When the Walls Come Tumbling Down
By Eric Lin, Thu Jun 03 06:45:00 GMT 2004

Mako Analysis is worried smartphones will damn operators' revenue streams, but by breaking down the walled garden, smartphones let more revenue flow in.

Mako Analysis released a report threatening that smartphones could ruin traditional revenue streams for carriers. The problem is not that smartphones will rob the carriers, rather the problem is that Mako and the news sites repeating their research are reinforcing the walled garden mentality of a few years ago.

Mako warns that smartphones (it names Symbian models, but really means all OSes) allow users to bypass the carriers and create their own content or purchase it elsewhere. Users can buy or create ringtones, music and themes or wallpapers without going through the carrier. They can also buy and load software offline as well. Mako even goes so far as to threaten that users could bypass the carriers for messaging, threatening their best source of data income.

The truth is that smartphone users have been looking to 3rd party vendors for games, ringtones and customization since they were launched. But despite Mako's predictions, networks who have taken the time to analyze and report the spending habits of these users usually find these users spend, more not less. While they may spend less on the usual walled garden content, users are usually more likely to spend more time online and download more content from a variety of providers. These downloads still add up to data charges that wind up in the operators' coffers.

Mako is also worried that with PC connectivity and memory card slots, smartphones provide users with an alternate conduit to load music and content on their handsets. It's not just smartphones but feature phones that have Bluetooth or card slots, and are also coming loaded with mp3 players just like smartphones. It's true that mp3 players, whether included on the handset or installed afterward, will cut into the operators' hopes to profit from the burgeoning music download market. However their current offerings are weak at best, so this is as much the operators' fault for introducing unwieldy music downloads as it is the manufacturers' fault for building mp3 players into handsets.

What Mako completely ignores is the new economy growing around 3rd party ringtones, themes, software and other content for these new devices. The operators are no longer getting every last cent, but smartphone users are spending money. Operators are also offering users of advanced phones new services that open revenue streams other than messaging and download charges. By tearing down their walls, operators have opened new revenue streams, not damned all revenue sources.