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."

Comments

Forward to Steve

[SYFer]

In the article, it was suggested that disk-based media players like the iPod aren't immediately threatened by this "death spiral" (unlike flash-based players which could rapidly become toast as phones eclipse their abilities) and that got me thinking about the root problem of customer expectations. The cell phone companies clearly blew an opportunity when they initially treated the hardware as a loss leader. It's hard to get that genie back in the bottle. People today will pay for a crap flash MP3 player or low-to-medium-end digital camera, but balk at paying a premium for a mobile phone with loads of features.

Perhaps a marketer like Apple can break through with an enhanced phone product that will create a demand that outweighs the current expectation on the part of consumers that phone hardware is free (as in beer) or nearly free. This is right up Apple's alley.

The Motorola deal may be a trial balloon for Apple. Imagine the full capacity and function of the mini iPod married to a full-featured phone. Add to this the stylish design that Apple would strive to achieve and I think you have something that can break this "death spiral."

Re:Forward to Steve

[nbert]

Perhaps a marketer like Apple can break through with an enhanced phone product that will create a demand that outweighs the current expectation on the part of consumers that phone hardware is free (as in beer) or nearly free.

Jobs already said that Apple isn't interested in getting into PDAs again, because it would force them into the cell phone market. He's apparently not considering this option.

Apart from that I never understood the idea about integrating new functions into a phone. I like SMS, because it enables me to send someone a message without causing any disturbance. But that's about everything new I like about mobile phones. It just has to be small, convenient to operate and solid. I'm glad if I don't realize that it's with me before it rings. IMO it's a natural problem of the cell phone makers. It would be quite hard to justify 400$ a unit if they would have kept improving state of the art phones from ~2001 (I guess that it costs 20 bucks to manufacture them). They just had to come up with new features like color displays, PDA functions or neat little cameras.Otherwise we would buy phones for 30 bucks and we would also not accept 2 years contracts (common practice in Europe) with our providers. It's kinda obvious that the companies are not keen on such events.

History repeats itself

[secondsun]

This is similar to the cr industry in the late 20's-early 30's and the rail road industry. Both of them commoditized and competed themselves into fewer companies until the last ones left were profitable.

Re:History repeats itself

[shird]

exactly, simple supply and demand. Theres no such thing as a profitless business. A profitless business folds and the industry keeps shrinking until there there is just the right amount left that they are left making a profit.

If theres room for more companies, the industry grows, if not, it shrinks.

In any case, the providers arent exactly 'giving away' phones with 4 megapixel cameras and PDA functions. They cost a bundle, and I am sure they are making a tidy profit on those.

More likely, people buy phones with crappy 320x200 cameras, then fork out again to buy a 3mp camera. So they pay for a camera twice, and the industry gains. So.. stfu article writer!

No, I did not read the article...

[heyitsme]

But if the summary is right, the let me be the first to say BULLSHIT!

No way in hell I'd trade my 4 megapixel camera for a shit 320x240 phone picture JPEG'd to hell.

Well, maybe this is true for the PDA part.. but most PDA users have gadget fetishes anyways.

p.s. fp?

Re:No, I did not read the article...

[maxbang]

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.

Re:No, I did not read the article...

[ipfwadm]

Sorry dude, they have 3M pixel cameras with optical zooms in cell phones here in Japan NOW.

I've already said it, but I'll say it again. Megapixels are a myth, just like megahertz. Your 3MP phone camera isn't going to get nearly the image quality as a 3MP dedicated digital camera. Read my other comment for more info.

Re:No, I did not read the article...

[ipfwadm]

Unless, of course, someone like Canon start making those integrated cameras which come with the phones.

It doesn't matter who makes it. There are physical limitations of optics at work here. Correcting for aberrations takes a lot of glass, and glass isn't particularly light. There are currently limitations in the sensors such that larger sensors give better quality than smaller sensors. This will probably always be true to some degree or another (large format film camera give better results than 35mm, but for most of the market, who cares?). Sure, phone cams could potentially someday be enough for a lot of people, but they will NEVER take over the camera market as a whole. Just imagine holding a phone w/ attached 5 pound telephoto lens up to your ear.

Re:No, I did not read the article...

[ewerx604]

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.

Cheap my eye

[dacarr]

Look, a digital camera that's decent might cost a pretty penny, but the digital camera I get with a cellphone doesn't get the resolutions of a digicam I can buy separately (yet). Then there's the issue of storage - the "storage" for the phones I'm not sure about, but then there's bandwidth issues in that, last I checked, they still charge for bandwidth.

Re:Cheap my eye

[PeterChenoweth]

SprintPCS does not charge you for the amount of data used. It's a flat $15/month for Vision, which gets you unlimited internet at about 10-15K/sec download speeds. Storage isn't an issue on my Treo 600. The built in memory can handle 300+ photos, and I have unlimited storage on Sprint's picture servers. The couple of SprintPCS Picture phones I've had the pleasure of using could save 20-40 photos internally, but of course there's unlimited storage when you upload there too. But yeah, the camera is crap compared to a real digicam. When I want to take photographs, I bring along my 5mp Minolta Dimage 7HI. When I just need to take a picture of something interresting and get it to anyone I want quickly, a cell-phone cam is very handy.

Re:Cheap my eye

[ipfwadm]

the digital camera I get with a cellphone doesn't get the resolutions of a digicam I can buy separately (yet)

Repeat after me folks: megapixels are just as much of a myth as megahertz.

There are plenty of cases where a manufacturer has slapped a 5 megapixel sensor into a camera that was originally designed for a 3MP sensor, and the picture quality actually decreased.

Lenses, sensor pixel size (a 35mm full frame sensor at 6MP will deliver far better quality than the tiny 8MP sensors found on point-and-shoots), image processing, etc are all far more important to image quality than megapixels. And there's just not enough room in your pocket for a phone that has a decent lens and a big sensor.

Re:Cheap my eye

[ipfwadm]

Some info from 3 reputable sites:
http://www.photo.net/equipment/digital/sensorsize/
http://www.dpreview.com/learn/?/key=Pixel_Quality
http://www.luminous-landscape.com/essays/counting1 .shtml

As for lens quality, it ought to be obvious that a better lens will provide better image quality. If it's not, go here, click on a couple lenses, and look at their MTF chart. If you're not familiar with how to read an MTF chart, here's the low-down: a better lens has all the lines closer to the top of the chart (for a more detailed explanation, check out Canon's glossary). Pick a couple lenses of comparable focal length, look at their MTF chart, and then compare the price. For instance, look at the 80-200mm f/4-5.6 compared with the 70-200mm f/4L or f/2.8L. The 80-200mm is currently going for $120. The 70-200mm f/2.8L is currently going for a little over $1100. FYI, lenses with an "L" in the name are their pro series. There's a lot more to a lens than just its ability to resolve detail and show contrast, of course -- look here for more info on why pro lenses are so much more expensive (and better) than consumer-grade lenses. And by "consumer grade" I'm not even getting close to the level of a camera phone lens.

Who hates that all-in-device

[pio!pio!]

A PDA on my phone just makes my phone bigger/bulkier..no thanks.

I can fit my phone in my pocket, I dont want to have a huge slab of metal in my pocket, just a small thing that is portable and unobtrusive.

If I wantd a PDA I would have bought one..same w/ digicam and music player.

Anyway integrated devices are usually inferior to their standalone counterparts.

Who's with me? Keep those devices separate!

Re:Who hates that all-in-device

[buzolich]

I hate to say it but I'm in the camp that just wants a small cell phone that works. No camera, no PDA, no backrub, just phone calls. It's cliche but that's what I want.

Very misleading and uninformed

[adzoox]

Most cellular services providers take the loss on phones NOT the manufactuer - they make this up by locking you into a contact and hoping you either go over in minutes or buy a plan that makes them money - which 75% + do.

I know this because I had a girlfriend that worked for phone acquistion and deployment for Cingular. THEY almost ALWAYS paid full wholesale price for the phones. The Ericcsons they used to give away cost them $45 each. They cost Ericcoson something close to $19 to make.

Re:Very misleading and uninformed

[starworks5]

hey all, i work for the lnp department at veizon wireless, and i have to concur with the gentlemen here. verizon and most other carriers dont break even on a contract until about 5 months into it on a typical 2 yr contract. and being that most carriers have a trial period. when the customer returns the phones to us, its costs us ALOT OF MONEY. several hundred dollars in most cases. just figure out the time of all the parties involved. the depreciation (phones can not be sold as brand new). and what the FCC charges (last time i checked they charge 10$ for each time i query the national portability administration database). really the carries initially take a loss.

now this may sound like a shock, but actually you get cheaper service by these contracts than you normally would. imagine if everyone could change thier service whenever they wanted (easier with lnp), our overhead would be massive.

but in my humble professional opinion, if you really want to get screwed, choose nextel. they have the highest prices, least minutes, the most overhead, and they have to have phones especially designed for thier company, thier cell towers are propietary, no service level agreements (minimal tower sharing). the thing i hate the most, is that people cant port thier numbers easily because of 'number gaurd' meant to protect fraud. but really meant to keep you from switching carriers, and keeping your tel#.

How about just a phone that works?

[Thorizdin]

Ughh so this is the reason I can't get a phone thats _just_ a damn phone?

Crossing the Chasm

[iendedi]

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.

Re:Crossing the Chasm

[iendedi]

So did I until I bought this

Now, I think for most tasks, I could probably replace a PC now if the damned thing could be connected to a monitor (you can already connect a bluetooth keyboard)...

Considering that, I think three years is not a stretch at all...

Re:Crossing the Chasm

[Joe U]

Verizon will find some way to cripple that phone and still get me to sign a two year contract.

They're good like that.

Verizon has, by far, the best network in my area. Also, the rates are not too bad. Problem is, they tend to turn off some of the nicer features of the phones.

My phone has GPS and Bluetooth, VZW turned them both off for some reason. Not sure why. Also turned off the WAV ringers, I guess they like MIDI better.

Re:Crossing the Chasm

[PacoTaco]

For most users, these devices will be powerful enough to toss their PCs for good.

I can't wait until they add 3D accelerators that use the side of your face as a heat sink.

Re:Crossing the Chasm

[kryonD]

C'mon guys, someone go fetch the cluebat. If you want to see what the cell ohone market will look like in 3 years, book a flight to Tokyo. As far as cell phones replacing items like mp3 players, it just ain't gonna happen. DoCoMo released an mp3 phone about 4 years ago in Japan and it failed miserably for two reasons. #1 Cost - which has largely been mitigated since then, and #2 limitted battery life - which is still as much a reality here as anywhere else. Producing continuous sound draws juice. Hardware decoding draws juice. Even in Japan's advanced cellular tech industry the best phones still only get between 2.5 to 3 hours of talk time in realistic use. Unless the handset makers all agree on a standerd charging adapter that restaraunts and coffee shops would then agree to provide, people are just going to get pissed off way too fast when they are listening to their latest "Bittany Thpears (southpark lisp spelling intentional) Album" and they finally get an important phone call, but the battery is too low from playing music.

The only earth shattering news about our cell phone market is that we continue to put up with hand-me-down technology from Japan and Europe and we also continue to pay way too much for it. The latest Samsung phone released here in the US has finally met the same standards as the NTT phone I bought 3 years ago in Japan...except it's $300 here and my phone back then only ran me 12,000yen (~$100). But if I sign up for a one year binding contract with T-Mobile, they'll discount it down to $200...woohoo.

The only reason why a mojority of handheld features are going into cell phones is because 95% of people don't NEED the full features of a handheld, and the small subset of features they do need (calendar, todo, adress book) are easy to implement in a cell phone. I consider myself a technology freak and I would never pay extra money for a cell phone that will open word documents because I have never been so damned busy that I couldn't wait to open it on a regular computer.

Re:Crossing the Chasm

[Tassach]

Sorry to get off on a Dennis Miller-ish rant here, but I don't want my phone to be a fucking PC, PDA, camera, MP3 player, and electronic ass warmer. I want it to make phone calls, period. Nice clear phonecalls where I don't have to repeat yourself 5 times to get the other person to understand what I said. Phonecalls that sound better than two tin cans and some string.

I carry both a PDA and a Cell Phone. While combining them might mean I have to carry less junk in my pockets, I'd rather have them as seperate devices. They are different devices and have mutually incompatible design constraints.

A phone should be as small and light as possible while still being ergonomically suited to it's intended use. It can get by with a minimalistic display -- enough for maybe two or three lines of text, tops. All of it's battery power should go to driving the signal -- it shouldn't have any parasitic crap which reduces it's talk and standby time.

A PDA on the other hand should be big enough to fit comfortably in the palm of your hand and have a display big enough to show a paragraph of text in a non-eyestrain-causing font. It should give you a writing/drawing surface roughly equivilent to a post-it note. And it should have a battery life measured in weeks, not hours. A few extra bells and whistles (like games, MP3s, and email) might be nice as long as they don't detract from the primary purpose of keeping all the information I need organized and handy, and reminding me when I need to go to a meeting.

The problem with the combination devices is that if it's small enough to make a good phone, it's too small to make a good PDA; and if it's big enough to make a good PDA it's too clunky to make a practical phone.

Re:One for all...

[casuist99]

I welcome the trend, too, but there's always a "primary" device. In this case, it's a phone with a camera built in. The main functionality of the device is to work as a phone. It doesn't matter if the camera sucks, that's not the primary use of the device is.

I don't want to hold a really really heavy device to my ear to hear the phone because it has a gigantic hard drive built into it. And there's no way that a phone-integrated digital camera is ever going to really replace the high-end markets for other devices (think digital SLR, powerful computer, etc).

There's some integration of devices going on now, but it's always a crippled integration. The trend is encouraging, but I'm not sure it's ever really going to lead to anything.

Yep.... It looks like capitalism is still working

[Spoons]

So, what you are saying is competition causes a decrease in price and an increase in product features which benefits the consumer? Looks like the free market is still working.....

We've seen this before in the PC card market

[rrangel]

Remember when you had to BUY a sound card for your PC? What about paying $200 for modem card? NIC? Video card. Now you get the kitchen sink on most motherboards. And the components are pretty decent.

This seems to be par for the course. If the process can be put on a chip then function consolidation will surely follow.

Re:We've seen this before in the PC card market

[Trejkaz]

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.

boo hoo

[SuperBanana]

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!

Raising the Bar

[MBCook]

It's not that the market is being eaten up, so much as the bar is being raised. iPods aren't going to have any trouble staying profitable. They hold tons of songs and have a great UI. The only MP3 players that should be worried are the small flash based ones. They are the ones that can be easily replaced with a cell phone. Same thing with cameras. You may see those $50 or $100 digital cameras in stores that people might buy for snapshots. Those things are going to disappear as cameraphones become more common. That said, cameraphones won't be replacing the 3+ megapixel cameras any time soon. True point and shoot cameras still have a market. If all you need is to store a few phone numbers and maybe a few addresses, then there is no problem with a cell-phone. But those people who use their PDAs for phone numbers, addresses, appointments, note taking, etc. will keep their PDAs.

It's not that the market is "shrinking", it's that the low end devices that aren't very good and only sold because of their price can be easily replaced. It will be at least a few years before people's cellphones replace their digital cameras on vacations or give up their iPod minis.

And note that no one is claiming that the GBA is going to die because of cell phones. They may have games and such, but the GBA is a whole other calibar. Well made devices have nothing to fear. The portable games that are going to suffer are the little Tiger handhelds and such.

Consumers, by and large, only stand to gain from this. Survival of the fittest garuntees that most of these devices will be around for a while, and the substandard stuff will fall off the market. Which consumers lose?

And to those of you that say "I just want a phone that's a phone, dang it", we're in the gadget phase right now. It's all new. Wow, I can get a cell phone that can do THAT? As novelty wares off and people see that the extra features aren't that great by and large, you'll start to see simpler phones. Just because I might be able to get phone/camera/MP3 player/PDA/etc for free with my contract doesn't mean I want the thing around. Bulk and interface often suffer. The "cell-phone-only" will come.

Phones are profitable

[ljavelin]

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.

Not really an issue...

[ryewell]

The article states... "PDAs, cameras, GPS receivers, MP3 players, DVD players and game consoles" are all components of phones now...
HOWEVER, I would say very few people think to themselves "Hmmm... I'm want a camera, let's go buy a phone" or "Hmmm... I really love my gaming, I'll go buy a phone".
Perhaps the features of these new phones will affect a purchaser's decision, but in my opinion second rate features (i.e. low res camera, low everything game console, extremely bare bones MP3 player, non-optimized battery life, etc.) found in cell phones will never replace other non-phone sales unless the features are BETTER on the phone, which will never happen, because IT'S JUST A CEL PHONE!
Anyone who tells you "hey, I won't buy a camera, I'll just use my cell phone", was never seriously in the market for a camera to begin with, or is ignorant to quality and ergonomics. This would go for pretty much all of those features...

OMG! e-mail's gonna kill the postal industry!!!!!

[potus98]

Remember that one? When everyone would use e-mail exclusively (since it was FREE!) and the post office, fedex, and ups would be out of business in 5 years. I don't have stats to back it up, but I suspect the Internet has actually helped the postal industry a ton. Okay, maybe people write and send fewer snail letters, but mail-order shopping and e-bay resulting shipments (more shipping $$$) have gone through the roof!

I can't predict how the gadget consolidation will play out, but I suspect there will be wonderful surprises in store down the road. Shouldn't all of these portable technical gadgets glob into one utility-pod anyways? Why should I be forced to fumble with seperate gadgets? What if they could get to a point where they build stackable phones with interchangeable camera modules, MP3 modules, holo-projection modules, etc... You could click 3-6 of these lego-like bricks togeather and have your own custom utility-pod that best suits YOUR needs.

Besides, once they get all the gadgets figured out and have nothing left to worry about, maybe they can finally provide unbroken signal coverage between my house and my office: A 15 mile commute in a frickin Atlanta suburb with a county population of 2.4 MILLION people. Incompetant bastards.

Phone upgrade addiction

[erice]

The cell phone companies clearly blew an opportunity when they initially treated the hardware as a loss leader.

An opportunity for what? Remember, it is the service providers that treat phones as loss leaders. They do it to ensure customer lock-in. If phone are sold instead of given away, the profit will go to the retailers. The service providers still won't make money on phones and their customers won't be willing to sign up for a 2 year contract.

The current situation is bad for manufacturers because bargaining power is concentrated in a handful of service providers. If they sold to consumers, there would be more room for product differentiation, marketing, and profit.

Re:Phone upgrade addiction

[Total_Wimp]

The current situation is bad for manufacturers because bargaining power is concentrated in a handful of service providers. If they sold to consumers, there would be more room for product differentiation, marketing, and profit.

So why should I care? Should I want them to "differntiate, market and profit" so they can get more of my hard-earned cash for esentially the same product?

The translation of this whole article is that cell phones have entered commodity status, which is an sign of a healthy, mature market, and they're bringing other consumer electronics with them.

Us consumers: should be rejoicing. This is good for us and good for the industry.

The manufaturers: Are just pissed that they have to work harder for their money. Although they're making less profit individually, the lean businesses this model requires are a sign of a healthier, more mature industry in the long run.

Never fall for it when business say they can't make money. The worst that can happen is that they'll be replaced by someone that knows how to make a profit selling the same thing.

TW

Re:Phone upgrade addiction

[JanneM]

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.

Re:Phone upgrade addiction

[pchan-]

The worst that can happen is that they'll be replaced by someone that knows how to make a profit selling the same thing

no, the worst that could happen is that they'll turn into the printer industry. quality will decline industry-wide, cell phones will be super cheap and nobody will want to pay anything for them. but you may end up paying for cellphone batteries (or something else) as much as you do for printer cartridges (and generic brands will be cut out, they'll see to that).

a "decent" profit margin keeps the industry innovating. a fat one makes it lazy, and a slim one brings down quality. i'd rather buy a printer that will last for 5 years and have 10$ ink cartridges, and a phone that will last a couple of years with awesome features, than get either for free and pay for it ten times over in required "refills".

Maybe Gates was right...

[Belsical]

This, in my opinion, is a pretty good indication that Bill Gates could be right; hardware will be free. As software gets more complex and requires more devs, it's viewed more and more like a service. What we're seeing is an industry that's already gone the route of realizing that the material costs are miniscule compared to those of the labor/service, and thus include the hardware in the service package.

This could indeed come to pass . .

[suckmysav]

. . unless the phone manufacturers allow themselves to be shot in the proverbial foot by the major telcos by crippling the functionality of their devices with draconian DRM restrictions.

You better believe that ALL of the telcos are very keen to make you pay for every music file you load onto your phone, regardless of whether you already legally own the song on a CD or not.

You can see the marketing opportunities now, can't you? Just wait and you will see them advertising this "great new service" to their long suffering customer base.

"Dial 013013 followed by your selected song number from our extensive* catalog and your song will be delivered to your phone instantly!" (and billed to your phone account accordingly of course)

New phone? Well just dial 013013 again to re-order! It's that easy, and you'd better believe it baby!

From the perspective of your major Telco, there is no money in it for them when their customers can transfer mp3s from their PC's to their phones, and seeing that the phone manufacturers sell their phones to the Telco's (and not end users) the Telco's have significantly more control over the functionality (and therefore dysfunctionality) of phone devices than Microsoft will ever have in the PC world.

Re:hardware as a loss leader

[ShieldW0lf]

People today will pay for a crap flash MP3 player or low-to-medium-end digital camera, but balk at paying a premium for a mobile phone with loads of features.

Personally, I'd be happy to get a good phone for free, but there's not a chance in hell i'd sign one of those long-term contracts they have on offer. Your circumstances change, your free phone ends up costing you a lot of money. Happens to most ppl i know that sign up.

I think I'll pay for my phones thanks...

Thanks for all the Adam Smith

[Jahf]

A basic lesson in economics. Call me jaded, but isn't convergence what everyone has been -hyping- for a few years? You'd have to be a bit thick to be in the phone or chip business and not seen this coming.

High-end cameras won't go away anymore than my Canon 35mm died when 110 film and later disposable cameras went away.

Non-phone audio players will continue, though maybe not so many portables.

PDAs? Ok, so I can see the phone and PDA market completely converging someday except for government spec'ed devices that can't have a phone.

Maybe some companies just got spoiled by being able to sell us a new latest-greatest-doodad every year or two?

Labelling

[Paulrothrock]

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.

Phones are not making money?

[weave]

I bought a Nokia 6600 last month. I love the thing. Email (with tls/imap), calendar for appointments, contacts, all syncing just nice over bluetooth with my Powerbook. Bought Opera web browser for it, it rocks. Even loaded putty on it (although it's painful).

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.

Re:One for all...

[casuist99]

Exactly. The thing that worries me about the trend is that it might become impossible to buy a device that is ONLY that specific device. I mean, technically you're committing a crime if you bring your cellular phone with a camera built-in to a movie theater in certain jurisdictions.

I want to be able to get my cheaper, smaller, thinner, better call phone without crap in it.

I hate multi-function phones

[rubmytummy]

I'm sick nigh unto death of multi-function fantabutronic phones that'll do everything under sun but wipe my ass or make a decent phone call.

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

It's about connectivity, not mobile phones.

[Kris_J]

While the bottom temporarily dropped out of the PDA market, it's come back stronger than ever now that wireless technologies are coming as standard. I don't have any need for a PDA that can't talk to some sort of network, but I've just bought a WiFi enabled PDA that talks to my home wireless network so that I can remote control my stuff, browse the web or whatever. Even as recently as last year I was declaring that I'd never buy another PDA (I had a Newton and a Palm) when I bought my new Series 60 mobile phone, but without wireless it's not a handy little device around the home.

Ignoring connectivity for a moment, sure, people would rather carry one thing over four, but people also have their own requirements for this stuff. I have my mobile phone, an iPod, a Pocket PC and a digital camera that I use at least semi-regularly. The mobile is with me all the time, the iPod almost all the time, the Pocket PC is used a lot at home at the moment and the camera is taken with me when I know I'm going to be taking photos. These devices are all of varying vintages, ranging from 5 years to 10 days old. Invariably, you get used to how they work and you don't feel the need to replace them while they still do. You'll make do with multiple items even if there is an integrated solution that's just as good in all the aspects that matter.

Anyway, if my phone was my camera, how would I lend my camera to a friend for the weekend?

And this is why I quit the cell industry

[JohnnyComeLately]

[grammar police=off]
I got a job at Nextel right out of the Air Force, and enjoyed learning the technology. Nextel had a great niche with the wireless 2-way, and a lead on the competition. However, I worked for an overbearing boss and they didn't do diddly squat for training.

Sprint PCS wooed me away with training. I finished my MBA while working at Sprint, and they started sending me to classes. I learned all about wireless, packet data, network admin, etc. But the more I looked into the business itself, the more strongly I believed there is no way they couldn't fall into becoming a commodity. For the uninitiated, a commodity means consumers really don't recognize a brand as distinguishing. Walk down a toothpaste aisle, and you'll see a market kicking and screaming to NOT become a commodity (when after all, it's all just PASTE).

The words were there and the media hype came out in droves during 2.5 G (circuit switched data, 56k max) and 3 G (packet data, games, cameras, etc). However, I knew from my days at Nextel, that consumers were fickle and really just looked at the bottom line. I had a VP at Nextel explain it this way, 80% of the market are consumers, yet they're 20% of the revenue. If you hike the price they jump to a competitor. The business niche will not jump because of the costs of switching, plus they're 80% of the revenue.

If you look at Revenue per User (RPU), Nextel has been leading every year, without exception, since wireless started taking off. So what does that leave the competition with? Consumers who drive up costs by: Switching, calling customer service, wanting new phones, etc etc.. My source of prices are quite old, but I'll approximate the costs from the late 90s. The cell phone cost the original manufacturer about $800 to build (R&D, manufacturing, etc). The sell it to the carriers for about $500. The carrier in turn sells it to you for $250. So the carrier and manufacturer are banking $550 of goodwill.

From the consumer's standpoint, they really don't care who their service provider is. They just want to dial 7/9/10 digits (don't dial 1, the switch just strips it off...dial using 7 or 9 digits) and hear a human voice at the other end. More importantly, they want the call to stay up. So the phone doesn't matter, nor the service. This is a receipe for a commodity. Now factor in there are 5 or 6 players in the market. Each has identical networks that costs billions to manage. Imagine if you had 5 runs of twisted pair, from 5 local telephone companies, running into your house. One will make money, while the other 4 lie dormant. It's not a straight analogy, but my point is that the market can't bear these many providers.

This is why you saw the mergers around 1999/2000. I really think we need one or two more for efficiency reasons. However, even with a merger, it's still becoming a commodity with intense pressure to keep costs down. In my opinion, wireless is heading down the dead end which the wirelines are already going down....
[/police]

Simple is better

[RyoShin]

I have a Tracphone. I pay for minutes as I go. I can choose from about 15 ringtones (not expandable), store addresses and numbers, check voice mail, and it looks sexy. Oh, and I can play video poker. Aside from the calling area (half an hour north or west and I'm screwed,) it's perfect.

I hate these people with their flashy "LOOK AT ME BEING AN ATTENTION WHORE" phones who play P-diddy in the middle of class while I'm trying to learn cross product for an upcoming test.

Or the phones that act as walky-talkies. You're walking along, and suddenly this annoying-loud beeping comes from behind you, and you think you've tripped something. Instead, you hear some garbled speech coming through the phone, and the person behind you trying to shout into it so the other one can hear what they are saying.

In class this week, someone was doing... I dunno what he was doing on his phone, but it was hard for me to keep from making a crack about him trying to send an S.O.S.

I'd much rather have a simple phone and pay less for my phone plan.

Naturally companies whine about it, but...

[crazyphilman]

On the whole, this trend is a GOOD thing. Consider:

First of all, the ultimate result of this process is going to be a device about the size of a current PDA that is simultaneously a cell phone, music player, camera, and hyper-powerful PDA. It'll do just about everything and it'll run on whiskey (remember those fuel cells?). That's almost as good as magic, folks. And I can thank my phone company for being ruthless and forcing the cell phone suppliers to drop their skirts and spread their legs. It's about TIME the phone company did something for me. ;)

Second, the people who are taking it in the shorts are a bunch of suits who don't care one little iota about me. You can't claim this is going to hurt my fellow programmers; the suits already outsourced us. You can't claim it's going to hurt secretaries or clerks, because they'll find plenty of work elsewhere. The ONLY people getting hurt here are the suits -- the managers in charge who can't make their companies profitable under the phone companies' terms. So who cares if they stay rich? Who cares if their profits drop? Who cares if they live or die?

All this means to me is, a bunch of rich, arrogant SOBs who never did anything for me are going to take it right in the shorts while I watch and revel in the action. And, I get a new, fancy cell phone in a couple of years that does everything but get naked for me.

Sounds like a winner! Hoist a pint, boys!

Grrr...

[enginuitor]

I've always been irritated by gimmicky devices such as cameraphones. A device should serve its purpose, and serve it well, without any bullshit. A telephone is a telephone. Those who want to play games should go buy a GameBoy. Those who want to take pictures should go buy a $25 digital camera. I guarantee it'll take better pictures. The biggest problem with today's whiz-bang mobile phones is that the manufacturers try to squeeze in so much useless extra functionality to attract narrow-minded consumers that the device actually loses functionality as a phone. I've used others' phones on many occasions when I didn't have my personal phone with me. Just turning the damn things on involved listening to a tinny little musical jingle, then waiting several seconds for the phone to boot up, followed by a mandatory splash logo before I could even start entering a phone number. When a device is so packed with irrelevant features that it cannot effectively fulfill its basic purpose, it is useless.

Re:hardware as a loss leader

[Frogbert]

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.

Re:Price of phones

[Frogbert]

Actualy Australia has this really nifty store called Dick Smith Electronics, this store is very cool because they have a mobile phone recycling bin inside. The idea being that customers put their old mobiles in the bin and Dick Smith recycles it and saves the envronment from harmful chemicals. However this bin serves another great purpose, its a constant source of free phones for me! Every time my phone breaks its another trip to Dick Smith for a rummage through the bin. A new battery later and I've got a new phone.

As a side note if you do decide to go through the phone bin make sure you smell the phone you want to take... you would be shocked at how many times the vibrate function is flagrantly abused on old phones.

No I am not joking.

Capitalism is self-correcting

[defile]

Telcos driving manufacturers into bitter competition because they're demanding more for less money? This is a self-correcting problem.

If increased competition turns profits into losses, eventually manufacturers will begin to leave the market, leaving fewer manufacturers. Fewer manufacturers means that those who remain are in a market with decreased competition, which drives prices up.

Ideas for Future Phones

[geoff_smith82]

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.

Combining Products

[vivekb]

Now that all products are being rolled into one, I'd like to suggest that any product with a screen and four input buttons be required to have Tetris on it. Phones, TV's, music players -- all of it. You could probably put Tetris on a chip (TOC) using the tiniest amount of space and power, and just roll it into everything. It should be as essential to chip design as a clock.

There have been countless times that I've been stuck somewhere for hours, had an electronic device with buttons and a screen, and could not play Tetris. So much boredom could have been avoided.

Business in general close to profitless

[mc6809e]

Seriously. Most of the money a companies makes goes to paying people for their work. Even corporate "profits" are usually dumped right back into the corp and not given to shareholders. Those profits go to pay someone else. Sure, CEOs use the corps as their personal piggy banks, but the shareholders tend to make very little.

Take a look at the graph here.

Shareholder dividends dropped like a rock from 1981 at 6% to 1.5% in 2002.

Most corp revenue goes to for materials and employees. Most corp "profits" are never given to shareholders (the owners).

So, I say again, businesses in general are close to profitless anyway.

What I think this article REALLY implies is that decreasing REVENUES are making impossible for some businesses to even stay afloat.

No revenue means no employees.

What about sound quality? Why is it so bad now?

[io333]

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.

Really?

[raehl]

How many phones do you usually have to smell before you can find one with a good scent? Is there any way to tell if the chick who used it was fat or not?

Re:Good!

[tdemark]

Erie County (and possibly all of NYS, I'm not sure) has laws prohibiting the use of phones while driving... unless you have a handsfree set.

So, you are not allowed to hold on to a cell phone while driving because it is dangerous, but, these, evidentially, are not:

- smoke
- chow down on that big mac
- fumble with the radio
- read the newspaper
- tend to a crying child in the back seat
- apply makeup or shave (hopefully, the correct conjunction is "or")

That's why I hate cell phone driving laws - either target ALL driving distractions or target none of them.

It would be the same thing as having "assault with a knife", "assault with a bat", and "assault with a lead pipe" laws instead of "assault with a deadly weapon".

The only studies that I have seen quoted that supported cell-phone laws were ones that asked "Was a cell-phone in use during the accident?" not "What driving distractions were present during the accident?" Those are two completely different questions.

The studies that I have seen that list out all driving distractions clearly show things other than cell-phones are leading factors - I think "tuning radio" and "smoking" were the top two.

Re:Good!

[tdemark]

After I posted, I did a quick search on google and found this:

Driving distractions:

Outside person, object or event: 29.4%
Adjusting radio/cassette/CD: 11.4%.
Other occupant: 10.9%.
Moving object in vehicle: 4.3%
Other device/object: 2.9%
Adjusting vehicle controls: 2.8%
Eating and/or drinking: 1.7%
Using/dialing cell phone: 1.5%
Smoking: 0.9 %
Other distractions: 25.6%
Unknown: 8.6%

Source: University of North Carolina Highway Safety Research Center

My memory was a little off about the items (and order on the list).