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Apps as Basis of Competition in Mobile

November 20th, 2009 Leave a comment Go to comments

In the old days–you know, more than two years ago–the basis of competition in the mobile space was primarily the price and industrial design of the phone, and secondarily the quality of the network it was running on.  Obviously, these bases of competition strongly advantaged handset vendors with great design and manufacturing capabilities like Nokia (and sometime Motorola), and operators with great networks like Verizon and Vodafone.

But this all changed over the last couple of years.  Thanks to the innovation around the iPhone (and secondarily Android and RIM), I would argue that the basis of competition has become the mobile applications and services.  This change in basis of competition is incredibly important.

  • It opens up the opportunity for young companies to interact directly with the end customers (as I outline in “five open paths“)
  • It creates a huge problem for Nokia, whose tremendous strength in industrial design and manufacturing prowess (lower cost of goods sold) have become secondary selection criteria.  It is stunning that iPhone, in just two years, is now producing more operating profit than all of Nokia phones (Reuters article).
  • It creates a huge problem for Verizon, whose tremendous strength in running a locked down, high reliability, network has become a secondary selection criterion.  Not only is Verizon losing subscribers to AT&T at an alarming rate; they are losing their BEST customers to AT&T at an alarming rate.  Because of the surprisingly small costs of actually hauling voice and data traffic over mobile networks, the lifetime profitability of a $100/mo subscriber is much more than 2X that of a $50/mo subscriber.

Look at the reactions from Nokia and Verizon.

Nokia has put an admirable level of focus on Ovi, but the natural fragmentation brought on by their relatively autonomous handset project groups is hard to address, and the Ovi message boards are mostly populated with complaints about getting such-and-such application to work with such-and-such phone.  I applaud Nokia’s apparent attempt to transition from Symbian to Maemo, but it begs the question: why not go to Android instead?  By the time Nokia has any critical mass in the marketplace with Maemo, they will be a handful years behind Android, and will be hopelessly behind when it comes to the apps and services subscribers want.  Android would allow them to play to their strengths in manufacturing and industrial design, and get the apps that subscribers are demanding.

Verizon has finally reacted, with a couple of completely open handsets (the Droids), with more on the way.  They will likely continue to get rave reviews on their network quality, until such time as explosive usage begins to cause cell capacity problems.  I use a Moto Droid as my every day phone, and it has some wonderful capabilities, and some significant rough edges in the software.  If Verizon can keep their commitment to openness, their network quality could still remain an important secondary selection criterion.