To carriers, the cellular business model is pretty straight forward and has been around for the last 30 years. If you manage to secure a wireless license and pay the appropriate fees, then you could rent out that spectrum to hundreds of thousands of users to make phone calls and pocket the profits and they were substantial. Not only that, you could force the customers into long term contracts to be on the service, they couldn’t change phone number, and the phone they spent several hundred dollars on was useless with any other carrier. However 2007 will go down in history as a key pivot point where mobile business was shaken up and these old models were questioned. The launch of the Apple iPhone was the first point in history where the cell phone tail wagged the carrier dog. It was the first phone to be offered both at the carrier and in a consumer store and activated (or not) online once the user got home. This was a small but significant step because the cell phone subscription was key to the phone use. What this small step implied was that the subscription can be untethered from the phone. Secondly Apple shared in the subscription pricing from ATT Wireless:
We nailed our colours to the $3/$11 amount, for repeat/new subscribers respectively, calculated by analyst Gene Munster back in July. But based on Tuesday's figures Mr Munster has upped his estimate to $18 per subscriber. If true, that's $432 per customer over the two year contract, dwarfing the profit Apple makes on the hardware.
This model clearly benefits Apple and makes the iPhone easily the most profitable handset on the market. Despite the fact that consumers have overwhelmingly voted with their wallets for the iPhone, Apple and ATT have chosen a closed model experience like the ipod. Apple believe the phone is a consumer product and they need provide an experience that is rich and consistent. They intend to further integrate the iPhone into the Mac OSX platform beyond simply the iTunes integration into the iCalendar, iChat and Apple Mail products. For a non-corporate user, the integration is nothing less than stunning and is something a Windows user might one day in the future experience. One of the biggest challenges facing mobile applications is the numerous mobile OSes and the difficulty to support each of them across multiple carriers. Couple that with the exceedingly difficult mechanism to upgrade the phone (read Palm Treo) and you have a market that cant move forward. Take for example purchasing applications from the Sprint PCS phone. The Sprint PCS experience is like passing through a Soviet era airport, three day old sandwiches and outrageous prices. Which of course leads us to the announcement of Google Android last week:
The technology is expected to provide cellphone manufacturers and wireless operators with capabilities that match and potentially surpass those using smartphone software made by Apple, Microsoft, Nokia, Palm, Research In Motion and others. In contrast with that of its competitors, Google's software will be offered freely under "open source" licensing terms, meaning that cellphone manufacturers will be able to use it at no cost and be free to add new features to differentiate their products.
The effort is led by Andy Rubin who came from the Android acquisition who was also involved with the Danger Sidekick (now TMobile). Andy is a device guy which still makes me believe that there is a GPhone in the works, but for the moment the Gmobile platform makes a great deal of sense. Tmobile and Sprint have both signed up to release a G-based phone next year. For TMobile it is a matter of differentiation. They are a distant also ran behind Sprint, ATT and Verizon and need to figure out how to bring new products to market that will make Tmobile a choice for consumers. Tmobile is also a prime candidate for dual mode (cellular-wifi) phones, which on the face of it is antithetical to carriers but because Tmobile owns a large wifi network can act as a dual revenue opportunity. So the big question is how does unified communications, fixed mobile convergence et al fit into this model. The answer may be that it does not have to. As opposed to business centric smartphones from RIM, Palm and Microsoft, Gmobile (and Apple) do not have to have a corporate strategy. Social Networking can be to consumer as unified communications are to corporate. What I mean is that what is more important to consumer mobile devices are shared experiences rather than process. Where as social interaction is based to sharing movies, music etc, creating an event, unified communications is creating an interaction with an outcome. This is the difference between IM (texting) and email. Email creates the interaction asynchronously, texting is here and now, it is the experience. To put it another way, sharing is consumer, collaboration is corporate. So what this means for mobile devices is the distinction between consumer and corporate devices with different products to meet these different needs. Where as a corporate mobile needs PDF viewer and email client, the consumer phone needs facebook and myspace integration, a great music experience and real time texting. Google and Apple are right to carve out a new market that explicitly deals with the needs of the consumer market and not get caught up trying to marry features that will appeal to the corporate market. The smartphone market currently represents less that 10% of the mobile phone market simply because the features are predominately work centric. We are entering a new era of mobile devices where the functionality is going to take a huge leap forward, where we will look at the cell phone as a social interaction tool, rather than a convenient way talk to your business colleagues.