Mobile operators, long the arbiters of content and services on cell phones in the U.S., are now giving up some ground to other players as the industry is rocked by the success of the iPhone and the emergence of new players on the tiny screen.
AT&T and Apple's business model for the iPhone achieved what carriers had been trying to do for years: Get consumers excited about mobile data. It lets subscribers tap into the riches of the Web with a full browser (though without Flash), and customize their phones with applications developed and sold by someone other than the mobile operator. The most widely copied blockbuster of recent mobile history owes most of its success to what Apple built, not to the carriers that give it service.
On Tuesday, the next big disruption will hit: A phone for T-Mobile USA's network based on Google's Android operating system. Google designed the platform, soon to be open-sourced, so developers could create and market their own applications royalty-free and have them work on all Android phones. Following Google's lead, an open-source version of Symbian, the software in about 60 percent of the world's phones, is due out next year. Phones are already on the market using an open, Linux-based operating system backed by the The LiMo Foundation, an industry consortium. And some handset makers are beginning to eye software and services, too.
An AT&T executive said earlier this month at the CTIA Wireless I.T. & Entertainment show that it's too late for carriers to take the lead role in developing new applications.
"We missed that boat," said Roger Smith, director of next-generation services.
The head of rival Verizon Wireless, which launched an initiative this year to allow third-party devices and applications on its network, seemed relieved to hand over some control.
"We couldn't handle all that innovation, and make all those bets, and train all those people, and take all that overhead into the business," President and CEO Lowell McAdam said. "Now the developers will place those bets, and consumers will decide."
Mobile networks can be "open" in two ways, both of which U.S. operators are starting to embrace. One is allowing devices not sold or branded by the carrier onto the network without stringent controls, rather than strenuously reviewing a product, customizing its interface, and timing its release to the carrier's business cycle. Verizon is already allowing some specialized devices in an open-network plan that it's operating alongside its regular business, and Sprint Nextel will use a similar approach with its WiMax fourth-generation network that's due this month.
The other form of openness involves giving developers access to software platforms, letting their applications work on many phones with one version, and bringing software vendors and buyers together with less carrier supervision.
Traditionally, phone software has been distributed on multilevel software "decks" controlled by the carriers. Decks put applications, or links to buy them, right on the subscriber's phone and provide a built-in billing system through the carrier's bill. Consumers can also know the software has been tested and approved for that phone by the carrier. But the time and effort involved in getting applications "signed," or approved, by carriers has frustrated many software companies, and some believe they haven't proved to be very good tools for selling applications, anyway.
"If you're a small developer, for each handset, for each carrier, each market, you've got to do the signing a number of times," said Rich Miner, group manager of mobile platforms at Google, at the Mobilize conference last Thursday in San Francisco. "You start adding up the resources that you need to get over all of these hurdles, and they become pretty unsurmountable," Miner said.
One way around this is using the mobile Web itself, which is becoming more viable with better browsers and faster network speeds. Heysan, which provides a unified mobile text-messaging platform, has kept its service strictly Web-based because it lacks the resources to develop applications for multiple carriers and operating systems. Writing for 10 platforms would require as many as 50 developers, said Gustaf Alstromer, CEO and cofounder of Heysan. The startup, based in San Francisco, has just six programmers. In any case, Heysan has drawn in most of its customer base of about 500,000 through word of mouth and Google searches, Alstromer said. He doesn't believe a carrier deck would bring in many users.
Apple's iPhone SDK and App Store are the industry's model for the next software. Apple does act as a gateway for iPhone applications, controlling its own SDK (software development kit) and exerting some control over what's in the App Store, but it's not as strict as a mobile operator building a deck. This model has proved a huge success, logging more than 100 million downloads since its launch in July.
More such stores are on the way, according to industry executives.
"Users will definitely have many sources to go to get applications, and to get the experiences they want," said John O'Rourke, general manager, independent software vendors, Developer and Competitive Strategy, at Microsoft.
Google will go even further than Apple has with the App Store, leaving developers entirely free to distribute their own software without certification by anyone.
That freedom is the root of concerns by some observers that developers, including those at carriers who are building Android-based operating systems, could alter the platform so much that the platform splinters. If not every Android application can work on every Android phone, that would defeat the purpose of the effort. Mobile Linux has already come under criticism for this.
"When you go and ask all the Linux solution providers what percentage of software runs across all of their platforms, in fact the answer is near zero percent, because there's such a degree of high fragmentation in that space," said Jerry Panagrossi, vice president of U.S. operations at Symbian, during a panel discussion at Mobilize.The fact that operators have already launched 23 handsets based on LiMo technology, however, proves that Linux is fit for the mobile world, according to Morgan Gillis, executive director of The LiMo Foundation.
As software platform vendors move in, some hardware makers are also seeking a piece of the pie. While Nokia prepares to divest its controlling interest in Symbian, it's slowly rolling out a set of applications and services. They include the Ovi data-sharing system, the N-Gage mobile gaming platform, the MOSH (Mobilize and Share) content portal, and Nokia Maps, based on technology it acquired with its US$8.1 billion purchase of Navteq last year.
Nokia's services push is likely to boost the company's profit as handset margins grow slimmer, according to analysts, but it may also help Nokia differentiate its devices as consumer attention shifts toward the iPhone -- a formidable rival in both its hardware and software -- and the Android software platform.
Sony Ericsson Mobile Communications is also getting into the act, developing a distinctive home screen for its upcoming Xperia line of smartphones. Users will be able to choose from among 16 home screens, each with its own selection of sites and applications, and just tap on one of these "panels" to make it the current display. Sony Ericsson and Microsoft, which is supplying the Windows Mobile software that underlies the Xperia, will offer an open API (application programming interface) for third parties to create their own panels.
But mobile operators probably won't be left out in the cold as mere providers of bandwidth. For their part, some expect to leverage their presence in TV and home broadband to create distinctive "three-screen" services that take advantage of the TV, PC and phone. Those offerings, such as messaging services that work across all those systems, might be lucrative and also keep customers loyal.
Not everyone is convinced. These "converged" services may serve mostly niche markets, such as people who need to program their digital video recorders from their cell phones, said ABI Research analyst Clint Wheelock.
But the emerging world of open networks may turn out to be a better deal for everyone, according to Krishna Vedati, CEO of Plusmo, which makes a framework for widgets and sells it to carriers and others. Carriers used to demand about 40 percent of a software company's revenue in return for putting its product on the deck, Vedati said. Now the applications are distributed in other ways, but the carriers can charge about 30 percent for services such as advertising infrastructure, he said. Revenue comes out higher because more people download the applications.
As for actual innovation, the carriers seem to be surrendering. Asked at Mobilize what he would do if Bill Gates offered him $1 billion to invest, Sprint Vice President of Corporate Strategy Russ McGuire essentially admitted mobile operators aren't cool.
"I would take that money and I would invest it by enabling innovation by many others that are more entrepreneurial, that are more creative, that are connected into pockets of society that we don't have visibility to," McGuire said.
(Additional reporting by Nancy Gohring in Seattle.)