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June 2008

Thought Leadership for the Wireless Industry
In This Issue
The iPhone Effect: Ten Hidden Themes
4G Reality Check
Who Will be The Next King of Wireless Data?

Wireless Influencers 2008
Oct 26-28, Laguna Niguel, CA

CTIA Wireless IT & Entertainment
Sept. 10-12, San Francisco

Presentation to VC Community (private)
June 12, Palo Alto

TieCon East
May 29-30, Boston
Moderating wireless panel

April 1-3, Las Vegas
Ran Session on Mobile Video

Deloitte Consulting
April, Santa Monica
Spoke at TMT Retreat

WP Global Partners
March 4-5,  Tuscon
Keynote speech

Summerhill Venture Partners
January 23, Boston
Panel session hosted by this leading venture capital firm
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"Oh, no", you say, not another piece about the iPhone.  At the risk of over-hyping the "phenomenon" that will comprise less than 1% of the world's phones this year, this June Lens is about the far-reaching effects that the iPhone - and more particularly Apple's game plan - will have on the wireless industry.

I would also like to direct you to two recent opinion columns I have written for Fierce Wireless4G Reality Check, in which I posit how 4G will have to be different than 3G in order to justify the substantial investment; and Who Will Be the Next King of Wireless Data, where I question why so few substantial, sustainable companies have been created given the $100 billion collected by the U.S. wireless operators for data services this decade.

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The iPhone Effect:  Ten Hidden Themes
You have read ad nauseam about the upcoming 3G iPhone, and seen countless reviews and prognostications about whether it will be successful.  This piece is not about that, and I don't really care whether Apple sells 1 million or 30 million iPhones.  Instead, I would like to delineate the more far-reaching effects of Apple's participation in the wireless market, which I believe is a catalyst for some important long-term changes in our industry.

1.  The End of the Device as We've Known It.  The Motorola RAZR ushered in the "design era" of mobile devices, where form and fashion became more important decision factors than ever before.  The iPhone also has a beautiful design, but its signature aspects are the elegance of the software, the multi-step improvement in usability, and the seamless way in which it extends integration with the user's PC world beyond PIM (email, contacts, and calendar, which RIM and Palm pioneered) to multiple forms of media (photos, videos, music) and content.  This tells is that the balance of power is shifting away from hardware and toward software.  Witness Nokia's homologation of three software platforms - Symbian, S60, and UIQ - into a potential whole, in their attempt to take on Microsoft, Apple and Google.  The world's other main handset vendors - Motorola, Samsung, LG, Sony Ericsson, and HTC - are outsourcing many aspects of software development and are placing multiple bets.

2.  Proprietary is Here to Stay...  Second to the iPhone hype is the buzz around open development, Android, and the like.  But what the iPhone tells us is what we've seen with Blackberry, the Sidekick, and the Treo/Centro, where the tight integration of hardware, software, and applications delivers a superior user experience.  And yes, Android is an open development platform, but the Google phone will first and foremost optimize the performance of Google properties (search, maps, YouTube, Picasa, you name it) in the same way that the iPhone shines a light on all things Apple.   This will also drive the operators to develop more of a partnership model with select OEMs (RIM, LG) in attempt to stave off new "universes" that Apple, Microsoft, Nokia, and Google are trying to create.

3.   ...But 2009 Will See The First Real Open vs. Closed Skirmishes.  This is no longer about "on-deck vs. off-deck".  The next major test for our industry structure is whether the closed, and more limited structure of carriers/Apple/RIM can be successfully challenged by the "open" crowd, led by OHA, Limo (Verizon ODI), and others.   The latter approach will be much more "Internet like" and dependent on advertiser support, but will find near zero tolerance for the downsides of the PC/Internet model - spam, security, and nonexistent customer service.

4.  Changes the Game of Mobile-Centric Content.  Introduce a device with lots of processing power, gigabytes of on-board memory, a great display, and a good browser and what do you get?  A phone that users treat as an extension of their PC world.  Who needs WAP sites when CNN displays just fine on the screen?  Why develop mobile "snack content" when you can easily explore YouTube or access podcasts, music, TV shows, and movies from iTunes?  What I think this means is that we will move from mobile-optimized content to cool applications that leverage the unique capabilities of mobile and integrate with the user's PC and social networking worlds.  Good-bye WAP sites and ring-tones, hello Loopt. 

5.  Apple Will Be a Major New Force in Content Distribution.   I am surprised that more has not been written about this.  iTunes started with music, extended to podcasts and Internet radio, and has now become a major force in TV and movie content distribution.   I believe that Apple will become a major force in the distribution of content to mobile.  They have a developer/publisher friendly business model, and will leverage the PC as the principal source of content discovery and purchase.  There aren't that many iPhones out there, but there are tens of millions of PCs with iTunes on board.  One difference, of course, is that this content will only be available for iPhones.  Do you think Apple will ever move to support non-Apple devices for mobile content, in the same way iTunes can be used on both PCs and MACs?

6.  The Windows World is Losing Ground.  Did you know that nearly half of all PCs bought by consumers costing more than $1,000 in the past year have been MACs?  This contributes to the "Apple multiplier effect" - more MACs means more PCs with iTunes, more iPods, iPhones, and the like, as more users embrace the "total Apple experience" - store, device, software, content, and support - that they just can't get in the PC world.  In the midst of the Apple maelstrom, the silence of the other PC OEMs has been deafening.  Where are Dell, Lenovo, HP and the like with their mobile strategy?  They've even managed to do a crummy job of marketing the lowest hanging of mobile fruit: embedded 3G cards.   And speaking of the Windows world, can you name one innovative or exciting thing Microsoft has done in the past year with regard to mobile?

7.  Is it Time to Short RIM?   Now here's a company that has managed to weather all storms, from Microsoft to NTP, and now Apple.  RIM has done three important things in anticipation of/reaction to the Apple challenge:  expand and deepen its operator relationships (major Asia wins, exclusive Verizon device); accelerate its product development cycle; and be more open to partnership arrangements for best of breed apps (Facebook, iTunes, Garmin).  I believe most analysts underestimate how deeply RIM is entrenched at the enterprise, and how difficult it would be for corporations to extricate themselves from Blackberry even if they wanted to.  However, I do believe that the iPhone, and the slew of competitive devices it has spawned, will start to nibble away at RIM in the consumer space.  The question is whether the nibble turns into a bite. 

8.  Ushering in a New Era of Mobile Growth.  There has been lots of worry that 80+% penetration and a tough economy would combine to slow mobile growth.  What the doubling of smartphones as a percentage of device sales in the past year tells us is that in today's connected world, people will increasingly need a portable Internet access device in the same way that voice drove the cellphone, PIM drove the Palm, and e-mail drove the Blackberry.  Over the next 3-5 years, sales of "portable data devices" (others call them MIDs) will start to become mass market, drive mobile penetration upwards, and eat into laptop sales.  Not all of these devices will necessarily be connected to cellular voice networks - in fact, the iPod Touch is the best PDD on the market today. 

9.  The Pricing Game is Changing.  Amidst all the attention to unlimited voice plans this year, important changes are happening to data pricing.  I believe we will rapidly move from the era of subscribers paying $5-10 a la carte for text, email, browsing, navigation, video, and so on to more of a "cable industry" model of X dollars per month for a fairly inclusive data plan.  Then there will be extra charges or ad support for premium content, like we see for HBO, the MLB package, and so on for cable.  Of course, a key question is what the price point will be for the "data access" plan.  Leap is the most aggressive so far, at $45 for unlimited "everything", though their data offerings are not nearly as rich as that of their competitors.  I think $20-30 per month for a fairly inclusive data plan will be  typical.  I would also like to see unbundled data plans (don't need voice) and plans that are add-ons to home broadband service.  The industry will also have to start thinking outside the box with regard to data pricing, with the proliferation of device types, the approach of 4G, and the introduction of new types of content and applications.  For more on this, please see the piece I recently wrote for Fierce.  

10.  Wireless and "The Cloud" Beta.  On the one hand there is a need for more of a "constant connectivity" model for mobile devices.  On the other hand, we have the limits of wireless economics, and device size, storage, and power.  Which makes the concept of "cloud computing" an interesting concept for mobile devices.  Apple's .MAC has been one of the first large-scale attempts to bring the concept to consumers, and MobileMe extends that concept to wireless.  

4G Reality Check
Remember Metricom?  NextWave?  Before we begin building WiMax and LTE in earnest, let's consider what 4G really is, whether we need it, and what it should be used for.  Read more...
Who Will be the Next King of Wireless Data
Why are there so few substantial, sustainable companies that have been created out of the $100 billion the U.S. wireless operators have collected from data services this decade?  Will the next phase of data growth be different?