Sony’s only hope in mobile requires U.S. penetration

To people of a certain age, Sony is a brand that is completely synonymous with consumer electronics. It once had a Midas touch and a brand cachet that was beyond reproach: if you wanted to buy a product that was guaranteed to work well, you went with Sony; everything else was a risk.

Sony is in a decidedly different position today. While it still enjoys sizable market share in select verticals, thanks to its imaging and gaming divisions, it’s in the uncharacteristic position of also-ran in many other categories. And when it comes to smartphones — the product which has made Apple the wealthiest company in the world — Sony is, shockingly, on the verge of extinction.

To be fair, Sony is not alone in this predicament. As a premium brand heavily reliant on high-margin flagships, Sony faces the same inhospitable landscape as numerous other OEMs in the rapidly commoditizing smartphone marketplace. Even one-time profit engines such as Samsung and HTC are finding it much more difficult to compete against the Xiaomis and Huaweis of the world — companies which thrive on razor-thin margins by offering high specs at low prices.

When all is said and done, Sony may, indeed, have to forfeit its mobile division for lack of profitability. (As of the second quarter, it was down to just a sliver of worldwide marketshare — at 2.1 percent — after six straight quarters of contraction or stagnation.) But if Sony Mobile is to keep its Xperia brand alive, I’d argue that it simply must achieve some level of penetration, of competitiveness, in the U.S. market.

It was once so simple for Sony (and its predecessor, Sony Ericsson) to ignore the U.S., just as Americans largely ignored the brand that sold them their television sets. The U.S. was a relatively late bloomer when it came to smartphone adoption, stubbornly holding onto RAZRs and Sidekicks while the rest of the world was enjoying Palm, Symbian, and Windows Mobile devices.

Then came the iPhone, and the official start of the smartphone-ification of America. Besides Apple, the brands best positioned to take advantage of this newfound taste for expensive pocket computers were the ones like LG and Samsung, which had supplied the country with generation after generation of feature phones. Seemingly all of a sudden, the U.S. had become a very important mobile market, especially to those traditional electronics manufacturers with their pricier fare.

But despite our love of all things Sony, we never developed an attachment to its cellphones. You can probably count on two hands the number of subsidized Sony handsets that have been sold through U.S. carriers; interest likely peaked with 2011’s Xperia Play, more popularly known as the “PlayStation Phone.” More recently — and post Ericsson divorce — we saw Sony and Verizon flirting a bit, but this year’s abrupt cancellation of the Z4v has left that relationship in limbo.

Not every mobile OEM needs heavy rotation in the U.S., of course — Chinese brands, especially, do just fine, despite the majority of their sales occuring in their domestic market. Those that do need the U.S., sell pricey flagships whose features quickly show up on devices being sold at just a fraction of their cost. Far from being an afterthought when planning global deployment strategies, the U.S. handset market has reached a maturity that ensures it is at the forefront of international rollouts.

So what would a resurgent Sony look like in the U.S.? Theoretically, at least, it could take one of two forms — though realistically, only one of them would seem to be palatable to the company’s principles.

I think Sony would have the best chance if it were willing to go the Motorola route, that is, bypass the traditional carrier relationships and market directly to consumers. The problem here, of course, is that Sony would need to price its devices much more aggressively than I suspect it is willing to do; it’s never been a company keen on moving down market, even to increase volume.

That leaves option two, which would involve cozying up to the carriers and committing to the big budget advertising campaigns that would be necessary to reintroduce its wares to the American consumer. Would Sony be willing to commit those kind of resources to its phones? I’m not really sure, at this point; it doesn’t help that carrier subsidies are starting to erode, forcing manufacturers to compete on features and price — neither of which are obvious strong suits for Xperia.

But in the absence of a big U.S. push, Sony’s really got nowhere to go if it hopes to grow the brand and reverse the market share slide. The countries that are not yet saturated with smartphones are the ones that are the most cost-conscious, and really only susceptible to extremely budget-friendly offerings (which is why you see so much interest in OnePlus, or why Xiaomi picked India as its second market).

Right now, from all indications, Sony is internally in a holding pattern when it comes to participating in mobile phone production. In October, CEO Kaz Hirai was quoted as saying that Sony will continue to make Xperia smartphones “as long as we are on track with the scenario of breaking even from next year onwards.” However, he also added that “otherwise, we haven’t eliminated the consideration of alternative options.”

With that in mind, it seems that 2016 really is a so-called “make-it-or-break-it” year for Sony, vis à vis the future of Sony Mobile Corporation. If Sony isn’t able to somehow increase its U.S. presence next year — with North American smartphone sales growing at a faster year-over-year clip than even China’s — it will struggle to find any other region in which to achieve the needed balance sheet parity.

Perhaps the one thing Sony’s really got going for it is a pretty loyal fan base — the folks who show up to buy that latest iterative, Omnibalance-compliant member of the Xperia Z series every six months or so. With the Z5 Premium, Sony also showed one of its most exciting handsets in years, one which marries a class-leading camera to the world’s first 4K display on a phone. A mobile landscape without Xperia really benefits no one — yet barring an uncharacteristic focus on the U.S. market, there doesn’t seem to be much of a way forward in an industry that gets unfriendlier to Sony and its ilk by the day.