Hire great workers, even if you can't keep them

Silicon Valley — like the Big Four accounting firms and big law firms — has a well-deserved reputation for hiring bright young people and working them hard until they move on. While the impermanence of SV employment (6-12 months is not uncommon) may be unique, the idea of hiring good people is not.

In his new book Superbosses: How Exceptional Leaders Master the Flow of Talent, Dartmouth leadership professor Sydney Finkelstein argues that a key trait of the best bosses is that “you’re better off having the best people for a short time than average people forever.”

That philosophy fits well with my own experience as a manager during my 15 years as an “executive” (of 5-15 employees) at my startup company. At my entrepreneurship blog, I summarize the comparison of his comments (from his recent WSJ article) with my own experience.

I have great respect for Finkelstein. In an earlier book, he provided the clearest explanation of why once-great Motorola destroyed itself because (as I saw in my cell phone research) of its inability to come to grips with the disruptive shift from analog to digital mobile phones and base stations.

However, there is one line in the article that would give a chuckle to any veteran Silicon Valley watcher — where he lists Larry Ellison as one of “the world’s greatest bosses”). Yes Ellison is a self-made billionaire worth $40+ billion and one of the world’s 10 richest people. And surprisingly, Oracle has had a great run of growth for the last decade, even if the stock price is below where it was in the summer of 2000.

This is the same Ellison whose ego is (or was) so large that his biographer titled the book The Difference Between God and Larry Ellison: God Doesn’t Think He's Larry Ellison. So while Ellison was successful and had some smart people working for him, I don’t know that I would hold him up as a role model (even in Silicon Valley) of how to best lead people.

Bob Galvin turning in his grave

Wednesday Google announced it is dumping Motorola by selling it to Lenovo, the same company that bought IBM’s PC business when it decided to exit.

CEO-founder Larry Page wrote:

We acquired Motorola in 2012 to help supercharge the Android ecosystem by creating a stronger patent portfolio for Google and great smartphones for users. … But the smartphone market is super competitive, and to thrive it helps to be all-in when it comes to making mobile devices. It’s why we believe that Motorola will be better served by Lenovo—which has a rapidly growing smartphone business and is the largest (and fastest-growing) PC manufacturer in the world. This move will enable Google to devote our energy to driving innovation across the Android ecosystem, for the benefit of smartphone users everywhere.

Just to be clear, Google is abandoning commodity markets, not hardware:

As a side note, this does not signal a larger shift for our other hardware efforts. The dynamics and maturity of the wearable and home markets, for example, are very different from that of the mobile industry. We’re excited by the opportunities to build amazing new products for users within these emerging ecosystems.

This is obviously a big deal for Google, for the smartphone industry — and readers of this blog. There are so many angles that went through my head — but then I went off to spend 36 hours seriously focused on teaching (plus meetings). Fortunately, I can summarize most of the angles from the reporting that’s happened since then.

Google's Losses

Google spent over $12 billion to buy Motorola in mid-2012, and is selling it for $2.9b. Only $0.66b is cash and the rest is stock and IOUs. In an article entitled “Buy High, Sell Low,” John Paczkowski (formerly of the Merc and AllthingsD) wrote “the whole affair is arguably one of the worst investments in Google’s history.”

However, the net is a little better than a $9b loss. Minutes after the announcement, Tom Gara of the WSJ calculated

Google paid about $12.5 billion for Motorola Mobility when it acquired the company in 2012, and that came with about $3 billion of cash. It later sold off the company’s unit that makes cable TV set-top boxes for $2.35 billion. Now it’s selling off much of what’s left for $2.9 billion, but keeping all those patents.

The WSJ reminded us Thursday that “Google had absorbed roughly $2 billion of operating losses through the third quarter of last year,” bringing the net cost to $6b.

Friday, the WSJ had a second-day story “How Google's Costly Motorola Maneuver May Pay Off”. This is a fairly transparent effort by the company (or key executives or allies) to try to put a positive face on their huge loss. While the Google goals (promoting Android, fighting Apple) made sense, the purchase had only a small impact on the industry and was a terribly inefficient way to accomplish these minimal results.

The bottom line is that Google ended up spending more than $6b, and all they have to show for it is the 17,000 patents of MMI. Not only did they overpay, but with the losses this is even worse than what they booked on their balance sheet. As Bloomberg reported last April:

Google…estimated in regulatory filings that $5.5 billion of the purchase price for Motorola was for patents and developed technology. Chief Executive Officer Larry Page in August 2011 said Motorola’s patent portfolio would “help protect Android from anticompetitive threats from Microsoft, Apple and other companies.”

Of course, Google has had difficulty monetizing these patents — either offensively or defensively — in support of Android. (The one exception was this week’s cross-license deal with its major Android customer, Samsung, on undisclosed financial terms).

Google’s Mobile Patent Strategy

So how’s that investment working out? As with any mobile patent issue, the definitive source is the FOSS Patents blog. Florian Mueller didn’t pull any punches Thursday:

Things haven't been going too well for Google in the patent litigation arena recently.
…
At the moment Google appears to be on a losing streak in U.S. patent courts, and as I said further above, more bad news is probably coming in the near term. Google's patent infringement issues are definitely a key reason for its push for patent reform legislation, and I doubt that Congress will solve Google's problems anytime soon. There will either be a quick agreement between both chambers of Congress on a targeted and limited reform bill or things will take much longer.

He lists Google patent lawsuit losses to SimpleAir and Vringo, and Samsung’s loss on Apple’s auto-correct patent (presumably signaling future losses by the remaining Android handset makers). In addition, major licensee Huawei settled with the Rockstar Consortium — which suggests to me that Android licensees except Samsung will probably do likewise. (Wikipedia helpfully explains that this patent troll paid $4.5b for the Nortel patents — the largest patent portfolio ever sold — and that Apple, Microsoft and Sony are part-owners.

If that’s not bad enough, Mueller predicts that Motorola is also likely to lose its case to Intellectual Ventures (the Nathan Myhrvold patent troll).

In defense of Google execs, this mobile phone patent litigation among handset makers is relatively new, and it was not obvious how it would turn out. Still, it’s clear Google knew little about this business model, didn’t have a lot of their own patents, and took the shareholder’s cash to buy the biggest stash of patents they could find (valuation be damned).

Greater Fool Theory

Of course, for every seller there is a buyer. Lenovo seems to think that what’s left of the Moto mobile franchise is worth $2.1b in cash and IOUs (plus 5% of their company).

A friend of mine noted that parallels the habit of Asian companies over the past two decades to buy money-losing US PC companies:

• AST Research: bought by Samsung (1996)
• Packard Bell: bought by NEC (1996)
• Gateway: bought by Acer (2007)
• IBN’s hard disk division: bought by Hitachi (2002)
• IBM's PC division: bought by Lenovo (2005)
• IBM’s PC server division: being bought by Lenovo (2014)

So far, it appears that the first two (market-leading IBM businesses) were worth buying. The others (top 10 but not top 3) only transferred value from Asian CEO egos to struggling American shareholders.

Death of an Icon

All this aside, what occurred to me when I heard the news was that the late great Bob Galvin (1922-2011) must be turning in his grave. Here is the an excerpt from the obit I wrote:

Robert Galvin died last week at aged 89. The second of three generations of Galvin CEOs at Motorola, he was clearly the best, guiding the company to its period of greatest success (1959-1997).

In addition to serving as Motorola president, CEO and chairman, Galvin was chairman of Sematech and helped create the Six Sigma movement in the United States. For more than 20 years, Galvin was a Notre Dame trustee and later fellow.

There is a great video on Galvin’s seminal contributions to the wireless industry, prepared by the Marconi Society when they gave him a lifetime achievement award. In that video, I argued that Galvin’s two great contribution was to create the system of competing US licensees in cellphones (something that no other market had yet considered) and to push portability, miniaturization and mobility in cellphones — i.e., to create our modern industry. Yes, without Motorola we would have eventually had such a mobile industry, but the company shape how we got here and got us here sooner.

Bob Galvin spent his last years at Motorola doing two things: fighting against trade barriers for Motorola products overseas (notably in Japan), and promoting a resurgence in manufacturing quality for American electronics to be able to compete with foreign (i.e. Asian) producers. In 1988, Motorola won the Malcom Baldrige National Quality Award for manufacturing in its inaugural year.

His company is no longer the market leader it once was, having come late to the digital era and wasted $7b on Iridium (back when that was real money). Before he died, the company’s decline was palpable and surely known to him. Still, I have to imagine he is turning in his grave.

Death of the once-great Motorola

Robert Galvin died last week at aged 89. The second of three generations of Galvin CEOs at Motorola, he was clearly the best, guiding the company to its period of greatest success (1959-1997).

In addition to serving as Motorola president, CEO and chairman, Galvin was chairman of Sematech and helped create the Six Sigma movement in the United States. For more than 20 years, Galvin was a Notre Dame trustee and later fellow. His funeral mass will be held Tuesday in Winetka, Illinois.

I nearly met Galvin at what was likely his last public appearance, a dinner Sept. 8 in San Diego in which the Marconi Society gave him their a lifetime achievement award. Unfortunately, a massive power failure shifted the event from the Scripps Aquarium to become a candle-lit garden party, in which the mingling was cut short when the sun went down and the light disappeared. Galvin was at the event in a wheelchair, but we never spoke.

The Marconi Society prepared a very professional retrospective of Galvin’s life with Motorola, including interviews with Galvin and key associates. The 7-minute video was intended to be shown at the banquet, but without AC it was passed around among the 100 attendees on two battery-powered laptops.

The video included an interview with the (famous) Marty Cooper, who ran the Motorola project that produced the DynaTAC handset that was produced during the 1970s for the licensing trials.

Another interview was with yours truly. My original dissertation plans focused on the efforts of AT&T and Motorola to bring out cellphones during the period 1960-1983. I argued that Galvin brought two key contributions of Motorola to the cellular industry:

• pushing for competing cellular licensees for every major market, rather than replicating Ma Bell’s landline monopoly
• the ongoing push for miniaturization of the handset — being the first with a portable handset.

Something I hadn’t previously heard — although it was in the NYT obit — was Galvin’s story of how he got the FCC to approve his proposal for a 2nd license. He brought a portable handset to the Reagan White House, and Reagan himself asked a staffer to direct the FCC to grant Motorola a license.

It’s so very sad how Motorola has lost its way since the days of Bob Galvin. He can’t escape blame entirely, both appointing his son Chris to mismanage the company and greenlighting the $7 billion Iridium boondoggle that sapped the company’s resources at a time when Nokia (and later the Koreans) was eating its lunch.

Even without a happy ending, the world is a better place for people like Bob Galvin, Ken Olsen and others who created something that didn’t previously exist, harnessing technology both to serve customer needs and create economic growth. I’m guessing in my lifetime we will probably say something similar about Steve Jobs, when (like Motorola and DEC) the remnant of Apple has been commoditized into a shell of its former self.

Smartphone vendors learn: commoditization is hell

As previously noted, the major goal of Android was to commoditize smartphones, to make them widely available from a wide range of sources. Consumers like open standards because they bring, entry, competition and lower prices — a point I made in a 2007 book chapter.

As any first year strategy student can tell you, low entry barriers that bring high rivalry and high buyer destroy industry profit margins. Assuming the major cellphone makers each employed one MBA graduate, this should have been utterly predictable.

But apparently this is news, at least according to a report by John Paczkowski in All Things D that quotes analyst Trip Chowdhry:

He says that Sony [i.e. Sony Ericsson], Motorola and Samsung are growing disillusioned with Google’s Android OS. They feel there’s too much fragmentation and too little differentiation among Android devices and that companies producing low-end handsets are collapsing the premium market they’d most like to play in.

“They’re starting to realize that their Android devices [are no different] in the eyes of the customer [than a] $20 Android Phone from Huawei,” Chowdhry says. “They’re worried that Android may dilute their global brand as customers put them in the same bucket with Acer, Asus, ZTE, Huawei, and MediaTek.”

Uh, yeah, we’ve seen this story before: it was called the Wintel PC (or for oldtimers, the IBM PC compatible.) Cellphones are worse, since the carriers control distribution and have an interest in selling the cheapest phone they can.

To prevent this lack of control and divergence of interests, these three branded vendors were co-founders and shareholders of Symbian. In the end, only Sony Ericsson took Symbian seriously.

Today, Chowdhry suggests that the big three should license webOS from HP. Two aspects of the report makes sense. One is that webOS is a modern, high quality smartphone OS. The other is that HP has negligible share and isn’t competing with them.

Still, the major handset makers are no more interested in sharing a standard with webOS than they were with Symbian. And the high royalties ($50-75/device) that Chowdhry proposes are not going to fly with companies that pride themselves on hardware designs.

WebOS and its (former) owner Palm are really a US brand. I think HP’s best shot would be to approach either Motorola (which is still US-centric) or Sony Ericsson (which is even more seriously in trouble) to see if they’re interested. HP could continue to use webOS for tablets and other devices.

Samsung is a lost cause. They put small bets on every open platform (Symbian, Windows Mobile, Android) while still hoping their proprietary bada platform will catch on outside Korea.

After two years of negligible sales, whatever window webOS has as a smartphone platform has just about closed. It takes more than a better mousetrap to get traction in a platform market: it also requires developers, hardware vendors, distribution and end users.

Motorola splitting its way to greatness

The breakup of Motorola became effective Tuesday: Motorola Mobility (MMI) gets cellular handsets and settop boxes, Nokia Siemens gets the cellular infrastructure business, Motorola Solutions (MSI) gets government & industrial radio clients, and Sanjay Jha gets to be COO.

The split brought a nice day one stock bounce of 9.5% for MMI and 6.6% for MSI.

On one level, it marks an ignominious end for the company that invented the handheld cellphone. It also clears the way for one or both of the companies to be gobbled up by bigger companies — no small concern given that Carl Icahn owns $2b worth of shares and (as always) wants to maximize his own short-term return rather than build a long-term winner.

It didn’t have to come to this: Motorola was the world leader in handset sales as late as 1997 and second until 2007, when it still led the US cellphone market. However, it was late to shift to digital and late to shift to software. (By comparison, the infrastructure business was never able to master the complexity of telephone switching and became uncompetitive once mobile radio technology diffused throughout the industry.)

Its handset business has been losing money for many years. As announced in March 2008, the handset spinoff was an attempt by CEO Greg Brown to dump the losing handset business after being unable to sell it. Even with its recent improvement, its survival is by no means certain.

Motorola co-CEO (now MMI founding CEO) Sanjay Jha deserves full credit for the turnaround over the past 30 months, in large part through his bold decision to bet the farm on Android. It’s too soon the say whether the turnaround is permanent, as MMI faces brutal competition in all the major categories where it competes: US market, smartphone market, Android handset market and even for Verizon’s loyalty (with the iPhone LTE due Real Soon Now.)

Still, it’s a good move for Jha, who as COO of Qualcomm was going to grow old waiting two or three decades for Paul Jacobs to retire. Very few Qualcomm execs seem to want to leave the mother ship — whether it’s because of the weather, lifestyle, or gross margins, I don’t know.

His gamble to move back east has certainly paid off. Even if MMI is unable to pull it off, he will certainly be snapped up by another tech company. Exhibit A: Eric Schmidt, who jumped from the sinking Sun Microsystems ship to become CEO of Novell and — without fixing its intractable problems — got named CEO of Google.

One unresolved question: will MMI keep settop boxes? The former General Instruments (with major operations in San Diego thanks to the Linkabit Videocipher spinout) accounts for about one-third of its revenue, but there are few obvious synergies. Now that Cisco owns its main competitor, Scientific Atlanta, there’s no obvious exit strategy, but I imagine finding a home for the STB business will be one of Jha’s 2011 priorities.

Cross posted to San Diego Telecom Industry.

Silly smartphone revisionism

Sorry, I just can’t take this lead sentence from page B1 of today’s NY Times:

For much of this decade, the fates of Palm and Motorola were intertwined.

The parallel is just plain silly.

• Motorola invented the handheld mobile phone in the 1970s, Handspring (later bought by Palm) shipped its first phone in 2001.
• Motorola has been exporting phones to Japan and Europe since the 1980s, while Palm has always been a North American phenomenon.
• Motorola was late to digital, Palm was always digital.
• Motorola was late to smartphones, Palm was only smartphones.
• Motorola was a radio company, Palm a PDA company.
• At their peak, Motorola made good hardware and so-so software, while Palm had so-so hardware and good software.
• Motorola phones tended to be slim and light while Palm phones were big and clunky.
• Because of its lousy performance, Motorola’s handset division is (someday) being spun out, while Palm sold itself cheap to HP.

Need I go on?

Yes, as the NYT reminds us, Motorola hitched its wagon to Android in October 2008, while Palm is pursuing its go-it-alone strategy (now with HP’s money.)

Motorola (corporate) revenues continue to decline, but at least this quarter is profitable, and CEO Sanjay Jha hopes to ship 12-14 million smartphones in 2010 — with smartphones accounting for the majority of handset sales and raising the average selling price. (Almost all of those smartphones have been Android.)

So the explanation is pretty simple:

• An open source operating system (like Android) is the ultimate commodity software: free and available to all firms.
• If software is a commodity, then the only hope to differentiate and gain share is through hardware competencies.
• Motorola has those competencies (like Nokia and the Koreans) but Palm doesn’t.

By the way, if software becomes a commodity, that’s not good news for Apple and Research in Motion, whose have convinced consumers and enterprises (respectively) to buy phones because of their software, not their hardware.

Google wins, Motorola loses

The papers, the news, blogosphere etc. are all abuzz about the new Google Nexus One.

The “phone” is actually two different phones: an unlocked GSM phone for T-Mobile and an unlocked CDMA phone for Verizon due by June. Since the GSM phone will also work on overseas networks (but not AT&T’s 3G network), it’s not clear whether this phone is the one planned for Vodafone, or it will be yet a third phone.

The new phone doesn’t appear to be much different than any HTC Android phone, except that it has Android 2.1 and a 1 GHz processor from Qualcomm. (The first Android phone was also Qualcomm Inside).

The reviews have ranged from fawning to skeptical, but overall the phone appears to be an incremental improvement over existing phones. The business model — $530 unlocked or $180 with a T-Mobile subsidized contract — appears to be somewhat different, but unlocked phones have been available for years from Amazon or even my local Fry’s. (The former is how I bought my Nokia E65).

So why is Google doing this? The new OS and faster processors will be used by other vendors later this year. The unlocked model is certainly one that can be used by others. Does Google so want to get its brand out there that it has to have its own branded phone? (Having the Google logo on the back of most Android phones isn’t enough?)

One possibility is that this was an engineering (or ISV-oriented) prototype, developed for internal use, that someone decided to commercialize. Although I don’t know if it ever shipped, several years ago I heard that Nokia was working on an unlocked, reflashable handset for exactly this reason.

What is certainly happening is that Google is competing with its OS customers. I am not the only one who thinks this is a bad idea. (Android is nominally open source, but in terms of actual openness it is really provided a Google-led industrial consortium).

Who are its customers? Phandroid — a once-authoritative Android phone site — lists 15 other Android models currently available, although some of those are variants in different national markets. Three are from Samsung, two are from Motorola, one from Huawei and the remaining nine from HTC. Two are CDMA — the Motorola Droid and the HTC Hero), one is dual mode (Samsung Moment), and the remainder GSM.

Huawei has no choice, and HTC seems happy to let others rebrand its products, but what about Motorola and Samsung? (The Open Handset Alliance also includes LG and Sony Ericsson, leaving Nokia as the only top 5 handset maker not participating).

Is this a careful calculation that the major handset makers have no choice but participate? With Windows Mobile continuing its long slide, Motorola seems to have all its smartphone eggs in the Android basket. Samsung sells lots of Windows Mobile phones (BlackJack, BlackJack II, Jack) and has dabbled in Symbian and LiMo as well, but seems perfectly happy to sell its proprietary OS.

So the Chinese and Taiwanese makers will just grin and bear it, the Koreans will go on being platform agnostic (if not platform indifferent), and this gives Nokia even more reason not to join the OHA. (Not that was ever likely).

Which leaves Motorola as the one in the pickle. What should Sanjay Jha do about Android? His company already had limited brand visibility on Verizon, which is using “Droid” as its own subbrand for all Android phones from its various suppliers. Now it’s having to compete with its OS supplier.

The Japanese have an expression: “sho ga nai.” Roughly translated, it means: “ain’t nothing you can do about it.” While at Qualcomm, I’m sure Jha spent enough time selling Qualcomm chips in Japan to learn this expression, but that doesn’t make his problem any more tractable.

First shoe on Motorola's Android strategy

Motorola today announced their first Android phone, to be available in time for Christmas on the Android T-Mobile network. As a piece of hardware, the Motorola Cliq is a touchscreen with slide-out keyboard. This is the same phone as the previous leaked Motorola “Morrison” model.

Motorola’s main claim to fame (other than the brand and distribution) is Motoblur, a new skin that integrates social networks, contact management and email similar to Synergy under Palm webOS.

There are two curious things about the announcement. The first is starting with T-Mobile, the smallest and least important of the major US operators, and the one that has all the installed based of Android phones. Aren’t there Sprint, Verizon or AT&T users that also want Android? (Supposedly the Motorola Sholes will be available on Android later this year).

The second curious thing is Motoblur, which is not quite a GUI but more than an application. Obviously it’s an attempt to create differentiation within Android (and perhaps fix some of its usability problems). Is it also an attempt to create switching costs between Motorola and other Android handset vendors? If not, then when a user drops his Cliq in the pool he’s just as likely to buy an HTC or Samsung as a Motorola.

If Motoblur is about switching costs, then Motorola will have to commit to offering a family of Motoblur phones over the next few years -- and that Motorola hopes that such phones will be a big part of its business.

This sort of semi-platform strategy strikes me as neither fish nor fowl. Motorola doesn’t have its own smartphone platform, but it wants some of the benefits of doing so. Sony Ericsson and Nokia tried this with custom GUIs on Symbian and eventually gave up, although the cost of maintaining a full GUI would have to be more than maintaining what appears to be a grouping of applications (or an integrated app suite) on Motoblur.

Motorola, Android and Verizon

Rumors this week were that Motorola will release its first Android phone (“Calgary”) this quarter on Verizon. However, today Motorola handset CEO Sanjay Jha said that the phones won’t happen until the third calendar quarter (MOT’s Q4). As PC magazine reports:

"With Android we believe we can enable differentiated consumer experience and applications, with enhanced integration of messaging and social networking applications," Jha said during a conference call with analysts announcing the company's second-quarter earnings. "We also intend to offer a range of devices by delivering those capabilities in both the high tier and the mid tier ... [and] we will deliver meaningful products in the fourth quarter."

The Android lineup will include "entry level data devices," Jha said. "I like to think of rich, data-enabled devices which have capabilities more than SMS. ... One of the things that I particularly like about the Android platform is the very good mobile Internet experience ... I also think multimedia is important."

The Android phones "will launch with multiple carriers and not just in North America," although PC Mag notes that the US 57% of Motorola’s (declining) cellphone sales.

The timing of the next phones is a subject of intense speculation. The performance of the HTC G1 has been disappointing, which is causing many to hold off on buying the first Android phone in hopes of buying the next one. I am surprised by the amount of recent TV advertising for the G1, as well as the aggressive promotion on campus of a G1 event this weekend at Valley Fair.

However, the release of the new phones appears to be waiting on solving the performance issues. Qualcomm appears to be at the center of the solution, so perhaps (former Qualcomm COO) Jha has good insight as to how long this performance optimization is going to take.

The reports imply that Android will be used by Motorola for more than just smartphones. Motorola is a consumer brand with a relatively small presence in smartphones.

I will be very curious to see what Verizon’s smartphone strategy turns out to be. It won an exclusive on the first touchscreen BlackBerry, it’s making noises about a 2010 iPhone, and obviously will have some sort of Android phone, but nothing yet is appears to be a smash hit. Its largest rival, AT&T, is adding millions of customers using its iPhone exclusive, although it still sells BlackBerries, but implied it that it won’t use both Android and Symbian.

The smaller carriers have simpler strategies: Sprint is emphasizing the new Palm, and T-Mobile seems to be using both Android and Symbian.

Motorola's bad news continues

Motorola reported nothing but bad news this morning, as its cellphone collapse continues to hurt the company’s overall bottom line.

Co-CEO Sanjay Jha announced a $400m quarterly loss for the entire company, due to a 32% year-on-year drop in handset sales. This morning’s most complete account came from the FT:

The US group’s problems were highlighted by continued declines in mobile phone shipments and global market share during the latest quarter. The third largest mobile phone maker shipped 25.4m phones in the quarter, down from 37.2m phones a year earlier, and its global market share slipped to 8.3 per cent, down from more than 20 per cent just two years ago.

In addition to the poor financial results, the second bombshell was Motorola’s decision to delay the handset spinoff:

“While our strategic intent to separate the company remains intact, we are no longer targeting the third quarter of 2009, primarily due to the macroeconomic environment, stresses in the financial markets and the changes underway in Mobile Devices,” [Jha said.]

“We have made progress on various elements of the separation plan and will continue to prepare for a potential transaction at the appropriate timeframe that serves the best interests of the company and its shareholders.”

Finally, Jha confirmed plans (leaked yesterday by the WSJ) to reduce cellphone handset platforms to three: Windows Mobile and Google Android for its smartphones, and its legacy P2K for the low-end . Motorola had the most confused platform strategy in the entire industry, so this should be a good thing, but there are problems with all aspects of the plan.

Motorola has not been very successful in the profitable high-end smartphone segment, with lackluster products, weak distribution and competition that is getting worse. As the WSJ reported this morning:

Motorola faces many challenges, not least of which is a lack of new product releases combined with smartphone innovations from competitors -- like Apple Inc.'s iPhone and Sprint Nextel Corp.'s Instinct -- which have led to Motorola's losing a large portion of its market share. Motorola launched its first touch-screen phone during the quarter.

(Instinct??? Who’s buying the Samsung Instinct? Has anyone heard of the BlackBerry Storm?)

One thing that was not confirmed was the widespread rumor (including yesterday’s WSJ account) that Motorola would outsource Windows Mobile device production. If Motorola isn’t providing the operating system, and Taiwanese makers have economies of scope, why not hand them over? (Perhaps that’s still the plan, just not in today’s announcement).

As for the (Linux-derived) Android, rumors of a spring release of a Motorola phone were wildly optimistic, since (as of today) nothing will ship until the 2009 Christmas season. This suggest that whatever else, Motorola has still not become nimble and aggressive. Eric Zeeman of Information Week called this truly disappointing:

Android has been available to developers for about a year now. It takes most companies 12 to 18 months to develop a phone and bring it to market. HTC managed to bang one out in 11 months. The report that Motorola would have something ready by mid-2009 seemed about on target. Why the schedule has been pushed back, Jha didn't explain.

Either way, it leaves more room for Motorola's competitors to beat it to market with devices of their own. As I reported yesterday, Kyocera, Hop-on, OpenMoko and even ASUS have Android handsets in the works. They all have plenty of opportunity to gain some ground on Motorola.

Motorola will be effectively sitting out the smartphone market for the next year, at a period of its most rapid growth and as the US market dramatically shifts to smartphones, driven by the iPhone, various BlackBerry models, and (perhaps) a few gPhones.

Motorola is giving up on Symbian, despite having produced a couple of highly regarded Symbian phones (the Z8, Z10). But the entire collaboration seemed jinxed. The new phones didn’t sell well. Last April, Motorola axed the crack design team they hired when they bought Sendo. And the phones were based on UIQ, the user interface that is being phased out after Nokia buys out Symbian. Finally, Symbian is not popular in the US, where it desperately needs to buck up its market share.

The P2K decision also seems a little puzzling, since that they have been trying to phase it out for years. It was supposed to be replaced by Linux — to be standardized through Motorola’s membership in LiMo — but now Motorola’s participation in LiMo appears to be finished.

The news shows that the handset division will continue its long slide towards oblivion for some time. Overall, it remains disappointing that the company that invented the handheld cellphone has lost its ability to execute on innovation. Anecdotal evidence suggests that the company is highly bureaucratic, political and without accountability for failure. It has generally poor track record on software, which is crucial for creating today’s complex consumer devices, particularly mobile phones.

When Jha joined Motorola in August to become head of the handset division, he brought with him a strong reputation for operations from his days as president and then COO of Qualcomm. It seems to me that his problems at Motorola are less about specific products, and more about fixing the culture and getting the company to execute again on bringing compelling products to market.

Where has the Moto gone?

Last weekend, I remarked on the disproportionate representation of LG and Samsung as suppliers to Verizon, the largest US CDMA carrier. Earlier I’d assumed that LG and Samsung were taking Verizon by storm because the Europeans don’t make CDMA phones (or good ones).

However, in the succeeding week, I made some more visits (to do repairs at the Apple Store) and the pattern was nearly the same at the Cingular AT&T store. I decided to count available handsets at the Verizon kiosk in the mall and the AT&T stand-alone store in the strip mall across the street. I tried to exclude duplicates (like the four Samsung Blackjack II phones at the AT&T website).

After looking at these retailers representing 54% of the US market, what was striking was the lack of handsets by Motorola. According to the Q2 figures, Motorola still leads the US market, while LG has slipped past Samsung into second. But you wouldn’t know it from looking at the phones in the mall.

Global (2007)		U.S. (Q2 2008)			# of handsets
Rank	Share	Rank	Share	Mfr.	AT&T	Verizon
3	13.9%	1	25.8%	Motorola	2	3
5	7.0%	2	21.0%	LG	5	7
2	14.1%	3	18.6%	Samsung	5	5
		4	10.6%	RIM BlackBerry	3	2
1	38.2%	5	9.5%	Nokia	2	-
4	9.0%			Sony Ericsson	1	1
				Apple iPhone	1	-
				Other	2	3

Clearly LG, Samsung and RIM are benefitting from product proliferation, while Apple is getting more share out of their one model than Palm. LG has clearly leveraged that product proliferation (and other point of purchase push) into US market share gains.

Razr is not a business telephone but a consumer phone, and supposedly the best-selling phone in America. So if they're not being sold in the malls or strip malls, where are people buying them? Costco? Office Depot? Of course, Motorola has a monopoly on the iDEN phones sold for the Nextel half of the Sprint Nextel network, but this is clearly a declining and troubled business.

So should Sanjay Jha get Motorola to create more new models (ala LG) or should he creating more compelling point products (ala Apple)? It seems unlikely they squeeze a higher sales rate out of the Razr, and so the issue is the popularity of #2 or #3 Motorola models (or perhaps adding a #4 or #5 model). The Razr is a cool slim flip phone, but do people want different form factors, operating systems, feature lists?

One major growth area is increasingly important and increasingly competitive smartphone segment, where RIM and Apple dominate North America and Motorola is a distant fifth. The Motorola smartphones don’t seem to be attracting buzz, visibility or tire-kickers, whether the Symbian-based Moto Z10 or Windows-based Moto Q (or its Q11 successor). Is this the hardware design? Is it that Symbian isn’t designed for the US market? Is it that Motorola is splitting the Windows Mobile market with Palm (#3 in US smartphone sales with its 750w and 800w) and Samsung (#4 via the BlackJack II)?

Rather than make better Symbian or WM phones, it appears that Motorola has placed its huge smartphone bet on Android. But the gPhone is far from a certain success, either as a platform or as a series of handsets. As long as Motorola has Symbian and WM development teams, it seems as though they should continue to develop successor projects until the verdict on Android comes in.

Mobile phone cuts

Just a few tidbits of news today.

Deutsche Telekom is cutting prices of the iPhone, from €499 to €99 (or to have a monthly bill of €29 with a €249 up front charge). This has all sorts of implications. It might reflect an abject failure of the iPhone in Germany, or it might be clearing out inventory for the 3G phone. Or it might reflect a shift of Apple’s strategy to have a range of price points and make the iPhone more widely dispersed.

Motorola is making another round of job cuts, axing 2,600 today. They will have 63,500 at the end of the cuts, versus 147,000 in 2000. Among the casualties is their Birmingham design centre (née the startup Sendo); alas, instead of half (60) of the workers, they are dumping all 120. Motorola has yet to bottom out: as with Apple a decade ago, it needs to come up with a way to increase innovation and top line growth, not just cutting costs.

Finally, (on an unrelated note) Microsoft has modified its plans to dump Windows XP on June 30. While that’s still the planned end date for the developed world, it will be keeping XP for cheap PCs in the third world.

Brown throws in the towel

The bad news for Motorola just keeps on coming. Unable to find a buyer for its handset division, Motorola CEO Gregory Q. Brown is going to spin it off to shareholders.

Brown is washing his hands of the critical problem that cost Ed Zander his job. In effect, he's saying that either a) the handset division is a net negative for the stock price or b) the best way to sell it is to cast it loose and make it the new management's problem.

A number of the articles noted what a terrible idea it is to dump Motorola's largest business rather than fix it. Dow Jones (via CNN) has a good take:

Skeptics believe that, over the next year, Motorola will endure customer confusion, interruptions with the supply chain, and ultimately the loss of more market share. More importantly, a lack of stable leadership has left the mobile devices business without clear direction, which is only exacerbated by the uncertainty of a spinoff.

“It's a terrible idea,” said James Faucette, an analyst at Pacific Crest Securities. “It hastens the demise of the handset business.”

As DJ notes, even with a spinoff the new division will need a leader, strategy and a way to keep its top talent.

CNET has an intriguing article in which a disgruntled ex-employee basic says that Motorola's success with the RAZR could be all credited to Chief Marketing Officer Geoffrey Frost — and when Frost died on the job in 2005, so did Motorola’s stream of good ideas.

Carl Icahn — the master of short-term arbitrage and long-term disaster — seems to think the spinoff is good news. I think the stupidity of this strategy — dumping rather than fixing the problems — will become obvious long before Icahn can dump his 144 million shares.

3rd place, going on 4th

Motorola has managed to fall from 2nd to 3rd in the global handset market, and the bad news doesn’t seem to be ending any time soon. Elizabeth Woyke of Forbes.com has an interesting summary of how Motorola is doing its best to get to 4th or 5th.

Bigger isn’t always better, but Woyke summarizes some advantages of market share:

...the industry is expanding beyond hardware to span technology, fashion, applications and operating systems--what Milanesi calls "the whole ecosystem of services."

Elite rank isn't just a symbolic win. Placing in one of the top three positions in the industry translates to big volumes--which, in turn, lowers costs and increases a manufacturer's clout. No. 1 Nokia, for instance, will ship more than 500 million phones this year, more than twice as many as No. 2 Samsung. "From a vendor's perspective, it's good to be in the top five and better to be in the top three," says Milanesi.

Adding to everyone's stress is that Nokia has opened a wide gap between it and competitors everywhere but North America. Here the latter, it’s Motorola (#3) vs. Samsung (#2) and LG (#5).

Samsung is doing well

thanks to aggressive moves into Europe and emerging markets, a greater focus on consumer research and an embrace of open operating systems, including Windows Mobile, Symbian and Google's Android.

Note to readers: Android is potentially much more open than Windows Mobile, with Symbian somewhere in between.

The article notes the speculation that Motorola may cut half of the staff at its Birmingham (England) design center, which is the only piece it has left from its purchase three years ago of the innovative mobile phone startup, Sendo. It also guesses that the announcements at next week’s CTIA Wireless show will be underwhelming.

Motorola still has a strong brand, distribution, and lots of talent. Its leadership seems to be of mixed quality, and its strategy for dealing with increased competition and commoditization has been failing badly. I hope it can turn around, but I’m not going to bet money on it.

Sony Ericsson toys with the dark side

In conjunction with 3GSM (aka GSM World Congress aka Mobile World Congress), Microsoft announced Sunday that it has finally won Sony Ericsson over to its camp. Of course, Sony Ericsson still retains a significant financial stake in Symbian OS as the owner of UIQ Technology.

This got me to wondering about all the side bets being made by the major cell phone vendors. Below are the platform choices by the top 2007 mobile phone vendors; X is a major bet and † is something that (for now) looks like a side or limited bet.

Vendor	Share	Symbian	Windows	Linux
Nokia	38%	X		†
Samsung	14%	X		†
Motorola	14%	†	†	X
Sony Ericsson	9%	X	†
LG	7%	†		†

The 110 current Symbian cellphones far exceeds that of the 39 Windows Mobile phones. Linux can be used for smartphones and feature phones, but at least among smartphones the market share is (roughly)

• 62% Symbian S60 (inferring from Nokia smartphone sales)
• 15% Symbian UIQ and MOAP
• 13% Windows
• 11% RIM
• 4% Linux (estimated from 2006, 2007 Canalys data)
• 3% iPhone
• 2% other including Palm, proprietary OS

In contrasting the willingness of European vendors to partner with the Evil Empire, it would seem that Sony Ericsson wants to sell smartphones in North America and Nokia doesn’t.

Of the side bets, rumors have it that Motorola will make more Symbian UIQ phones using its acquisition of Sendo. And of course all the efforts to use Linux as a mobile phone platform are still early, and all of the vendors could have major Linux commitments if the OVA or LiMo catches on.

Motorola: the first shall be last

A couple of days ago I got a tip from a reader about the silly rumor being spread by a Nomura analyst that Motorola was going to dump its handset business. The rumor was tremendously successful for getting publicity for Nomura and the analyst (Richard who?) but the speculation seemed over the top. Perhaps the rumor was planted by competitors hoping to undercut Motorola.

After all, Motorola invented the handheld cellphone business 30 years ago, has been a consistent #2 or #3 for decades, and handsets account for half of its revenues. Without cellphones, they’d have no consumer brand. This sort of radical change requires an outsider, not a handpicked inside successor like CEO Greg Brown.

About the only thing I could say good about the idea is that at one point, IBM exiting the PC business would have seemed equally ludicrous a decade ago — before they bailed out in 2004. Kevin Maney also notes that Motorola [like Intel] dumped the RAM business when the Japanese competition got brutal.

So I was getting ready to write about this silly idea, and then I saw the (online) front page of Friday’s WSJ, and then CBS MarketWatch. After dropping 40% this year, Motorola stock is up 10% on the possibility of spinning off the money-losing cellphone business. Even if the speculation is getting legs, as with earlier this week the headlines are exaggerated and misleading:

Motorola
To Spin Off
Handset Unit,
As Icahn Waits
By SARA SILVER
Motorola Inc., facing pressure from activist shareholder Carl Icahn, said it may spin off or sell its flagship handset division.

OK, journalists — what’s wrong with this picture? “To spin off” != “may spin off”.

I still think the answer to Motorola would be to fix the underlying problems. Some say a major problem is being utterly clueless on software — due to management, not engineering talent. (Some of the iPhone engineers are Motorola alumni). Even if Apple (or Microsoft) has an unfair advantage in software, certainly Nokia has done a better job than Motorola of shifting from cellphones as blocks of silicon to software-controlled digital devices.

Yes, the US is a brutally competitive handset market. LG and Samsung get almost no competition in their home market, and Nokia is not seriously threatened in Europe.

Still, Motorola has great North American distribution and brand, and doesn’t have to compete with Nokia or Sony Ericsson in CDMA. They once had an industry-leading innovative culture.

On the other hand, this is the same Motorola (under Ed Zander) that killed their top software lab in Urbana-Champaign. Fortunately, Yahoo saw the value of the team and hired them away. Hopefully they survived this week’s Yahoo layoffs. Update Friday 9am: If Microsoft succeeds in buying Yahoo, I’m certain they’ll keep the Urbana-Champaign talent.

Clearly MOT will never be a cost leader. If you don’t want to pay for R&D, then you can’t be an innovator, which doesn’t leave much else.

A decade ago, a bunch of stupid Asian PC makers bought losing American PC makers to gain market access: Samsung bought AST and NEC bought Packard Bell. Both turned out badly. But these were 2nd tier players. So I don’t know what companies would have enough money (or optimism) to buy the Motorola business.

The iPhone one year later

It’s been exactly a year since Steve Jobs unveiled at Macworld Expo Apple’s most important product of 2007, the iPhone (aka the Jesus Phone). I’m working to finish our journal paper assessing the iPhone and its impact, and thus have been collecting data to support our arguments. The most important data will probably come next week when Jobs talks about Q4 sales — hopefully including meaningful overseas data.

One thing I came across is a year old assessment of the iPhone by Padmasree Warrior, who until a month ago was CTO of Motorola. The gist of this was that “we’ve been doing this for a long time and they’ve made a lot of mistakes.”

A year later, the iPhone has been a strong success (at least in the US), not only in terms of units and business model, but also in changing how consumers and the industry think about mobile devices. Largely on the strength of the iPhone, Apple shares were up 133.5% in 2007, more than Google, HP, Intel or Oracle.

Meanwhile, Warrior and her mentor (then-CEO Ed Zander) have been forced out due to Motorola’s mediocre results at introducing compelling new products since the RAZR. I’m told Motorola has trouble producing good software, which could be said for almost all of the world’s mobile phone makers — but not Apple. Motorola shares are roughly 25% below where they were when Warrior offered her critique.

People draw a bad hand or make mistakes, so it’s not as though I wish Warrior ill. However, the original column makes no sense to me whatsoever: I cannot understand why anyone would predict failure for a direct competitor in print — as in sports or politics, it’s a no win proposition. If you’re right, then you can beat them in the market and no one will remember what you said. If you’re wrong, then not only do you look petty, but clueless as well.

Even less Motorola leadership

After a big announcement like that of Ed Zander’s resignation, there are always other shoes that drop. Monday morning’s paper had a tiny blurb that Motorola CTO Padmasree Warrior had resigned, with the speculation that she’d left because she was tied to Zander’s failed strategy of seamless mobility. Sure enough, her Motorola biography (now gone but cached by Google) listed her efforts there:

An engineer at heart with a true knack for business, Padmasree’s charter is to drive innovation, prioritize technology programs and accelerate creative research to commercialization. Padmasree's operational responsibility is to lead Motorola’s global team of 26,000 engineers and direct Motorola Labs, Motorola’s software, emerging early-stage businesses and the corporation’s intellectual property portfolio.

Padmasree is recognized internationally as the thought leader who shaped the industry vision of “seamless mobility” for next generation communications. She is credited with crafting much of Motorola’s strategy around seamless mobility; to deliver easy uninterrupted access to everything people want in a flat and mobile world.

This morning’s paper brought news that she’d become CTO at Cisco, presumably part of its effort to expand its influence in mobile communications. There was universal admiration at how she’d traded up after only one day of unemployment. Warrior herself blogged at Cisco about how she welcomes the opportunities of driving its platform strategies. (Certainly it’s been a long time since Motorola drove any industry platforms).

However, Brad Reese, a Cisco-focused blogger, pilloried the decision to hire Warrior, blaming her for commoditizing Motorola’s RAZR and failing to respond to the challenge of the iPhone.

I know far less about Cisco that Mr. Reese, but as someone who follows the mobile phone industry, I’m not sure how much credit (or blame) the CTO gets for Motorola’s recent innovation results. Did the CTO have line-of-business control? How much did the CEO control the allocation of resources. And as for getting beaten by the iPhone, I think a lot of very well run mobile phone companies were left scrambling when the iPhone came out.

In my opinion, the success or failure of a CTO depends not only on his/her vision, but also on the charter bestowed by the CEO. And I’d bet a week’s pay that John Chambers is not going to let anyone commoditize his main Cisco brand (even though the Linksys brand is all about competing in commodity markets).

End of an oxymoron

Of three doctoral students visiting SJSU to apply for our strategy job, two have presented talks about Motorola: one on the entry of a Motorola battery division into China, and the other on corporate entrepreneurship at Motorola (their internal incubator).

For these two Motorola job talks, at least one wrote in the corresponding research paper

under the leadership of Motorola CEO Ed Zander …

to which I asked “Isn’t that an oxymoron?” On Friday, investors finally forced an end to the oxymoron, i.e. Zander’s four years of leadership in Schaumberg.

Now I’ll be the first to admit that Zander got a bad hand, following in the footsteps of failing nepotism, er, family control and many years of drift in the industry they created (handheld cellphones). But still, in drafting passed-over former Sun Microsystems executives, Google got the better deal. (Perversely, Wikipedia didn’t even list the Sun affiliation of the current Google CEO, so I had to add it).

Will Motorola be able to turn it around? I sure hope so. I got to know their history and their impact upon both U.S. and telecom innovation when researching my dissertation in the late 1990s. It is tragic to see how far they’ve fallen. But, on the other hand, I thought HP had been destroyed forever (through a combination of acts of omission and commission) but Mark Hurd seems determined to prove me wrong.

One last Motorola tidbit. At one point, Motorola had a project to port Skype to its phones. The project was a technical success, but for some reason none of the operators wanted to buy a phone with Skype pre-installed so the project was cancelled. To quote the former project manager (via our visiting scholar who shall remain nameless):

“I went to our own management and they said, no way in hell would we let you do this because our customers would kill us. The operators are fighting tooth and nail from becoming a bit pipe. Imagine one megabye of code, which is what Skype is, destroying a multibillion dollar industry. I was on one call with an operator and he says, ‘We're going to save you time and money. Don't develop Skype.’ ”

Who's ready for the mobile web?

In January, Mike Mace and I both had an intuitive feel that the iPhone was going to change the mobile phone industry. Four months after the first iPhone shipped, I think our intuition has been born out to a greater or lesser degree.

Aided by very satisfied customers and the consequential word of mouth, Apple sold nearly 1.4 million iPhones in the first 94 days. This is AT&T's top selling phone (at 13%) and 4th overall in the US. Of course, Apple is not #4 overall since most vendors sell dozens of models.

In particular, one thing came through loud and clear last week at the CTIA Wireless IT conference (the premier mobile web conference in the US). Admirers and rivals admitted that Apple finally did a mobile browser right, and that accounts for much of its success (an advantage emphasized by their current advertising).

Web browsing solves the fragmentation of the US market, and provides a least common denominator between desktop and cellphone. If all app developers, content providers, cellular operators and mobile phone makers all agreed to use the web -- based on W3C and IETF open standards -- then the mobile Internet couldn't be any more open than that. This openness and ubiquity would eanble all sort of positive network effects to spur adoption, and leverage off the installed base of the wired Internet. Another factor for openness is that Apple's iPhone browser is based on WebKit, the open source project Apple created (from KHTML), which in turn reduces the barriers to imitation for its web browser. (In case web apps aren't enough, this month Apple adddressed the criticism about a "closed" iPhone by announcing it will release formal software development kit for native apps in February.)

If Apple establishes the browser as the key enabler of the mobiler Internet, how well situated are the major handset vendor? Based on Q3 2007 sales estimates, here's the list and my prediction:

• Nokia (38.6%). It ships more smartphones than anyone, owns S60 and the largest share of Symbian Ltd. It has been taking more risks with software than any other cell phone company, including its Maemo web tablet platform. Even if we worried about Nokia falling behind, they are already ready to match Apple by porting WebKit to S60.
• Samsung (14.7%). Has a wide range of software strategies, including Symbian S60, Windows Mobile and its own OS. Historically the Koreans don't grok software, but S60 will have a good browser and Windows Mobile could too (assuming Mobile IE is a fully compatible browser) -- so it may depend on the mix of software platforms they are selling.
• Motorola (12.9%). Like Samsung, Motorola has a mix of platforms: Windows Mobile, Symbian UIQ and its own solution (now shifting towards mobile Linux). Although in principle Linux should have a great browser, Motorola once said that the browser choice was up to the carrier.
• Sony Ericsson (9.0%). SE's smartphone strategy is tied to UIQ -- a Symbian OS layer that it used to own but is now going to share with Motorola. Since UIQ 3.0, UIQ has depended on the Opera browser, which has yet to inspire the enthusiasm of WebKit.

Any others? I think HTC will do well, because it thus far has made its impact with Windows Mobile, but now also has the prospect of the Google phone. On the other hand, while RIM has always understood software and has done well with e-mail, it is not known for its browsers.

Of course, this is a very US-centric view. For Europe, I expect browsers to be important too, but the smartphone market is much less fragmented than the US and much of the market can be reached by writing a native S60 application. Meanwhile, in Japan, the mobile Internet (as Jeff Funk as noted) is whatever DoCoMo says it is.