Friday, January 14, 2011

Who is the real mobile phone customer?

I was pretty excited when I saw Steve Balmer present nine new mobiles running Windows 7 Phone last year because of the possibility of increased options. But that excitement was short lived as I thought about it.

It has become apparent to me that as the purchaser of a mobile telephone I'm no longer the customer. I'm just a user. The real customer is the telco. Once I realised this, I began to think that in Australia we have Telstra, Optus and Vodafone. Those nine handsets would be split up amongst the telcos, and so as a consumer using a particular telco's service, I'd end up with a choice of possibly three handsets and not one of nine. Whilst some handsets will be able to be purchased outright, some won't be. If you like a handset out of the nine that isn't provided by your provider, it may mean switching your telco and that doesn't provide a real choice.

As an example of the importance of the relationship between the telco and the technology company, I recently read with the Apple iPhone becoming available on Verizon in the United States, the cost in subsidies by Verizon is expected to be around $5 billion. That's $5 billion in wealth effectively transferred to Apple. Luckily in Australia we can purchase an Apple iPhone outright (albeit at a premium) so our choice is greater. But this just shows how important the business relationship is between the telco and the technology company.

I believe Microsoft needed to be different with Windows 7 Phone to gain market share. Apple iPhone is currently number one as the tried and tested incumbent. Android is hot on their heels and with a large number of handset manufacturers bringing out models at a range of price points, Android is likely to bypass Apple in the near future as the leading operating system on handsets due to the huge range alone. Microsoft's handset may or may not be good, but so far I've not seen a compelling reason to go the Microsoft direction.

I'd like a mobile phone where the millions of developers and hobbyist can directly create software for the device without having to go through an app store. The app store is only designed to generate income for the company running the app store and controls what the end user can and can't do with their handset. At one stage I worked out the average developer would make around $4,000 for producing an app for the iPhone. Apple is the big winner to the tune of hundreds of millions of dollars for their percentage in app store sales and most developers will never recoup their time invested.

Microsoft had a good chance but it looks to me like their hands are tied. If their real customer is the telco, or even the handset manufacturer, and they try to emulate Apple's success (for Apple) with the app store approach, the real loser will be us.
In the near future I will be attending a Windows 7 developer course. I hope that I'm wrong about how closed the mobile phone technology ecosystem is becoming. The computing ecosystem evolved rapidly because it was very open and enabled millions of developers to participate at relatively low cost.

I once attended a Microsoft seminar where they said one developer influences 50 users. I hope Microsoft doesn't just focus on the telco or handset manufacturer and perhaps thinks about creating a more open mobile phone for the developer, or in fact anyone that wishes to develop an app for their mobile phone including the many hobbyists and the next generation of young developers. Unless Microsoft differentiates itself from the lock in nature of the mobile phone market it is likely to remain a distant third place in a market where the attention is focused right now and that will affect their entire business model well into the future.

Personally I get a gut feeling that it is already too late. Microsoft will gradually become less relevant to the mainstream consumer and small business market, but will continue to be very profitable as a supplier to the corporate, education and government sectors. In much the same way as IBM was known for the PC but is no longer part of the market it helped to create. If that is the case, it means the two future players will be Apple and Google's Android and since Apple doesn't provide the opportunity for others in the market to participate, it means Google's Android could become the next Microsoft. Is this the reshaping of the market we are witnessing today?

Kelvin Eldridge

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