Transforming the Cell Phone

Modu is hoping its modular, multi-function cell phone, designed to resemble a domino, will start a cascade of innovation in consumer electronics

by Olga Kharif

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It was back in 2002 that Dov Moran first began grumbling to friends about the modern cell phone. Why couldn't his phone suddenly sprout a keyboard and a large display on days when he needed to respond to a lot of e-mail? Why couldn't the phone shrink into a tiny little thing when he didn't? Why couldn't it…?

Well, now it can. On Feb. 7, Moran's new company, modu, unveiled a tiny new cell phone that can work on its own or be slipped into assorted "jackets" that transform it into different types of devices. Slide it into a jacket with a 3½-inch screen, and the device turns into a media player perfect for watching movies. Slip it into an iPod-like sleeve, and modu becomes a music player with dedicated buttons and a screen for album art.

From Personalization to Customization

modu is just one of several companies, including Sony Ericsson , that are exploring the market potential for "modular" cell phones made of detachable components that can be snapped on or off to suit specific needs. If they gain traction, this Lego-like approach would bring a sudden burst of customization to an industry where personalization has amounted to little more than detachable face plates to change a phone's color.

There would appear to be demand among cell phone users. A recent survey by CommScore (SCOR) found that 41% of the 18- to 24-year-olds and about a third of the 25- to 34-year-olds said personalization of cell phones was important. But for now, whether modular design will prove to be the next big thing in wireless is a big unknown. "We need to see how carriers respond," says Tim Luke, an analyst with Lehman Brothers (LEH).

The modu phone module, which weighs only 1.3 ounces and is smaller than a credit card, could conceivably serve as a sidekick to much more than handheld devices. It could, for example, be slipped into a bedstand alarm clock to display incoming text (SMS) messages. Inserted in a car's dashboard, modu could allow for hands-free calling over the stereo system or provide an address book for the car's GPS navigation system. Slipped into a laptop, modu could provide mobile Internet access. modu says Philips Electronics has shown interest in developing compatible products. Efforts to reach Philips for comment were not immediately successful. "This is the tip of the iceberg," says Moran. "This is a way to provide communications capability to any device."

Bringing modu to Market

Moran, who previously founded a flash memory business that he sold to SanDisk (SNDK) for $1.55 billion in 2006, has sold some impressive investors on his concept, starting with SanDisk. The firm, also backed by Genesis Partners and Gemini Capital Fund Management, hopes to raise more funding this year and go public in 2009. Moran also has cleared a difficult hurdle in the wireless industry by convincing some mobile service providers to offer the new device to their customers. modu says Telecom Italia Mobile, Israel's Cellcom, and Russia's VimpelCom will launch the phone in October. The company hopes the phone will arrive in the U.S. in early 2009, but no carrier deals have been announced.