This evening I'm flying toward Barcelona for this year's MWC, the main annual mobile industry conference. I've been going since 2001, on and off, when it was in (cold, rainy) Cannes and a tenth of the size - last year there were 85,000 people.
2001 was a year after the European auctions of 3G spectrum, when mobile operators, right at the top of both an internet bubble and a mobile bubble, spent €110bn in a few months, and then spent years nursing the hangover. A large part of the reasoning for those prices was the promise of data services to be delivered over that spectrum. But it took until 2005 for the first 3G phones that weren't bricks to arrive on the European market, and until 2007, of course, for data services deployed on that spectrum to start become interesting.
Today, one can date "mobile" to before iPhone and after iPhone. But the interesting thing, looking back, is that before the Apple (NASDAQ:AAPL) iPhone, it didn't really feel like we were desperately in need of some catalytic event. As a professor at university once told me, "people in the 'Middle Ages' didn't know they were living in the 'Middle Ages.'" It felt like we were making steady progress. It wasn't clear at all that we were waiting for a new class of device, with a new approach, that would transform the mobile internet from a segment of telco revenue into a near-universal experience that would become the main part of the internet itself.
In particular, it strikes me that the division between "smart" and "feature" was not nearly so clearly defined as we think now. I switched from "feature phones" (which generally ran J2ME apps) to "smartphones" (which ran PocketPC or Symbian apps) and back again, but the ecosystems were so poorly developed, in hindsight, that I didn't get much of a sense that I was losing something when I went from smartphone to featurephone. Hence, this is the sequence of devices I owned from the early 2000s to the original iPhone (missing, sadly, my Nokia 7110 and Ericsson t68).
You can see the same point in this chart of device sales at a large European operator. The taxonomy has no sense that some of these are "smart" and some are not - it's all about the hardware features. That pretty much mirrors how people actually used them.
Meanwhile sale of apps were small, niche and focused on very particular types of apps. The average price was $20.90.
In parallel, of course, there were "PDAs," which eventually merged with phones (for a long time people hoped Apple would make another PDA to follow the Newton). These certainly did have a "proper" OS, at least from PocketPC onwards, but they were an expensive ($500-plus) niche that few normal consumers would buy.
Only the Sony/Ericsson in this picture had a cellular radio (and that was only 2G) - the HP had Bluetooth and the others only had infra-red. Otherwise, you'd need to spend over $100 on one of these radio cards just to connect it to your phone and get online (over GPRS, at narrowband speeds). You could buy a pretty good 4G Android smartphone now for the price of one of these cards.
In hindsight, PDAs were a classic bridge solution. That is, they were not the long-term answer, but the long-term answer didn't work yet and they were OK for the time being, for that small number of people willing to put up with some pretty strong trade-offs.
Meanwhile, the one place mobile data services really were working was Japan, powered by featurephones entirely specified and controlled by the mobile operators. I acquired all three of these devices in 2001. All of them were part of the future, but the iPod won.
So, the Japanese phones had color screens and polyphonic ringtones, the J-Phone (then Vodafone, now Softbank) phone had a CAMERA (120x160 pixels) and DoCoMo's imode phone had no camera but ran J2ME-based apps (mostly but not entirely games), downloadable from an app store with built-in frictionless payment. Yet they also pointed to a blind alley - operator control, closed platforms, no real OS. In fact, they were just as much a bridge solution as PDAs: the Japanese model was the only way to do mobile internet in 1999 or 2001, and it looked pretty good, but it was only a bridge and the right answer was yet to come.
Meanwhile the iPod, which looked like an expensive toy at the time, was signalling the future at a more structural level - a fundamental change in who could make phones and in who controlled what you could do on them. Things that look like expensive toys are often the future.
(As an aside, I remember sitting in a yacht* in the harbor in Cannes in, I think, 2004, hearing a senior exec from Motorola explain how hard it was to put hard disks into phones, because people accepted an iPod breaking if they dropped it but not a phone. Meanwhile, Apple was already moving onto flash storage.)
All of this is the background for what happened to Nokia (NYSE:NOK) and RIM (BlackBerry (BBRY)) from 2007 to, say 2010. As we all know, the senior management at both of these (and elsewhere) laughed at the iPhone, seeing only the "minimal" parts of the MVP and not realizing that it reflected a fundamental shift in the tradeoffs that were possible and that consumers would choose. But the other reason for this failure to see the threat was that their own "smart" products seemed to be doing really well. This was much less visible in the US because, for all sorts of reasons, Nokia's products and indeed most of the best products on the market in Europe (let alone Japan) were not available there. So Steve Jobs and his team hated their phones much more than Europeans - their phones weren't as good. Again, in hindsight, it's clear that the quality of the user experience on S60 had been in decline, and that Nokia lacked the skills or structure to fix it or to deliver Meego/Maemo. But at the time, Nokia and BlackBerry seemed to be doing great. Sales of S60 and Blackberries grew strongly for over two years after the iPhone was first announced. That was how long it took for the iPhone to fix the issues in the MVP and get widespread distribution and for the first Androids to start appearing. Then, within a quarter of each other, sales went away at both companies (only one of which wrote a "burning platforms" memo). And of course at that point it was far too late.
Michael Mace wrote a great piece just at the point of collapse for BlackBerry, looking into the problem of lagging indicators. The headline metrics tend to be the last ones to start slowing down, and that tends to happen only when it's too late. So it can look as though you're doing fine and that the people who said three years ago that there was a major strategic problem were wrong. You might call this the "Wille E Coyote effect" - you've run off the cliff, but you're not falling, and everything seems fine. But by the time you start falling, it's too late.
That is, using metrics that point up and to the right to refute a suggestion there is a major strategic problem can be very satisfying, but unless you're very careful, you could be winning the wrong argument. Switching metaphors, Nokia and BlackBerry were skating to where the puck was going to be, and felt nice and fast and in control, while Apple and Google (NASDAQ:GOOG) (NASDAQ:GOOGL) were melting the ice rink and switching the game to water-skiing.
Going back to 2001, when I was a sell-side equity analyst covering European mobile operators, I got bits of this right - I talked about operating systems and customer ownership, and I showed people my iPod and pointed at that it was not always going to be necessary to have co-invented GSM before you could make a phone (though I didn't buy Apple stock). But what would I have said to get the whole thing right? The question that every investor kept asking was "what's the killer app for 3G?" It turned out that the killer app for having the internet in your pocket was, well, having the internet in your pocket, but that was the wrong question.
I could have said this, though:
- I'll take a decade for the devices to do all this to become mass market.
- But then, all of the stuff in the concept videos and mock-ups and crazy imagineering and futurology will happen. All of it. For billions of people.
- But the device-makers won't make much money at all, except for Samsung (OTC:SSNLF), a very second-tier player, and a has-been computer company called Apple (remember them?) that's just launched an expensive MP3 player, and has no assets, expertise or IP in mobile at all.
- It will all be software and all the open internet, and these things will be real, fast, computers, with hundreds of times more computing power than the PC on your desktop today. And it won't matter that the battery only lasts a day.
- And though everyone will do all of this, the telcos won't do any of it, because the portal model and the AOL model are going to fall apart, though not many people expect that even for portals and AOL. Telcos spent all this money, built all the infrastructure, hired all these clever people, imagined and planned and consulted for all of it, have all this market power, and they'll get none of it.
How many people would I have convinced in 2001?
It's always fun to laugh at the people who said the future would never happen. But it's more useful to look at the people who got it almost right, but not quite enough. That's what happened in mobile. As we look now at new emerging industries, such as VR and AR or autonomous cars, we can see many of the same issues. The big picture 20 years out is actually the easy part, but the details are the difference between Nokia and DoCoMo ruling the world and the world as it actually happened. There's going to be a bunch of stuff that will happen by 2025 that we'd find just as weird.
* That is, a floating Winnebago upholstered in beige vinyl