Cell Phones Becoming Profitless 498
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."
Forward to Steve (Score:5, Insightful)
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."
Just as it should be. (Score:1, Insightful)
History repeats itself (Score:4, Insightful)
No, I did not read the article... (Score:3, Insightful)
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?
Cheap my eye (Score:5, Insightful)
Who hates that all-in-device (Score:5, Insightful)
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!
How about just a phone that works? (Score:4, Insightful)
Re:One for all... (Score:5, Insightful)
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 (Score:5, Insightful)
We've seen this before in the PC card market (Score:5, Insightful)
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:How about just a phone that works? (Score:1, Insightful)
Address Book:- Names, contact numbers, Address, Important dates related to the people
Tetris:- Only game worth playing on a phone
Bluetooth:- For trading info
And that's about it
Raising the Bar (Score:5, Insightful)
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.
Re:Who hates that all-in-device (Score:4, Insightful)
Re:Cheap my eye (Score:5, Insightful)
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:Crossing the Chasm (Score:4, Insightful)
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...
Not really an issue... (Score:3, Insightful)
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!!!!! (Score:5, Insightful)
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 (Score:5, Insightful)
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:I hate cell phones (Score:2, Insightful)
Every phone I've ever seen comes with standard beep-beep or ring-ring ringers. You would have to download and install the Paris Hilton fuck music yourself.
Maybe Gates was right... (Score:3, Insightful)
Re:No, I did not read the article... (Score:3, Insightful)
I'll stick with my higher-featured (marketing translation:prosumer) digicam...until I get my hands on a dSLR.
Re:Universal Chip? (Score:2, Insightful)
Re:No, I did not read the article... (Score:5, Insightful)
I've already said it [slashdot.org], 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.
This could indeed come to pass . . (Score:5, Insightful)
. . 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 (Score:4, Insightful)
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...
Re:History repeats itself (Score:5, Insightful)
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!
Thanks for all the Adam Smith (Score:3, Insightful)
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?
Re:One for all... (Score:5, Insightful)
I want to be able to get my cheaper, smaller, thinner, better call phone without crap in it.
Re:I hate cell phones (Score:1, Insightful)
If you must converge, converge around something that's general purpose like a palmtop computer. If you must use it on a cell network, talk to the cellphone via bluetooth. Phones are a special purpose device. Keep them special purpose. Converging around cellphones makes about as much sense to me as converging around ethernet cards. If you want to use it as some type of network interface, then do it right.
Re:Forward to Steve (Score:5, Insightful)
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.
It's about connectivity, not mobile phones. (Score:3, Insightful)
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?
Geez... (Score:3, Insightful)
Re:Phone upgrade addiction (Score:5, Insightful)
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
And this is why I quit the cell industry (Score:5, Insightful)
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 (Score:3, Insightful)
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... (Score:5, Insightful)
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... (Score:3, Insightful)
Re:Cheap my eye (Score:3, Insightful)
Camera-phones are good for quick, fun snap-shots but will never fully replace a separate camera, and won't make a good photo print, IMO.
Re:Simple is better (Score:3, Insightful)
I got the tracfone because I needed... a phone. Not a camera, not a walkie talkie, not a jukebox, not a toilet paper dispenser, just a phone. And it served it's purpose... until they broke it. No more tracfone for me.
No more cell phone for me, for that matter. It took over a year before I NEEDED a cell phone again, so I got a new model with a color screen and web access and text messaging and games that I can download and dialtones that I can download... but I don't do any of that that (well, outside of the Peanuts / "Linus and Lucy" theme that I downloaded for a ring tone). That crap costs money! I'm tossing enough money at just having this phone working, I don't need to spend $2 a throw to download a chintzy game or tinny song! (The phone came with two games - one of them is basically a ROM lift from a 1981 Intellivision game!)
I still don't understand this whole "let's cram more useless toys into a cellphone" phenomenon. Divergance makes functional things better. Convergance leaves you with... a bunch of semi-functional things crammed into a chunk of plastic crap. That's why pockets were invented, folks, to carry all our stuff
Re:Phone upgrade addiction (Score:3, Insightful)
no, the worst that could happen is that they'll turn into the printer industry. quality will decline industry-wide, cell phones will be super cheap and nobody will want to pay anything for them. but you may end up paying for cellphone batteries (or something else) as much as you do for printer cartridges (and generic brands will be cut out, they'll see to that).
a "decent" profit margin keeps the industry innovating. a fat one makes it lazy, and a slim one brings down quality. i'd rather buy a printer that will last for 5 years and have 10$ 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".
Capitalism is self-correcting (Score:5, Insightful)
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.
Re:Good! (Score:3, Insightful)
Of course, I can't imagine who didn't see this coming -- the market has been approaching perfect competition for a while now.
Just like Marx said... (Score:3, Insightful)
Re:Crossing the Chasm (Score:2, Insightful)
What the hell is their problem with not putting four even rows with three even columns on the face of the machine? It's a damn phone, not a freakin' Salvadore Dali sculpture. I wish they would pull their designers' heads out of each others asses long enough to come up with a separate faceplate that would simply line up the buttons, making a piece of sh!t into something that resembles usable. Using a cell phone shouldn't become a freakin' study in modern contemptible art.
Of course, that's just my opinion. You could be wrong.
Business in general close to profitless (Score:4, Insightful)
Take a look at the graph here. [jimdeegan.com]
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.
Re:Crossing the Chasm (Score:2, Insightful)
The grandparent has a point though, what's the big technical difficulty (other than size and cooling issues maybe?) in producing a cell phone with a good processor, bluetooth, WiFi, flash memory, video out and maybe USB?
When using the device as a cell phone, you wouldn't use the other features to avoid draining the battery, but other than that you'd have a fully functioning portable computer that can replace your PC. Take it home, lay it on its special dock, and bang: you got your monitor, mouse, external DVD player and external hard drive connected, all of this while the cell phone is recharging.
For most PC users, that should be all you need! Right?
Please enlighten me now!
Re:Crossing the Chasm (Score:2, Insightful)
However, those cell phones are not being given away...even the PDAphones run about $300 and up with service plan discounts. The phone I wanted was nearly $600...forget that. Now if I could use it as a mini-notebook of sorts, I would consider that a great deal.
I look at it this way, a notebook PC can be bought new for as low as $700. A cellphone has far fewer components than a notebook, possibly less than 10% of the components that are in a notebook...so why should we be paying prices this high? I'm pretty sure most of it is going to markup and whatnot, since apparently the chip makers aren't doing well.
I also see the insane markup on cell phones as being the single largest stopping block. I can buy all sorts of great things for how much a top end phone costs, such as a top of the line Raleigh hardtail mountain bike, or an entry level audiophile sound system, or even a nice vacation in cancun...
Plus I'm kinda biased...i just want a simple phone that gets good reception and I can reliably check my hotmail from...nothing more, nothing less. My samsung N400 sucks on both of those counts
Re:Crossing the Chasm (Score:2, Insightful)
Really? (Score:4, Insightful)
Re:Crossing the Chasm (Score:5, Insightful)
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:Crossing the Chasm (Score:3, Insightful)
2 words: Support Costs...
Re:Crossing the Chasm (Score:2, Insightful)
Re:Who hates that all-in-device (Score:1, Insightful)
There are zilions of them available just for you!