It Misses the Point of the Shift

In this week’s RCR ‘Analyst Angle’ Frank Dickson takes a look at the current handset war. He ticks off a litany of placement analysis on the current players. Much of which I agree with. So what is the point he misses? Well first lets put down the marker –

So what happens to mobile handset providers when the functional of the phone is defined by a third party, open OS? The nature of competition moves from features to cost. The result is that margins begin getting squeezed and competitive advantage is determined by those with the lowest cost manufacturing. As the market makes the transition to cost based competition, the process is never pleasant.

The battle for the platform is an enormous threat to the existing business models of the rest of the mobile community. New competitors battling for platform control do not need to worry directly about network infrastructure or compatibility impacts. Internet issues such as spam, viruses and person-to-person file sharing could have massive ramifications for existing mobile operators. The impact of offloading data traffic from 3G networks to Wi-Fi networks on mobile data revenues is of little concern to the new providers. The new breed of platform combatants seems to have a mobile manifest destiny, looking to capture not only platform control but also the service and content revenue.

” The nature of competition moves from features to cost.”. Well when has this never happened? Think of anything, computers, cars, steel, etc. The cost of the goods are continually being pushed downward by competition in the marketplace. The handset makers should be immune from this capitalist fact? I think not. Handset MFR’s have relied for too long on their cozy relationship with the carriers to bury some of the largess of the CPE in subscription contracts. ThirdPipe has for 2 years stated that such practices delay the shift and should stop.

Features to cost? Hmm. If anything the features that are being heaped on the smartphone component of the CPE market are growing not dwindling. The iPhone has its 10,000th app at the online iPhone store. Android is having similar success on their side as well. Such growth is spurred by an ecology that fosters third party software development. In that type of environment, the development growth INCREASES as the hardware costs dwindle. The other irony is features for whom? Up until it was dead certain that Android would make it to the marketplace, most of the CPE makers were only offering closed systems and their version of ‘black’ from the Henry Ford Industrial Arts Hall of Fame.

Which brings us back to Mr. Dickson’s list. In a world where a cellphone is as smart as you want it, has the power of a PIV chip and costs $75 what happens to that cast of characters? –

1) Nokia, Moto, LG, et. al. Toast if they don’t adapt. The reason being is that ecology thing again. So long as these companies remain on the Symbian platform they will become longtail in the marketplace. The handset situation now is looking more and more like the game environment or the middleware environment for IT. One must garner a sufficient number of third parties to expend time and $$ on your ’system’ or you are passed over in the marketplace. Symbian will lose, even being open as I will point out in a moment.

2) Apple, RIM. When phones are a plebeian $75 the cachet for Apple to be in the market with iPhone will lose its luster (and margin I might add) and will drop out. When the HTC G-5 of 2012 out Apples the Apple what’s the point? RIM is a different matter. So long as they stick to their metaphor of a messaging system they will bring their legacy customers on the business side along with them. They have a lock that is very hard to pick. But their first foray to break with tradition with the Storm has been a bust.

3) Microsoft. Its toast, but for quite a different reason. Microsoft is under assault in its core business by the very same set of players that will take over the CPE environment here, namely Google and the FOSS community. As the core, desktop OS and applications, are being savaged its ability to pour resources into other ventures will dwindle. Essentially Microsoft is in the pinchers of a price point battle. It will not make sense for a CPE MFR to consider spending $40 for a MS OS license when they can put a Open Source OS on for $5. The tip of that iceberg can be seen in the current battle for the NetTop OS space, of which Open Source OS’s are taking 1/3rd of the market.

4) Google. What can one say other than their ad driven engine is unstoppable. From a small core development team, Google can call up a massive Army of Davids to flesh out a ecology around whatever they develop. Just look at it — gMail, iGoogle, GAE — every platform having thousands adding bells and whistles without nary a W-2 form passing Google’s desk. Android is no different. But Android has something very different from all the other CPE based systems, that of diverse application.

Within the stricture of the appropriate hardware suite, Android could be anywhere. It has the three things that are critical. Input via a keyboard. A good display engine and a communications engine. Of course those are the hall marks of a cell phone. But Android is not limited to just a cell phone. It could very easily be running the coke machine in the break room. Or the slot machine in the casino. Or the basis for the next TomTom GPS device. It is that application diversity that will drive its numbers up and the cost of Android embedded hardware down. It will just be a coincidence that one use is as a cell phone. That factor is the Symbian based Achilles heel. Insufficient deployment base.

So what will be the metrics of a winning system? Well it will be a consumer driven. I want it –

Bottom line. The whole market is moving from a carrier centric to a customer centric baseline. Overlayed on this is a shift from a network centered to a information centered environment. Finally a move to capability over form factor. The three factors working in lockstep reinforcing each other