It wasn't that long ago that Motorola (MOT) played hardball with the wireless carriers that sell its phones. Back in the 1990s, when Motorola was top dog in the cell-phone business, it could dictate terms to carriers like Verizon Wireless and AT&T (T) if they wanted certain hit phones or discounts on pricing.
These days, a humbler, hungrier Motorola is emerging. Sanjay Jha, the company's co-chief executive, is struggling to reverse a long decline and make the company competitive in the mobile-phone business again. Sources familiar with Motorola's interaction with carriers say the handset maker is offering service-providers the opportunity to dominate branding on Motorola phones, and the company intends to share revenues that other phone makers won't. "We are impressed with the new urgency at Motorola," says an executive at one of the major carriers in the U.S.
Winning Over Verizon Consider Motorola's dealings with Verizon Wireless, the country's largest carrier. Motorola is developing new phones based on Google's Android operating system, and it has been trying to persuade all the major wireless carriers to offer the phone. To win over Verizon, Jha made several personal visits to Verizon Wireless headquarters in Bedminster, N.J., over the last six months, according to sources familiar with Motorola-Verizon relations. Jha met with Verizon Wireless CEO Lowell McAdam, as well as Chief Operating Officer Jack Plating and Chief Marketing Officer Mike Lanman.
Jha made some unusual concessions in the negotiations. Motorola agreed to let Verizon Wireless use its brand on most of the software in the upcoming crop of phones, according to sources briefed on the terms. It also agreed to let the carrier keep as much as 30% of the revenue that Motorola collects when customers buy new software applications for their phones, sources say. Handset makers such as Apple (AAPL) and Research In Motion (RIMM) give developers 70% to 80% of the software application revenue, but the phone makers don't share what's left over with wireless carriers.
Jha's efforts worked. Sources close to the company say Verizon Wireless and T-Mobile (DT) have signed up to sell the Android phones when they come out in late September and early October. AT&T hasn't yet signed on. Motorola wouldn't comment on any details of negotiations or confirm which carriers will offer its Android phones, but it does say the corporate attitude has shifted. "Sanjay is 100% customer-focused," says Christy Wyatt, vice-president for software platforms. "At the new Motorola every part of the organization is focused on the customer."
Tearing Down the Garden Walls Motorola is also working hard to customize its Android phones for carriers in Canada and for AT&T, though AT&T is not expected to sell the phones until some time in 2010.
Motorola's new carrier-friendly approach may have been born out of necessity, but it is strategic, too. Jha is trying to bridge the gap between wireless carriers and the application vendors who develop music apps, games, and various other consumer apps available on their phones. Jha understands that carriers such as Verizon once believed in so-called walled gardens, where they developed Verizon-owned applications and didn't allow outside developers to penetrate its "wall" to post applications for easy download by Verizon customers. The success of Apple's wildly popular App Store, which features some 100,000 independent developers, changed all that proprietary folly.
This is where Motorola comes in. By using Android's open-source operating system, Motorola can tap hundreds of outside developers to customize basic applications such as e-mail for its carrier partners. So, though Google (GOOG) mail might be the underlying mail foundation, it can be dressed up to look like, say, Verizon mail. The same goes for a social networking or search app. "Motorola says, 'I am going to take the generic part of Android and make it carrier-specific,' " says Bank of America (BAC) analyst Tal Liani.
Branding Rights for Carriers Liani calls this carrier-friendly approach the "contra-Apple" strategy. Apple is known for making everything Apple-centric. Ask most iPhone users whose phone they use and they'll likely say Apple—even though AT&T provides the service. That's because the phone itself carries no AT&T branding, and there's hardly any mention of AT&T anywhere in the software. Motorola's approach couldn't be more different. "We don't believe in gated communities or walled gardens," Wyatt says. "Our approach is not to draw a line and say Motorola will control this. We are focused on democratization."
Motorola executives say they are trying to make both carriers and developers happy. Wyatt says that Motorola wants to make it easy for developers, who might be working with multiple carriers, to get their applications into a given carrier's app store. So Motorola is building a program for developers to simplify the process of working with multiple carriers. Though Motorola still has a long way to go, the company has won some believers. "Sanjay Jha has come in and really reignited Motorola," says Paul Reddick, chief executive of Handmark, a developer of entertainment applications.