This article originally appeared in the Dec. 2012 issue of Next Gen Mobility Magazine.
A while back, I commented in my TMCnet blog on rumors of a Sprint takeover by Google (News - Alert). At the time, many thought the idea was crazy. Fast forward a few years, tens of thousands of Android devices and a Motorola Mobility acquisition later, and Google is now reportedly in talks to launch a wireless service with a number of companies including Dish Networks.
As you may recall, Steve Jobs too wanted to launch a wireless network, and if Google is seriously exploring this option, this means Apple has to be doing the same.
The next frontier of advertising revenue for Google is mobile, and if carriers and Apple decide to lock the company out of this lucrative market (even partially), they have no choice but to own the wireless pipes.
Now the question of spectrum comes into play. Is T-Mobile too expensive? Is Sprint worth another look? What about SoftBank’s big investment in the company?
All of this shows the future for all successful companies is to own everything – at least they think this is the case. Just look at Apple, which owns chips to distribution. This counters much of what we saw in the PC space in the nineties when Dell bought off-the-shelf components and cleaned Compaq’s sales clock in the process.
At the time, Compaq was meticulously designing components at high cost to extract a bit more performance than what you could buy on the open market from common component suppliers. Dell showed Compaq and others that it made more sense to become a marketing machine and sell computers based on commoditized parts.
Today, the target is Apple. Amazon designs its own tablets because of Apple. Microsoft is in retail in malls because of Apple. Almost every phone maker has its own music store because of Apple. Microsoft Surface was a response to Apple.
If Google does indeed want to get into the wireless business beyond the Wi-Fi hotspots it offers around the country, it is probably because the company heard Apple was about to do the same.
Speaking of the key players in wireless, it’s also interesting to note that while profits from the top eight mobile vendors over the past five years have risen from $5.3 billion to $14.4 billion – for a whopping increase of $9.1 billion – more than 67,000 people have been laid off in this arena.
How is this possible?
I posited a similar query a few months ago regarding Corning’s (News - Alert) shares losing value – even while the company supplies Gorilla Glass to much of the booming mobile market.
Alcatel-Lucent, Google/Motorola (News - Alert) and RIM also have each announced plans to shed thousands of jobs, while Nokia has eliminated 10,000 jobs and Nokia Siemens Networks disposed of 17,000 jobs.
AT&T (News - Alert), Verizon and many other carriers around the world are benefiting tremendously from the massive spending on wireless connectivity from customers, yet this money is not reaching the majority of equipment providers or device manufacturers.
The challenge is the wireless market has a lack of competition for now. When the PC market was thriving there were hundreds of companies providing computers – some which you put together yourself and others that were bare bones models at discount prices. But now, prohibitive marketing budgets, the need for a patent arsenal, and carrier relationships have made it difficult for a no-name company to become a market leader overnight.
Apple and Samsung (News - Alert) are so dominant that the other players have to eke out a living in the shadows. Google and Amazon, meanwhile, can afford to lose money in mobile for as long as they need to in order to further their core businesses.
Another challenge is that organizations like Apple and Samsung are so large they can afford to design, and in Samsung’s case, manufacture their own mobile chips. What this means is typical suppliers to a thriving market like Texas Instruments have trouble making a living. This is why TI announced that it, too, is laying off 1,700 wireless employees.
The growth in wireless seems to be in the aftermarket space – meaning ecosystem plays. Apps makers, hardware add-on companies like Square, and case making are the angles to play to generate big money in wireless. For traditional hardware arms suppliers like NSN and TI, mobile is not your father’s tech space.
Edited by Braden Becker