The 100 Dollar Smartphone

Creeping under the belly of the telecom machine, away from the frontlines of smart pipes and cloud computing, a revolution is underway. Commoditization threatens to drain the emergent profit pool of the smartphone duopoly, and may yet wrest the final jewel from the carrier crown.

A key control point for operators are device subsidies. Many carriers in North America wield large marketing "subscriber acquisition" budgets for devices, granting them authority to dictate terms to their handset suppliers. Apple has challenged this model, albeit on only 2% of the market. The Android license-free model has the potential to extend well beyond a tiny market share, and could precipitate retail price erosion to point of rendering subsidies meaningless. Smartphones in particular drive the global mobile ecosystem. According to Gartner, 172 million of the 1.2 billion mobile phones shipped were smartphones (an increase of 23.8% from 2008)

With all handset vendors (apart from Nokia) investing in Android powered handsets, the industry dynamic is already changing. In parallel, chipset vendors led by Mediatek and Qualcomm (who recently announced a cross-licensing deal on 2G, 3G and 4G patents) have created out-of-the-box reference designs integrating hardware, OS and applications (Android Market and well known Google applications). A handset vendor can take Qualcomm's design, pre-integrated with Android, and go-to-market within 9-12 months (down from 16 months for Motorola Cliq, and 24 months for HTC G1). Other major chipset vendors are joining the fray, such as TI OMAP3. ST-Ericsson and Broadcom - they are all ramping chipset designs with native support for Android.

The net result of this paint by numbers handset design will rapidly decrease price. The Mediatek exports will create a new competitive ceiling for chipset vendors, and the silicon power curve will allow integration of smartphone capacbilities at feature-phone price points. When we put Android, Qualcomm and Mediatek together - it is a certainty that we will have a $100 smartphone within 3-years.

The faith will have to be placed in a new class of device to create a demand outside the industry power curve. However, it is more important than ever for the operator community to invest in cloud-based services and other meaningful brand deliverables to cross the coming chasm between the old and new value chain of the telecom industry.