Wak Oentoenk

I saw a great example recently of the problems caused when mobile companies don't understand the structure of the market for mobile data. A report by Research and Markets gave a somber view of the current status of mobile data in Europe:

"Only about 14% of subscribers use MMS/picture messaging, and only 10% of mobile users across Europe who have access to mobile Internet make use of it....In areas such as mobile TV, successful trials have not yet translated into general consumer acceptance."

This led to very skeptical commentary at Muni Wireless, where Esme Voss pointed to horror stories about European mobile users who accidentally compiled monthly bills of up to 10,000 Euros by misunderstanding the billing on their mobile data plans. "A complete failure" was how she described mobile data in Europe.

I think Esme's right about the data charges, which is why Europe's new flat-rate plans are a step forward. But I think the biggest problem isn't the data charges. It's the industry's misuse of the word "only."

If you expect a single mobile data application to conquer the entire mobile market, anything less than overwhelming adoption is going to be viewed as a failure. Getting "only" 14% or "only" 10% of the market is a crushing disappointment.

But as I discussed in a recent post, the mobile data market is heavily segmented. It's very hard for any single solution to appeal to more than about 12% to 15% the population, because that's the maximum size of each market.

The problem isn't necessarily with the services, it's with our expectations. Let's rewrite that Research and Markets report based on the real structure of the mobile data world:

Mobile companies in Europe have successfully pioneered several new mobile data segments. MMS messaging has rapidly saturated virtually everyone who's willing to pay substantial amounts of money to send low-resolution pictures to their friends. Mobile browsing is establishing a solid niche, with as many as ten percent of people who were given an Internet-capable handset using it to access online content. Meanwhile, mobile TV trials have tapped into the segment of mobile users who are willing to pay to watch TV on a screen the size of your belt buckle.

Doesn't that feel a lot better? It's also a lot closer to reality.

There are several lessons to take away from this if you work at a mobile-related company:

Think small. If you're building a new service or product, make sure it'll be cash flow positive even on a small user base. It doesn't necessarily have to pay back all of the sunk cost all at once, but if you need to get 20% penetration of the user base in order to break even on your day-to-day operating costs, you might as well start preparing your resume now, because you are going to fail.

Set realistic expectations. Make sure your management chain understands that there are no killer apps in mobile data. The market's made up of narrow segments, and getting five percent of the users to be passionate about something is actually quite a success. Cable TV programs thrive on that sort of viewer base all the time; that's the type of world you're operating in.

Learn on someone else's nickel. Since 5% of the market is a success, that means you'll need to run a lot of experiments in order to get a portfolio of successful services. Rather than funding all those experiments yourself, it might be a lot better to allow a bunch of software developers to make all the mistakes, and then you participate in the billing for the most successful ones. An open garden is a method for you to minimize your risk.

A reader sent me a note asking if I had seen the thread on Treo Central discussing some patents Palm received on mobile devices with folding screens. Several people have been speculating online that this design might be the new category of device that Palm's developing.

The product designs depicted in the patents are intriguing. They show a device that looks like a mobile phone:



...but opens to reveal something that looks, well, almost exactly like I've always imagined an info pad would look:



There's a flexible screen on the inside, so you get one continuous writing or viewing surface when the device is opened.

Alas, the patents tell us almost nothing about what Palm might be developing today. If you look carefully, they were filed in January 2001, when Palm had a completely different senior management team.



Some of the inventors don't even work at Palm anymore. Frank Canova is mentioned in one of the patents. He was head of advanced technology at the time, but left the company in 2002. Rich Gioscia is on several of the patents. He was driving industrial design at the time, and is still with the company.

The patents can't be early prototypes of Jeff Hawkins' secret project, because he was not working at Palm at the time. It is possible that the ideas filed for by Canova and Gioscia and the others were incorporated into Hawkins' project, but it's just as possible that the patents represent an old idea that the company abandoned years ago.

This sort of thing often happens with patents -- many tech companies pay bonuses to their engineers to file for patents on almost anything they can think of, because patents are used like trading cards in industry negotiations. It's helpful to have a big collection of them. Even if a patents was for a real product that was being developed at one point, by the time the patent's granted the company may have changed its plans completely.

But I will say this: I want that folding device so badly that it makes my teeth hurt.

My kids have a phrase they use whenever their parents share embarrassing personal details: "Too much information!" I think that's what the folks at Astraware must have thought when they recently asked their users to describe where they play Astraware's mobile games. You know where this is going, right? "In the bathroom" was the most common reply.

I don't think the Astraware responses were unusual. If you do a web search for the phrase "mobile phone in toilet," you'll find all sorts of sad stories about mobile phones, iPods, and other devices that took an unscheduled swim. Supposedly utility fees in Helsinki are going up in part because of all the phones that end up in the sewers there.

Which applications the users choose to use depends on which usage segment they're in. The entertainment-focused users play games and listen to music. I was at a focus group once where a communication-centric user admitted that he likes to send e-mails while using the facilities. "My wife hates it," he said.

So don't feel guilty about using that application while you're, uh, otherwise occupied. Just make sure you keep your device away from the water. And if it does take a swim, and you're tasteless enough to want to re-use the device, don't dry it in a microwave oven.

With all the new mobile devices coming out, I thought it would be useful to give an overview of the market for mobile data. I covered some of this information in a post written about a year ago, but this one has a lot of new information, plus diagrams.

I believe the market for mobile data devices (smartphones, PDAs, mobile game machines, iPods, etc) is not structured the way most people think it is. A lot of new mobile products fail because they're not designed for the real market, or because they target imagined customers who don't really exist in large numbers.

There are two big erroneous assumptions that I think many people make about mobile data:


First incorrect assumption: Mobile data is for everyone. Most people assume that mobile data devices like smartphones will eventually be used by everyone. The idea is that they're being bought by early adopters now, but as prices drop they'll soon be adopted by the whole population. The market is supposed to look like this:



Higher prices are to the right. Smartphone sales start with the early adopters at the right, and then as prices drop everyone switches to smartphones and starts using all their features.

The only problem with this idea is that there's no evidence to indicate that it's true, at least not in the US and Europe (where I've done research). In fact, almost all of the evidence I've seen to date shows that the market is deeply divided into two groups. When surveyed, most people in the US and Europe say they will not pay anything extra for mobile device features other than voice and SMS. They'll use those features if you give them away for free, but as soon as you ask them to pay, about 65% of the population drops out. This makes them very unpromising targets for device companies that want to sell value-added devices, operators who want to sell advanced services, and software companies that want to sell mobile data apps.

Fortunately, the other 35% of the US and European population is willing to pay extra for mobile data features.

So the real market looks like this:



The people I labeled "value-added users" are the mobile data market. But that's only the beginning...


Second incorrect assumption: There is one smartphone market. Most people assume that there's just one market for smartphones, and that eventually we'll see the emergence of a single ultimate smartphone that everyone uses. I can't tell you how many times I got that question from press people and analysts when I worked at Palm: "Which is the device that everyone's going to use?"

The answer is, that device doesn't exist, because the people who are willing to pay extra for mobile data features don't all want the same features. They want conflicting things, and are very unwilling to pay extra for the features they don't want. The ideal hobile device for me might be completely repulsive to you, and vice-versa.

This misconception has fueled an uncounted number of online debates in which people argue why the device they like ought to be adopted by everyone. What they're really arguing is that everyone else should think and feel like them, which is why these online debates never reach a conclusion.

Rather than looking for the mobile market to "converge" the way that most PCs converged to Windows, I think we should expect mobile devices to diverge into different segments. The right analogy for the mobile market isn't PCs, it's cars. As the car market grew in the 1900s, it stratified into trucks and minivans and SUVs and sports cars and so on.

The same divergence is already underway in mobile data.


There are at least three segments in mobile data

If mobile data isn't for everyone on the planet, and if the market is divided into segments, the most important question to ask is what those segments are. What are the equivalent of the sports car, SUV, and minivan for mobile?

We researched that extensively at PalmSource, in a series of surveys that eventually talked to more than 12,000 people in the US, France, Germany, and the UK. In that research, we found at least three big groups of mobile data customers, each with different needs and tastes: people who focus on communication (e-mail, messaging, conferencing), people who focus on entertainment (games, video, music), and people who focus on managing information (databases, documents, note-taking). Each was about 12% of the population.

The results were very consistent across countries, so I'm comfortable that the same segments probably exist in most European countries. The only significant difference was Germany, where the percent of the population who said they were willing to pay for entertainment features was smaller. I don't know if that's a real difference in usage, or if folks in Germany are just less willing to admit that they might use a computing device to play games.

The results probably can't be projected to other places like Japan and China; somebody else needs to do that research (or I'll do it if you want to fund it ;-) .

Here's a little detail on each of the three mobile data segments:

The entertainment-focused users are generally younger than average; many are in college or their 20s. They see a mobile device as a lifestyle choice, and they're willing to pay extra for a device that'll help keep them entertained. Different people want different forms of entertainment, so there are sub-segments in the entertainment mobile market. The biggest division is game-playing vs. media (music and video). But entertainment can also include things like social messaging with your friends. It's anything you do for fun rather than a paycheck.

The communication-focused users are extroverts who live to communicate with others. They're often in people-facing jobs like sales. They're willing to pay extra for a mobile device that lets them keep up with others in multiple ways. E-mail, SMS, voice, conferencing, video calling -- basically, anything communication-related is compelling to them, and they will pay extra for a device that does it well.

The information-centric users are more introverted. Rather than focusing on their dialog with others, they tend to do a lot of thinking on their own, and want their mobile device to be a memory supplement and a means to capture new information. They're not by any means recluses, but ideas rather than social interaction are what really gets them energized, and so they're willing to pay extra for features that help them capture and remember ideas and information. What they really want is a brain extender. They often work in information-heavy jobs like medicine, law, science, and academia.

Of course, there's always some overlap between markets -- for instance, you might have a doctor who also wants to stay entertained when off work. So if you draw the three mobile data markets, they overlap a bit, like one of those Venn diagrams you drew in primary school:





Understanding the products

Now that we've mapped the customer landscape, we can start plotting various products on the chart. This is where we'll start to get some interesting insights. But first, we have to add one technology overlay: in the mobile world, some mobile devices have phones built in and some don't. So add a gray circle in the center:




Now let's chart some products.


The communicators:



This is the most crowded market (in fact, I left off a number of products because I ran out of space on the chart). Although there used to be communicators without phones built in (RIM's early products were an example), putting all communication in one place is a huge benefit to a communication-centric user, so merging the phone and communicator was an obvious move in this market.

I classify the Danger Hiptop as a borderline product between the entertainment and communication markets because it's focused on social communication for young people. Sony Mylo is another borderline product, this one without a phone.

The Palm Treo, SonyEricsson p900 line, and touchscreen Windows Mobile products are on the border between communication and information management. They all have touch screens and a lot of information management features, but also attempt to deliver robust e-mail. At this point, they are being outsold by the much more communication-specialized RIM Blackberry line.


In the entertainer market, you can see the strong role of sub-segments. The game-player market has been dominated by Nintendo's GameBoy, with the recent addition of Sony's PSP. The media market is ruled by the Apple iPod.



The iPhone is an attempt to create a phone + media entertainment device. It'll be interesting to see how the iPhone does in the market -- it was an obvious move to combine a communicator with a phone, but it's not as obvious that the entertainer is a natural match with a phone. The danger to Apple will be if users see iPhone as the worst of both worlds: a phone that lacks a good keypad and an iPod with very small memory.


Information managers are an underserved market. Early PDAs targeted these users, but the device features were too limited to build a lasting franchise. The main champions of the PDA market, Palm and Microsoft, have now both focused most of their effort toward communicators. As a result, information manager innovation has basically ground to a halt, and the users in this space are very frustrated.




What it means: Opportunities and dangers

Some types of convergence are better than others. Combining phone technology with a mobile data device can be very successful when you stay within a single usage market. You tailor both the phone features and the data features to the needs of that particular type of customer. But trying to converge two markets is an extremely risky idea, something mobile companies should avoid. The needs of the markets conflict, so there is an extremely high risk that you'll end up being cannibalized on either side by products designed specifically for the needs of single markets.

The communicator market is over-crowded and therefore risky. When you realize that the communicator market is only about 12% of the population, there are probably more communicator products shipping now than the market can support. Communicators are likely to face price pressure, and some of the products will probably sink like a stone. The RIM and Palm OS products are probably a little safer here because they have more unique features and loyal customer bases, and Nokia may do okay if it can add some differentiation. But Windows Mobile communicators are likely to be a happy market only for mobile companies that can live on commodity margins.

This is not a place where I'd be looking to build new devices, but many companies are introducing new communicators because they'd rather pursue an established market than build a new one.

The iPhone is not a Blackberry killer. One of the things I like about this chart is that it shows immediately why the iPhone is not a major threat to Blackberry sales. They're in very different markets. If RIM is hoping to move into the entertainment market with devices like the Pearl, iPhone definitely interferes with that. But the immediate impact of the iPhone is on the products closest to it, meaning Microsoft Zune and the SonyEricsson music phones.

If you don't fit in one of the segments, it's very hard to sell. One of the messages of the market segmentation is that people will pay extra for great solutions to the needs they have in a particular segment. If your product doesn't solve any of those problems, there's not a market for it. Many failures in the mobile data market have been products that focused on features rather than solving specific problems. They may be beloved by technophiles, but there aren't enough of those people to drive a lot of sales. See Nokia's 770 Internet tablet for a good example.

The biggest opportunity is in information management. This market is about the same size as the communicator market, but no major player is investing in it today. This segment is out of favor because of the decline in PDA sales, but remember that people thought the MP3 market was a backwater until Apple introduced the iPod. I can tell you from personal conversations, and the market research, that there's a substantial market here, and the people in it are very frustrated. I think the ideal product for this market would be a minitablet note-taker, which I refer to as an "info pad." You can read more about it here.


What about the middle of the chart?

The other segment we haven't discussed is the center of the chart, the place where information management, communication, and entertainment all come together. Some people like to think of this as the home of the ultimate converged device, and every now and then you'll see a hardware company try to tackle it.

They all fail.

In reality, the center of the chart is a market dead zone. To use the car analogy, designing a mobile data device for all three markets simultaneously is like trying to build a sports car that doubles as a minivan and a tractor. The result is not pretty, and won't be bought by anyone except gadget enthusiasts like me. Unfortunately, there aren't enough of us to make a significant market.



That's my view of the mobile data market. I'm sure other people have different perspectives; please post a comment and share yours.

In case you're interested, I wrote a short commentary on this subject for the newsletter of Rubicon Consulting, the consulting company where I work. An excerpt:

At the end of 2006, Gartner Group predicted that Vista would be the last major release of Windows, with future updates being delivered on the fly, in modular format. "The era of monolithic deployments of software releases is nearing an end," Gartner said. "Microsoft will be a visible player in this movement and the result will be more flexible updates to Windows and a new focus on quality overall."

The annual predictions from the major analysis companies are like hors d'oeuvres at a drunken New Year’s party -- quickly consumed, and generally forgotten the next day. Their role is to generate publicity (that's why they are given away for free). But this prediction is worth thinking about because if true, it would have a profound impact on the computing industry...

You can read the rest of the article here.

________

By the way, I wanted to thank TomSoft for including my post on the Impact of the iPhone in the latest Carnival of the Mobilists, a weekly collection of mobile-related commentary.

Concluding thought on the iPhone (for a while):

Usually I take a few days to think about a mobile announcement before I write it up. That gives me time to read other comments and get my own thoughts settled. But there was so much attention on the iPhone that I posted ideas as I went along. I hope you didn't mind the stream of consciousness approach.

So now it's a week later, and I've come full circle to where I was when I first heard the announcement: I think it's not a phone. It's an entertainment-focused mobile computer.

If you judge the iPhone first as a phone, it's very hard to justify. I think this has driven some of the skepticism that we've seen in online commentary about the iPhone in recent days. The lack of a keypad makes it harder than a regular phone to dial, and SMS will be awkward to use. That's a substantial barrier in the US, and an even greater drawback for a phone in Europe and Asia. (Hey, mobile phones have failed in Europe just for having the keys poorly arranged.) The battery life also looks like it may be disturbingly short.

The price of the iPhone is uncomfortably high for a phone, and Apple's forecast of 10 million units shipped by the end of 2008 is very hard to justify when you look at the total number of mobile phones sold at that price point. Richard Windsor of Nomura, a telecom analyst I respect deeply, predicts that Apple will sell only two million iPhones this year, and at most five million more in 2008. If that happened, Apple could be stuck with more than half a billion dollars in unsold hardware. Windsor writes: "Apple has arrived in the smartphone market but how long it stays remains to be seen."

But if you look at the iPhone first as a mobile computer for entertainment, with phone features added in where convenient, things look very different. The lack of a keypad then becomes a reasonable compromise to get a large screen (great for video and browsing) in a tiny device. The price is still high, but Apple has continuously offered iPod products in the $400-$500 range. The iPhone is close to the price of a high-end iPod, and has a host of additional features. iPod sales have been running at about eight million units a quarter, so ten million iPhones in 18 months is not a ridiculous number. If Apple can get a reasonable percentage of loyal iPod owners to step up to the iPhone, it won't have to attract all that many new users to make its 10 million number.

Remember, Apple owns its own retail channel. So it has a very good idea of what its customers like and dislike.

Far from revolutionizing the phone, what Apple's doing is launching the most ambitious mobile entertainment device in many years. Here's hoping they succeed -- if they do, some other companies might feel encouraged to try bold mobile computing experiments of their own.

The folks at the Carnival of the Mobilists give an award to the best mobile-related post of the month. But it looks like they must have forgotten to do it since August, because they just opened the voting for the best posts in August through November of last year. You can find the voting forms here. Just scroll down to see each month.

Here's how I voted:

November. I thought the best nominee was VisionMobile's post on the right data strategy for operators. It was well argued, and I agreed with it. An excerpt:

"Operators should realise that consumer service innovation most often comes from 3rd party service developers....Operators should develop platforms that link service providers with advertisers and consumers (and do it faster than Yahoo, Google and Nokia) -- in other words be service pipes, to avoid being bit pipes."

It's amazing how many of the nominated posts were commentaries on what the operators are doing wrong. You might almost say the mobilists are obsessed.

October. Although my post on whether the smartphone will kill the PC is one of the nominees, I think the best post of the month was All About Symbian's fantastic overview of Internet radio. So I voted for that one.

September. Two posts from Mobile Opportunity were nominated in this month, so I'll refrain from making any recommendation here.

August. I think David Beers deserves credit for an insightful analysis of Palm's OS plans. He spotted some subtle wording in the company's financial disclosures, and broke the story of Palm buying back its OS several months before it became common knowledge.

Full disclosure: The winning authors get $250 each from Khosla Ventures, so I guess I have a vested interest in encouraging you to vote for my stuff. But actually, I think you should vote for the posts you think are best.

There's also supposed to be a vote on the best post of the year, sometime later this month. I'll let you know when that vote begins.

Apple's taking a fair amount of heat from developers and some customers for its decision not to open the iPhone to third party applications. So far Apple's explanations for why it made that decision are pretty lame.

Newsweek quotes Steve Jobs:

"You don’t want your phone to be an open platform....You need it to work when you need it to work. Cingular doesn't want to see their West Coast network go down because some application messed up."

That spawned the following sarcastic response on the Palm Entpreneurs Forum mailing list (a forum for mobile software companies):

"So is there an API for taking down the network? I realize it's probably not void TakeDownNetwork() but something like void KeepNetworkUp(int nSeconds) and it's up to every app to not call that function with nSeconds <= 0. Seems like disabling that function might be the first place to start. And if it doesn't exist then not worrying about it would be a good course of action."

You may not get that joke if you're not a programmer, but the point is that millions of Palm Treos and Windows Mobile smartphones have been sold with the ability to add third party applications and Cingular hasn't batted an eye (and its network hasn't gone down either).

So Steve is making up an excuse. The question is, what's his real motivation? Two leading theories are:

--Apple wants to ensure a perfect user experience, and doesn't trust developers not to mess it up.

--There are weaknesses or missing pieces in the iPhone's operating system that would be vulnerable to damage by third party apps.

The catch is that both of those could easily be fixed if Apple really wanted to. If it wants a perfect experience, it could allow third party apps with certification. Or it could allow apps but not publicize them, which means the average user would never see them but would allow those who want apps to use them. As for the stability of the phone's OS, Apple has been developing the iPhone for two and a half years, and the software is based on Mac OS X. I really doubt the iPhone OS is a fragile hack.

I want to propose an alternate explanation. I'm not at all sure it's true, but it fits the evidence, and it makes sense given Apple's history.

I think this is not about controlling the iPhone's user experience. I think it's about controlling the iPhone's users.

To explain what I mean, I have to give a brief history of the Macintosh computer, from Steve Jobs' point of view:

1. Apple pioneers the Lisa and then Macintosh with a revolutionary interface that Xerox had been too stupid to commercialize.
2. Apple works like a dog to evangelize and co-promote thousands of insanely great Macintosh apps.
3. Microsoft uses its Apple II products to extort from Apple the right to clone the Mac OS.
4. Microsoft produces Windows.
5. All those software developers, whose products Apple helped to promote, port their applications to Windows.
6. Macintosh market share ends up south of 5%.

So here Steve is 23 years later, with another breakthrough computing platform that has a revolutionary user interface. He said very prominently at the iPhone announcement that the new device is heavily patented and no one is going to clone this one. Why did he go out of his way to say that? What does that tell you about his state of mind? Why else would he raise the issue of cloning, unless he was remembering the history of Macintosh and Windows?

And if he's remembering the Macintosh, what other vulnerabilities does he want to fix?

I think Steve doesn't want any of his differentiation being copied anywhere, and that includes the third party apps. If I'm right, the iPhone will eventually be opened to selected third party applications, but developers will be prohibited (either via technical means or via contract) from porting the resulting applications to any other smartphone. The iPhone economy will look like the developer base for one of the gaming platforms, heavily controlled by the platform owner.

It's too early to tell if the Apple iPhone will be a sales success; we'll have to see how the product actually works. But I think Apple's announcement is very promising, and whether or not the product is a best-seller, it resets a lot of the agenda for the mobile industry.

This post is in three parts:

--Information on the iPhone. What we know for sure about its specs and functionality, and other information that appears to be true but is not yet confirmed.

--Prospects for the product. Speculation on the iPhone's potential sales success. Who might want it and why.

--Impact on the industry. Who suffers, what the opportunities are, what to watch for next, and what to do if you're working at a mobile company.


Information on the iPhone

Before I even get into details about the iPhone, I want to acknowledge for the record that Steve Jobs does great announcements. The Apple faithful were appropriately awed. But the most impressive moment to me was his handling of Google and Yahoo. Both companies are posturing as the future dominators of mobile data, but Jobs managed to have each of them on stage, in order, catering to him. A wonderful power play, and a nice inversion of that first Macworld after Steve's return when he kowtowed to Microsoft. This is a long, multiyear exercise in personal and corporate redemption.

About the device. It's a small mobile device with a touchscreen-centric interface. It has a 160-dpi 320x480 screen, four gigs or eight gigs of memory, a quad-band GSM/Edge cellular radio (not 3G), WiFi (802.11 b and g), Bluetooth 2.0, and a two megapixel camera.

The device senses whether it's being held horizontally or vertically, and rotates the screen image appropriately. There's a proximity sensor to turn off the touchscreen when the phone is held against your face, and an ambient light sensor to dim the screen when you're in low light conditions.

The device weighs 4.8 ounces / 135 grams, and is nicely sized (not as thin as some phones, but acceptable size and weight for most phone users).

Battery life is supposedly five hours of talk and 16 hours of music playback.

There are no buttons on the face of the device -- dialing, typing, and all user interface is controlled through the touchscreen.

The operating system is Mac OS X. Bundled software includes the Safari Web browser, an e-mail, Google Maps and associated location-based services, iPod music and video playback, a suite of phone apps (address book, threaded SMS, calendar, dialer, visual voicemail [pick messages from a printed list on screen]), photo management software, and some widgets provided by Apple.

The visual voicemail feature is nice to see but also frustrating because we were talking about this feature at Palm roughly four years ago. Sigh.

The touchscreen interface includes multi-touch support, so you can use on-screen gestures to navigate the interface. For example, you can pinch two fingers together to shrink an image, and spread two fingers to enlarge it. This will be especially important to applications like the Web browser, which lets you zoom in and out on web pages.

Price is $499 for four gigs and $599 for eight gigs. That price apparently requires purchase of a two-year service plan from Cingular. The phone is exclusive to the Cingular network in the US for "multiple years." Availability is June in the US, late 2007 in Europe, and 2008 in Asia.

What it doesn't do. There are apparently some important restrictions on the functionality of the device.

No direct connection to iTunes. Time Magazine reports that you can't download songs and videos directly from iTunes; instead, you have to go through a PC or Mac and then sync the songs over. That may be a blessing since the phone doesn't have 3G performance, but it ought to work direct at least on WiFi.

No wireless sync. You have to use a cable to sync it to a PC, even though it has high-speed wireless. Again, why restrict this?

No third party apps. This one was a shock to me. Michael Gartenberg of Jupiter Research reports that Apple says the iPhone is a closed device -- only Apple will be able to add applications to it. Michael thinks it won't be an issue to the masses, but I think it's a huge missed opportunity for Apple. They have Mac OS X in there, they have the Widgets infrastructure -- if they turned the developers loose on it they could rapidly amass an incredible array of add-on features and system completers. I don't know if the restriction on third party apps is a temporary thing, or an intentional and permanent part of Apple's plan.

No Office enclosure support. Michael also reports that Microsoft Office files enclosed by e-mails can't be read by the iPhone. I lived through this sort of restriction at Palm, and it is a stopper for serious e-mail users. This is exactly the sort of thing that third party developers could fix if Apple opened the platform.

What we don't know:
--What's the processor and its speed? (Just curious about this; it doesn't make much difference to the user.)
--How powerful is the battery, and can it be replaced by the user? (This is important because I suspect that doing heavy media and maintaining a wireless connection will drain the battery fairly fast. I remember back when Palm thought the Treo didn't need a replaceable battery. Wrong.)
--Will the GSM SIM card be removable? (This might let you use the device on another network, although you'd still have to buy it with a service plan.)
--What's the price of the required Cingular service plan?


Prospects for the iPhone: Great, for a segment

As I've said a few times, I think the market for mobile data devices is split into at least four big segments: people who won't pay more for anything other than voice (65% of the population), people who will pay extra for communication features, people who will pay extra for information management features, and people who will pay extra for entertainment features (each of those three groups are about 12% of the population). The iPhone looks like an ideal offering for the entertainment-centric users. Steve says he wants one percent of the mobile phone market (for now). I think that the iPhone and its lower cost offspring could eventually get about 12%.

Is that a big number or a small one? Well, it's a hundred million phones, and would be enough to make Apple a top five phone vendor. So it's a big hairy number.

Of course, that's assuming the phone actually works. I think it will -- the demos today were very impressive -- but we can't really tell yet. Here are some thoughts on drawbacks and preliminary conclusions:

It's a segment, not the whole smartphone market. Jobs compared the iPhone aggressively to other smartphones, but that's confusing. There is no unified smartphone market. You can anticipate a lot of confusing articles and web posts in the next few months with people arguing over whether the iPhone is the ultimate mobile thing, all based on their own personal preferences. Here's the answer -- there is no single ultimate mobile device, let's talk about which segments will like it and which won't.

How good will the battery life be really? I'm very suspicions of the power requirements of a wireless + media device that's as thin as the iPhone. It's going to be bought first by enthusiasts who'll use it a lot. If the batteries go flat in a single day's heavy use, that's going to be a major issue. It's one thing when your iPod runs out of power; it's a very different thing when it takes your mobile phone down with it.

Apple can sidestep the problem partially if the battery can be replaced by the user. If not, watch battery life really carefully.

A lot depends on the multi-touch interface. Since there are no buttons, there's no familiar interface to fall back on if people can't figure out the interface. Multi-touch looks really cool when demonstrated by someone who knows it well, but will the average user be able to figure it out? Will the system be able to distinguish well between a tap and the beginnings of a gesture? For example, what if I'm trying to expand an image in the browser, and the system thinks I tapped on a button in the web page? This could create the sort of mess that makes people throw devices against the wall.

Would you like a side order of grease with your phone screen? In the mobile industry, the general belief is that it's bad to have the phone's screen pressed directly against your face -- it'll pick up oil and/or makeup from your face, and get smudged very quickly. Apple's going to test whether that's a real problem or just a superstition in the industry. (David Pogue says Apple came up with a screen coating that minimizes the grease problem.)

This design may not go over as well in Europe and Asia as it will in the US. In the US it's easy for Steve to give a speech saying how stupid it is to type using a phone keypad. In Europe and parts of Asia, a lot of phone users are very used to doing it for SMS, and no matter how stupid Steve tells them they are, they kind of like doing it. I think they may not be happy trading in their physical keypad for a screen where they can't feel the keys. That forces them to look at the screen when they type.

For these people, Apple's product is like trying to get touch typists to use a keyboard that's just a flat glass surface without moving keys. With the single exception of the sets on Star Trek, this has never been accepted by anyone because the ergonomics are bad.

I think Apple is at risk when it tries to change the established habits of users.

This is a poor device for communication-centric users. RIM's stock was hammered today, but I think that's a mistake. Yes in the long term there's a risk to RIM from any new competitor, but stock market valuations are not generally driven by multi-year trends. The iPhone as currently designed is a lousy device for RIM's communication-centric users because it doesn't have a keyboard and because it can't handle Outlook attachments. It has a lot of features those communication-focused users don't care about and won't pay extra for.

Trashing RIM stock because of the iPhone is like trashing the stock of Caterpillar Tractor because someone brought out a new sports car.


Impact on the industry

The immediate impact of the iPhone is that it changes the terms of the debate for everybody. Every new mobile data device will be evaluated against the iPhone's specs, which is going to become very irritating for a lot of vendors because the iPhone isn't shipping yet. It's like boxing a ghost. I suspect that may have been Apple's intention. Supposedly it had to announce now because the device would have leaked when it entered FCC testing, but an interesting side benefit will be that Apple can stall sales of all its competition. I think this is likely to be a very unpleasant time for Microsoft Zune, a moderately unpleasant time for Palm, and an intense annoyance for everyone else.

Curious side thought -- will this also stall sales of traditional iPods? I think there's a chance it will.

Microsoft looks foolish. Robbie Bach, the president of Microsoft's entertainment and devices division, made a big mistake at CES. He got roped into critiquing the iPhone the day before it was announced. Some of his very off-base comments include:

"The latest rumor we hear is that it is going to be a MVNO phone and there hasn't been a lot of successes in that MVNO space for a lot of different reasons."

Speculating that Apple won't sell through a carrier: "Historically, working with partners hasn't been a strong point for Apple, so maybe it will find a way to work around those relationships."

"You have to find out what it's great at. Is it great as a phone or is it great as music player?....If it's great as a music player, then it's just another iPod trying to be a phone."

He ended up sounding both arrogantly dismissive and out of touch at the same time.

Two suggestions, Robbie:

1. Repeat after me: "We can't comment until we know what they're announcing. It's a big market and there's room for a lot of companies in it. We're just focused on making the Zune product as great as possible, and taking wonderful care of our customers."

2. The best way to respond to Apple is to out-innovate it. There's no reason you guys couldn't make a product as interesting as the iPhone. Do you have the vision to build it, and the marketing skills to make people buy?

Apple is focusing enormous effort behind this one initiative. Jobs devoted virtually the entire Macworld keynote to this product -- so much so that a number of Mac fans are bitching that he ignored the Mac. Can Microsoft put the same focus on Zune and its future siblings, or is Zune just one of fifty other Microsoft initiatives?

The impact on Palm is hard to read, but potentially very serious. The core users of Palm Treos tend to be communication-centric and information-centric users. Without third party apps and without a complete e-mail solution, I think the iPhone is not a great substitute for a Treo today for most users.

If I were at Palm I'd be pounding those issues relentlessly in my marketing for the next six months.

However, the Treo has benefited mightily in the US from its image of being the coolest smartphone. It has been a status symbol in Silicon Valley and beyond. Judging from the reactions of the people I spoke to today, I think that position is profoundly at risk. Check out David Pogue's enthusiastic iPhone comments in the New York Times. Pogue is a longtime Palm fan, and before he started at the Times he was a traditional keynote speaker at Palm's developer conferences.

The Treo is still a practical choice, but it's not necessarily the emotional choice.

I think there's a danger that Treo will turn into a tweener in the mobile market -- not as credible for e-mail as RIM, not as good for entertainment as iPhone, and not optimized properly for information management (screen is too small, not enough storage, no note-taking). Palm needs a stable niche it can dominate, so it will have enough money and time to grow its product line.

I don't know if Palm wanted to make Jeff Hawkins' new product a test of the company's ability to innovate, but like it or not that product is going to be compared intensely to the iPhone, even if they don't attack the same problems or sell to the same people. It's Jeff Hawkins vs. Steve Jobs for the title of mobile visionary.

That should be entertaining.

Nokia must be frustrated. It has been doing all these experiments in tablets and media phones, and Apple waltzes in with its first phone product and resets the dialog in the mobile industry. Nokia wants that sort of leadership role, and I'm sure it'll invest heavily in pursuing it.

SonyEricsson has a problem. I've been impressed by SonyEricsson's media phones, but the iPhone is aimed at exactly that same market. Luckily for SonyEricsson, most of its franchise is in Europe, where I think Apple will find sales a little tougher. It also helps that Apple's shipping in Europe later than it is in the US. But I think SonyEricsson will find it harder than ever to penetrate the US, and it will have to innovate rapidly to hang onto its emerging franchise in Europe.

And now, the opportunity. Apple did an exclusive deal with Cingular. I'm sure it will do other exclusive deals with a small number of other operators around the world. That will create intense demand for an alternative product among the other operators. Verizon, Sprint, and TMobile US must all be desperate for answers to Apple's product. That means phone companies that can produce media phones, and software developers creating apps that can duplicate some of the iPhone's functions, have an important opportunity. Samsung probably spun up a team today to copy the iPhone, and LG probably spun up a team to copy whatever Samsung copies. And so on.

I think the issue isn't getting around Apple's multi-touch patents; you don't have to have a touch screen to make a great entertainment product. The key question is whether anyone else can integrate a wireless entertainment device (services, apps, and hardware) as well as Apple can. It won't be enough to just dump a bunch of apps into a device, and unfortunately that's what most of the mobile phone companies are organized to do.

What comes next? Michael Gartenberg made this point, and I think it's a good one. Apple undoubtedly plans a mobile product line, not just a single product. It's possible that the other products to come will plug some of the gaps, and attack additional targets.

I'm sure there is a lot more to think about in this announcement. Please post your comments and questions; I'm very interested to see what you think.

I'll do a post tonight with thoughts on the iPhone announcement (update: now posted here), but in the meantime here are some tidbits. During the announcement, Chris Dunphy and I did an instant messaging session as we watched feeds of the announcement (we're on opposite sides of the continent right now). Chris and I worked together at Palm, so we're both mobile veterans, and we used to spend a lot of time talking about industry trends.

I thought you might like this transcript of our comments. It's sort of a color commentary on the presentation. It gives you a little insight into how a couple of tech industry people think, and which features stood out to us at first glance.

My only hesitation about posting this is that I feel like I'm participating in Apple's hype. But in this case, I think the impact of the announcement actually justifies the hype. Mostly.

Chris Dunphy says: Total lust.... Are you following the iPhone details?
Chris Dunphy says: wow.

Michael Mace says: This isn't a phone, it's a PDA reinvented for 2007.
Michael Mace says: Extremely nice job.
Michael Mace says: I wonder how long the batteries will last with Mac OS X in there.

Chris Dunphy says: My thought too.
Chris Dunphy says: I sure wish it had 3G data speed.... But I am willing to trade all that I think.
Chris Dunphy says: Awesome looking hardware and UI.
Chris Dunphy says: Face proximity sensor is a bit of obvious genius.
Chris Dunphy says: Dangit - visual voicemail interface... We were trying to get that idea worked on 4 years ago!
Chris Dunphy says: 160dpi screen. Wow.

Michael Mace says: I like the sensor that rotates the screen image depending on how you're holding it.

Chris Dunphy says: Simple elegant stuff. I love Apple.
Chris Dunphy says: Multi-finger touch interface UI. Sweet.

Michael Mace says: Yeah, that multi-touch stuff has always impressed me.

Chris Dunphy says: Gads - how can this thing actually have MacOS in it?!!? Egads.

Michael Mace says: Battery life, battery life, battery life.

Chris Dunphy says: Safari with a 160dpi 3.5" screen will blow all other mobile www out of the water.
Chris Dunphy says: Apple Fusion.

Michael Mace says: Plus you should be able to run the base of Mac OS apps. This should re-energize Mac OS apps development.

Chris Dunphy says: I am guessing it is actually just a set of API's - not the full OS. But still - the developer potential is enormous.
Chris Dunphy says: I wonder how open it will be?
Chris Dunphy says: And if they thought through the ecosystem issues?

Michael Mace says: Good questions.
Michael Mace says: Putting Mac OS X in there is freaking brilliant. It lets them leverage so much infrastructure, and it's already paid for.
Michael Mace says: Okay, widgets. So they are thinking about third party apps at least some.
Michael Mace says: Ya know, Jobs and his team just think further ahead than a lot of other people in the industry.

Chris Dunphy says: Google maps is location aware. YES!

Michael Mace says: This screws up a lot of companies that were planning map services in the future.

Chris Dunphy says: I bet the same widget architecture as on the desktop.

Michael Mace says: I'm sure the architecture is the same; no reason to make it incompatible.

Chris Dunphy says: Interpreted so CPU / platform independent.

Michael Mace says: Yup.

Chris Dunphy says: And simple enough even for amateurs to program.

Michael Mace says: They're getting so many things right...
Michael Mace says: Ahhhh, services tied to location. Another thing people have been talking about but not yet shipping.

Chris Dunphy says: I am not sure I have ever been so lustful for a gadget before. Egads....
Chris Dunphy says: Not since the preview of the twist/flip Clie...

Michael Mace says: This is far better than the Clie -- Apple has thought through the software. It's a solution, not just a gadget.
Michael Mace says: And yeah, I want one. I'm waiting to hear the price.

Chris Dunphy says: Yep. Amen!
Chris Dunphy says: They could name almost any price for me right now... If only it had 3G....
Chris Dunphy says: I've been dying for a decent phone.

Michael Mace says: You know a 3G version has to be in the works.

Chris Dunphy says: Absolutely. This was the smart call for now.

Michael Mace says: And then put this thing on WiMax in 18 months...

Chris Dunphy says: Cingular here I come.

Michael Mace says: Oh, now Eric Schmidt is on stage with him talking about WiMax. Sheesh!

Chris Dunphy says: EGADS!

Michael Mace says: Steve builds in Yahoo mail and Google gets on stage with him. What a great deal-maker.
Michael Mace says: He has totally shown up everything on display at CES.

Chris Dunphy says: I've made $850 in AAPL in the past few days. I wish I had bought LOTS more.

Michael Mace says: I wish I had my old options.

Chris Dunphy says: Yahoo is the search - egads!
Chris Dunphy says: What a way to play all sides.
Chris Dunphy says: Amazing dealmaking.

Michael Mace says: Since it has a full browser, the bundled search does not matter as much. But it's the optics.

Chris Dunphy says: Look at the size compared to a Treo: http://www.gizmodo.com/
Chris Dunphy says: AppleTV looked awesome too.
Chris Dunphy says: What a day for Apple.

Michael Mace says: Uhhh, five hours of battery life? Does that mean five hours of talk time?

Chris Dunphy says: I hope so!
Chris Dunphy says: That beats the Treo if it is.
Chris Dunphy says: Music playback time seems to indicate that.
Chris Dunphy says: EDGE radios can be VERY power efficient. Was smart to go 2.5G.

Michael Mace says: And here comes the price...

Chris Dunphy says: Tease

Michael Mace says: Yup, this is the crescendo, to be followed by the ship date.

Chris Dunphy says: A master at work.
Chris Dunphy says: Aigh - JUNE!

Michael Mace says: I wonder if that price is with a contract.
Michael Mace says: And now Steve, having done an exclusive with Cingular, will negotiate favorable contracts from every other GSM operator, one per country.

Chris Dunphy says: Yep - 2yr contract.
Chris Dunphy says: Ick.
Chris Dunphy says: I wonder how long the exclusive is...

Michael Mace says: Might depend on how cooperative the operator is.

Chris Dunphy says: "Cingular Exec on Stage 10:45 - ZZZzzzzzzzZZZZZzzzzzzz.–Brian Lam"

Michael Mace says: ;-)

Chris Dunphy says: You'd think they'd learn.

Michael Mace says: Might be exclusive for this device. But when WiMax is available, I can't believe they'd duck that.
Michael Mace says: Cingular's subsidy is helping Apple get this to an affordable price. They couldn't have launched this at an affordable price without it.

Quick look at the specs of the Apple iPhone: High-resolution multi-touch touchscreen, Mac OS X built in, no dialing buttons, camera and music player built in, email, browser, Bluetooth, WiFi, cellular.

Quick reaction: This isn't a phone, it's what mobile computing was supposed to grow into. The phone is just a part of it, and in my opinion not the dominant part.

I don't think this kills RIM; a hard keyboard is better for dedicated e-mail hounds. But for entertainment-centric users, this looks like the device they've been wanting without even really knowing it.

I wonder how long the battery will last with Mac OS X in it.

More thoughts later. (Update: Now posted here.)

Yes, I know Sprint's serious about WiMax -- it's spending more than $2.5 billion to build out a mobile WiMax network across the US. That's old news. The surprise to me is the business model Sprint says it'll deploy on that network. That hasn't gotten much coverage at all, but I think it's critically important. If you believe what Sprint says, its WiMax network will be totally open: any device, any application, without any contract required.

When I first heard Sprint describe that business model, in a panel discussion late last year, I felt like I ought to pinch myself. Did he just say that? I thought. Did a VP at a US carrier really say that?

He said it. What I'm not sure of is whether Sprint has the will and persistence to see it through. If they do, I think the Sprint WiMax network might be very special indeed.


Background on WiMax and Sprint

WiMax is a marketing name for 802.16, a wireless broadband communication specification. Some people call it WiFi on steroids, and although there are some significant technical differences, that's a reasonable way to think about it. WiMax promises to provide about 10 megabits per second of upload and download, at a distance of 10 kilometers from a base station (although Sprint has said that the real-world throughput will probably be more like two to four megabits per second download and half a megabit per second upload).

There are a lot of different frequencies on which WiMax can be deployed. Sprint owns rights in much of the US to the 2.5 megahertz band, which is considered to be very good for deploying WiMax because it has relatively little interference and because the signals carry well at that frequency. From what I've read online, it's possible that some unlicensed spectrum will also be used for WiMax (so you won't have to pay anyone to use it, like a WiFi base station), but if that happens it's likely to have more interference and shorter range. Unfortunately, WiMax is likely to be deployed on different frequencies in other parts of the world. I presume we'll end up with multi-frequency radios (just as we have for GSM today), but that sounds messy.

In summer of 2006, Sprint announced plans to build out a nationwide WiMax network in urban areas across the US. Motorola and Samsung were listed as key equipment suppliers, and Intel as a chip supplier.

Some other companies also own WiMax related spectrum, most notably Craig McCaw's new company, Clearwire. He has already raised about $1 billion from investors including Intel, and is planning an IPO for another $400m.

(Intel is a consistent theme here, and some of the people I've spoken with fear that Intel will end up dominating WiMax the way it did PC microprocessors.)

If you want more details on WiMax, Wikipedia has a good article. There are some other interesting tidbits here.


The panel

The setting was a Churchill Club evening forum on WiMax. On the panel were senior execs from four companies: Qualcomm, PacketHop, Motorola, and Sprint.

Qualcomm is widely seen as an opponent of WiMax, because it doesn't control a lot of the patents around it (unlike just about any cellular technology you can think of). The Motorola speaker even cited the absence of Qualcomm patents as a key advantage of WiMax, which tells you everything you need to know about the relationship between Qualcomm and the handset companies.

Sure enough, the Qualcomm speaker, marketing VP Ronny Haraldsvik, spent most of the evening expressing gentle skepticism about WiMax. "Take the hype, add some reality and a couple of years to it," he said. He predicted that fixed-location WiMax will be successful, but said mobile WiMax will be surpassed by other mobile broadband technologies.

PacketHop provides mesh network wireless broadband that can be deployed quickly for government and business. Basically, it's a way to get wireless broadband at the site of an emergency or special project, in an area that's not covered by 3G. I'm not sure why PacketHop was in this particular panel, since Sprint's plans are focused more on consumers than business.

The Motorola speaker was Raghu Rau, SVP of strategy and business development for the company's networks business (presumably he'll be providing network equipment to Sprint). And the Sprint speaker was Bin Shen, Sprint's VP of broadband.

The panel featured all the usual rhetoric you'd expect from competitors and suppliers, but in between the posturing, Shen said some very interesting things about Sprint's plans for the network. The excerpts below are paraphrases of what he said, with my comments in italics.

The vision: personal broadband. Mobile broadband will be much more interesting, powerful, and important than landline (DSL or cable) in the long term. Landline is for a family, but mobile broadband will be personalized to the individual. This creates the possibility for all sorts of personalized advertising and services. In the future, mobile broadband reaches beyond homes and handsets; it shows up everywhere in all sorts of consumer electronics devices.

It's a very starry-eyed vision. You can find some more examples of the sort of story Sprint is telling here. Personally, I'm not very enthusiastic about the idea of building broadband into every consumer electronics device imaginable – it reminds me too much of the Bluetooth-equipped refrigerators that people were predicting in 1999. But I do think that new types of mobile devices paired with mobile broadband will be important.

Mobile data demand is anemic today because it's forced through handsets. The handset is primarily for voice, Shen said. Among the US operators, Sprint has the largest share of ARPU coming from data (over $10 a month) , but it's a small percentage of total revenue, with limited growth. There's always a limitation on how much people will use and pay for data on a handset. On the other hand, the laptop is a data device. So are the iPod and the Playstation Portable. People expect to use data on those devices. How do we connect them to the Internet wirelessly?

I thought that was a stunning statement from a company that has invested heavily in 3G networks and smartphones. He basically said that smartphones are a cul-de-sac; that the future of mobile data will come from devices designed from the ground up to use data.

Right on. I don't think smartphones are a dead end, but we need a lot more diversity in mobile devices.

Openness is essential. Broadband requires a much more diverse ecosystem. You can't predict what will be the popular data device. You need an open model with a lot of people participating. There must be a different structure and business model to encourage that. A key issue is partnership and ecosystems. Get the right set of players.

The US carriers exercise lots of control over handsets and application developers. On the one hand that's very good; it provides a consistent experience for users. But it's probably not good for innovation. The next generation will be open, with a very robust SDK and API, open for the Internet community to come in.

Another striking admission for an operator: We strangle innovation. This is where I started wanting to pinch myself.

No contract required. WiFi doesn't have broad coverage. But 200 million units of WiFi have been shipped in the US. That's one element of why we chose WiMax -- it can share a lot of common components with WiFi. We want a WiFi+WiMax chip, at very low cost, so device manufacturers can replace their WiFi-only chip with a dual chip. This enables a very interesting consumer model. Consumers don't have to decide which network to sign up for; they have a choice to use WiFi or use WiMax whenever they want. If they want to use WiMax, they can pay for it on the fly, without a contract.

Okay, so let's add this up: an open, broadly-deployed, high-speed wireless network that welcomes any device, open APIs that allow any application, and no contract required. This is everything that the computer and Internet industries have been asking of the operators, and Sprint is apparently saying yes to all of it. The audience at the Churchill Club should have given this plan a standing ovation, but the information came out in dribs and drabs during a 90-minute panel, and it was very hard to assemble all the pieces.

If Sprint really wants to build an alliance around this thing, it needs to do a much better job of outreach to Silicon Valley.

The killer app is open access to the Internet. There are a lot of interesting apps you can do for mobile broadband – location services, video, etc. But the fundamental one is intelligent mobile Internet access. That's what people want. We did a survey -- the number one need is Internet everywhere.

Ouch. Whenever you do a survey on this sort of subject, people ask for the things they already know. So if you ask them what sort of data they want in a mobile setting, of course they'll say the Internet because that's what they know from their PCs. What they'll actually use is a different matter. But if Sprint really makes its network as open as it claims, that will sort itself out because the best mobile apps will naturally rise to the surface.

Hurry up and wait. The most frustrating thing Shen said was that Sprint will start deployment of the new network in late 2007 in Chicago and Washington, DC, with nationwide buildout in 2008. Aside from being frustrated at the length of the wait, I thought their choice of cities was poor -- if they really want software developers and consumer electronics devices, they ought to roll out the network first where the software and hardware developers are. Chicago's a great place, but it's not exactly a hotbed of Web 2.0 development.


What it all means

Can Sprint stay the course? Sprint's subscriber base has been growing more slowly than the other US operators, and it has gone through a lot of management turmoil. (As one friend who deals with Sprint told me recently, "they have fired pretty much everyone they could blame for the situation.") When this sort of change is happening, it's very difficult to maintain focus on a long-term goal. To make its WiMax plan take off, Sprint will need to get a lot of details right. In particular, evangelism of hardware and software developers is a black art, and not many companies know how to do it well. If Sprint can't keep consistent management on the WiMax project, and give them the resources and time needed to build up an ecosystem, its new network could become yet another costly mobile data failure.

This has strong implications for Sprint's management (stay focused, evangelize creative hardware and software companies now). It also means that companies planning to work with WiMax should monitor Sprint's progress carefully. More management changes, and shifts in strategy, would be major warning signs.

What about battery life? Small implementation details can easily doom a mobile product, and one I worry about for WiMax is battery life. Transmitting lots of data over long distances takes a lot of power. WiFi, for example, consumes far too much power to leave it connected all the time in a handset. I have to assume that Sprint and Motorola are working this issue, and you can find a lot of claims about low power consumption from the WiMax component makers. But I've been burned on this issue in the past, and I won't believe the problem is solved until we see working devices whose battery life we can test directly.

Let's hear it for desperate operators. I've had this conversation with several friends who work in the mobile space. We all agree that the best operator is a desperate operator. When operators are financially secure, they see no need to change their proprietary ways. But when they get scared, they become open to all sorts of interesting, formerly heretical ideas. The situation is similar to what the music industry faced at the turn of the century. They were so scared of music piracy that they willingly helped Apple to set up a music store with radically different pricing than had ever been used in the music industry before. If it hadn't been for the fear of piracy, do you think iTunes would have ever happened? I don't.

What you need is an operator that has enough financial resources to make interesting investments, but not so much that it feels secure. Sprint is the ideal example. The Three network is another, and look what they've been doing with flat-rate pricing. T-Mobile in the US is another example, although I worry that it's just going to focus on playing 3G catch-up now that it has bought a lot of new spectrum in the US.

If you're looking to do business with an operator, I think it's worthwhile to bypass the top companies and look at the bottom end of the top tier, and the top end of the second tier. They're likely to be much more open than the leaders to new ideas and radical business changes.

What matters is the business model. Qualcomm claims that other mobile broadband technologies will be more effective than WiMax, and for all I know that might be true. But if Sprint really executes on the things that Shen described, it may not matter. The thing that's broken in mobile data isn't the technology, it's the business model, and Sprint is promising to fix that. As Microsoft has proved numerous times, the right business model paired with mediocre technology often wins decisively.

Come to think of it, what Sprint really ought to do is apply the same open model that it's planning for WiMax to its EVDO data network. That would be truly spectacular.

It's worth an intense look. I've been critical of Sprint in the past when they've done things that I thought were unwise, so now I think I owe them some credit. I believe they're on the right track with WiMax. There are a lot of uncertainties about execution, but I think companies working on new mobile devices should look intensely at WiMax. It generally takes about 18 months to develop a new hardware product, so right now is the time to get started.