MWC: Once smartphones are free again, only services will matter
Partnerships between carriers and cloud service providers, SaaS and content providers and between drop-in OS vendors running on commodity low-cost smartphones will define the future of the mobile industry and create prime differentiation between handset offerings.
Be it as it may, how long before Mobile World Congress has to change focus more towards emerging technologies like IoT, VR/AR, wearables and and driverless cars? I suspect not long at all. I would give it less than five years, max. Perhaps even three.
Why is that? It has to do with industry commoditization and consolidation.
As China improves manufacturing capacity and capability, the cost of handsets will go down, dramatically. That's simple economics at play.
There are other factors that we can consider, but historically, when we are discussing production of technology, economies of scale have always been the primary cost driver, whether we are talking about televisions, personal computers, major appliances or anything else. Smartphones are no different.
I already talked about what this means for Apple and Samsung. Both of these companies will end up being luxury goods manufacturers. They won't be unhealthy companies by any means -- in fact they are likely to stay highly profitable -- but they will not retain dominant market share in mobile.
Samsung has some additional staying power in overall smartphone market share because they have their own component manufacturing capability and they still supply China with a lot of the components that are used by the Original Device Manufacturers (ODMs), such as SoCs, flash storage and displays.
But Chinese firms are increasingly improving their component manufacturing capacity, not just final assembly. And it will not be long before we see entirely homegrown handsets that use all Chinese-made components, that are 70 to 80 percent as capable as their Korean or Taiwanese counterparts.
That $600 or $800 smartphone that you bought today is going to cost maybe $200 in five years. It might even cost less, with even more capabilities.
They are remarkably good, considering how new a mobile OS Tizen is and how new the software/app ecosystem is.
I would not use them as my daily device today, and they aren't comparable to even the most basic $300 Android handset sold in the US in terms of raw functionality now, but I can understand how they might be much more appealing in three to five years, with that much more refinement in Tizen's software ecosystem.
I can also understand how they might appeal to the Indian market and in other developing countries today, when comparable iPhones and Android-based Samsung devices are much, much more expensive.
When thinking about the mobile industry as a whole, we can't look at it with a purely westernized standpoint. Much of the growth will not be in developed markets.
With maybe half a dozen major ODMs in China producing smartphones, all of which are going to be made from the same components -- and all of them landing effectively the same feature sets, where is there going to be differentiation?
Today, when you buy a smartphone from your chosen carrier, you've got a wide selection of phones to choose from. But commoditization is going to change all of that.
If $200 or $150 or $100 buys you the same set of features, it won't make sense for a carrier to keep a lot of SKUs around. In fact it behooves them to work directly with the Chinese ODMs and brand their own phones.
So yes, while you will be able to buy those five different Samsung Galaxy devices, and those three or four major models of iPhone, there might only be three models of generic Android available at a carrier, which could end up bringing in 80 percent of their business -- a small, a medium and a large handset.
And at $200, $150 or $100 these are prices that can easily be baked into activation costs or service commitments. So really we are getting back to the era of free phones again.
Now, some of you may be thinking "Well, what about the software licensing that affects the bottom line?" that's a good question -- there won't be any.
Android AOSP will be used heavily in these phones, which will be customized by the carriers. Windows 10 Mobile has no licensing fee associated with it. And Samsung's Tizen OS is also for the most part license-free, as the companies involved in the consortium have created cross-licensing agreements that make the production of those phones extremely attractive going forward.
And then you have companies like CyanogenMOD which are providing an inexpensive drop-in replacement for Google's Android. While the community version is free and open source, they are building a business model for going to market with ODMs and OEMs, as they piloted (briefly) with Chinese OEM OnePlus in 2014-2015.
So there will be generic, highly capable $100 and $200 phones, with effectively license-free OSes, which will have for the most part feature identical hardware across carriers within 3 to 5 years.
Where will they differentiate? Or rather, can they differentiate?
So of course you have things like app stores and content stores for music and video. And also things like cloud storage and email/calendaring,
There will be significant opportunities for third party suppliers for this sort of thing, because this is the crux of where the value add from Apple and Google comes from today and why they continue to be attractive to consumers.
All of these services from Apple and Google will have drop-in replacements. True, they might not necessarily be as polished or as mature, or as seamlessly integrated, but for a fraction of the cost, many consumers in many markets will be willing to use them.
The key word here is "partnerships". Partnerships between carriers and cloud service providers, partnerships between service providers and SaaS and content providers, partnerships between drop-in OS vendors and all of the above, et cetera.
There will be a lot of ways to approach this from a carrier perspective, particularly when you have a lot more firms to negotiate with than Apple, Samsung or Google.
There is another dynamic to this that we're forgetting and that's the enterprise angle. When reasonably good smartphones get down to $200 or $100 it becomes plausible for companies to issue fleet phones to their employees again.
While BYOD is still an important technology, at $100 a device it's an easy judgement call for certain firms just to roll in cloud-based mobile device management (MDM), standardized company OS images or application profiles in partnership with carriers and be done with it.
These don't need to have the capability to run every value added service or consume any form of content in the mobile world. They just need to be able to run the core apps and connect to the services companies need to equip their employees to do their jobs from the field.
Will it be partnerships between service and content providers running on commoditized, low cost phones that define the future of the the mobile industry? Talk Back and Let Me Know.