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Google’s launch of the NEXUS phone, is one of the major inflection points for the wireless industry. My friend Mitch Joel has an excellent post, The Google Phone is really about this.. giving us insight into possible Google strategy. But this launch has profound impact on the other participants in the wireless ecology. I’ll analyze a few of them namely: the wireless service providers, the cell phone manufacturers and Apple (yes its such a significant part that it stands on its own).
Wireless service providers or pipeline providers?
T-mobile took benefit of the hype & first mover advantage by announcing the rate plans & availability of the phone on their network. But as the device is not locked and can be tied to any other service provider, this has become a secondary fact “oh by the way you can get the phone on T-mobile”. Other service providers will have to wait until the manufacturers start produce models with the new Android version.
Until now most devices, especially exclusive ones, are locked to one or more wireless service provider. What seems like a slight loss in control today, will undoubtedly turn into industry trend. Wireless service providers, once the purveyors of hardware, rate-plans and even the browsing experience on cellphones, will become simply pipeline providers.
With the rise of both branded hardware (iPhone, Pre, NEXUS) and software platforms (iPhone Apps, Android market), customers are choosing the device and platform/functionality they want before seeking a wireless provider.
Similar to the evolution of the internet, initially the AOL’s of the world provided both the pipeline and the destination sites to browse. But as the quality and quantity of sites grew, the primary value that the AOL’s of the world provided, was the pipeline. Customers started comparing price and speed, making the service a commodity. It meant the demise of companies that could not provide the best price to speed ratio (aka AOL) and relegating the others to a speed race.
Cell phone manufacturers: the differentiating factor
Each manufacturer has tried building their own little ecosystem on their operating system, user experience & applications. With iPhone’s introduction, it raised the bar high enough that most seemed useless. Except Palm, few others have been able to match users expectations.
By opening up their operating systems Apple and Google (to a smaller extent), have gained a considerable lead in a variety of applications. This wide adoption has in fact fueled the rapid expansion of their ecosystems. Other manufacturers will have to either invest a considerable amount into building out their ecosystem or make such a large breakthrough (aka iPhone) that the application builders and other ecosystem stakeholders are attracted.
The only differentiating factor the manufacturers have are the esthetics (how the phone looks), technical (processor, screen, camera) and usability (how easy is it to use the phone). Instead of trying to develop an operating system & user experience that is not widely adopted, they sign on to use one of the larger software ecosystems (iPhone, Android or Palm). HTC being a relatively new brand readily adopted Android and this move will leverage it into a top consideration spot soon (assuming other manufacturers are reluctant and slow to adopt one of the larger ecosystems).
Apple
Until the wide spread adoption of another ecosystem, Apple enjoys an enviable position of controlling a large part of the value chain. The success is well deserved for breaking the mould of moderate evolution and devising both, a device and a platform (apps), that has dramatically improved and increased the usage of wireless as a key personal device. Palm is going back to its roots of designing both hardware and software–thus going head-on in terms of strategy with Apple, but it lacks the support of thousands of application developers and thereby users to get ahead of the game. Google is rapidly trying to play catch up to the ecosystem that Apple has built, and it will aggressively push for other manufacturers to adopt its operating system.
What Apple can and is purportedly doing, is expand the ecosystem, in its rumored iSlate. This will get consumers using the existing ecosystem components on multiple devices and thereby increasing the cost of switching to any other device. On the other hand, it needs to continue innovating and offer services that do no exist today, e.g. cloud computing that will allow users to take their music, video, entertainment to any device (apple of course).
History repeating?
History does not exactly repeat itself, but it does follow patterns if you look close enough. The personal computer ecosystem has followed a similar route.
- Inflection point 1: In the beginning IBM was the dominant manufacturer and produced both hardware and software. Apple introduced its machines (1976), broke new mould and attracted a niche segment. We can see the similarity in power that the wireless service providers exerted just a few years ago and the introduction of the iPhone, Apple has again broken the mould. This time Apple has done a better job at gaining market-share, modern communication has let millions more hear about it than in the past.
- Inflection point 2: It was the introduction of Windows(1985) that dramatically change the ecosystem. Now with the hardware parts which are sourced from Taiwan, software licensed from Microsoft, a computer could be assembled and sold by practically anyone. IBM lost its lead and many new manufacturers sprang up — Compaq, HP, DELL. There was little differentiation amongst them except the cost and technical specifications (what is possibly going to happen to the wireless providers and cellphone manufacturers). The lowest cost business model won (DELL) and continued to gain market share. Apple has not been able to leverage a large ecosystem in the desktop market, but it has been dramatically successful by focusing on esthetics and design to differentiate itself from the pack.
The closing of the gap between a handheld computer (wireless device) and the desktop (iSlate soon) will undoubtedly provide Apple access to that large ecosystem on multiple devices. The idea of having multiple devices all connected to a cloud computer where all your applications and data is stored, has long been a vision for many a technology companies.
Now, does this result in Apple continuing to gain market share is another war (inflection point #3 coming up with iSlate??). As I said history kind of repeats itself, but not exactly.
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Parth's Blog 
Your article is bang on.
In fact, phone features are going to become less and less important. The fight is already with who controls the app store. Soon, it will be on who has the better apps.
You want an apps war? There’s an app for that!
With these phones causing the loss of the market for VAS (ringtones, TV on cell, games, etc) and bundle wars causing the loss of the market for other services (call display, voice mailbox, etc), and now with phones being de-coupled from the service providers, it means that mobile network providers will see their revenues melt like snow under the sun.
And with telecom companies putting all their eggs in the same basket and betting on mobile providers to be their growth engines, they will undoubtedly suffer (and downsize) as well.
It had been announced in 1998 that bandwidth would become a commodity. This is when the first bandwidth markets were born. The same is happening with mobile bandwidth. It happened in the past: whole low-innovation industries killed by high-innovation companies.
If telecom companies don’t come up quickly with significant innovations, we’ll be witnessing the agony of that industry within the next 5-6 years.
Some great insight. The Nexus, iPhone and Pre compete in the same space, and they each have their advantages. It will be interesting how this will play out and how the pre-paid data segment, which has changed the landscape in places like the UK, will play out. Operators will try to salvage revenues as they lose control of ‘branded’ opportunities. Companies which can capitalize on this segment, are going to come out on top.