Grim Times

Here we go again.

Repeatedly, Sprint has tried to bet the farm (and failed) in its quest to remain relevant. They bet the farm on Nextel, then Wi-Max and Clearwire, then all-you-can-eat plans, and all along on wholesale/MVNO. Frankly, it’s amazing they have any farm left to bet – having lost EIGHTY PERCENT of their market value since the first iPhone went to market in 2007.

But now they have allegedly placed every last chip on the table, plus the car and house keys and maybe their firstborn: they apparently have agreed up-front to purchase 30.5 million iPhones over the next four years, estimated at $20 Billion, regardless of whether they sell through to consumers. Rumors are they may even get the iPhone 5 as an exclusive for a while, as well they should with that price tag.

Leaving aside whether Sprint can survive this bet (who knows?), this is a complete game changer for the wireless ecosystem. Last year I suggested the iPhone was the Maserati to Android’s Ford Taurus (not a perfect analogy but you get the drift). This news is almost as if GM decided in a desperate measure to stop production of their entire product line, pre-pay Maserati for four years of commitments, and start selling them at Ford Taurus prices. A-mazing.

So as consumers, what does this mean? Bonanza. You now have the choice of the iPhone 4 (and someday the 5) with data caps, bloatware, obscene international roaming charges, spotty network, and so on – or the iPhone 5 with all-you-can-eat bundles, WiMax speeds, and lower charges across the board.  At a minimum, this will go a very long way to tame the duopolistic tendencies of the Big 2 carriers in the US.

What this means for Android is less clear. Google has successfully positioned Android as the faster-growing, low margin, multi-OEM alternative to the iPhone ecosystem. Buying Motorola Mobility complicates that, as does Amazon’s successful OS hacking for the Kindle Fire. But this Sprint deal is the biggest blow of all: at Sprint fire sale prices, we’d all rather buy an iPhone than a Droid. The Android team may be best served by aggressive forward integration into the hardware business with Motorola and make some magic before the OS fragments away into oblivion.

The other big loser here is AT&T. Verizon can certainly survive this, given the strength of their network and size. However, AT&T is in the process of losing the T-Mobile acquisition, and if the inMobi survey is anywhere close to accurate, 41% of all mobile users intend to purchase the iPhone5. Any AT&T customer (iPhone owner or not) will be giving serious consideration to switching to Sprint.

While I never thought I’d say this, Sprint may finally have found its comeback vehicle. Hitching a ride on the most wildly successful mobile platform ever created is the right move at any price. Even if that price is almost 2.5x your market capitalization? Time will tell . . .

So much for the wireless duopoly: the Department of Justice has announced they will move to block the merger of AT&T and T-Mobile on anti-competitive grounds. Normally this sort of thing gets under my skin, but in this case it may have some merit. Recently there was a leaked document (http://www.dslreports.com/shownews/Leaked-ATT-Letter-Demolishes-Case-For-TMobile-Merger-115652) that made it blatantly clear that AT&T’s rationale for the deal was nonsense (increasing coverage, additional investment in infrastructure): they want to reduce competition.

So despite the daunting challenges of merging a CDMA/WiMax shop with a GSM/HSPA one, I boldly predict Dan Hesse over at Sprint is licking his chops at the prospect of taking out T-Mobile and becoming the third dominant carrier in the US. Can’t wait to watch the fireworks!

Just when you think the Don’t Be Evil Empire faces certain defeat, Google comes roaring back with a gutsy conquest – Motorola, truly one of the stalwarts of the mobile industry (if a bit tarnished of late). Some implications are obvious (they need patents to defend their platform and just got a treasure trove) – and some not so much (how does Google owning one of the top Android manufacturers impact the other Android OEMs in the medium term?)

Ever since Android was a twinkle in Larry’s eye, experts have wondered what bold strategic moves Google might make – Would they bid on spectrum and become a carrier? Build their own phone and bypass the ecosystem? (ok, they tried-so much for that) Buy or partner with an ailing network operator? Instead, they co-opted an anti-Apple brigade of handset makers (Samsung, HTC, Motorola, Kyocera, LG) and took the mobile industry by storm.  Call it Android’s Clone Wars era: an endless sea of nearly identical handsets, churned out by the millions, new models almost every few weeks, finally establishing a viable alternative smartphone platform to the monoculture of the iPhone ecosystem. I believed that as a result, Apple would not be able to Beat Android – the simple fact that Apple would never relinquish complete control of manufacturing as well as the OS meant that Android would keep up or surpass iOS (in terms of volume market share, as opposed to profits). Android thus effectively inherited the mantle of Microsoft in a new platform battle against Apple.

But Apple wasn’t about to give up without a serious fight or two, and continues to aggressively go after Android’s proxies (eg Samsung) as well as directly against Google. The most obvious weakness was Google’s deficit in intellectual property: Sun/Oracle attacking from within (arguing that the core IP of Android infringed Java), and Apple and other OEMs attacking from without (UI and a host of others). The sorry state of IP law being what it is, the only way to win (or not lose) is to have enough patents to horse-trade when the lawyers come calling. And Google had nothing to trade.

Google tried to beef up its patent portfolio in mobile by bidding on Nortel’s huge patent auction (up to $900 million), only to find an unholy alliance of Microsoft, Apple and RIM paying 5 times more. Microsoft is meanwhile shaking down the OEMs for licensing fees, repeating the mantra that Android isn’t free, it just steals from others. So the MOT deal makes enormous strategic sense. But aside from helping Google’s in-house counsel finally sleep at night, what happens next?

Google insists they will continue to allow Motorola Mobility to run as a separate business, which makes sense. Any benefits from closer integration would be a direct offset against losing the loyalty of other Android OEMs. But very likely, they may continue to hedge their bets anyway by supporting other operating systems, and Microsoft Phone 7 may yet find a second lease on life. In fact, if I were Samsung or HTC, taking out RIM might be a great way to ensure they remain relevant in the fight for market share.

The other possibility is Google keeps the IP and jettisons the manufacturing business out of the airlock, unless they can find an interested buyer. Not that likely though – I think they still harbor a dream to get Nexus right and show the carriers who’s boss after all.



Today Nokia CEO Stephen Elop made the symbolic leap off of the Burning Platform, and joined forces with Microsoft. There were rumors that both Android and Windows Phone 7 were in the running to supplant Symbian and save the once-dominant mobile phone maker, and of course Mr. Elop’s prior tenure at Microsoft might have helped the process along. But this is truly a bold move, and a smart one (for both Microsoft and Nokia).

The wireless ecosystem has witnessed dramatic, tectonic shifts in the past two years, all of which are good for consumers and application developers. Many wise men in the industry spoke of continued fragmentation of platforms, and to this I again say “pshaw!”  Before this decision, the industry was morphing at warp speed into an Apple/Android duopoly.  To wit:

• Android-powered smartphones decimated RIM’s market share in Verizon smartphone sales (dropping from 93% to 19% in only 12 months!!), and soon surpassed even Apple’s sales overall
• Apple now begins the counter-punch in the US, with the Verizon launch
• Android releases its new OS – Honeycomb – and makes a tablet play to combat the iPad phenomenon
• Apple inevitably prepares to launch a low-cost iPhone to combat the low-cost Android handsets

Meanwhile, what happened to the other platform providers?

• Microsoft launches Kin, pulls after one month. They then launch Phone 7 with half a billion dollars in marketing, and Christmas shipments disappointed.
• Nokia dithered, played with MeeGo, and even took a cheap shot at the other handset makers, claiming that adoption of Android was comparable to a Finnish boy peeing in his pants (feels good at first, but not for long).
• Palm released a great OS, but ‘twas a party to which no one came. Company sold to HP, who now isn’t quite sure why they bought it.
• The feature-phone application developers using Brew and other tools are rapidly jumping to smartphones, because pretty soon that’s all there will be left.

So now, faced with the prospect of metaphorical immolation, Nokia has leaped into the chilly waters of Phone7, hoping to spot a life raft. Given the massive installed base of Symbian phones in Europe and Asia, this could realistically turn the smartphone duopoly into a triopoly, and save both Nokia and Microsoft Mobile in the process.

So where does this leave Blackberry? Well, they are the last ones left standing on that burning platform.

RIM, the company that arguably started it all in the smartphone world, is now facing an existential strategic dilemma. Once the preeminent enterprise smartphone of choice, it is now being hounded on all sides by the iPhone and Android phenomenon. Despite several smart acquisitions such as QNX, its phones still do not measure up to its competitors in any feature other than (of course) email. The average corporate user would always be the laggard in giving up the secure, reliable, and rock-solid email phone for some flaky touch-screen battery hog; however, even they are now migrating away.

So what can they do? For a long time, I thought that the best match would be to partner with Microsoft, but that ship may now have sailed. Microsoft still has its eye on the enterprise market, and RIM’s foothold there is still strong, but then again Apple wants to break in as well. And yet Apple is finally finding (oddly enough, with the iPad) its own way into the enterprise opportunity.

One interesting sign of where they might be headed is today’s announcement that RIM’s Playbook tablet will support Android apps. Is this a first tentative step toward partnering with Google, or does becoming yet another handset OEM fundamentally negate what RIM is all about? Maybe it’s better than being up on that platform . . .

Chatted with Jon Marino at Thomson Reuters last week on whether 8th graders beating Angry Birds on the app store is a harbinger of things to come – or not:

http://www.pehub.com/93717/bird-is-the-word/

Clearly mobile gaming will continue to grow, and evolve: the question is whether it will evolve toward more complex, traditional gameplay, location-based “meatspace” (real world) interactivity, or just more and more of the mindless repetition which our collective amygdalas go all haywire for. If the latter, that’s OK; however, the barriers to creation of new hits in this category are so low (see 8th grader above) that I wouldn’t want to invest in one.  If traditional gameplay becomes more common (and smartphones can certainly support it), then more VCs will continue to back seasoned developers to tap the mobile opportunity. The location-based stuff is still early days (mostly limited to check-ins and “SCVNGR hunts”), but I think is the most exciting area to watch -

This may remind you of things your parents may say -

For the better part of twenty years, Mac lovers fumed in frustration as their beloved aesthetic idol languished in sub-5% PC market share territory. Wintel dominated. Big, ugly, buggy, clunky, and everywhere. It seemed as if graphic designers were the only people stubbornly refusing to admit defeat and join the rest of the planet in using Windows. But then Steve Jobs came back to the rescue – and over time, people actually started buying Macs again. And then the iPod! and iTunes! Somehow Apple found a way to reinvent and completely dominate an entire category of consumer electronics. The company seemed to change overnight – and became the leading-edge technology giant it always knew it was supposed to be.

And then the iPod begat the iPhone – and lo, the consumer beheld it and said it was good.

Windows Mobile, Symbian, Brew, RIM, all the closed-deck nonsense pushed by the carriers – they were the dinosaurs in the path of the iPhone asteroid.  Even AT&T’s awful network couldn’t stop the juggernaut – Apple had irreversibly changed the wireless industry, for the better. And then onto Apple’s coattails stepped the Google.

When Google bought the little startup Android in 2005 and eventually launched it into the market, people were extremely skeptical. Previous Linux-based and open platforms had failed miserably, and why would developers want to work on Android when there were already 100,000 apps in iTunes and growing?

Then HTC and Motorola  latched on to Android in a big way (the former to come out from the white-label shadows, the latter to get its mojo back). Droid, Hero, Desire, Droid Incredible, Droid X – all of a sudden it was like a veritable Jawa swap meet. Yes, the Android market was a scatty mess, the apps were fewer and barely legal in some cases. But Android was getting ready to take over.

Back in January I pointed out that Google’s Nexus One was not a big deal, but Android was; Nexus was the concept car, not the iPhone killer. Some believed Android would win because the iPhone was chained to AT&T, whereas Android wasn’t chained to any network. This was partly right – however it goes far beyond that.  Once it was clear that Android was building a critical mass, handset OEMs saw it as their chance to beat Apple and stay relevant. The smartphone segment suddenly had exploded – up to 50% of all new shipments were now smartphones, and in another year it will be closer to 100%.

You may laugh at that last statement, but it is more likely to happen than not, and all because of Android.  I realized this when I saw the LG Optimus – an Android smartphone now on T-Mobile for $30.  Thirty bucks for a smartphone. Remember when the Motorola RAZR became ubiquitous? It sure wasn’t at the start when they cost $300 – but when it became cheap it was everywhere.

Apple may certainly come out with a very low end iPhone; they are indeed incredibly adept at segmenting markets with 2-3 different versions of a product and relentlessly driving down prices on all of them. But will Apple ever have 20 versions of the iPhone? 50? Of course not. Will they ever license the platform to OEMs? Are you kidding me? This is why Android will completely dominate the wireless world – it is spreading like a virus throughout the ecosystem as you read this (see chart above). Apple will always be the Maserati of smartphones – leading-edge, trendy, stylish, downright awesome. But Android will be the Ford Taurus – maybe a little dull in comparison, sometimes clunky, but dependable, cheap and everywhere you look (just like Windows in the last Apple Holy War, except for the dependable part).

Mobile app developers don’t necessarily have to choose between these platforms, and mostly aren’t. It’s a far cry from several years ago when you’d have to port your app to dozens of different handsets – now just 2 or 3 platforms and you’re done. However, if you had to prioritize your focus, Android in the long run is the right place to be. Apple’s distribution platform is much better currently, but the numbers game is more important.  If you want ubiquity, sell to Ford, not Maserati.

Always sad to see an old friend fading away (remember the Matrix slide phone, the bulky Communicator 9000, and the dominant global mobile OS guys?).

Turns out that not only is Nokia losing its CEO and its Chairman, but also the head of its smartphone division. His parting shot at his fellow OEMs adopting Android captures the essence of why Nokia has passed the point of no return:

“Anssi Vanjoki, outgoing head of Nokia’s smartphone division, likens mobile phone makers that adopt Google’s software to Finnish boys who“pee in their pants” for warmth in the winter. Temporary relief is followed by an even worse predicament.”

I would argue that Motorola, HTC and others have actually fared pretty well by deciding to partner with Google on the OS and focus their efforts on hardware development. Much like the carriers themselves, these folks do best when they stick to their knitting.  His assertion that all Android handsets will look alike in the end and OEMs won’t be able to differentiate doesn’t hold water.  The reality is that it will enable an accelerated arms race between them, as they can dramatically increase the speed to market and thus proliferate the number and variety of handsets out there. The downside for consumers of course is that you’ll only have the newest and shiniest Android for a matter of weeks before another one pops up. But such is the price of progress . .