Rochester upstart sees a niche in cell phones

The Boston Consulting Group uses a little grid to guide the thinking of CEOs when their products turn into commodities. It's hard to know where to put smartphone maker Nuu Mobile.

It's not the box on the top of BCG's grid, for the strategy of the premium player. Nuu can't fit the strategically sound positions occupied by the lowest-cost producers, big companies that can survive when their higher cost competitors bleed to death.

The only box that seems to fit for a small player like Nuu is the one in the lower left corner. It's labeled "exit."

But Nuu Mobile has no intention of getting out of the U.S. smartphone market. It's just getting in.

Nuu Mobile CEO Steve Emery isn't naive about the challenges in a market with more competitors seemingly every week. He also doesn't have the pure commodity strategy of trying to compete only on price. He thinks the right position is between cheap, almost generic phones and the offerings of the likes of Samsung.

And as he pointed out, with more than a hundred million smartphones sold this year in the United States, there sure seems to be an opportunity to make some sales.

At first it seemed odd to me that a Rochester company is even trying its hand at smartphones, not long ago the exclusive province of global companies like Apple and Samsung.

But the presence of lots of providers doesn't by itself make smartphones a commodity, at least not in the view of consultant Guy Gilliland, senior partner and managing director in the Dallas office of the Boston Consulting Group.

There are still ways to compete besides just lower prices, he said, so he can't agree smartphones have become a commodity business yet. Maybe the best opportunities are in the market niche that Nuu is going after, he said, unlocked phones available for sale without going through a carrier like Verizon Wireless.

That's not the niche of Apple and Samsung, occupied with their own challenges, he said. "The guys I would worry about are Xiaomi, the Chinese guys, or Huawei."

These are Chinese smartphone heavyweights, and even"explosion" seems to understate just how quickly China's smartphone industry developed. In 2011, two of the top 10 smartphone makers selling in China were Chinese. Three years later, eight of the top 10 were.

All that know-how and capacity in China is one big reason it's now really easy to get into the smartphone market. It brings to mind the late 1980s and early 1990s and the heyday of the clone personal computer sellers, with at least 60 once operating just here the Twin Cities. Entrepreneurs with a loading dock, a phone and a line of credit could launch their own computer company.

"Now if you wanted to get 20,000 units [to enter the market], I don't know if you even would have to go to Shenzhen," Reith continued, referring to the Chinese city that is to electronics what Detroit is to cars. "You could probably just get one of these guys on the phone and have the smartphones shipped to you."

Nuu Mobile, one of the brands of Emery's company, called Noetic Inc., only has about 25 people here, although Emery has a far bigger partner in Nuu Mobile called Sun Cupid Group. This Hong Kong-based electronics manufacturer wanted to build more of its own products, including Nuu Mobile phones sold in Asia beginning in 2012.

Emery doesn't deny there's risk playing in such a competitive market. But Nuu Mobile's new Z8 is a good example of his strategy. It just came out and has already gotten at least one favorable review.

"In terms of raw performance and screen [it's] equal to the Samsung Galaxy S5 that's over $600," Emery said. "For those who are not brand conscious or brand loyal, who want good-quality technology with the latest Android operating system, we are half the price of what a Samsung is."

One of his challenges is that the market in the U.S. works differently than in most other countries, with phones here mostly bought from a company like Verizon Wireless on a two-year contract.

The hard work this summer has been getting more stores to sell the products, with Nuu hiring staff to recruit independent wireless products stores and bigger retailers. Nuu Mobile products already are sold by retailers such as Target.com and BestBuy.com, and brick-and-mortar stores include 165 locations of the Meijer superstore chain.

Emery said he's happy to let the Chinese competitor ZTE spend a lot to sponsor the New York Knicks. Nuu's far more modest marketing plan includes wrapping billboards on transit buses in Cleveland.

As for how big Nuu Mobile can get, Emery guesses that a competitor called BLU Products sells 2 million units a year in the United States. Matching that someday seems like a realistic goal to him.

With an estimated 150 million phones sold a year in the country, he said, "well under 1 percent market share is still a big number to us."