[The iPhone has ushered in a new era of user experience on mobile hardware. But the business model Amazon negotiated with Sprint set a precedent that could radically reshape the future of the industry, writes guest blogger Stefan Constantinescu]
When Apple CEO Steve Jobs got on stage in January 2007 and announced the iPhone, the world collectively paused, took a deep breathe, and then yelled at the top of their lungs with joy at a device that not only changed their perception of what can be done with something that fits in your pocket, but how one interacts with small screen gadgets in general.
In Europe people smirked; EDGE only, 2 megapixel camera, no MMS, is this a joke? Contrast that to America, which at the time was still known as the “Land of the Motorola RAZR,” the radical idea of having the full internet in your pocket was new and exciting. Nearly 10 months later, in November 2007, it would be Amazon’s CEO Jeff Bezos that would climb on stage to show off his device: the Amazon Kindle; expensive, single purpose, limited content, by some accounts it was quite difficult to look at as well.
Why is it then that the Kindle is more important to the mobile telecommunications industry than the iPhone?
The Kindle is the first device to be sold with lifetime cellular connectivity included in the purchase price and therefore it is the first device to carve out a path towards a new business model for operators.
Apple had the opportunity to change things. They could have sold the iPhone unlocked from day one and educated the American public about SIM cards and why buying a device from an operator on a two year contract is unwise. They could have launched the iPhone internationally, unlocked, without having to negotiate with operators due to the fact that many people in Europe and Asia are used to paying full price for their device and buying a SIM card + service separately. They could have prevented the large exodus of iPhones that were meant for the American market, but ended up on the international grey market, from ever happening, but they didn’t.
Apple launched a revolutionary device and to buy it you had to go through the traditional channels.
Amazon’s Kindle however, once you purchase the device and turn it on, it connects to Sprint’s network automatically without any user configuration. Unlike buying a subsidized netbook from an operator today, where you still have to pay a monthly fee, the Kindle is connected for life after you make that initial purchase.
Intel has already admitted that the speed-wars are over and now their future will be focused on high volume shipments of their Atom processor, they even licensed their Atom intellectualy property to TSMC; the goal being to connect more and more devices to the internet. With all of these new devices connecting to the network, be it our cars, our refrigerators, our power meters, our televisions, anything and everything, how exactly does one enter their WPA2 security key on a toilet which has a single button, flush?
This little convenience, connectivity out of the box, has huge ramifications for the mobile industry if operators choose to play their cards right. We’re entering an era defined by people’s expectations of being able to browse the internet and access their favorite services on most, if not all, of the new devices they purchase.
Today operators cry foul when people demand that they turn into dumb pipes. Operators today still believe that innovation occurs at the core of the network, versus the edge. Operators come up with poor reasons, even poorer attempts at new businesses, and some are beginning to adopt defensive tactics such as limiting what can be done on their network in order to protect the business models that have been allowing them to expand for nearly 3 decades.
The Kindle was the first step in a new direction. Sprint effectively became a pipe for Amazon’s customers to purchase books and read Wikipedia on an electronic ink display. These new devices that will soon connect to the network, the cars, the televisions, the toilets, can either depend on users being knowledgeable and willing to configure the correct settings for access, or the device manufactures themselves can negotiate with operators beforehand to allow said devices to have connectivity out of the box.
According to an interview with Glenn Lurie, President of Emerging Devices for AT&T Mobility, a unit that opened in December 2008, his goal is to “develop relationships in the ecosystems around [...] devices and launch those devices wirelessly enabled.” Later he added “you can imagine we’re talking to every OEM on the planet, there are a lot of people that build devices.” I’m going to speculate here and say that this unit, Emerging Devices for AT&T Mobility, was launched as a direct result of the Amazon Kindle.
The revenues operators can expect to receive from device manufactures will start small. Roger Entner, SVP, Nielsen’s Head of Research and Insights for Telecom, estimates that Sprint is receiving only $2 per Kindle subscriber per month, but just as data traffic, and in turn data revenue, leapt passed voice on landlines, the same will happen sooner rather than later with mobile operators.
The question is: are operators ready to experiment with new business models, billing methods and dealing with new customers that are device makers versus the individual?
The modus operandi we’re used to today is operators buying hardware, attempting to create a unique software experience, and then selling the final product to the consumer. In a brave new world why can’t it be the device makers who go to the operator, buy network access in advance, and then sell their devices directly to the consumer?
People would not have to buy network access and therefore churn, meaning customers leaving your network to join a competitor’s network, would be reduced. People would not have to care about paying a monthly bill, since it is the device manufacture covering the expense. People would no longer be tied to 1 or 2 year contracts and be stuck with a device they dislike; they would simply use a gadget until they no longer fancy it and buy another.
The benefits for the operators are clear. One customer, paying one sum of money, for one month of access, for one device, one customer you have to compete for every 1 to 2 years due to their contract expiring, is a profitable business to be in, but it isn’t forward thinking since the size of that market is limited to the population of a city, state or country. Having device manufactures purchase network access, with the amount of devices a consumer has today and will probably own tomorrow, has the potential to push penetration numbers past 200%, even 300%. Less money will be spent on advertising the operator brand since it becomes irrelevant. Less money will be spent on hiring software engineers to create those unique software experiences on devices. Less risk of ending up with excess stock somewhere in a warehouse because the devices an operator purchased for the Christmas season were not as popular as predicted.
The benefits for device manufactures and the consumer are even more clear. A greater number of devices connecting to the network, more services being used, zero headache configuration, unlimited access. Additional revenue can be extracted by charging more for a device to maintain a small margin on the network access or by partnering with service providers to make their service the default option.
The Amazon Kindle carved out a new business model, time will tell whether or not it becomes the de facto revenue generator for operators. They are pipes after all, but why is that such a bad thing again?
[Stefan Constantinescu is a guest blogger, currently job hunting, a former Services Strategist part of Nokia's Corporate Strategy Team, and a former blogger with IntoMobile.]
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