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Why the best phone on the market
won’t save Motorola


24/1/10

The Motorola Android Phone is special, but then so was the last phone Motorola called MAP. A device which never hit the shelves, it was  announced a decade ago.

The DEXT is amazing. I’ve been raving about it for weeks. Perhaps the name of it’s successor, Milestone, is more apt. It shows that Sanjay Jha has achieved a miracle and turned the company around. In particular he’s turned around the evil sore that was Motorola software.

The company is really good at the very, very hard stuff: GSM stacks, antennas, the magic of radio, and then with the bits that a zillion people can do: user interface software it’s a kid with crayons. The crunch came in the mid 1990s when Nokia produced the 2110 and Motorola had phones like the Flare and the T2288. That was the start of the Motorola slide from 35% market share to under 10% today. We saw what some people thought was a reversal but 1000 days on from that we know it was just a blip produced by the Razr. Motorola has been on the slide for a couple of decades and even the miracle of Android won’t save it. Motorola poured billions into start, stop, start, stop, start, stop Symbian projects and produced great phones (the A1000 and Z8) as a result but no return. There were two attempts at Linux with many thousands of people working on it for years and P2K, the software that dates back to the dawn of colour phones a decade ago, was never more than a software mess.

Because ultimately it’s not about Market Share but about money. Motorola has done amazing things in saving fortunes, but the cuts have gone way beyond the Golgafrincham style shedding of a useless third and that’s seen a loss of reach. At one time it was said that they were giving up on Europe. Only Telfonica O2 and Carphone Warehouse would remain customers. They retreated from that and a good thing too because if you walk into an O2 shop you’ll find an iPhone and a Palm Pre (bless them) but no Dext. It’s Orange that’s taken the Motorola marvel.

Still the pulling in the horns to planet America means a loss of reach. OK, that’s market share not profit but in the mass market the two are inextricably linked. A small company can make money on hundreds of thousands of phones, but Motorola still isn’t that small. A model needs to sell at least a million, maybe more, to make good money and with Motorola lite that’s hard. It’s hard enough to compete with the likes of ZTE and Huwawei let alone Haier, Dell and Asus.

Still with reduced reach and a tougher sales environment we won't see a growth in Motorola market share or margins. It's going to be a tough 2010 even if you do have the coolest phone on the planet because so many customers who were used to upgrading annually are now in eighteen month and two year contracts. In the UK at least the one year contract is a thing of the past.

The thing that really drives market share however is mass market phones. In Europe that's Nokia 6700 territory and in the world it's the Nokia 1100 or the Indian variant the 1200.

A more than a third of the phones sold in 2009 will have MediaTek chipsets in them. For the most part these are super-budget phones, it's not a space Motorola can play in cost-effectively, although they do dabble. That kills any chance of Motorola making a market share recovery.

What has a similar affect on margins is that the buying power, in the hands of the operators, ahs so much choice. There are so many Android phones to choose from the operators get to play the game of trading one supplier off against another. When all the phones are so similar as a bill of materials and those costs are so public, it's very easy for the operators to name a price very close to cost and stick to it. The manufacturers, all of them not just Motorola, then have to balance the benefit of taking a loss-making order in the hope of increasing volume and driving down price. Or walking away. And that could be a very long walk. All the way out of the mobile phone business.

The original Motorola MAP offered a feature identical to Apple's Visual Voicemail. Lack of co-operation from the operators meant that it was never implemented.  Traditionally Motorola has looked to the operators fear of Nokia, using Motorola as a foil for the Finns. With so many Android manufacturers that strategy looks as though it's exhausted.

The industry has a new shape, one which will become clearer at Barcelona. How much of that future Motorola shares will be decided there, behind closed doors.


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