Google, ever a shaker of markets, has certainly given the mobile market the greatest shaking since Android, even the greatest since the iPhone. They plan to buy Motorola Mobility, the mobile appliance arm of Motorola, in an all-cash deal. The deal will at once make Google one of the major manufacturers of smartphones and tablets, putting the company on a level playing field with rival Apple. There are obviously going to be plenty of objections made to regulators, but early indications are that the deal will go through.
The drivers of the move seem pretty clear. At the surface level, it probably rankles Google to see Apple become the largest US corporation in market cap. Envy counts for a lot in Silicon Valley, where everyone is known by the size of their startup. At a deeper level, it’s probably clear to Google that its Android strategy has two serious disadvantages; it’s not creating a single ecosystem like Apple’s is, and it’s not giving Google enough control to be the primary driver of innovation.
If we step back from the obvious Google/Apple dynamic, the deal would almost certainly put network operators even further into the back seat. I’ve noted in the past that Apple’s approach to mobile was to create an economic framework around appliances that sucked in value and thus reduced operator opportunities for differentiation. Appliances and apps have become effectively the pretty face on the services space, anonymizing everything behind no matter how critical and expensive that “everything” might be. But even this comment probably doesn’t surprise anyone, so let’s look deeper at what it means.
First and foremost, it puts tremendous pressure on operators to figure out how to do what monetizing they can, and quickly. With Google and Apple duking it out directly, how long will it take for “service clouds” linked to mobile appliances to become the norm for both? That would consign operators to being nothing but water-bearers for the hunting party. The space that will be particularly important, of course, is content. Because that generates the most traffic and has the most direct and immediate revenue stream associated with it, it’s important. Because mobile content could short-circuit operator TV Everywhere and telco TV investment by tapping off some of the market, it could compromise the whole shift to video for them, and that’s critical.
Second, it means that Apple and Google are both virtually certain to become MVNOs. The marketing power of appliances becomes market ownership of the mobile space if an appliance giant can, by creating a wholesale relationship with facility-based mobile operators, become an overlay mobile operator to its own device base. Such a move would freeze the operator into a transport role, and provide a platform onto which Apple and Google could inject cloud-hosted services. These would help the handset giants with “device churn” by hooking their customers to features that were hosted ONLY on that virtual network by Apple or Google service clouds.
Third, it means that we’re going to see a combination of an increase in the traffic rates for mobile networks and at the same time greater emphasis on femtocell and WiFi offload. The push to differentiate, to generate more and more reasons to go with either Apple’s or Google’s devices, network, and services will generate more traffic that operators need to monetize or offload. Operators are going to realize they have no option but to cut favorable MVNO deals with the handset giants, and those deals will offer better usage terms. Femto and WiFi deployment can help offload traffic, and in any event there is no question that Apple and Google will begin to deploy WiFi hotspots on their own.
There are other more speculative outcomes here. For example, will a war of the two glamour giants of tech—a war that will certainly include cloud services—accelerate the migration of computing, at least in the personal sense, into the cloud? Will that accelerate Microsoft’s decline by killing off growth in the PC space even further, and by raising the competitive bar for Windows 8? Will we see a real “carrier WiFi” market emerge by federation among the various hospitality hot-spot providers? Will “MuniFi” networks deployed by cities who want to empower their citizens, networks that have pretty convincingly failed up to now, suddenly succeed and change the market? Will Apple and Google push to become resellers of wireline broadband services? The list goes on.
Revolutions have casualties, and the guys who are most at risk here are ironically the guys who built the Internet, who built wireless, at an even more fundamental level than the network operators. I’m talking about the equipment vendors. Here’s a community BEHIND the operators that Apple and Google are pushing into the background! The network, and its equipment, are getting submerged, and with submergence can come only commoditization. Do any network vendors believe they can sell switches and routers to a virtual network operator? If not, they’re fatally divorced from the value chain.
For five years now I’ve been complaining that vendors have not supported operator transformation goals. The operators themselves have been complaining right along with me, and yet I’m still seeing major disconnects between what operators want in their monetization projects and what vendors are delivering. That’s why I’m disappointed that Cisco, who has a real chance of taking control of the cloud-service space, made no attempt to claim it on its earnings call. By next quarterly call it may be too late. We have never seen such risk in the network equipment space for those who do wrong, and never such opportunity for those who do right. Anybody interested?