Recent announcements from key players in the mobile device sector suggest that while technological innovation remains key, additional aspects of marketing strategy will be needed to command future market share. One of the latest examples can be seen with Google (NASDAQ:GOOG), which recently announced its next offering in the mobile devices space. Its Moto X smartphone will be the first Motorola (NYSE:MSI) smartphone assembled in the U.S. and product sales will b driven by a multi-tiered strategy aimed at gaining market share from high margin products like Apple's (NASDAQ:AAPL) iPhone. With the Moto X, it is clear Google is looking to the company's level of competitiveness in markets dominated by much more well established players.
But this will require new approaches that build on technological innovation. Most would expect Google to rely on technological innovations (in software, specifically) to challenge the superiority enjoyed by Apple and Samsung - but this is only one part of the planned equation. Google's next mobile device will be pushed forward with alternative strategies in pricing and marketing in order to help the Moto X gain an edge and draw market attention from a wider consumer base (when compared to high margin products).
To be sure, most "iPhone Killers" have been largely disappointing and have fallen by the wayside. But with Google's plan to cut into margins and market share using non-technological tactics, the Moto X offering from Motorola should present some new challenges for the broader competition.
A Different User Experience
Of course, Google's strengths are in technology, and new innovations in this area are to be expected. Early reports show that the Moto X is designed to create a different type of user experience and build on the predictive features seen in today's devices. Specifically, the Moto X looks to anticipate the behaviors (and needs) of its user in more varied ways. Sensors in the device (like the accelerometer and gyroscope) will tell the phone that it is being taken out of your pocket or traveling in a vehicle. The software then interprets this information to determine the next likely use for the device. If, for example, the software expects the user to take a picture, the camera app will open automatically.
Pressuring Margins with Lower Pricing
One of the central drivers of Apple's impressive earnings performances in the last few years has been the incredibly high margins associated with the iPhone. But elevated margins in consumer electronics cannot last forever, and we are already starting to see margins in everything from PCs to televisions (to smartphones) begin to weaken.
To gain an understanding of how high prices and margin levels are affecting Apple's grasp on market share, it is important to look at the number of carriers that are willing to accept the contractual conditions that are required by Apple when new product signings are made. Since 2011, Apple has added only 11 new wireless-service providers. This means that, globally, there are roughly 240 companies selling Apple devices. Samsung, the company's chief rival in these areas, sells its devices through nearly all of the world's wireless carriers (roughly 800 companies). Because of this, Apple is missing out on nearly 3 billion potential smartphone customers - mostly in emerging Asian markets.
The Moto X will be sold at much more competitive prices, and this puts Google and Motorola in a much better position to capitalize on a largely neglected consumer base and on the continuation of margin-weakening trends for most aspects of the smartphone industry. The Moto X will be a viable purchase for a much larger cross section of the market. Recent reports have shown that Apple has considered manufacturing a cheaper version of the iPhone (in order to gain exposure to consumers in emerging markets). Whether or not this offering will ever actually materialize is another question but Google's decision to pursue more competitive pricing will help the company gain another edge on Apple.
Assembly in a U.S. Plant
Another approach that should not be overlooked is the decision by Google and Motorola to use the prior Nokia plant in Fort Worth, Texas, to assemble the Moto X. Apple has made its own announcements in the area of (conducting more of its operation in domestic markets, creating jobs in the U.S. economy) but this is another area where Apple has intended to make headway only to fall behind later. Before August, Motorola will hire 2,000 workers for the plant in Fort Worth, and while the processors and phone screens will continue to be manufactured in Asia, roughly 70% of the assembly operations will occur in the U.S.
With the Moto X, it is clear that Google is planning on gaining market share and in increasing competitiveness with the more heavily established members of the market. Pricing will put pressure on Apple's margins, technology innovations will create a more intuitive device for users, and manufacturing in the U.S. will bring broader attention and enhance company reputations in the process.
Google stock has come off sharply in the last month, but prices are not far from major support levels at 860, which should contain prices near term. This area is the 38.2% Fib retracement of the rally from 760, so the latest declines should reach completion soon.
Motorola is moving forward in its long-term uptrend, even with the declines seen at the end of April. Bias remains bullish as long as prices hold above 53.60.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.