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Cell Phones Becoming Profitless
saccade.com writes "EE Times has a fascinating article
on how electronics companies are being sucked into a profitless
spiral by the cell phone market. More and more of the small consumer
gadgets are being folded into the phone: camera, music player,
PDA, GPS, etc. So the market for non-phone gadgets is slowly
going away as the phone picks up more functions. However, consumers
don't buy most phones; they are given away (or sold very cheap)
by the service providers as hooks to get people to sign up for
mobile service. So the service providers are demanding (and getting)
rock-bottom prices for fancy phones they can give away, and the
micro chip companies are forced into brutal competition for a
market that is shrinking into a single commodity gadget, the
phone."
I welcome this trend towards ONE peice of equipment to do everything. This will allow me to carry one peice instead of a camera (and it's respective bag, accessories etc.), a phone, a pda, a computer, a music player, a note taking device etc...
Cell phones are in the process of crossing the chasm between phones and replacements for your PC. Until this job is complete, margins will be way down.
In three years, I will bet anything that you will be able to connect a bluetooth mouse, keyboard and some sort of monitor to your cell phone (probably via it's charging cradle). For most users, these devices will be powerful enough to toss their PCs for good.
But to get there, the industry is running uphill at a breakneck rate - features and technology are going nutz - it is EXPENSIVE to make this transition.
It is your personal duty to fight for what is right on a daily basis. Ignoring injustice is identical to approving
As a business model this works while its still profitable for the phone companies to discount the phone and expect profit from the contract. But what about when everyone already has a contract? (as will happen when all people who want a phone have one. IE - When the market reaches saturation). (And this isnt as far off as you'd thing). People are far more likely to upgrade their phone than their contract, so theres no additional profit to be made for the telco in discounting upgrade handsets.
Windows in 6 Bytes (IA-32) : 90 90 90 90 CD 19
the micro chip companies are forced into brutal competition for a market that is shrinking into a single commodity gadget, the phone.
Free country, free market, free economy. If you don't like the heat- get out of the kitchen. Nobody's forcing you to sell low-margin products, and they have nobody to blame but themselves if they're only making stuff for cell phones. It's not like they woke up one morning and said "oh my gosh, someone changed our product lineup to be just stuff for cellphones!" Furthermore, I don't really believe it- plenty of semiconductor companies make stuff that has absolutely nothing to do with cell phones.
If it -is- true, who's to say this shakeup is a bad thing? That's the wonderful thing about a competitive market- if a company can't make a profit on a device, they won't make it. If there are too many companies making a widget, the price will go low and only the strong companies will survive.
The fantastic thing is that if the strong companies start to suck, well- a market forms for an competitor because there will be something to differentiate their product. Not only that, but if it's better- they can price it higher, and (gasp!) make more money!
Please help metamoderate.
My thoughts exactly. I did rtfa and I don't buy it. Much like the all-in-one printer/scanner/copier/phone/fax/kitchen sink devices out there, I'd much rather have a few gadgets which do their job excellently than one which does several jobs in a slip-shod manner. I don't like camera phones. They're slow and have horrible resolution. The PDA/phone hybrids are much too large to carry comfortably in my pocket. I'm completely happy with paying $150 for my small cell phone which gives excellent reception in most locations, a couple more hundred for my digital camera, and some more hundreds for my Neuros MP3 player. And, most of my friends feel the same way. Some day when miniaturization and overall quality of such products improves, then I'll reconsider.
I also reply below your current threshold.
Of course cell phones are profitable - if they were not profitable, the cell phone manufacturers would create more profitable products.
And in fact, that's what they do.
Of course, for tax purposes, it is best if they show on the books that they lose money. As we've seen in many industries (manufacturing, healthcare, defense, MLB, etc) it's rather easy to show enough loss to avoid paying taxes. It is fact that corporations (at least in the USA) pay many fewer taxes as they did 5 years ago. The primary reason? Tax avoidance through "magic" accounting techniques.
If there was no money in the business, the shareholders would put a stop to it - after all, most cell phone manufacturers make many other products. But amazingly, looking at the past 5 years, share prices remain fairly stable compared to the overall tech sector.
The universal chip will be installed in every device then 'underclocked' so it only exposes the functionality that a consumer has paid for.
If it happens, it might make for some interesting hacks.
Unfortunately, we might not have much choice. If the cell phone gadget market kills the other markets and then is squeezed itself by vanishing profit margins, then we'll all pay the price for getting "free" phones many times over. Unfortunately, short-term price always seems to trump long-term quality in commodity markets.
Disclaimer: I work for a company, but I don't speak for them.
Sorry dude, they have 3M pixel cameras with optical zooms in cell phones here in Japan NOW. Oh, and PDA functions as well...and err I should mention MPEG4 video (to SD card) recording as well. I guess you'll get them next year... maybe.
In the case of a PC, the integrated motherboard costs less than the original motherboard, a sound card, and a network card.
In the case of a phone, the integrated PDA+phone is far more expensive than a much better PDA, and a phone.
If only this weren't true, I would be a happy, happy person right now, as I'm looking for a new phone and a new PDA, and am hating that I can't afford the combined systems.
Karma: It's all a bunch of tree-huggin' hippy crap!
Does a photographer use his phone to take his pictures? Does a person replace their iPod with their phone? Not likely.
Cell phone companies should be forced to label their "phones" to help people make better decisions. They should show 1) Antenna gain, 2) Standby battery life and 3) Talk time on every phone, very clearly, just like mileage on cars. If cell phones are going to be important parts of our communication system, people should make decisions based on criteria that MATTER instead of mindless feature creep.
I'm in the hole of the broadband donut.
I'm all for that, but since I also need a PDA, what do I do about the contact lists? Does the PDA have the definitive list, or does the phone have the definitive list?
Obviously the phone needs the list, otherwise you have no phone numbers to call. But if you only use the phone to enter all contact information, you're constrained to the tiny screen. And manually syncing the two every time one or the other gets new information is a horrible idea.
Since a PDA-sized phone is about as undesirable as a phone-sized PDA, I figure the only true way to solve this problem is to get the Bluetooth working so well that you can configure the phone to pull the list from the PDA if it can find it in its vicinity. That way, you only have to manage the list on the PDA, but the phone still has complete access to the list.
Karma: It's all a bunch of tree-huggin' hippy crap!
There's even one of those folding keyboards with bluetooth coming out that I'd love to buy next for it.
And if that's not enough, how about all the neat Symbian programs you can buy for it, like turning it into the ultimate universal remote control
And the camera in it feeds my addiction to mobog.com.
Anyhoo, sucker cost me $420. Someone made some coin on it.
I've owned a few PDAs including a Casio E100, E110, and a Dell Axim. Junk basically, and using imap or pop with pocket outlook is ultra painful. Too big and that resulted in me never carrying the thing. To get wireless internet access through the thing was another hassle.
This (nokia 6600 phone) puppy is just the right size for me.
I don't anything about the cellphone+camera you referenced, but can you do the following with it:
-Take a photo with someone standing in front of a waterfall, such that the person and scenery are in focus, and the waterfall (and mist) blurred to illustrate the motion?,
-Pan to follow a runner at a local marathon (you're standing on the curb of the road) and shoot the runner so that most of the person is sharp, maybe arms and leg have some motion blur, and the background is out of focus and blurred to indicate direction of where runner is moving?
-Take a portrait picture where the person is isolated from the background? (narrow Depth-of-Field)
-Take an indoor flash photo where the lighting is even and natural (ie. not the "deer-caught-in-the-headlights" or black background behind person/object)
-1-3 second exposure to capture fireworks.
$cat
This is bad for the consumer..how? I for one would love to see the day when all the necessary electronics one uses in everyday life may be compacted into a single small gadget to be carried and used anywhere and everywhere. Perhaps, out of stupidity, the companies have started us down that road.
I do not need a camera, voice memos, video games, downloadable polyphonic symphonic psychedelic ringtones, an MP3 player; barely functional text messaging, even more barely functional email, or a "web browser" that makes driving to the New York Public Library and looking up what I need to know seem efficient (I live in Virginia); Bluetooth, Compact Flash, color high-resolution display requiring exponents to describe, inaudible speaker phone, or a multi-billion dollar ad campaign that causes seizures in small children and house pets to tell me how this new phone is going to Change My Life Forever! (TM)
I do need good signal handling and audio; a phone book designed for people who actually a) read, and b) make phone calls; maybe a vibrating ringer available at every ring volume, not just the top and bottom; and a user interface that doesn't remind me of the very first freshman programming project of the year. For fancy occasions, an alarm clock can be nice.
A provider network that wasn't engineered by beauty-school dropouts would be nice, too, but that's another issue.
-Edgar
Cell phones are to a large degree a commodity product. I can get basically the exact same services from AT&T Wireless, Cingular, Verizon, T-Mobile and any other carrier. Plus the carriers give the phones away as a loss leader. In a market with what economists like to call perfect competition, we should expect to see prices drive down to marginal cost by competition. (note for the nitpickers, I'm well aware the cell phone market isn't actually a market with perfect competition) The handset manufacturers sometimes can create a differentiated product (like the Treo 600) which gives them a chance to stay ahead for a while. The service providers don't really have that opportunity for the most part.
Right now Nextel actually is the only service provider I can see that really has a sustainable advantage of any kind in wireless. They've basically hooked the contractor market witht their "push to talk" feature. Yeah, other companies are trying to follow suit but Nextel already has the lions share of these customers who aren't likely to switch and they can charge more as a result.
In most of the world, phones _are_ sold to consumers. While European service providers also use cheap/free phones to lure customers, there is no obstacle here to use whatever phone you want with a given subscription. Lots of phone stores and home electronic stores have display cases filled with phones of all kinds.
The problem really is created by the manufacturers as much as the providers. The phone has become a fashion item; for quite a lot of people, the phone you use tells others about who you are. Thus people tend to want to get a new phone very often, as fashions and designs change. That drives down prices a lot, as people can't afford to get a new, really expensive, phone every year, and on the other hand, the manufacturers dump the prices of their new models in order to make them the next must-have.
In a sense, it's the SIM card that defines their phone for people - that's the thing that holds their subscription, as well as address lists, phone numbers and so on. The phone hardware it currently sits in is just another fancy shell, to be discarded whenever the next model comes along.
Trust the Computer. The Computer is your friend.
This is the exact reason why Nokia 3310 and 3315 phones are so predominant in Australia. These phones went for about $150 a pop last time I checked and came with a pre-paid plan, Optus phones were network locked IIRC but Telstra phones were not. So now there is a massive market for 3310 covers because every teenager who didn't want to get locked into contract bought one.
Now phone companies are having a really hard time trying to flog off MMS phones, no one can see the point of buying a new phone so they can send 95 cent messages to each other.
As a side note it has also resulted in whats called a "Nokia salute" at teeniebopper concerts where cigarette lighters are not allowed. Just press enter on the phone and hold up the phone for the band to see.
Only half right..
Its not software that will clkosed and expensive.. and its not hardware that will be expensive..
Its services..
Everything will be "service" based..
ISP's will merge (like they are already into the Cell phone, landline, Entertainment industry. Instead of signing up with 5 different companies for each "service" you will sign up with one... and they will supply everything).
Then after another 10 years of that.. the "Cyber punk" or "Neuromancer" type corporations will start to "buy" people... you won't apply for jobs, you'll be born into them.
mark my words.. this is how it will come to be.
"Consider how lucky you are that life has been good to you so far. Alternatively, if life hasn't been good to you so far
Fair enough; but just suppose you actually want a phone, a gameboy and a camera one day. So you're going to carry around 3 discreet devices, or would you prefer just the one? Me, I'd choose the single device.
:)
The phone "boot up" isn't just glitz and noise - the phone is actually doing something:
1. Initialise the SIM and read out important data;
2. Find a nearby tower and establish a connection;
3. Attempt to connect to the home network;
4. Wait for the network to send an authentication packet.
5. With the random number in the packet, use the encryption function in the SIM to authenticate the phone and subscriber identity as a valid user and send it back to the service provider;
6. Be granted access to the network.
This is for your protection; if not for the authentication, I could grab your IMEI and phone number using an over-the-air packet sniffer and spoof your phone. So, all my calls are billed to you
As for losing functionality as a phone, my Siemens C60 works at least as well as my original Nokia 100 AMPS phone - that's about as basic a phone as you could ever get!
But I can't make sense out of these godawful service plans. I was going to get a phone a couple of weeks ago, but the madness of hidden charges, extra service charges and everything else that interferes in me figuring out HOW MUCH A MONTH, and comparing to other companies just made me lose interest.
I'm ready to pay for a phone and service, but I'm tired of the 'rebate economy' that cell phone providers hide behind.
When I can: pay the same, reasonable amount that isn't padded with unadvertised charges, and talk as long as I want, when I want - I'll get a phone.
Until then, phones are moot. Cameras, mp3 players, video games, internet access be damned - I'm not going to suddenly start paying to take pictures, listen to music, play games and surf 'per use'.
Yup. Very Cold Day in Very Hot Hell. But it's what I want.
My cell phone is a roll of quarters. Find a pay phone. Find a shop, ask to use the phone, and pay for the call. Slower, yes. Can't recieve calls, yes. But far less annoyance, and I don't need to carry around more than $5 at a time, instead of a $200 cell phone. Which would you rather have if you need to go through a bad neighborhood?
Not a sentence!
I thought about what else could be added into a phone some time ago and here is a list. Some of these features are already in some phones, but not all of them combined.
Tri-band GSM - So that the phone works in europe, australia and the US.
GPS - with maps so that you can use it like one of the purpose built devices.
Camera Phone - which uses GPS to add where the photo was taken to it.
MP3 Player
10-20Gb of Disk space using one of those tiny hard disks that have been developed.
802.11G wireless networking - allowing the user to link to thier mobile phone in there pocket. This would allow them to use it alot like the USB Memory keys now except without having to plug it in.
An Environment that can run programs that have been saved to the hard disk and use all the features of the phone (possibly java).
Easy Syncronization with outlook or some other calendar program. + Easy to expand syncronization technology for other purposes. eg Automatic backup of work files to home with each trip.
Bluetooth - to allow connection to various external devices like keyboards and the like.
A earphone the size of a hearing aid that links via bluetooth to the phone, that allows it to stay in you ear all the time.
A feature that would allow a signal to be transmitted to the phone to automatically put the phone in to silent mode. This would be good for cinemas and other public venues
color screen
good games - need I say more
Barcode reader and RFID scanner - so that you can do price comparision shopping + other industrial uses
Universial remote control.
Battery life exceeding 1-2 days, after which it doesn't forget all its settings like alot of the pda's do.
When I first started thinking about this, by using external components it would have costed about $10,000. Now I think it would be under half that, and still dropping. Thats if you could get a phone like that though!!!
Also the security implications of a device like the above would have to be well thought through.
Maximum aperture, for one thing. A pro telephoto lens might have a max aperture of f/2 or f/2.8. A consumer-grade might have a max of f/4 or f/5.6 (f/2 lets in twice as much light as f/2.8, so you can use half the shutter speed. f/2.8 lets in twice as much as f/4, f/4 twice as much as f/5.6). Takeaway -- you can shoot in lower light with a pro lens. This is useful, of course, because many wild things are most active in mornings or evenings.
Second, resolution. Consumer lenses are "softer" compared to pro lenses, which are much sharper. A pro lens can resolve a series of closely-spaced thin lines from farther away than a consumer lens can. Also, pro lenses are sharper through the entire frame, whereas consumers are often soft at the edges of the frame.
Less chromatic aberration. Less spherical aberration. Better contrast. Better coated glass, to reduce lens flare (when light from outside the photographed scene reflects off one of the inner components and into the picture). Faster and quiter focusing. Focusing turns rear elements rather than the front element, so that polarizing filters are easier to use.
Canon (and presumably others) has started putting image stabilization in higher-end lenses. Little gyros in the lens steady the image, letting you shoot in lower light. Not really an optics thing (they have it on some of their consumer lenses as well), but it's useful and is a several hundred dollar premium.
Etc etc etc.
First, there will always be a market for professional-grade gadgets.
Second, electronics manufacturers will get the cash one way or the other: the connection providers will pay the phone manufacturers which pay their subcontractors who made the necessary chips for, for example, the camera.
Third, at least here in Finland it's against the law to join phone and service: you are free to use whichever connection provider you want and whichever phone you want. And you are free to change the connection whenever you want. Ok, you have to pay the phone by yourself but it's yours to keep from the moment you bought it - the connection provider won't have anything to say about it.
a friend of mine is holding out for a Treo with Bluetooth support. he says he doesn't want to carry around all the cables all the time, so bluetooth is his answer.
personally, i find these fancy phones rather distasteful. every month, some company comes out with a new cellular phone that has all these widgets and doo-dads and massive color screens...
but since what we've got now is basically a gunch of hand-held game systems with IM and SMS and all that stuff.... starting with Motorola's flip phones as a base, what i want out of a current cell phone (before i will consider buying one) is this:
* tri-band GSM. i don't want to be locked into one provider for each area i go to, or for each country i visit. i want the freedom to use my phone where i want, when i want, on whatever network is available, and pay one bill.
* standard web connectivity at no extra charge, with some basic web tools like SSH and a graphical browser (like Opera). (and by extension, it would need a good, low-power color display - OLED, maybe? not too big. and i say i want free web connectivity for one and only one reason: a WAP "hotspot" will not always be available. period.)
* consumer-ready, free, and open development kit. i don't want to pay $1,000 for a dev package that i might use once to develop a program i'd rather give away anyway.
and at this point, i'm reaching for more ideas. i don't want a phone that does absolutely everything. a phone should be just that. a phone. it should just work when i need it to work. it doesn't need to be burdained by all of these useless features i don't want anyway.
if i need PDA functions, i've got a PDA. if i need a high-end portable game system, i can get the Nintendo DS or something.
if i want to watch movies or listen to music, i'll just grab the PowerBook and go.
i don't need all this cruft in one package. i just want something that works, is wireless, and gives me the features i need, not the features i may want.
grey wolf
LET FORTRAN DIE!
I don't *want* my cell phone to have all these features. It's expendable. I carry the thing everywhere and they get broken. They are utilities for placing/recieving phone calls on the road.
I don't want my MP3 player, camera, and lord knows what, in my phone. It's too liable to be dropped, broken, lost, or stolen. With my expensive MP3 players and my expensive cameras, they stay in my pocket or bag 99% of the time. The phone is in my hand, in the dashboard holder, a lot more.
I'd just have a cheap phone with good battery life and easy menu system to store phone numbers. I don't need anything more then that.
And like one of the other guys mentioned above, the cameras in these things are crap anyways. Who cares if they are 3MP; the tiny optics prevent a great picture no matter how big the sample rate is.
- It's not the Macs I hate. It's Digg users. -
This fluid lens technology from Philips Research may eliminate some of the physical limitations of optics and allow camera phones to one day rival full-size cameras in image quality.
What I find interesting is that no one in this thead has yet pointed out that not one manufacturer has given a damn about the quality of voice at both ends of the phone. I still use my five year old Qualcomm 2700 (made by Sony) becase even though I have tried *every* other cell phone on the market today, not one sounds as good (either at my end, or to the other party) as that old 2700. I've seen some explanations of why this is so, the main one being that the latest compression algorithms are all about squeezing as many people onto a tower as possible, regardless of what it ends up sounding like. One would think that after all these years cell phones would sound like a frigging high end stereo system, but instead all the tech has gone into blinking lights! The phone part has SUFFERED for all the tech. I just think it's weird. It's not just me, either -- I have had dozens of people try my old Qualcomm and they are always amazed at how good it sounds.
The word "profitless" does not fit in this case, since even this year Nokia has its operating margin more than 19% in their Mobile Phones Group (2Q 2004)./ Q22004pdf.pdf
http://media.corporate-ir.net/media_files/NYS/NOK
It's clear that the margins are narrower than during previous years, but not profitless! Many other businesses aren't even dreaming of such numbers.
The low-cost manufacturers must be kept away with bringing constantly new features. Nokia has a flood of new models coming. We'll see if they lift the company to previous profit-level. Motorola is bringing 30 new models this year, but they have a longer way to top profits. Some manufacturers have been struggling with low profit for years, but for instance Samsung is doing well.
While fluid lenses are cool, they are also (and must be, if you put them in a phone) tiny. That means they catch and concentrate less light. Which means you'd need a reaaaallly good sensor to make any sense of the little amount of light you're getting. Or settle for dark and blurry pictures.
This is the main problem with camera phones as it is -- abberation and those sorts of fancy concepts don't really get a chance to come into play as they're pretty much pinhole cameras as it is.
Mobile phone cameras suck compared to real digital cameras. Mobile phone MP3 players suck compared to real mp3 players. Mobile phone games suck compared to real handheld games consoles. Mobile phone applications suck compared to real applications. Web-browsing sucks compared to real web browsers. Mobile phone ringtones suck compared to real music. Mobile phone vibrating alarms suck compared to a real vibr.. Well, anyway, you get the point. But, and it's a J-Lo sized but, it does mean people who would not normally use these technologies may well like them and then go out and buy the 'real' thing. Unfortunately I am a geek and therefore already have a digital camera, MP3 player, games console, palmtop, web browser and battery powered marital toys. All I want from a phone is a phone dammit. The phone manufacturers have been so busy jumping on the bandwagon that they didn't bother to look where it was going. When it goes over the cliff I just hope it takes their hideous polyphonic ringtones with them.
~ Better a freak than a sheep. ~