Custom Under the Hood, Too
By Carlo Longino, Wed May 28 12:00:00 GMT 2003

Specially designed OEM handsets may not be enough for carriers, they're looking at customized operating systems too.

Vodafone and Orange, two of the world's biggest mobile carriers, are making efforts to reduce their dependence on typical mobile device powerhouses like Nokia and Motorola. They've offered self-branded OEM handsets, like the Orange SPV, to support services like Vodafone Live!. But these two carriers aren't stopping by showing handset makers they can shift large numbers of these "white-label" devices, they're making moves to bolster their independence from software stalwarts like Symbian and Microsoft as well.

In March, the operators both invested $3.5 million in SavaJe Technologies, a US-based startup that's developing a Java-based mobile phone OS. The SavaJe OS will not only control handsets with advanced features like Web browsers, cameras, and multimedia applications, but also allows for a high level of customization - something carriers are looking for to differentiate themselves from their competitors.

Though the investments are relatively small, representatives from the carriers' venture arms will take seats on the SavaJe board, and an Orange exec told The Wall Street Journal the company has plans to sell phones running the SavaJe software, which the startup says will be deployed by the end of the year, to take advantage of the customization it offers.

The "Microsofting" of Mobile

What the carriers are wary of is the commodization of the handset business - be it hardware or software - and by extension, the service carriers provide. There's been a long-running battle between handset makers and carriers to "own" the customer, and software makers are now entering the fray. They're keen to see devices standardized on their platform, so it becomes the dominant force in attracting buyers, not services offered by the carrier.

So then a device sells on the basis of being a Nokia handset or being able to run Symbian applications, or having the Microsoft look and feel. Who provides the underlying services doesn't really matter. It's a familiar strategy, especially for Microsoft, who has used it to great success in the PC market.

Personal computers are almost totally commoditized around Intel-compatible hardware and Microsoft software. There's little difference in PCs built by computer manufacturers; their "face" is dependent on the Microsoft software they all run, so they look and perform pretty much the same. Look at what's happened to PC makers - they've been caught in vicious price wars and are seeing their margins fall lower and lower - while Microsoft continues to thrive. Handset makers are already wary of this (it's part of the reasoning behind the Symbian consortium), and similar feelings are growing among carriers.

Customization Is Key

Carriers see customization as the best way for them to avoid the market heading this way. In the end, it's not so important to them what OS a phone they sell runs, as long as there's some way to tell it's a Vodafone or Orange or O2-connected device, and a way for them to build in customized, exclusive services to attract users.

Take, for instance, the Vodafone-branded Sharp phone the carrier sells for its Live! service. The OS running the phone likely isn't as powerful or robust as the Symbian OS running the Nokia 3650, which Vodafone also sells, but what the carrier cares about is that they've got their name all over the handset, inside and out. They've got the special one-touch Live! button, the UI is designed around their suite of services, and is distinctive, telling the user immediately they're on a Vodafone, not a Sharp, handset.

And that's the thrust behind investing in SavaJe - giving the carriers input to completely customize the look and feel, and likely some of the services, of the OS on devices they sell. It doesn't really matter that two competing carriers are supporting the same company, just as several manufacturers support Symbian. As long as the carriers can use the product to differentiate themselves from each other, that's the real goal. The Orange executive VP who said the company would use the SavaJe product said it "allows us to put a complete Orange experience on a phone," and that "operators are becoming a lot more savvy about driving this forward."

They're also not looking to dislodge companies like Nokia or even Microsoft from the market - they just want to establish their independence from them so they aren't pushed to the edge as simply "dumb pipe" providers. If they can demonstrate that they can create commercially viable and successful products by using OEM hardware and software vendors, it forces those incumbent companies to be a little more flexible in delivering the customization that carriers want. After all, the device makers do need the carriers both to deliver their products to end users and to subsidize them. And at the end of the day, the carriers aren't hardware or software developers. It's a symbiotic relationship with more than a little back-and-forth to maintain the balance of power.

Promo Opportunities Abound

An independent, easily customizable OS also raises a number of interesting marketing and promotional possibilities. Companies could work with the SavaJe OS and a device OEM with existing handset reference designs, like HTC, to create branded handsets with brand-customized user interfaces. Coca-Cola, for instance could create the ultimate "Coke phone" - its distinctive logos and graphics on the outside, the UI in its colors, featuring Coke ringtones and graphics, and Coke-centric games.

It could be a new outlet for celebrities - soccer star David Beckham could capitalize on his worldwide fame by bringing out a Becks-phone - in partnership with Vodafone, who he promotes -- with his picture on the faceplate and a customized soccer game inside, or his voice to say "You've got a text message." Seemingly the Asian fascination with celebrities - and gadgets - would be an ideal market for such devices. Carriers could craft handsets and applications around movie launches, then even update them over-the-air with a new UI for the next big blockbuster. The possibilities are almost endless.

But these carriers' investment in SavaJe is a gauntlet that's been thrown down - the carriers are saying they won't be pushed out of the way. They'll continue to promote products that allow them to stand out from other carriers by offering something different - whether it be a handset design, or the operating system and user interface inside it.

Carlo Longino is a freelance writer based in Austin, Texas. His previous experience includes work for The Wall Street Journal, Dow Jones Newswires, and Hoover's Online.