The Customised Design Manufacturer (CDM) is a new business model in the mobile handset industry that fills a very important market gap: producing uniquely customised handsets on-demand for consumer brands and 3rd parties. CDMs are here to capture a portion of the emerging market for uniquely customised handsets (UCHs) i.e. handsets for niche customer segments. Operators (see Vodafone Simply and the upcoming NMT handset), MVNOs (see Helio and Jitterbug), handset manufacturers (see Alcatel’s ELLE phone and EmporiaLife) and consumer brands (see Versace, Dolce & Gabbana and Bang & Olufsen) want to deliver uniquely customised handsets to firstly differentiate and secondly capture the market for trully unique, branded handsets.
The Customised Design Manufacturer is a fabless manufacturer who caters for this very need: producing uniquely customised handsets for niche customer segments, taylor-made and styled to consumer brands, MVNOs and manufacturers. A CDM is an integrated business that combines brand licensing with handset industrial design, outsourced manufacturing, quality control, distribution, reverse logistics retailing and can also include an after sale, on-device service proposition as part of the handset.
In essence, a CDM is a specialised, yet vertically integrated service house that is able to act as a one-stop shop for brands wishing to enter the mobile phone business or MVNOs, MNOs and manufacturers wishing to outsource development of unique handset designs.
I first wrote about Customised Design Manufacturers after an inspirational talk with i-mate at 3GSM 2005. i-mate is the earliest example of a CDM, for prosumer and corporate customers. i-mate has been buying bulk from HTC and reselling customised handsets to several operators and independent retailers, adding in preloaded applications, internationalisation, warranty, support and marketing. Since 3GSM 2006, i-mate is transforming itself into a system integrator for corporate customers offering uniquely customised handsets with a complete enterprise device management solution.
Customised Design Manufacturers are Here In the last year, several CDMs have surfaced; Modelabs, Tedemis, TCL Alcatel (an OEM with an in-house CDM business unit), while Emblaze Mobile plans to follow the same path. Modelabs is the leading CDM today, having produced handsets for Airness and Elite Model Look brands and expected to launch MTV and Tag Heuer handsets. Tedemis was the matchmaker that lead TCL Alcatel to produce the Glamphone for the ELLE publisher brand.
ARCchart‘s new report titled ‘The New Age of Handset Customisation: 2006-2011‘ (of which I was the lead author), has analysis and case studies of these customised design manufacturers. The report also profiles tens of uniquely customised handsets to date, including Vertu, Xelibri, ESCADA, Firefly, Vodafone Simply, Dmobo’s Disney-themed M900, i-kids, ELLE Glamphone, Bang & Olufsen Serene, Goldvish, Casio G-Zone, Voce, Jitterbug and Nordisk MobilTelefon handsets, which targeted at a wide range of segments, including kids, fashionable females, tweens, teenagers, sports enthusiasts, senior citizens and VIPs.
The report examines the Customised Design Manufacturer business model and provides insightful detail: “Each of the three CDMs ARCchart has identified – modelabs, Tedemis and Emblaze Mobile – take a different approach to integrating all handset commercialisation stages under one roof. Modelabs has grown in-house teams for brand licensing, industrial design, supplier management, marketing, distribution and support. Tedemis grew from a brand manager into a value-adding matchmaker between brands and manufacturers, adding service integration functionality to the handsets. Finally, Emblaze Mobile is moving from a virtual ODM towards a full CDM business model with the acquisition of European Telecom.
TCL Alcatel has shown how an OEM can adopt such a business model by forming an in-house CDM business unit. The Chinese-French OEM has created an internal business team under the name ‘Brand Design’, dedicated to designing, manufacturing and marketing branded, customised devices for niche segments. The multi-disciplinary team pulls together functions across the breadth of the handset commercialisation process, including industrial design, engineering and marketing, to form a virtual CDM operation. This structure essentially allows TCL Alcatel to bridge the previously existing communication gaps between handset teams, allowing it to develop uniquely customised handsets, while leveraging the know-how and manufacturing assets of an OEM and reducing time-to-market and cost.”
Challenges faced by CDMs
However, creating a CDM is not simply a matter of integrating several business units under one roof. The ARCchart report has some interesting analysis on the challenges faced by CDMs today:
“Customised design manufacturers have arrived in a challenging market place. As of 2005, about 84% of the global handset market is controlled by the top six OEMs. This leaves limited market share for the remaining hundred or so OEMs, ODMs, ODEs and CDMs. Furthermore, generous operator subsidies have turned mobile phones into consumer electronics items which are perceived as low-value by the consumer. Brands who want to play in the handset space will have to place brand appeal above pricing considerations, in the eyes of the sophisticated consumer.
One of the most challenging aspects of a CDM business is merging the distribution and industrial design businesses. These two disciplines, within the traditional context of mobile phones, have different working cultures, processes, business models and margins. Distribution is about a high-volume, low margin business with cold, operational efficiency and large staff count. At the other end, industrial design is about small, closely-knit teams with creativity and flair which develop a few products a year and look to high margins. This challenge is also one that modelabs claims to have overcome, which is one of the reasons for its market lead. Another challenge for customised design manufacturers is linking brand companies to manufacturers. The cultural and communication gap is substantial, but not insurmountable. CDMs therefore have to act as a bridge between brand clients with creative, lifestyle marketing cultures and handset manufacturers who are engineering-led organisations.”
Coming into the limelight
The report predicts that CDMs such as Modelabs, Tedemis and TCL Alcatel will far outgrow ODMs and ODEs in the production of uniquely customised handsets in 2007. This is due to the appeal of CDMs as a one-stop shop for consumer brands wishing to enter the handset market.
The ELLE GlamPhone No 1 handset has sold more than 100,000 units in 1Q06, with the sales of GlamPhone range expected to reach 250,000 by 3Q06, according to the ARCchart report. Modelabs is expected to announce handsets for MTV and Tag Heuer, which will further make an PR impact in the industry and bring CDMs into the limelight. Modelabs’ strong growth in profitability (+59.6% in net income in 1H06) is another validation for the viability and promise of the CDM business model.