Dell's mobile future: Made to order smartphones

Summary:The mail order smartphone business didn't work out so well for Google with its Nexus One. But that doesn't mean the idea of carrier independence can't succeed with an established direct sales leader.

The mail order smartphone business didn't work out so well for Google with its Nexus One. But that doesn't mean the idea of carrier independence can't succeed with an established direct sales leader.

Today, in its quarterly investor call, in addition to discussing changes in pricing and caps on data plans to prevent network overload from the expected influx of customers from the recently announced iPhone 4, Fran Shammo, CFO of Verizon Wireless re-iterated that it would be dropping the New Every Two program, which provided additional carrier subsidies up to $100 towards a new phone for consumers that re-upped their contract every two years.

We have discontinued the new every two for new customers. Now that does not mean that our current base is not qualified to exercise their new every two right; they are. But for new customers, there will no longer be any more new every two. So if you think about that, you can do the math, but before, you would get a $50 to $100 credit going forward on any upgrade. That disappears. The customer will be getting the promotional price at that point in time for a new phone when they qualify.

I don't know about you, but I think this stinks. As I have said before, the wireless customer experience in the United States continues to deteriorate and lags behind the rest of the world because of the whole subsidy-oriented and contract lock-in model.

Eventually, I believe that competition in the 4G space will become so fierce that contracts will be replaced by a pay as you go model, but that may not happen for several years.

Before contracts go extinct, however, the device itself needs to be de-coupled from the carrier. And the idea of subsidization in order to defer high device costs needs to go away as well.

Google tried to separate the device from the carrier with the Nexus One, by going with a direct order model over the web. However, it failed miserably because the unlocked, unsubsidized cost was too high ($529) and you still could really only use the device on two carriers in the United States, T-Mobile or AT&T.

Google is going to try this again but instead with the Samsung Nexus S and Best Buy as their two partners. This time, you'll only be limited to a single carrier, T-Mobile, and you'll need to activate and commit to a contract to take advantage of the promotional cost of $199.00. I suspect that like its predecessor, the reception to Nexus S will be lukewarm when compared to Android phones on other carriers.

Google may have the right idea, but I don't think they are the right company to implement a direct sales smartphone model. Who do I think can pull this off? I think it's Dell.

Before you call the local authorities here in New Jersey and request that I be institutionalized, let me explain.

Right now, Dell is trying to become relevant in the smartphone and tablet space with their own offerings, such as with the Venue, a sleek high-end touchscreen Android phone, and the Venue Pro, a keyboard slider which runs on Windows 7 Phone OS. However, the company also acts as a clearinghouse and direct order vendor for other manufacturer smartphones and devices, in both unlocked and carrier activated options.

This is nice, but Dell really isn't distinguishing itself in the mobile marketplace today. In Android and in Windows Phone, they are largely considered to be a "Me Too" device vendor. There's no compelling reason to buy either of the Venue devices as opposed to one of HTC's, Motorola's, LG or Samsung's Android or Windows Phone devices at a carrier directly.

Sure, they look slick, but at the end of the day, an Android is an Android and a Windows Phone is a Windows Phone, all hardware and software specs being equal.

The bottom line is that commoditization of technology and price outweighs any other "cool factor", unless you're Apple and you are selling Macs, which is a niche, albeit very profitable market for the company.

And this is exactly what happened with the PC industry. PCs stopped becoming major purchases. They're now toasters. They got a lot cheaper. They are disposable. And when they did, Dell capitalized on this and became the leader in direct to order systems and forced all the other manufacturers to adapt to this new sales model.

A $1500 desktop PC became... well, a $600 dollar PC for most of the consumer public. Nobody really at the end of the day gives a damn who makes them. They are all made from the same Taiwanese, Chinese, Indonesian and Korean parts.

You expect that at the same entry level price point, a Dell, an HP and a big box retailer house brand system is going to look pretty much identical in terms of components used. Sure, you got the other Tier 2 white boxers like TigerDirect, and they do a pretty good business on razor thin margins, but those are the bottom feeders of the PC world.

So why even go into a retail store? You punch in www.dell.com on your web browser, you click your mouse a few times, make a few minor customizations to your order, and presto, a few days later you got your PC, with your CPU speed, your chosen amount of memory, your hard drive, your accessories, your warranty, delivered right to your front door via UPS.

If you belong to a discount club like COSTCO or Sam's, you can buy pre-configured models slightly cheaper, if you don't really care about choosing your speeds and feeds.

Buying a basic PC has become more or less a no-brainer process for most consumers now. However, it used to be a lot more difficult, and people spent a lot more time researching models and all sorts of stuff that is completely meaningless today.

[Next: How the Mobile Industry can become Carrier and Platform Agnostic]»

This same exact thing COULD happen to the smartphone industry. And I think Dell COULD shake things up by taking the device sales away from the carriers by applying their knowledge of leveraging ODM/OEM relationships and applying the "Have it your way" model to an industry that is currently pretty inflexible. How could they do this? This is how.

First, I imagine Dell working with Asian manufacturers to produce a few different smartphone body types -- a touchscreen like the Venue, a slider like the Venue Pro, a "Jumbo" touchscreen similar in form factor to an EVO 4G or a Droid X, and perhaps even a "Corporate" with integrated keyboard like a BlackBerry Bold or a Droid Pro.

All of these "bodies" would have the Dell moniker applied to them, and every year or so Dell would release new flavors, made by different manufacturers depending on what deal they could leverage best. Just like they do today with PCs.

Dell then offers the customer the ability to load the smartphone OS of their choice on the body of their choice -- using today's offerings, it would be Android or Windows 7 Phone. Dell could do this easily by using a "Microvisor" and virtualizing the smartphone OS. The technology has already been proven, and it works, so this isn't Science Fiction.

So where's the slam dunk in all of this? Dell would have to be able to offer smartphones that could run on any carrier of the customer's choice -- presumably the big four: AT&T, Verizon, T-Mobile and optionally Sprint. They could do this by creating modular designs with their manufacturing partners that could have swappable transceivers, just as PC parts are swapped during the ordering process on the Dell web site today.

And to drive the nail in the coffin of the carrier sales model, Dell would be able to leverage SoC technology, large scale component integration and manufacturing scalability in order to drive the average price of an unsubsidized smartphone down to $200-$300, not the $500-$600 it costs today for an unlocked, carrier-specific device.

Once unsubsidized smartphones cost half of what they do today, consumer behavior begins to change drastically. At the end of a year which is the typical warranty period for a smartphone, a consumer may decide to replace it immediately rather than hang on to it until their contract renews, and simply activate it on their existing carrier contract.

Dell could simply have Biz to Biz relationships with each of the carriers so that at the time of sale, the customer provides their carrier website login/account credentials and the phone is ready to go.

And carriers? Well, they don't really want to be in the business of selling smartphones anyway. What they really want to sell you is contracts for voice and data. Selling smartphones and providing their customers subsidies to buy them costs them a lot of money, a liability they would rather not have to deal with. In this new mobile industry model, a contract will be a contract, and a device will be a device. The two should never be tied together.

Is my plan for device independence and carrier/contract agnostics too futuristic? Am I way too wishful or completely nuts? Maybe. Does Dell or anyone else have stand a chance in hell of being able to implement something like this? Perhaps not. But history does tend to repeat itself, and I'm betting that customers and that economies of scale are going to demand that it does.

Would you as a consumer embrace the "PC-fication" of the mobile industry? Talk Back and Let Me Know.

Topics: Hardware, Dell, Mobility, Smartphones

About

Jason Perlow, Sr. Technology Editor at ZDNet is a technologist with over two decades of experience with integrating large heterogeneous multi-vendor computing environments in Fortune 500 companies. Jason is currently a Partner Technology Strategist with Microsoft Corp. His expressed views do not necessarily represent those of his employer... Full Bio

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