Tech Broiler
Jason Perlow, Scott Raymond & Violet BlueDell's mobile future: Made to order smartphones
By Jason Perlow | January 25, 2011, 11:19am PST
Summary
The mail order smartphone business didn’t work out so well for Google with its Nexus One. But that doesn’t mean the idea of carrier independence can’t succeed with an established direct sales leader.
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Jason Perlow
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Jason Perlow
Jason Perlow is a technologist with over two decades of experience with integrating large heterogeneous multi-vendor computing environments in Fortune 500 companies. A long-time computer enthusiast starting the age of 13 with his first Apple ][ personal computer, he began his freelance writing career starting at ZD Sm@rt Reseller in 1996 and has since authored numerous guest columns for ZDNet Enterprise and Ziff-Davis Internet. Jason was previously Senior Technology Editor for Linux Magazine, where he wrote about Open Source issues from 1999 to 2008.In his spare time, Jason is an avid amateur chef and food writer, where his work reviewing New Jersey restaurants has appeared in The New York Times. He is also the founder of the popular food web site eGullet and blogs about restaurants and cooking at OffTheBroiler.com.
Scott Raymond
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Scott Raymond
Scott Raymond has been a technologist and system administrator for over 20 years. Starting as a hobbyist in his teens, Scott quickly learned that he could translate his passion and knowledge into a full-time career. He currently works as the lead systems administrator for a neuroscience marketing company. He has written technology articles for various publications in the past and began contributing to ZDnet as a guest blogger on Jason Perlow’s Tech Broiler. Scott and Jason met in New York in the 1990s where they co-managed the New York City Palm Pilot Users’ Group with Scott’s wife Rachel.In his spare time, Scott is a trained chef and avid bicycling enthusiast, as well as a voracious reader of historical, science and horror fiction. He is a huge fan of pop culture, with a wide range of interest in TV shows, movies and games.
Violet Blue
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Violet Blue
Violet Blue (tinynibbles.com, @violetblue) is a Forbes Web Celeb, SF Appeal contributor, a high-profile tech personality and one of Wired's Faces of Innovation. She is regarded as the foremost expert in the field of sex and technology, a sex-positive pundit in mainstream media (MacLife, Forbes.com, The Oprah Winfrey Show, others) and is regularly interviewed, quoted and featured prominently by major media outlets (from ABC News to the Wall Street Journal). A published feature writer and columnist, Violet also has many award-winning, best-selling books; her books are featured on Oprah's website. She was the notorious sex columnist for the San Francisco Chronicle. She headlines at conferences ranging from ETech, LeWeb and SXSW: Interactive, to Google Tech Talks at Google, Inc. The London Times named Blue one of the 40 bloggers who really count.
The mail order smartphone business didn’t work out so well for Google with its Nexus One. But that doesn’t mean the idea of carrier independence can’t succeed with an established direct sales leader.
Today, in its quarterly investor call, in addition to discussing changes in pricing and caps on data plans to prevent network overload from the expected influx of customers from the recently announced iPhone 4, Fran Shammo, CFO of Verizon Wireless re-iterated that it would be dropping the New Every Two program, which provided additional carrier subsidies up to $100 towards a new phone for consumers that re-upped their contract every two years.
We have discontinued the new every two for new customers. Now that does not mean that our current base is not qualified to exercise their new every two right; they are. But for new customers, there will no longer be any more new every two. So if you think about that, you can do the math, but before, you would get a $50 to $100 credit going forward on any upgrade. That disappears. The customer will be getting the promotional price at that point in time for a new phone when they qualify.
I don’t know about you, but I think this stinks. As I have said before, the wireless customer experience in the United States continues to deteriorate and lags behind the rest of the world because of the whole subsidy-oriented and contract lock-in model.
Eventually, I believe that competition in the 4G space will become so fierce that contracts will be replaced by a pay as you go model, but that may not happen for several years.
Before contracts go extinct, however, the device itself needs to be de-coupled from the carrier. And the idea of subsidization in order to defer high device costs needs to go away as well.
Google tried to separate the device from the carrier with the Nexus One, by going with a direct order model over the web. However, it failed miserably because the unlocked, unsubsidized cost was too high ($529) and you still could really only use the device on two carriers in the United States, T-Mobile or AT&T.
Google is going to try this again but instead with the Samsung Nexus S and Best Buy as their two partners. This time, you’ll only be limited to a single carrier, T-Mobile, and you’ll need to activate and commit to a contract to take advantage of the promotional cost of $199.00. I suspect that like its predecessor, the reception to Nexus S will be lukewarm when compared to Android phones on other carriers.
Google may have the right idea, but I don’t think they are the right company to implement a direct sales smartphone model. Who do I think can pull this off? I think it’s Dell.
Before you call the local authorities here in New Jersey and request that I be institutionalized, let me explain.
Right now, Dell is trying to become relevant in the smartphone and tablet space with their own offerings, such as with the Venue, a sleek high-end touchscreen Android phone, and the Venue Pro, a keyboard slider which runs on Windows 7 Phone OS. However, the company also acts as a clearinghouse and direct order vendor for other manufacturer smartphones and devices, in both unlocked and carrier activated options.
This is nice, but Dell really isn’t distinguishing itself in the mobile marketplace today. In Android and in Windows Phone, they are largely considered to be a “Me Too” device vendor. There’s no compelling reason to buy either of the Venue devices as opposed to one of HTC’s, Motorola’s, LG or Samsung’s Android or Windows Phone devices at a carrier directly.
Sure, they look slick, but at the end of the day, an Android is an Android and a Windows Phone is a Windows Phone, all hardware and software specs being equal.
The bottom line is that commoditization of technology and price outweighs any other “cool factor”, unless you’re Apple and you are selling Macs, which is a niche, albeit very profitable market for the company.
And this is exactly what happened with the PC industry. PCs stopped becoming major purchases. They’re now toasters. They got a lot cheaper. They are disposable. And when they did, Dell capitalized on this and became the leader in direct to order systems and forced all the other manufacturers to adapt to this new sales model.
A $1500 desktop PC became… well, a $600 dollar PC for most of the consumer public. Nobody really at the end of the day gives a damn who makes them. They are all made from the same Taiwanese, Chinese, Indonesian and Korean parts.
You expect that at the same entry level price point, a Dell, an HP and a big box retailer house brand system is going to look pretty much identical in terms of components used. Sure, you got the other Tier 2 white boxers like TigerDirect, and they do a pretty good business on razor thin margins, but those are the bottom feeders of the PC world.
So why even go into a retail store? You punch in www.dell.com on your web browser, you click your mouse a few times, make a few minor customizations to your order, and presto, a few days later you got your PC, with your CPU speed, your chosen amount of memory, your hard drive, your accessories, your warranty, delivered right to your front door via UPS.
If you belong to a discount club like COSTCO or Sam’s, you can buy pre-configured models slightly cheaper, if you don’t really care about choosing your speeds and feeds.
Buying a basic PC has become more or less a no-brainer process for most consumers now. However, it used to be a lot more difficult, and people spent a lot more time researching models and all sorts of stuff that is completely meaningless today.
[Next: How the Mobile Industry can become Carrier and Platform Agnostic]»
Jason Perlow is a technologist with over two decades of experience integrating large heterogeneous multi-vendor computing environments in Fortune 500 companies.
Disclosure
Jason Perlow
My Full-Time Employer is IBM. I write as a freelancer for ZDNet.
Disclaimer: The postings and opinions on this blog are my own and don't necessarily represent IBM's positions, strategies or opinions.
I own no investments or direct financial instruments in the companies I write about.
Biography
Jason Perlow
Jason Perlow is a technologist with over two decades of experience with integrating large heterogeneous multi-vendor computing environments in Fortune 500 companies. A long-time computer enthusiast starting the age of 13 with his first Apple ][ personal computer, he began his freelance writing career starting at ZD Sm@rt Reseller in 1996 and has since authored numerous guest columns for ZDNet Enterprise and Ziff-Davis Internet. Jason was previously Senior Technology Editor for Linux Magazine, where he wrote about Open Source issues from 1999 to 2008.In his spare time, Jason is an avid amateur chef and food writer, where his work reviewing New Jersey restaurants has appeared in The New York Times. He is also the founder of the popular food web site eGullet and blogs about restaurants and cooking at OffTheBroiler.com.
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RE: Dell's mobile future: Made to order smartphones
Dare to dream. This would be the ideal market and innovation starts to live. Contracts need to die.
Or at least offer the option of both
@JT82, and let the end customer decide what's best for them.Think of the cases used with mobile, do folks really care?
The PC-fication of the mobile industry is a dream. Here's why: No one cares. Not your grandmother, not your wife and not your kids. And not me, a salaried mobile advocate and strategist.It's too much work to customize a mobile device even for the folks who enjoy this stuff; the PC was different, it was new it was really expensive, and you had one shot to get it right for a few years until you had enough money to buy again.
Mobile devices are practically disposable computers; people contract with AT&T for an iPhone and ya know what?! They put the cheapest case the can find on the thing b/c while they enjoy their device, it's not in the same category as a super expensive PC.
So, no, I don't see customization coming for the mobile devices - that's a trend the exists for only big box items.
paying $500 for an unlocked phone is cheap?
@JOK101The fact of the matter is an unlocked phone costs as much as a pc now. This is rediculous. The profit margin on these things is outrageous. The idea that I can say i want a phone to do this this and this is a great idea, even better when i can say, oh yea, i want this carrier, and presto i get a phone that works. The next thing we need are phones that work with multiple carriers out of the box with pay as you go plans so you can switch from carrier to carrier on the fly.
I like it, I like it
This is the most sensible blog you have ever posted.Thanks
RE: Dell's mobile future: Made to order smartphones
I don't have a problem with a rolling contract with a company and a free upgrade every year.But more to the point, I can get a decent phone for $200-300 or equivalent on contract, with the cost subsidised by the carrier. If Dell start knocking out $300 phones the carriers will just buy them in bulk and give them away for free with contracts, it wouldn't cost them any more than it does already, they just pay 100% of the cost of a phone that is half as expensive as todays models, as opposed to 50% of the cost currently.
Why would they do this? Because if they don't their competitors will, stealing their customers in the process.
RE: Dell's mobile future: Made to order smartphones
I would definitely embrace the PC-fication of the mobile industry. And I am trying to do even more.Everything you said will need to happen. So if you ask if your plan is too futuristic or wishful thinking or completely nuts. Then no one will believe what I have to say about "real" CTO or Configure-To-Order.
I would love to see Dell succeed, but not getting my hopes up. But trying is better than not trying.
And I wouldn't count Google out.
I believe the idea of carrier independence will only succeed if several companies approach it from different angles.I totally agree with your assessment of the wireless customer experience in the U.S. I have seen better in another country. I can't believe what's lacking in the U.S., not even real Internet Cafes. (Read on to find out the importance of Internet Cafes.)
Dell's current mobile device offerings doesn't give me much confidence. But I am confident that HP will never be able to pull it off even if they succeed in building great mobile devices. They don't have the DNA to pull off what you call made-to-order. I know, I used to work for Compaq and HP.
In the mid-90's, I told Compaq management to replicate the Preinstall group throughout the world, but of course, they did not want to give up control. I asked what did an engineer in Houston know about building a PC for someone in a different country. To this day, things haven't changed.
What I am trying to preach is "real" CTO or Configure-To-Order. Some people miss the "real" and try to tell me that CTO is nothing new and it is already being done. HELLO! I'm talking about taking it to the next level. I stopped going to CNET News because too many commenters there would jump to the wrong conclusions.
But "real" CTO is best done by an independent party, Dell would be limited and partial to their offerings. And Android is the only possible platform for "real" CTO. I've always said that Android will be the most customizable and personalizable consumer product in the world. And the perfect fit for "real" CTO. I will be helping people find and configure their Perfect Android (hint, hint).
And "real" CTO has to be a grass-root effort. Yes, another way of saying, to start from scratch. Ideally, it would be part of an Internet Cafe. I would call it AndroidCafeStation (hint, hint). Think of a two-story Barnes and Noble store, but without books, and nothing but Android components. Really Cool! Really Awesome!
I may have just topped you in the "futuristic, wishful thinking, and completely nuts" category!
RE: Dell's mobile future: Made to order smartphones
@JoeyAndroidI thought apple already proved that phone is just a phone with their offerings of two top of the line phones which differ only by GBs..
Have you helped a lot of people to choose and configure their Perfect Android? Do people care about this at all?
while i like android
@JoeyAndroidto lock configure to order to a single OS is flat out bad marketing. Jason has it right, you virtualize the phone from the OS and it essentially acts like VMware for your phone. Any flavor you like, maybe two! (linux geek coming out sry :)). And a store like that would be nice, but i think that mobile stores should be coupled with specialty computer stores, not the best buys of the world, but stores specifically made for customizable electronics...that also have coffee and pastries
Never work.
Just throwing money away.
Dude, you are getting a Dell!
This is off topic, but whatever happened to that Dude-you-are-getting-a-Dell guy in Dell's commercials? Not that I miss him since he was so annoying, but last I heard he got busted for drug possession. :-D
RE: Dell's mobile future: Made to order smartphones
I think you finessed one point: I believe the carriers are very happy to do the subsidy and pay back over 24 months thing. I imagine if one could see the APR on the lease, it'd be quite healthy.As to the 80s and 90s vs. the 10s, seems to me that the different nature of applications is important to the analysis. Software for pcs was expensive, especially when one considers the dollar bought more back then, and so there was a barrier to changing oses. Almost everyone ran DOS and then almost everyone ran GUI applications with Windows 95 and NT. But, we should be clear, it wasn't that everyone loved Microsoft, it was that it was the os that supported their applications.
With mobile apps priced like candy bars or lunch, who cares if the functionality requires re-buying? I think what this means is that there will not be a dominant winner-take-all os and the manufacturers may compete on a more profitable differentiation than price.
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