Technology

Where Motorola Blew It


The mobile-phone giant has lost its footing because the wireless industry has changed and the company hasn't kept up

Motorola's stunning quarterly loss is just the latest development in the company's long, inexorable decline from the very apex of the cell-phone market. Motorola (MOT), which effectively defined "Cell Phone 1.0," consistently missed the trends that have fundamentally changed the mobile-phone industry. Now, Motorola is teetering on the very edge of irrelevance. Does it even have a chance?

Cell Phone 1.0 was effectively defined by Motorola's groundbreaking Razr phone. The Razr defined the phone as fashion instrument and status statement. It also had an unusually long run with a near-monopoly on its form factor. Nokia (NOK) and others were slow to realize the affinity American consumers had for the clamshell form factor and the Razr's dramatically thin profile. However, as the cell-phone market was evolving toward Cell Phone 2.0, Motorola clung stubbornly to its old success, trying to recreate the magic with a succession of devices such as the Rokr, the Krazr, and the Lozr. O.K., that last one wasn't really a Motorola product introduction, but it might as well have been.

The evolution of the cell phone from 1.0 to 2.0 is all about the change from device to platform. While Apple's (AAPL) iPhone is certainly the best example of this transition, many of the other players in the market have been focused on this for a long time. What are the characteristics of a platform as compared with a device?

Software

Applications

Ecosystem

Experience

Motorola's track record in these areas is spotty at best—virtually nonexistent. Who's defining this new approach? For the most part, the key players are companies with little or no experience in cell phones. Instead, they come from the computer industry. Leading the way are Apple and Google (GOOG), which has championed the Android operating system for which anyone can develop applications. BlackBerry maker Research In Motion (RIMM) is rapidly trying to evolve in this direction, and Nokia has made significant, albeit largely unrewarded, efforts in the past few years. Microsoft (MSFT) and Palm (PALM) are also still relevant in this discussion.

Against this backdrop, Motorola has very few attractive options. The company's early commitment to the Windows Mobile platform, with the Q, has brought it no reward, and Microsoft's current challenges don't seem to offer a lifeline. Motorola has said that it plans to invest more resources in phones that use Google's Android, but the operating system is still in its early days. Given a fractured operating system platform, no clear partnership opportunity, and limited software expertise of its own, Motorola is likely to struggle for the foreseeable future.

The company has said that it plans to spin off its mobile-phone division, separating it from the company's other operations. But it's hard to see how such a structural change will address the enormous challenges at the company. With few available dance partners and an outdated strategy, Motorola has no clear path to return to its former glory.

Jonathan Yarmis is founder and principal analyst with the Yarmis Group, an independent analyst group.

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