Drinks and Droids

Drinks and Droids

Article from Issue 181/2015
Author(s):

The commoditization of tech reached new heights this month with the announcement of the Pepsi smartphone, which appears to be a standard Android model. The new phone will only be sold in China. Whether the trend continues and spreads to the West will depend on many factors that would discourage my speculation in a one-page Welcome column.

Dear Linux Pro Reader,

The commoditization of tech reached new heights this month with the announcement of the Pepsi smartphone, which appears to be a standard Android model. The new phone will only be sold in China. Whether the trend continues and spreads to the West will depend on many factors that would discourage my speculation in a one-page Welcome column.

One significant feature for the company that lent its name to this venture is the Pepsi logo emblazoned on the back of the phone. The buyers of the phone will carry the Pepsi brand wherever they go. The picture clearly shows a phone with the familiar Pepsi colors on the back. I don't know how it is in China, but in my country, teenagers, who would presumably be the target for Pepsi-related marketing, often invest as much time and energy in purchasing a phone case as they do on choosing the phone itself, and an external case will cover up those pretty Pepsi colors. Still, when someone asks the user what kind of phone they have, the answer will always be an emphatic, "I have a Pepsi phone."

Interestingly enough, this deal isn't about Pepsi paying money to put its logo on phone hardware. It sounds like it works the other way around: The phone vendor is paying money to use the name "Pepsi." So Pepsi gets free money – or, that is, they cash in some of the power of their brand for money.

What about the phone vendor? Falling prices and increasing competition has the effect of making products look generic. Another Android phone? Big deal … . What makes this one different? One way to be different is to have the lowest price, but there is a point where you just can't keep dropping prices and stay in business. Another way to stand out is to invest a lot of money creating an image for your product through advertising and marketing. You could, for instance, create the impression that your smartphone is a phone used by cowboys or secret agents purely by the way you advertise it. But ad campaigns are expensive, and the additional cost makes it more difficult for the vendor to keep the price low.

A less expensive option is to piggyback on someone else's brand. No need for movie cameras, actors, or messy media events. Just sign one contract, and you can bathe in all the images and associations expended on Pepsi through the years. You'll have a ready-made audience of people who choose to be in the Pepsi audience. Potential customers will imagine lifting your phone instead of a Pepsi bottle after they score a goal in a soccer game.

How much is this privilege actually worth? It will be interesting to find out. I have a feeling some phone executive in China will either get promoted or fired over this new concept.

Behind the headlines, the Pepsi phone reveals some of the forces influencing the smartphone market, especially the Android market. The number of vendors, and the vast number of products with similar hardware and identical software, leads to increased competition and a tendency for uniformity. The cheaper and more insignificant the phone itself becomes, the harder the vendors will have to look for a market advantage. The other alternative is to stop competing for the lowest price and biggest volume and, instead, set up your product as a premium brand. Apple, for instance, doesn't care if it sells the most units, as long as it sells a lot of units at its premium price. That philosophy has worked for them in the past, but actually, while we're on the topic, it has stopped working for them in the past also. When the prices for alternatives got too low, and they got a little too complacent, they were brought to the brink of extinction by the Intel/Microsoft tidal wave.

Back then, "IBM PC" meant something important. People were willing to pay extra for the brand, even though it was basically the same Intel chip with a Microsoft OS everyone else was selling, but as the prices dropped, the space for a luxury brand got squeezed out.

Why wasn't there a Pepsi PC? The classic PC was a little too expensive and too business-y to market to the youth-oriented "be free by being like me" soft drink audience, although one could argue that Apple's marketing of the iPod and early iPhone devices was very much about envisioning the product as a youth accessory the way they do it in the soft drink industry.

And if you think about it, the PC business really did go through a similar process. The so-called browser wars and other machinations around the ownership of the desktop were all about giving hardware vendors a piece of the action, to provide them with additional branding opportunities and revenue streams when they ceased to make their margin on selling just hardware.

If the Pepsi phone catches on, you can bet other vendors will repeat the model with other products in other markets. Even if it doesn't catch on, expect Android phone makers to look for other novel ways to stand out in the crowd.

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