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Poor Motorola

A big robust innovative company laid low on WallStreet last week because of the little appreciated fact that it’s biggest component - its cell phone design and manufacturing business is an appendage in the USA of perhaps 4 cell cos and in Europe of maybe 5 or 6 more. It may sell several hundred million cellphones a year globally. But it has very likely less than two dozen actual customers in the entire world. These are the major cell phone companies. In the North American market Motorola is fast becoming the 21st century Western Electric, the manufacturing arm of the newly reassembled ATT. But let me also say I could just as easily be talking about Nokia, or Samsung,or LG.

I say poor Motorola only because they had their earnings repport come out on Friday. Gather ye round for a tale of woe.

The one weak area in the fifty billion dollar a year company with something like 70,000 employees was - cell phones. According to the Washington Post “the world’s No. 2 cellphone maker reported a 48 percent decline in fourth-quarter profit, to $624 million from $1.2 billion in the comparable period a year earlier. Revenue was $11.79 billion, up 17 percent.”

“Operating earnings from the mobile devices division, the company’s largest business, fell 49 percent, to $341 million, despite a 19 percent increase in sales to $7.8 billion. The company shipped a record 65.7 million handsets in the quarter, up 47 percent from a year earlier.”

They sold 65 MILLION phone in the quarter compared to 35 million in the same quarter a year earlier. But the increased sale of 30 million more handsets was not a triumph but a disaster that will costy 3,500 thier jobs. WHY? Profits are down and operating expenses must be trimmed to bring prpofits back up.

Let’s explore the perversity of this logic. In almost every other area of technology the reaction would be lets talk to the customer and see what the ciustomer wants that we are not delivering.

Not in this perverse world! They don’t have customers to talk to. They are ruled instead monopolies that plan the customer experience with a great rigor

Their cell phones are essentially limited in the United States, to what, 4 customers now? In Europe to another 4 or 5? And in Asia to how many: ten or 15?

Talk about Soviet style planning! Gosplan - Gosudarstvennyie Plan. For the last 25 years we have had the ITU as head of global systems standard regime. That system standards regime is put in place to keep Telco control over their networks and billing systems in place. Under the straight jacket of this global planing regime, in the United States there are essentially 4 ministries that tell Motorola what it must do if it is to be able to sell its phone to the contracting arm of the ministry. The ministry delivers motorola a muti volume encyclopiues size directory of specifications. Every phone, to be eligible for purchase by the state ministry, must meet way more than five thousand different requirements.

The physical components, firmware and software software is planned right down to the pixels of the screen and the pantone color specifiied for the placement of the Ministry Logo. Each minitry specifies its own branding experience for the manufacturer. This goes all the way down to which web sites the phone is allowed to reach by the decision of the ministry contracting arm.

The engineers and software developers are imprisoned in Soviet style sharashka’s. Solzhenitsyn described the sharashka very well in his Nobel prize winning First Circle. The prisoners of the sharashka are feed, clothed and kept warm and happy as long as they don’t deviate from the requirements of T-Mobile’s Ministry in producing faithfull all the specs of the T- Zone Experience. They have heard rumors of an internet promised land, but they have sworn their fealty to the dialectical materialism of Etsi, Tiphon, ITU and at to Lucent, Alcatel, Erricson, the makers of IMS, which is accepted as the magic potion that pumped through the network veins will cause barriers to melt and monetization to occur that can guarantee the formerly happy lifestyle of pre breakup telco monopoly to flourish again.

The reality is that their product is locked, they cannot control functionality, they cannot invent new capabilities for the devices they are paid to make. Instead the bureaucrats in the Cingular central ministry decide what can be allowed. If an app cannot deliver a billable flow of information, its chances of being given to the customer are remote. Ministry descison making exists to benefit the ministry - the customer be damned. There will be no transectoral innovation here. No elastic computing clouds will ever come from these ministries - no way.

Consequently,the phones can try to compete with those designed by Nokia, or Samsung and others and do so if possible as fashion statements. About 2 years ago Motorola engineers came up with the RAZR. Sleek, flashy, beautiful it really sold well. Profit at Moto go up. Everyone is happy but as with all good things the market peaks. Everyone has a RAZR who could pay the previous prices. Those who don’t can only be enticed by discount’s. The market price of the Razr heads down and drags profits down and in order to keep sales up, Wall Street demands blood.

MOTOROLA must cut expenses since the regime of the siloed, state-planned sharashki is the only one allowed. The inexorable laws of the regime demand a sacrifice. The outcome is preordaned. The state planning market efficiency mechanism demands the firing of 3,500 employees. The CEO announces that by summer i in every 20 Mortorola employees will be dismissed. That market rejoices and adds a billion dollars to the value of Motorola shares. What a interesting way to create wealth!

My conclusion is that the transectoral n2 minus 1 algorithmn of using the internet to create new wealth can never be applied to Motorola until some iconoclast convinces it to break out of the grip of the planning ministries. Motorola needs to look at Asia and invest in an open phone. Padmasree Warrior should take 500 of her thousand engineers in Hyderabad and by putting linux in a cell phone find out what the local citizens of India would like to do if, Frankston like, they were given the ability so solve their own problems. After all the Andra Pradesh broadband network due for completion in less that 60 days would give an opportunity for a testbed of 80 million people to find out whether an open network is the engine of innovation it is cracked up to be.

If I were Motorola, I would want to blaze a path to the future ON MY OWN TERMS not on those of the state planning of Glavnyi Upravitel Gospodin Whittacre.

As Larry Lessig said when he showed a picture of the CPSU meeting in all its glory in the kremlin - who will deliver the news?

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