Endeavour Partners - Blog

One of the key themes we’re focused on at the moment is the multilateral asymmetric contest amongst major platform players (Apple, Google, Microsoft and Nokia in particular), device vendors (Apple, RIM, Nokia, Samsung, Sony Ericsson, LG, Motorola, HTC in particular), service providers (Google, Apple, Amazon in particular) and network operators (Verizon, Vodafone, FT Orange and so on). There’s some interesting data from Silicon Insider illustrating the size of the stakes…

The cash resources of some of the major players

While the numbers are interesting, I have to confess I hate the graphic…

It looks like an area chart, but it’s actually a line chart. Tufte’s head would explode…

And I’d love to see the analysis extended to include Nokia, RIM, Samsung and so on. And in this context, who cares about Intel, other than ARM and Qualcomm?

Yesterday’s Blackberry outage was eye-opening.  There are mixed reports all over the web about the extent of this outage and what caused it, but I lost email, PIN messaging, Blackberry messenger, and had intermittent problems across all other apps on my device.

I was traveling with a Blackberry-wielding colleague.  Usually this would make us feel like business Samurai, ready for anything.  Yesterday, this overconfidence caught up with us.

Emails to my travel agent never made it through, and there was no rental car waiting for me in DC.  Even at Hertz, I had one of those “not exactly” moments, and it took an interminable half hour to get a car.  In transit from the airport to meet people for dinner, neither of us could get wireless data connectivity.  No ability to search for the hotel and restaurant by name.  No ability to use Google Maps to get directions.

Also, we kept dropping calls.  Even calling to get directions was not as smooth as usual, but eventually this is the “old fashioned” way we found our destination.

Me:  “I can see the mall on my left, and the XYZ company on my right.  No, I don’t know what street I’m on.”

Friend/colleague on other end:  “I think I know where you are; go 1 mile, then turn left.”  (Not so long ago, this would have seemed miraculously cool – like in the Matrix:  “I need an exit!” – now it seems pretty pedestrian and painful.)

This sort of event brings home how much we depend on technology on a daily basis.  And how quickly we’ve become spoiled by technological capabilities that are relatively new.  It reminds me of a sort of post-apocalyptic Stephen King novel, where the protagonist needs to find their way through the world using their feet and their wits, but they are suddenly bereft of all modern technology and convenience.

Without Google Maps (and frequent United flights!) I’m not sure I’d make it to Denver in The Stand.  I’d probably jog right past.  Would you make it?

Perhaps more importantly, this has me seriously questioning my loyalty to Blackberry.  From a competitive analysis perspective, this is a disaster for RIM. Two major outages in a week.  A general degradation in service over the past year.  Meanwhile, my partner is having great fun with his iPhone, and my wife’s Droid Eris seems pretty darn cool.

There’s a great (albeit lengthy) post on Gizmodo about Android, although the title may be a little overstated:

[Android] 2.0 is more than that: it’s proof that Android is finally going to take over the world

As a digression, it’s fascinating to see how a technological innovation can re-shape language: the former meaning of android is now relegated off the first page of search results on Google, which led me to try ‘androids‘ as an alternative:

[youtube=http://www.youtube.com/watch?v=biBHJvGx3s8&hl=en&fs=1&]

The article from Scientific American about this date with a robot can be downloaded here; I find it intriguing partly because I began my career as a roboticist and cyberneticist.

Although it may overstate the case, because we are just in the earliest stages of a fierce contest amongst at least five credible competing app phone platforms, the post from Gizmodo does summarize well much of what provides the impetus for Android and why Android 2.0 is so important:

it’s “the first truly open and comprehensive platform for mobile devices.”

Android 2.0 means the handsets aren’t just interesting anymore; they’re truly buyable

In addition to everything else Android has going on, timing is on its side. Windows Mobile is limping along with two broken legs…

…as far as most consumers are concerned, anything Windows Mobile can do, Android can do better

The Palm Pre, polished and beautiful as it is, can’t keep up with Android’s exploding app inventory, multiplying hardware partners and rock-star ability to draw talent

Android 2.0, along with Palm’s WebOS and Apple’s iPhone OS, are the main reasons the BlackBerry OS feels so clunky and old

Let’s take a quick look at each of the other major contenders:

• the iPhone is the current leader, and critically works well across not just app phones, but through iTunes across other platforms such as personal computers and TV
• although RIM’s BlackBerry has been the long-time leader in the enterprise, it is not doing as well in the consumer marketplace, particularly outside North America, and its software platform (RTE, APIs and SDK) looks increasingly clunky in comparison to iPhone and Android
• Nokia is investing heavily in the transition to Qt and Maemo – the big question is really can it get there fast enough
• Microsoft’s most recent release of 6.5 was late and lacked usability, and despite some good things being said about it 7 is still some way off, eroding support for it
• while WebOS is technically elegant, the Pre’s implementation is slow, Palm lacks distribution and was really late with its SDK – it will be extraordinarily difficult for Palm to overcome these handicaps and establish itself as a credible competitor in the face of the likes of Apple, Google, Nokia, Microsoft and RIM

Android’s a strong contender, but it’s by no means yet certain that it will rule the world. In fact, one of the real possibilities is that rather than reaching a tipping point, a few of these will co-exist over the medium- or even long-term.

David Pogue has a review today of Motorola’s Droid which includes some discussion à propos how to categorize and name devices of this type.

Motorola Droid

He promotes the noun ‘app phone‘ for them, attributing it to @mentalworkout.

[Cool app, BTW, for those who have fear of flying. I took the Virgin Atlantic flight to London earlier this week; if you're lucky enough to fly in Upper Class, it's such an extraordinarily soothing experience that you probably don't need the app.]

I really like ‘app phone‘ , and suggest that we all adopt it for this class of devices:

• Apple’s iPhone
• all current Android ‘phones
• most modern BlackBerrys – post Curve
• Palm’s Pre
• Nokia’s N97 and N97 Mini running the latest version of Symbian

This post re-surfaced for me, however, one of the key topics that we have found ourselves debating frequently over the last many months; what is a ’smart phone’, and what should we call it?

This is a common challenge in high-tech; how do you think about new phenomena? How do you build robust mental models? We believe that having the specialist expertise to do this, and the relevant experience of having done this, is one of the key things that differentiates Endeavour Partners.

First, what are the key criteria:

• downloadable applications – in which case do BREW and Java devices qualify?
• user interface, such as (responsive) touch screen or QWERTY+touch pad/trackball interface to allow easy navigation for the web and similar applications
• running multiple applications – which disqualifies the iPhone?
• great at browsing – typically with a full WebKit browser
• third party applications have to be available, affordable and accessible
• what about size – is there some constraint here, because otherwise a laptop could qualify?

And what about the additional capabilities that are now part of the competitive benchmark:

• fast graphics – for video, browsing and gaming
• accelerometers
• GPS – for location services
• WiFi

There are several specific devices or types of devices that illustrate this challenge, and the grey areas involved:

• older BlackBerrys with thumbwheels but without trackballs – great at e-mail web but suck at browsing
• the Nokia E71, a great (particularly when it launched) device handicapped by its click-pad for navigation (which on one occasion proved enormously frustrating as the cursor moved in clicks that circumnavigated a small target without ever being able to actually click on it, on a site that should have been designed with mobile devices in mind – Handango)

Nokia E71

• many of Nokia’s myriad Symbian S60 devices that have 12-key keypads, lacking either a touch screen or a viable navigation method for browsing
• and what of the forthcoming Nokia N900 – is this a smartphone, or not?
• and given how unresponsive the touch screen on the N97 and N97 mini can be, and some of the usability challenges that remain with Symbian, do the N97 and N97 Mini qualify?
• almost all Windows Mobile devices, that lack a touch pad, requiring a stylus or arrow keys for what is enormously painful navigation (Sony Ericsson’s Experia X1 is one of the few devices that overcomes this challenge)

On purely pragmatic grounds, and notwithstanding flame wars from some purists and Verizon’s new advertising campaign, clearly any definition that excludes the iPhone on the technically focused grounds that it does not run multiple applications at once, except for some built-in apps such as Mail and Phone, does not make much sense. Although this may be an important consideration, it clearly does not deter users, and the ease of switching amongst applications mitigates this significantly.

The related question was what to call these things? We tried the term ‘smart device‘, to emphasize the that the capabilities went way beyond making a call. Unfortunately that promotes confusion as it embraces some very devices that do not have ‘phone capability at all.

So, let’s endorse the term ‘app phone‘ for these high end devices, and use the term ’smart phone’ for the broader group of which these are a subset.

We’ve been taking for granted what I think may be a central insight:

The smartphone is for the masses, not a high-end niche of techno-geeks and status seekers.

Within 5 years, smartphones will represent roughly 50% of mobile device shipments, 75% of device market revenues, and 90% of industry gross margin potential.  In developed economies, smartphones will represent 40-50% of the installed base of users.  In 7-10 years, virtually all mobile phone subscribers will carry a smartphone.  Different markets will develop at slightly different rates based on replacement cycles, how prepay vs. postpay plays out, etc.  But the end result will be the same:  People will own smartphones like they own toasters or microwaves or shoes.

Quick messaging devices (QMDs), feature phones, and basic mobiles are the niche devices:  A smaller segment of users willing to accept a constrained experience in exchange for…  In exchange for what, exactly?

In the US, the $99 value menu is already dominated by late model smartphones such as the iPhone 3G and earlier Blackberries.  In some other markets, the iPhone is already free with a subscription.  Costs and prices will only go down from here.

Displays, memory, processing power, battery life, wireless broadband connectivity – all are getting cheaper by the day.  The major barrier to smartphone adoption was the user experience.  The smartphones of three years ago (think Symbian or Windows Mobile) could do lots of things but none of them very well.  And the added capabilities would come at a steep price premium.  Under those conditions, people chose a device with limited capabilities – a targeted device that worked well for the activities that a particular customer or segment cared about.   A device that could be squeezed into a low enough price point to attract a wide enough audience to recover all the non-recurring engineering costs associated with the broad product line required in such a market.

But these conditions no longer apply.  The smartphones of today and tomorrow (think iPhone, Android, Blackberry, WebOS) are joyfully easy to use, and can meet all of these customer requirements in just a few form factors.  The functionality of a smartphone is as seemingly infinite as that of a PC – perhaps more so as many additional use cases are opened up by the anytime, anywhere availability of having a smartphone in your pocket.  Costs will come relentlessly down.  Performance and capabilities will improve.  Late model and “pre-owned” smartphones will find their way to the bottom of half of the market, either shipped to developing markets or sold on Ebay or Craigslist.

How will the market be different with billions of smartphone users?  How will the world be different?  These are the fundamental questions facing our clients.

At 4G World here in Chicago, the debate is raging on about the potential value of femtocells.  One audience member asked yesterday, “If I already have a 20 Mbps broadband connection and a WiFi access point, then why do I need a femtocell?”  I think he was on to something, but it is interesting to go back in time a little and see how the relative business cases for WiFi and femtocells have changed as the market evolved.

This feels like a confession:  Three years ago, I was a proponent of femtocells as a solution for indoor coverage, particularly when compared to WiFi UMA.  Too few devices had WiFi, and it seemed unrealistic to expect many users to adopt a solution that required such a constrained selection.  Different family members or different personnel within an organization may have very different device preferences or be at different points within the replacement cycle.

By contrast, femtocells allow installation of customer premise equipment where it is needed, and the problem is solved.  Individual users don’t need to change their behavior, and if the costs were right, then it could be an attractive solution for many households and businesses.  But the costs were too high (I priced one at $300 at the time) and commercial availability was and still is limited.

Fast-forward three years and the market has changed dramatically:

1. Lead by the iPhone and RIM’s Blackberry, smartphones are rapidly gaining share – in developed markets, the majority of users will have one within two device replacement cycles
2. The challenge is no longer only about indoor coverage, but now also includes an immediate need for additional data capacity to support high bandwidth applications
3. Leading smartphones will nearly all be WiFi-enabled

The result is that homeowners and businesses no longer need to pay to install a femto cell, and users no longer need to be constrained to specialized, suboptimal devices.  For most people, WiFi coverage already exists in their home and office, and these same people are likely to carry a WiFi-enabled smartphone now or within two upgrade cycles.

These smartphones are also responsible for driving a massive increase in data traffic and clogging up 3G networks.  WiFi provides a mechanism for operators to offload 30% or more of this traffic without massive upgrades — and in advance of LTE networks coming over the next 3 years.

Device makers are scrambling to offer smartphones that match Apple’s iPhone as the key competitive benchmark (including WiFi).  Mobile operators are responding to increasing smartphone usage with investments in WiFi assets and improvement of seamless switching between WiFi and wide-area cellular to offload some of the associated explosion of data traffic.  The way the iPhone restricts high-bandwidth applications so they can only be used over WiFi is a good example of a first step in this direction.

Meanwhile, the level of investment in femtocells is small by comparison, involves a tough value proposition to customers, and is focused on solving a problem that is largely taking care of itself.

My money is on WiFi.

Om Malik of GigaOM has just responded on GigaOM to the debate around the new (5G) iPod Nano and the Flip, which we wanted to consign to the deadpool.

First:

Have you bought and used the new Nano? I think you will quickly realize that it isn’t that easy to use.

Secondly, to say that two hands will result in a stable camera and better shot. Of course, a Cannon HD camera would result in an awesome shot.

I think comparison is Flip – which you can use with one hand. Secondly, i think the video camera on iPhone 3GS is pretty awesome. and works nicely with one hand usage.

For the avoidance of all possible doubt:

• the new iPod Nano isn’t that easy to use
• the right comparison is the Flip

Nevertheless, when evaluating the prospects for a new device, such as the Flip, which has not yet reached the mass market, you need to think about both the function and what else a potential customer (a) wants to do and (b) owns; you have to consider the choice in context.

As I said in my original comment, there’s only very limited scenarios under which the Flip gets bought:

Scenario 1: I want a small, easy to use, video capture device – the Flip wins (- and I don’t own a Nano and I’m not concerned about music (added))

Scenario 2: I want a small, easy to use, elegant music player – the Nano wins

Scenario 3: I want both a small, easy to use, video capture device and a small, easy to use music player – the Nano wins

Scenario 2A: I have a 5G Nano, and I want to capture video – does the usability challenge of camera placement justify the incremental expenditure on a Flip – $150 or $200? – no

Second:

if you are a casual video taker then the iPhone or new Blackberry’s do a pretty awesome job. I use the Blackberry Tour and it rocks. It is perfect for casual video. I think Flip is a step up because it creates better videos and has better sound capture.

I agree that it’s a ’step up’, but enough to justify another $150 or $200? I think not. Look, I’m a gadget freak, and even I can’t imagine running that one past my wife…

Although we all spend a great deal of time experimenting with different devices and services, so that we have real -world, first-hand experience of their usability, we do have our personal preferences. We’re a Mac shop, albeit with a mix of BlackBerry addicts and iPhone loyalists. For our BlackBerry users, such as my colleague Moe Kelley, today is a good day; as Boy Genius Report notes, it looks like BlackBerry Desktop Manager may go live today:

The tweet that made Moe's day

“This may sound a little weird, but can I take a picture of that?”

A point of sale terminal at a Jiffy Lube with an apparently disappointing user interface

I was in a Jiffy Lube, of all places, paying for an oil change, and I saw a powerful example of something that we’ve been discussing with clients over the past few months:  Great user experiences in one product area can drive user expectations across a wide variety of other products, services and use cases.

In this case, the touch screens on iPhones and other leading mobile devices are changing people’s expectations about how things should work on everything from televisions to digital cameras to point of sale terminals like this one.  Apparently, Jiffy Lube customers and employees keep trying to use this as a touch screen even though it isn’t one!

A similar example comes from the TiVo and DVR experiences many of us have become used to.  Haven’t you often wished you could pause or rewind your car stereo?  Or listen to the usual 8:00AM broadcast team even if you were on your way in to the office earlier or later than usual?

People are now coming to expect an incredibly rich, interactive, and easy to use experience from all the technology in their lives.  The benchmarks are products like the iPhone, the iPod, TiVo, and Blackberry, and you will be judged against these standards regardless of what price point you are trying to hit or product category you think you are in.

Does your product have a touch screen?  Tens or hundreds of Gigabytes of storage capacity?  The ability to stop, pause, rewind, time and place shift content?  The ability to move instantly and seamlessly between applications or functions?  WiFi or wide-area cellular connectivity – or, better yet, both?  Perhaps it should.

The $99 heavyweight

In the past couple years, even months, we’ve seen a sharp decrease in the price of smartphones.  With these high power devices more and more becoming necessities instead of luxuries for mobile consumers, and revenue from data and content based traffic rising, carriers are becoming more willing to subsidize these pricey devices to put them in reach of the average consumer.  And recently the $99 price level, previously reserved for more value oriented feature phones, has been shocked by the introduction of a true smartphone heavyweight: the iPhone 3G.

Even with other carriers beginning to increase value priced smart offerings, such as the newly announced $99 BlackBerry Storm, the value per dollar ratio still leans heavily in favor of AT&T and its iPhone 3G.  To back that up, here is quick overview of the best phones currently available on the value menu:

Verizon

1. LG Dare – A resisitive touch screen feature phone offering haptic feedback and a 3.2 megapixel camera.  Limited by a smaller 3″ screen and lack of a true smartphone OS.  Plus the web browsing experience leaves much to be desired
2. BlackBerry Storm – RIM’s first foray into touch screen phones running the standard Blackberry OS 4.7.  While it carries all the enterprise friendly Blackberry features, it has been criticized for having a cramped keyboard and being sluggish.

T-Mobile

1. BlackBerry 8820 – An aging offering from RIM now eclipsed by the Curve 8900.  Usual RIM enterprise features, but suffers from a lack of a camera.
2. Samsung Behold – Another resistive touch screen feature phone lacking a true smartphone OS.  Has sub-par web browsing and lacks WiFi.

Sprint

1. Samsung Instinct – A resistive touch screen phone lacking WiFi and with bad web browing UI.  Also lacks sizable internal storage.
2. Motorla VE20 – Barely deserves mention in this category.  No full web browser, WiFi, or enhanced OS.

AT&T

1. iPhone 3G – Capacitive touch screen device running the iPhone OS, with good web browsing experience, WiFi capability and sizable internal storage.  Lacks expandable memory.
2. BlackBerry Pearl 8110 – WiFi enabled trackball device with limited internal storage running BlackBerry OS.

This overview shows that there simply isn’t a contender to compete with the $99 iPhone 3G.  As these prices continue to drop, smartphone penetration will increase and it will become ever more necesarry to have true smartphones available at this value menu level.  And of course, this topic begs the question: How long will it be before we see the rise of free smartphone offers?  At that point the feature phone may become obsolete and this current value price level may be reserved for even smarter, heavier hitting devices.