Pre goes on sale nationwide on June 6.
Price: $199.99 with a two-year service agreement and after a $100 mail-in rebate.
 Where: Sprint stores, Best Buy, Radio Shack, select Wal-Mart stores and online.
Unique features: It’s the first device to feature Palm’s webOS platform, which lets users keep multiple activities open and move between them like flipping through a deck of cards. Exclusive applications from Sprint include Sprint Navigation and Sprint TV.
Global Search: If a user searches for a particular item and doesn’t find it within the phone, the Pre will automatically populate a Google Search.
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But while Burden says exclusivity contracts can be an important part of introducing a device, he also adds that noteworthy devices deliver on specific promises as a way of developing the product’s identity.
“An iconic device is more than just UI and more than form factor. It’s when you look at a device and you know what that device is going to be used for, and it delivers its core functions in a very compelling way. For whatever reason, people think of the iPhone as a Web-access device. BlackBerry is about e-mail,” Burden says.
Some believe Palm is simply trying to recreate the iPhone with the Pre. Public spats between Palm and Apple over similarities between the devices’ touchscreen patents only fuel that view. But Palm appears to have added a few features that analysts and reviewers say is sorely lacking in the iPhone.
Burden is quick to point out that Palm has been in the mobile device game a lot longer than Apple and knows what it takes to make a great device. “I think one of the things is that Palm was born on mobile devices. They’ve got a long history in the PDA market. When they first started, they were all about elegance and simplicity. You have to assume that the Pre has a good heritage of experience about what’s going to work and what’s not going to work.
“As much as the iPhone reset the bar, it also showed just how much catch-up Apple had to do,” says Burden, referring to some of the features left out of the first version of the iPhone.
David Owens, director of product commercialization for Sprint, says the Palm Pre will allow users to run more than one program at a time, get real-time alerts and conduct universal searches. “With universal search, I just start typing… if I typed in Blue Man Group, it will immediately populate a Google search or a Wikipedia search,” Owens says.
As has been the case with the iPhone, the Pre is targeted toward a demographic of early adopters and social networkers who tend to respond well to media and messaging-integrated devices, according to Owens. That’s a broad consumer demographic, but for Apple it’s also a kind of quasi-fan base.
Burden thinks Palm has a similar following in the United States that can’t wait to show the world that its favorite OEM is up to the challenge of matching, or even besting, the iPhone. “No one likes their Palms like Americans. So there are a bunch of serious loyalists out there. Palm has the same kind of loyalty that Apple has. There’s somewhat of a lure. Considering the high-level staff at Palm that came from Apple, you could almost consider Palm as a kind of Apple West,” Burden jokes.
But even if the Palm Pre lives up to all the hype, will the Sprint brand be strong enough to attract a bevy of new customers? Collins says one of the reasons Verizon has managed to fare as well as it has (Verizon beat out AT&T in new subscribers for the first quarter of 2009) is the diversification of its handsets and then the marketing of each with its “iconic” network.
“Verizon has consistently put its network front and center in its marketing, even when they want to highlight an iconic device, for example the Storm, or a new pricing plan. For example, the Friends and Family plan, the messaging is always ‘the network PLUS this device’ or ‘the network PLUS this pricing plan.’ I believe the consistency of this messaging over time has paid off,” Collins says.
Owens is quick to stress the value of Sprint’s pricing and network coverage. “If you do direct comparisons across our rate card, we have savings that can be as high as $1,000 or more over other plans,” he claims.
SINK OR SWIM TIME?
Collins refutes the idea that Sprint is putting all its eggs in one basket with the Pre, and when asked whether he thinks this is make-or-break time for Sprint, Collins plays the optimistic realist. “It certainly could be. As everyone knows, Sprint is in a lot of trouble, but I’ll give them credit for being willing to fight the game on different terms. You could say that’s out of desperation, but they’re also doing some very innovative things,” Collins says.
By “different terms,” Collins means the relatively innovative ways that Sprint has managed to stay afloat. He cites Sprint’s service for the Amazon Kindle, work on the Cox quad-play, and, of course, Sprint’s thriving prepaid service, Boost Mobile. If the Palm fails to pull Sprint out of its current funk, Collins thinks the aforementioned projects could result in a very different Sprint than the one the industry has come to know.
Depending on whether Sprint can make a go of it with the Pre, Sprint could become a back-end wholesaler as opposed to a recognizable branded carrier of consumer products, he says.
Burden says there may be other options for Sprint, but the Pre is integral to the carrier’s success or failure. “Sprint needs the Pre. Sprint needs an iconic device to get people to move over. There’s always the potential that Sprint doesn’t recover from its current woes,” he says.
Whichever way the fickle winds of consumer sentiment blow for Sprint and Palm, everyone will be interested to see whether a device alone can carry an entire network. After all, it seemed to do wonders for AT&T.