I was fortunate this past week to have the opportunity to attend the All Things Digital Conference put on by Kara Swisher and Walt Mossberg of the Wall Street Journal. The event is a melange of intimate interviews of tech titans spliced with demos of new products. Gates, Jobs, Diller, Otellini, etc., all took the stage. Between sessions, participants mingled over lunch, dinner, even wine tasting. It would be futile to try to recap all of the action here. Nonetheless, one theme that emerged never ceases to intrigue me.
Jobs was asked about his feelings for the mobile carriers and replied by labeling them as "orifices". The term stuck and was used throughout the show as a wide cast of characters who have had to appease the carriers let off a little steam.
The reaction of Motorola's Ed Zander to the same question, though restrained, clearly evidenced frustration. Here is a guy who depends upon carriers to put his handsets in consumer hands, yet, he has a demonstrated taste for paths to carrier disintermediation. For instance, Zander flashed us the iTunes phone his crew developed with Apple. The two companies inked a licensing deal to make this happen last July and the handset has been ready for a while now. However, not surprisingly, virtually every US mobile carrier has rejected any deal to carry the device as they are almost all planning their own music download services launching this Fall. It sounds like Zander has talked just one carrier into releasing his stuff soon.
We are at an interesting inflection point in the history of interaction between the service providers and the handset makers. In a market with such disloyal customers, the carriers need to do everything they can to fight churn. It might seem that the impetus for consumer (non-enterprise) spending in this space is who offers the swankiest handset. That is, with Motorola pushing 30.3M units in the last quarter thanks to the success of the RAZR V3 one has to wonder whether the hardware will drive consumer choice like during the Star-Tac days. Maybe the applications will have similar draw. I think it would be a mistake for the carriers to underestimate the lock-in of iTunes.
Whatever the case, it is interesting to note that Motorola under Zander's leadership has made three other significant moves toward creating a base for disintermediation of the carriers. First, Motorola bought MeshNetworks, a maker of wireless mesh routing software and hardware. Though the company has traditionally only served public safety customers for police and fire municipal networks in the licensed spectrum, MeshNetworks is well-suited to provide WiFi connectivity for public access - a nightmare for 3G providers.
Moreover, Motorola has been working for over a year to perfect dual-mode handsets with WiFi chipsets. These phones will be sold directly to enterprises and integrated with their PBXs for local voice and will fall back to the carriers for roaming.
To cap this effort, earlier this year, Motorola signed a deal with Skype to collaborate, presumably, on the distribution of Skype clients on Motorola handsets. While the carriers would certainly reject an OEM of a Skype client in their consumer units, it remains to be seen whether they will tolerate such software to win/maintain enterprise deployments. Carrier leverage may be too weak.
How this will all sort out is anyone's guess. Motorola would be the first to dismiss these efforts as simply ways to ensure the 'seamless mobility' of their users. However, when you see a company make significant investments ($200M+) in the tools necessary for realizing public WiFi networks, build hardware that talks over such networks, and partner with the world leader in software for doing so, well, exciting times are ahead.