The Phonetop Revolution

The latest statistics show that 20% of US homes have no landline connections, only cell phones.  In fact, homes with just landlines (and no cell phone) are less common than those that have “cut the cord.”  This is a pretty massive shift, in less than ten years.  Think about it: we spent a century getting virtually every American house telephone connection… and they are now walking away from them.

So, along comes the news that Apple may be putting 3G wireless cards into laptops.  This doesn’t sound like a big deal. You can already get a wireless modem card and a data plan from any of the major mobile carriers.  Looking at the market that way, though, totally misses the point.  Stop thinking of a laptop as a small PC; start thinking of it as a big phone.  Yes, the phonetops are coming.

Mobile phones are significant partly for what they don’t have — wires — and partly for what they do have — a service contract.  An ordinary laptop is a physical object.  A laptop with built-in mobile data service is a delivery platform.  It’s a recurring revenue machine.  Retrofitting wide-area wireless capability through an accessory provides similar functionality, but it requires a conscious user decision.  Moreover, it doesn’t disrupt the personal computer business model.  Built-in wireless does.

I’d be willing to bet Apple has thought this through.  Remember, this is the company that cracked the code on digital music downloads by marrying a well-designed device (the iPod) with a distribution network (iTunes) and a business deal to bring in content owners (99 cent songs and FairPlay DRM).  That last piece was critical.  Digital music was never going to take off until the record labels loosened their death grip on content.  Apple gave them a deal they couldn’t refuse (which in the fullness of time turned into their worst nightmare, but that’s another story).  Moreover, digital music devices were never going to take off without a revenue model independent of the hardware.  Apple may make all its profits on the iPod, but the pool of money sloshing around through iTunes makes that possible.

Now look at what happens when 3G (and 4G) modems become standard components of laptops.  The wireless data service package becomes an integral element.  At roughly $2,000 over the life of the mandatory 2-year wireless contract, an iPhone already costs as much as a MacBook Pro.  Most users just don’t see it that way.  They mentally separate the device from the service. This elementary lesson from behavioral finance creates a huge business opportunity. Once Apple standardizes wireless modems across its product line, it can do a carrier deal similar to its arrangement with AT&T for the iPhone.  The laptops will instantly become artificially cheap trojan horses targeting the surrounding industries.

It gets better. Mac laptops already include built-in WiFi.  As with the iPhone, free local-area unlicensed wireless connections are synergistic with paid wide-area connections.  Offloading data traffic to nearby WiFi hotspots is a win for both users and carriers.  And with a laptop it will be easier to do a deal with Boingo or Fon for a global WiFi footprint.  Don’t forget that Mac OSX includes Internet sharing capability, so every 3G-native Macbook will be a mobile hotspot out of the box.  The iPhone, iPod, and a future iPhone Nano can then piggyback off the laptop’s data links at home and on the go.  Voice calling and video collaboration through Skype or other VOIP software are a trivial throw-in, which just might disrupt a $300 billion telco value chain.  The possibilities get rather interesting….

When the iPod was introduced, I imagine people dismissed the significance of iTunes for the same reason they now dismiss embedded 3G modems.  Pre-iTunes, you could get music onto a mobile device by ripping your own CDs, or using underground P2P software, or buying from individual labels using restrictive, proprietary DRM. The introduction of a real platform changed everything.  Apple’s solution remains dominant in digital music, despite some excellent and well-funded competitors.  Could it do the same to the far-larger telephone industry?  Or will someone else get there first?

Update: Maybe it won’t be Apple! Just as I hit the post button, a link flashed across my Twitter feed to this article about Verizon’s plans to sell subsidized netbooks and mobile hotspots.

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