Feed on

The handset makers - victims of their early success - have fallen into a trap that has emasculated them. What’s worse – they don’t know what to do about it.

Padmasree Warrior pointed out in her blog last fall that the cell phone is now the best selling consumer product in India. More cell phones are sold there than bicycles. No wonder the 21st century is seen as the era of mass many-to-many communication via the Internet. Open Internet standards and open PC architectures have, for the past decade, made many to many edge based communication possible. The barriers of going into business for oneself have been lowered. Social networks and social networking tools are hot.

But the handset makers are in trouble. Deep trouble.

Use of the cell-phone as a device of mobile connectivity to each other and to the Internet and to its resources has exploded. More people have cell phones than PCs. Cell phones could be open and liberating. But they are not. What they can do is severely restricted by owners of the networks on which they operate.

Imagine that the owners of the electric grid could use their electricity to control PCs in the same way as can the cell-cos their networks. What a glorious day! You would pay one rate for the electricity that you used for a spreadsheet and another for word processing. E-mail would be really expensive. So how then did the cell cos subvert the device makers?

In the 90s, as both the Internet and cell phones took off, the phone companies stepped in and bought on behalf of their customers. Buying in great bulk they enabled the device makers to use economy of manufacturing-scale to ramp up the feature set and push down the price. But the Cell Cos were no fools. They made what became a Faustian bargain with Nokia and Motorola and all the other large makers of handsets.

Pleasure of Early Growth and the Pain of Commoditization

Want a concentrated marketing channel? OK –no problem. We will buy in quantities of a million and later in ten million and more recently perhaps 50 million. If and only if you allow the phone to do very precisely what we require and nothing else.

The specifications imposed on the makers began early and grew quickly. The makers were lulled by the enormous numbers to be ordered and by the economies of scale that could be obtained at Asian manufacturing plants. So they bought into the program. They bulked up. The market took off. The carriers served as a bulk marketing channel buying in one blow for 30 million customers or with the “new” ATT for 80 million customers at a time. This ability seduced not just Motorola, but Nokia and many other makers. But we are now at the point where exponential growth can be maintained only by commoditization of the product. A feature filled race to the bottom to sell an imprisoned ‘locked” product will produce more debacles of increased sales, decreased product capability and laid off engineers.

The potential of an open device that could bring cell phones into the world of end user control and creativity and vastly larger markets is left to the small niche creative companies like the FIC with its Neo 1973 running Open Moko

Motorola and Nokia and many others may begin to look longingly in that direction but they are trapped behind the walls of their own Faustian bargain with the carrier who offered the numbers but stole their freedom in return. The carriers in the meantime hold sway because with access to their network is equivalent to access to electricity for a PC, no access to an open phone means that, even if sucha phone could do many “cool” things, its potentially more broad based utility is just not there. No utility no market…except perhaps for wifi and wimax which explains why the carriers hate wi-fi networks so.

Watch China

How long before a new disruptive force shakes the status quo? Hard to say. China is a good bet. The folk at Lenovo and Huawei and their likely many layered supply chains as well as combinations of other firms that we have never heard of before have got to be thinking in terms of disrupting foreign markets with a less than $100 open phone that they can ship by the boatload to the west and at the very least give muni wifi markets a viral boost.

There is a huge irony that Nokia and Motorola engineers are predicting 8 to 10 different radios in cell phones in the next 12 to 24 months. Such a device could talk any where and connect to anything if it were not locked out. A very big “IF” . New and more productive cell phone technology is at a dead end because the cell phone makers no longer control their own fate.

Trackback URI | Comments RSS

Leave a Reply