Why would one spend an extra $130 for the 3G version of the iPad, when you can have a 4G version, or have a greater choice of price plans? No, this is not a scoop on a new iPad device, or a knock against AT&T Mobility's network. It is, however, a recognition that the model for how we buy wirelessly-enabled devices is undergoing fundamental change.
The iPad represents a great case study of this new approach. Distribution is increasing rapidly, to now include AT&T's own stores, its direct enterprise sales force, Best Buy, Wal-Mart, Target, and, as of October 28, Verizon Wireless stores. Of course one can still buy the embedded 3G version using AT&T's network, and choose the $15 or $25 per month price options, no contract required. But with the mobile hotspot concept, customers can choose from any carrier's mobile broadband offerings, as well as from the growing choice of prepaid options such as Virgin Mobile's Broadband2Go or the Rover plan from Clearwire that offers the most flexible pricing structure in the industry, with per-day, per-week, or per month options. This isn't a paid ad for MiFi (although I love the product), but rather, a recognition that a change in structure is upon us.
Before getting to that, I still think one's primary mobile device, a.ka. the phone--which users have with them all the time, for voice, and near-constant connectivity to their messaging, social networks, applications, media, and the Web--will still have strong ties to an operator. In fact, operators are racing to make themselves more relevant on smartphones. In just the past few weeks we've seen Verizon's content deal with the NFL, launch of the Vcast App Store and the launch of Sprint ID. Pricing plans are becoming more varied, usage-based, and flexible, yet there are still significant incentives to sign a contract and stiff penalties for breaking it. There's still lots of growth potential here, namely increasing penetration of smartphones and data plans from arond 50 percent today.
Outside of the main mobile device, things get more interesting. Mobile broadband--the USB dongle with the $59.99 plan from Sprint Nextel, AT&T, and Verizon--had a nice growth curve with the lowest hanging fruit in the mobile professional segment, with employers often footing all or part of the bill. But with the recession and growth in smartphones, that segment of the market stalled. The stars are now aligning for a new wave of growth in the connected devices market, driven by:
- The wave of new devices, such as the iPad and other upcoming tablet devices
- Enhanced 3G networks (HSPA+), launch of 4G networks, and, collectively, a lot more wireless capacity
- "Mobile hotspot" devices such the MiFi and the Clearspot, which are getting ever sleeker and cool-looking
- More varied and flexible pricing models, to better accommodate user needs
The most important difference in this new stage is that the device and service will be much less intertwined. Customers will buy their WiFi-enabled tablet, laptop, gaming device, etc. and then will choose the network and price plan that suits them. There will be greater analysis of what the mobile connectivity requirements are for those ancillary devices. We'll also see a more WiFi-like model here, with greater prevalence of per day/week/month pricing, for "occasional use." I also predict the majority of users will opt for a prepaid or flex-pay structure, as they determine what their needs are and will prefer to more easily move between plans and even networks. Conversely, some customers might choose network first, whereby they make a commitment to the portable hotspot and a price plan, to use for existing and future mobile devices for themselves and their family. Example: this is the "family portable hotspot," which I'll take when I'm traveling but can also be used by other members of the household for their iPod Touch or tablets.
The tradeoff, from the customer's perspective, is that the more flexibility they want, the closer they will have to pay to the full retail price for the their "portable network" dongle or hotspot. Verizon's pricing for the iPad is somewhere in the middle. The MiFi is partially subsidized, but requires a contract (though it is month-to-month and does not have a termination fee).
This new model gives a lot more flexibility to users, but is not full "network portability," in the sense that the MiFi-type devices are still tied to a particular operator's network. For example, the Verizon MiFi device cannot be used on the Sprint or AT&T network. This is in part due to the continued CDMA/GSM schism, plus issues of different spectrum bands. Over time, with the rollout of LTE, multiple radios in the device, and the greater role that the Best Buys and Wal-Marts are playing in distribution, I expect that it will be easier to move between networks.
Three new dynamics emerge from this model. First, there will be changes in marketing strategies. All operators will be more eligible to benefit from the growth in ancillary devices, which means there will be even more attention to particular network advantages and pricing plan structure. "The iPad is the iPad. Whose network shall I choose?" I also think operators will craft new plan structures to encourage customers to stay with them for ancillary devices. Examples include "bucket data plans" that can be used across groups, or discounts for attaching additional devices onto an existing plan.
Operators will also have an interesting decision to make about tethering. Sprint's 4G phones and certain Verizon devices such as the Droid X can act as "mobile hotspots" themselves. However, if this option becomes more prevalent are operators leaving money on the table?
Second, distribution is going to become a more important force in wireless. While many interpret Verizon's carrying of the iPad as a prelude to the iPhone, to me it's more about making all these extra devices are using their network. If most of the iPad distribution was coming from third party retailers, the share of network choice would undoubtedly be more distributed across operators.
Finally, there are some improvements needed in dongle/hotspot devices and experience. I believe we'll soon see MiFi devices that are less less like pucks and more like pens, for even better portability scenarios. Battery life needs to improve and the devices will have to charge more quickly. There are also rough patches with respect to the connection manager experience that need to be ironed out. And of course, all these permutations of multiple devices and price plan flexibility will require sophisticated billing and back-office systems.
If the next wave of growth in this industry is coming from connected devices, we need to move quickly to develop the business models, marketing plans and back-office systems to accommodate them.
Mark Lowenstein, a leading industry analyst, consultant, and commentator, is Managing Director of Mobile Ecosystem. Click here to subscribe to his free Lens on Wireless monthly newsletter, or follow him on Twitter.