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The Amazon Kindle: More revolutionary for the mobile telecoms industry than the iPhone ever was

[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]

upside-downWhen 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?

kindle

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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  • http://www.knuckleheadnetwork.com Jesslyn

    So on point. A personal example, my hubby who is very non-technical really wanted a netbook until I explained that he would have to pay to wirelessly connect away from the home.

    His response, "why isn't it included? I don't need another monthly bill." He also did not want to have to be dependent on finding a hot spot. Dell/HP should put their $ behind their word partnership. How cool would a netbook be with builtin/prepaid wireless? One can only dream

    I think that a lot of companies don't actually realize the value of "its included". Had wireless not been on the Kindle, competitors would not be searching for the "Kindle Killer", it would just have been a competitor to the Sony.

  • http://whatleydude.com James Whatley

    Stefan,

    Superb post and a line of thinking I am completely and utterly onboard with.

    Recently, at the Mobile Web 2.0 Summit here in the UK, I mentioned to a few guys from various backgrounds that data should not be a 'bolt on' or an 'additional extra' – it should just be there, out of the box. If you don't want it, switch it off.

    Opt out, not opt in. Much like how I think company pension schemes should be run too actually… but that's another story.

    You make some fantastic points and drawing comparison with the kindle puts the whole industry in a new light. It was said by Mark Curtis – at the conference above – that Vodafone, for one day only gave all their PAYG ‘free data’. On that day, flirtomatic saw its sign-ups boosted by 13 times.

    13 x MORE signups because of ONE DAY of free data.

    If we make a bigger pie, we all get a bigger slice.

    The networks need to make a bigger pie.

    Great post Stefan, good to see you writing again.

    Keep me in the loop.

    James.

  • http://thereallymobileproject.com/ Ben Smith

    Although I agree with your arguments I'm not sure about the Kindle being the first device specialist device with wireless access….

    Datawind launched the Pocketsurfer2R in July 2007, several months before the Kindle. It's a low-budget device but comes with an 'unlimited data for the life of the device' option (it doesn't do voice) and even extends that option to roaming across Europe, unlimited for a fixed fee: http://www.pocketsurfer.co.uk/

    Datawind told me they'd secured a good-price for bulk-buying the data from Vodafone, but the operator isn't doing the 'unlimited' bit – it's the device manufacturer who's taking the risk on whether the cost of supply exceeds the one-time bundle cost. Such a risk, in fact, they super-glue the SIM cards into the devices to ensure no-one can use them in devices which have higher data usage.

  • http://www.intomobile.com Will Park

    Very compelling argument you make here, Stefan. I have to agree that the Kindle's business model is more important than the iPhone's mass-marketization of the smartphone.

    But, comparing the iPhone's features to the Kindle's back-end business model is kind of unfair to the iPhone, me thinks.

    Still, I totally agree that the wireless telecom industry needs to take a huge step back and reevaluate their business models from a foward/future-looking perspective. Well thought out argument, bud. Glad to see you back in action!

  • Stefan Constantinesc

    @Will Park: Catchy title makes for people wanting to read the article. You're a blogger, you know that! :-)

    @Ben Smith: It's not really unlimited with 20 hours a month surfing, and 6 pounds a month for real unlimited. Super gluing a SIM card seems like a stupid idea since there should be software on the operator side that can only allow a SIM to be used in only one device, tied by IMEI of course. Didn't know about the Pocket Surfer, thanks for the information!

    @James: Will keep you in the loop for sure! Operators don't want to change, same with newspapers don't want to change, same with any industry. Shame.

    @Jesslyn: One day I hope it isn't a dream!

  • http://rolandtanglao.com Roland Tanglao

    go stefan go! glad to have you back in the blogging saddle! now if only this kind of "kindle thinking" made its way to canada! I can dream, can't I :-) ?

  • http://shkspr.mobi/blog/ Terence Eden

    (Disclaimer, I work for Vodafone – who are trying not to be a dumb pipe – but I don't speak for them)

    HI,

    An interesting article. I've played with a Kindle and as a bibliophile I love it.

    A few of points about your post.

    Firstly, "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?"

    That's the MVNO model. Admittedly, in the UK we've not seen a large number of device manufacturers do it directly. But I'm sure it's only a matter of time before Tesco starts manufacturing hardware.

    This means that, if you join the Amstrad network, you're stuck with an Amstrad phone – in today's mix & match world, that might not go down so well.

    Of course, MVNOs require lots of back-end kit to make everything work – so a dumb pipe model doesn't work there.

    Secondly, you say "there should be software on the operator side that can only allow a SIM to be used in only one device".

    Again, that sounds rather like the behaviour of a smart pipe – not a dumb pipe.

    Thirdly, regarding "free" access to data. The data isn't free – it's clawed back through the charging for content. Now, I've not used a Kindle in the wild, but it's my understanding that (most of) the content is chargeable. So when you buy a 1MB eBook for £6, you're really paying for the data for that & other transactions as well as the for the book itself.

    Fourthly, the Kindle works so well because Amazon is a big, trusted company. Would it work so well if it were HTC, ZTE, or even Nokia? Huge companies which sell loads of devices, sure, but they don't have a particularly strong customer focus. Would you trust them with your credit card details to buy their content? Would you rather go through PayForIt, or your Operator's billing mechanism?

    Would they even have any content that you'd want other than plain web surfing?

    Finally, roaming. I know that roaming data is coming down in price, but it's still prohibitively expensive. I'm sure that's part of the reason that the Kindle is only on a CDMA network; it can't be used abroad. So no spur-of-the-moment holiday book purchases.

    The Kindle is a great product, and it makes a very innovative use of the network – and I for one would like to see more devices like it. At the moment, it's restricted to very big players who can buy in bulk and can assure the customer that not only are their details are safe with them but that their investment is safe. No one wants another ITV Digital experience where, all of a sudden, a company goes bust and you're left with no or reduced functionality.

    Take a look at the student MVNO "Dot Mobile" as an example.

    Great article, really got me thinking.

    Terence

  • Timm

    GM Onstar is another example, it can be considered an MVNO, though from the user viewpoint it is simply insurance for emergencies, accidents and maybe asking the operator for a restaurant in the area.

    @Terence: I do not see why Amazon could not have used AT&T and just had international roaming blocked. The only reason I suspect is that Sprint gave a better deal. The network is also better than ATT 3G implementation (speed, coverage) as I have used both.

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