The iPhone Will Force Carriers To Open Up

Mobile phones have numerous applications - communications device, business productivity, media consumption, payment mechanism the list goes on...Viewed through the lens of music, there are four primary applications of the mobile platform:

1. Mobile phone as personal listening device
2. Mobile phone as e-commerce store (Over-The-Air  music downloads, subscription services)
3. Mobile phone as means for self-expression (via ringtones, ringbacks, wallpapers, etc.)
4. Mobile phone as media capture device

To date, the personal listening and e-commerce use cases have generally lagged in adoption with the self-expression use case gaining the most traction with a worldwide ringtone market worth roughly $3 Billion. The novelty of ringtones has been wearing off, however, and the market has softened. And of course, more and more handsets offer high quality digital cameras, which consumers are using to capture and share more and more media.

There have been a number of reasons holding up the first two use cases:

• Prior to the iPhone, handsets only supported flash storage and so could only hold 10 - 20 songs.
• Playing music sucked up precious battery life
• The digital music stores on the carriers' decks are hard to navigate and poorly merchandised
  
• The $2.50 - $2.99 price point for downloads felt like a rip-off to consumers
• Network connectivity has been spotty, making streaming music or video a subpar user experience

This is changing with the advent of the iPhone and its new competitors such as the Musiq by LG:

• Storage for these handsets are measured in Gigs not Megs
• Most of these handsets will have two batteries - one for voice and one for media consumption
• The carriers are dropping price points in their stores and improving the functionality
• Networks are getting better (and I'm assuming that it's only a matter of time before iPhone will support 3G)

With respect to digital downloads, I'm not convinced that it's a killer mobile app.  I just don't think US consumers are that excited to download music to their phone from a 'store in the sky' except for impulse purchases.  It's a much better and easier experience to buy music from the PC.

One killer app would be for an operator to bundle Rhapsody (or a similar on-demand subscription service) in with its service.  The subscriber would be able to access Rhapsody on-demand via her device but, more importantly, her playlists and music would be stored on her handset and synched through the air during network down time so as not to use up too much capacity.  Since the operator already has the billing relationship, the cost to acquire a new subscriber (from Rhapsody's perspective) ought to be much lower than doing so on a standalone basis.  Same goes for podcasts whereby the podcasts I subscribe to would be magically updated via the air without my having to take action.  Internet radio is another area but will mostly be a subscription service given the existing economics the carriers have with respect to their networks' scale in handling lots of real-time streaming traffic.

To be sure, there are lots of other innovations in-store:  porting apps like Last.fm  on to the iPhone, enabling users to create their own ringtones (and bypassing the carrier), enabling users to 'beam' music to each other...But first things first: the industry should focus on making the basic music (and podcast/radio) listening experience as easy and intuitive  as possible.  This will continue to happen if the balance of power, catalyzed by Apple, shifts towards the handset makers, who would be able to innovate better and more quickly if the encumbrances imposed by operators were to be lifted.  My prediction: the iPhone will be a runaway success and will force the US operators to give more flexibility to handset makers and open up their walled gardens.  Yes, the carriers risk becoming a 'dumb pipe' but enough consumers will have voted with their wallets to justify the decision.