Open Platforms: Driving Innovation and Revenue

A smaller piece of a much bigger pie.

That’s the very simple, but very powerful, thinking behind much of the latest news in wireless communications in the U.S.   It’s helping to create a media environment that’s potentially much more open, diverse and innovative – which would be good news for consumers as well as investors in wireless stocks.

As Steven Jobs introduced Apple’s faster, cheaper $199 3-G iPhone yesterday, company executives were hinting that Apple would soon open software development for the iPhone to third-party developers.

Only a couple of weeks earlier, many of those same developers attended a conference sponsored by Google to showcase its new open source Android platform for wireless devices.   The tech reviews were almost universally complimentary - a host of cool features drew comparisons with Apple’s iPhone.

Meanwhile, Verizon Wireless is moving ahead with an Open Development Initiative for manufacturers of wireless devices which would enable access to applications from third-party developers.   While there are still a large number of unknowns (and many observers are highly skeptical) the initiative is a big departure from Verizon’s’s recent track record.

Cell phone users in the U.S. have for years endured the limitations imposed on them by carriers like AT&T and Verizon, whose insistence on closed technical platforms – often called the “walled garden” approach to technology –  has all too often limited consumer choice and helped create a wireless industry that in many respects lags those of Europe and Asia.

What’s behind the change?  Simple: a desire to capture more dollars from the exploding wireless market.

Bill Whyman, a tech analyst and managing director with the International Strategy and Investment Group, a mainstream research firm, recently forecast that more than 1.2 billion new wireless devices would be sold in 2008, with more than 3 billion users forecast by year-end.   That means there will be twice as many mobile wireless users as there are Internet users. 

With numbers that big -- and a growth rate of about 9% a year – there’s real potential to make money.  But operators need to be able to move fast, Whyman said in an interview with Investor’s Daily.

The question is: Would they prefer a larger share of a smaller market or a smaller share of a larger market? When they open up, they can get access to a larger market, but because the walls come down there's less proprietary hooks. They could end up with a smaller market share. The telecom carriers started out as legal monopolies, but they'll have to learn to live in a more competitive environment. They are changing. The question is how fast and is it fast enough…

There's an opportunity for investors around wireless and mobile applications. It's one area where we see a tremendous amount of growth, even with an economic slowdown. People get it that the iPhone is cool and that handsets overall are getting better. The wireless networks are faster and more ubiquitous. But I think the part that's underappreciated is that more openness is leading to more applications, and at the end of the day it's these new applications that will really drive new customers, higher usage and growth.

These themes were among a number discussed at Open MIC’s March forum, “Wireless America: Closed or Open?”  Panelists, including analysts Blair Levin of Stifel Nicolaus, suggested that once consumers got a taste of all the exciting choice and diversity generated through open platforms, it would be difficult to put the genie back in the bottle.  

It’s still early days, and there’s reason to reserve judgment, but the trend is encouraging.