Thursday, January 12, 2006

ARCchart : The Rise of Customised Design Manufacturers

Andreas Constantinou at ARCchart has a very nice analysis of the growing role Customised Design Manufacturers (CDM), such as i-mate, Qtek (both sourcing from the Taiwanese manufacturer HTC) and Emblaze Mobile (sourcing from Innostream), are playing in mobile handset universe. As he notes, CDMs "buy from manufacturers, customise the handsets, and resell to operators and retailers. Their unique selling point is their supply chain efficiency, in being able to buy large volumes and provide smaller handset volumes to tailored needs. CDMs combine sales and marketing, logistics, customisation (branding, localisation and configuration), support and warranty."

Due to handset diversification and differentiation from the supply side (i.e. carriers, MVNOs, etc) and increased consumer desire to find the perfect cellphone with the right features, functions and style, Constantinou writes CDMs are rising to provide the missing link. Constantinou explains that

CDMs began life as an interface to small, white-label manufacturers, but I believe they will move to serve Tier 2, perhaps even Tier 1 manufacturers in the next two years (my insight tells me Motorola is a good candidate here). The reason is simple: all major manufacturers have been organisationally structured on the principle of selling a few, mass-market phones. Moving into many, low-volume variants require a complete re-organisation, which, due to corporate friction is unlikely to happen soon. In addition, there are Far East contract manufacturers and ODMs, who are already responsible for a third of worldwide handset production according to figure from the ARC Group, yet have lacked the direct channels and brand awareness to make it directly into Western markets. CDMs are just the ticket: they are the gearbox that allows the engine to move the car at many different speeds. They are the system integrator that takes a software bundle and tailors it to the customer.
Constantinou notes some of the players in the burgeoning field including K-Lab, Gemini and Mobile Innovation (now part of Adobe), which "provide sophisticated integration and software tailoring services, for both proprietary and Open OS handsets" and design houses like Ocean Observations, IDEO, Purple labs, Frog design, Fuseproject and Leading Edge Design that tailor "the device plastics to refreshing and differentiating designs."

Constantinou credits Microsoft with helping to drive this new paradigm. He said, Microsoft "opened the world to the possibilities of handset customisation. It hasn't been so much the built-in software flexibility (Windows Mobile is a poor cousin to Windows CE in this respect) - it's been the business model from the outset."

He concludes the analysis by predicting that
the CDM business is going to be booming in 2 years time. All we need now is cheap, white-label Symbian phones and more innovative Windows-powered phone designs.
As the industry attempts to meet the different needs of almost every niche market possible, the rise of the CDM model makes a lot of sense. Maybe a Dell-like company can join in the party to add more customization and efficiencies. I'd love to be able to customize my next handset with 3G, Wi-Fi, bluetooth, keyboard, nice screen, no camera, small form factor, etc....