How to make money from $10 cell phones

In 2008 Canadian telecom vendors will seek to extend cellular capabilities to devices other than cell phones, according to report released by Deloitte Canada yesterday.

Vendors, the report said, are searching for new ways to generate revenue from ultra-cheap devices.

Plunging mobile phone prices, advances in semiconductor manufacturing and better technologies are some drivers of this trend.

Duncan Stewart, head of Deloitte Canada Research and the report’s co-author, discussed its findings before an audience of TMT (technology, media and telecommunications) executives at Toronto’s MaRS Centre.

Titled Top 10 Canadian 2008 TMT Predictions, the report offers a preview of likely trends and developments in such areas as IT security, Web-based piracy, enterprise computing, online marketing, green technology and telecommunications.

There’s an incredible opportunity for companies able to lead the drive towards connecting machines to the cellular network, said Duncan.

He was joined by Chris Sacca, a former head of special initiatives for Google who is also an accomplished technology investor and company advisor.

Prices of mobile phones have fallen sharply in the last few years to under $50 and there are even plans to launch a unit with a wholesale price of $10 in 2009.

Lower product prices may increase market penetration, but as ownership approaches 50 per cent, mobile demand is expected to slow.

Stewart believes non-telecom based machines constitute an ideal platform for the $10 mobile technology.

“A $10 phone won’t get manufacturers much profit. But connecting machines to the network makes them more valuable,” he said.

Stewart envisions cellular functionality being embedded in machines such as automated tellers, vending machines, freight containers and cars.

The more advanced two-way data communication can now create far more reliable and cost effective tracking and data exchanges with these devices and equipment, he said.

“In additional to selling phones to people, there are another three to four billion machines that might make happy little silicon customers.”

One Canadian telecom industry expert agrees.

Low-end mobile devices are likely to be bought by users who tend to be frugal with technology purchases and its associated services, said Roberta Fox, principal of Fox Group Consulting in Mount Albert, Ont.

“There are however great possibilities in incorporating cellular technology in other products such as health and safety devices for elderly or ill individuals,” Fox said.

For instance, some areas in Quebec elderly or ill cell phone users can dial for police or medical assistance using a single number especially allocated for that purpose, she said.

The rise of the Silver Surfer

Phone manufacturers should also take note of the rise of the Silver Surfer, according to Stewart.

He said for years it was assumed that the online community comprises individuals with an average age of 21.

This mindset spawned the creation of smaller cell phones with tinier buttons and screens, as well as numerous online social networks restricted to high school and university students.

However, Deloitte’s 2007 Media Democracy Survey reveals that that people aged 61 and over want to be online, and more than 25 per cent of them even create their own user-generated content.

“The Internet isn’t just for kids and some of the faces on Facebook have wrinkles,” notes Stewart.

Sacca agrees and says this trend should be a signal to manufacturers to develop more senior-friendly devices. For instance, more senior folk want to use cell phones but are often put off by small buttons or text fonts.

Companies flexible enough to deliver on this area are poised to rake in massive revenues he said. “One of the top selling mobile phones in the U.K. last year was called the big phone because it had bigger buttons and screens.”

Location, location, location

Location will play a crucial role in the world of cellular technology in 2008, according to Sacca.

Using global positioning systems (GPS) satellites to determine location is already a multi-billion dollar market for automobiles and hikers, he noted.

In 2007, cell phone manufacturers entered into bidding wars for the underlying map software as falling GPS prices allowed them to incorporate location functionality into even their most basic handsets.

But, just because companies can now put GPS on their phones doesn’t mean they should, Sacca said.

“Other than for navigation, there is not much need for it in the consumer space [right now].”

The technology is also hampered by signal issues. GPS works well in cars but it often requires users of GPS-equipped phones to walk away from buildings to use the function.

Interestingly, Canadian companies are prominent in the location market – using both GPS and cellular technologies, Deloitte said.

Protecting the server

As personal computers and other electronic devices get cheaper, they are becoming more like bank vaults, according to Stewart.

“The value in not in the device itself but in the data, files, songs and images it contains.”

And as users increasingly adopt Web-based services or outsource data storage, much information formerly stored on the PC now resides on online networks, said Sacca.

Backing up this content to protect it from viruses and threats and making sure files are forward compatible are growing industries, the Deloitte Canada report said.

Authenticity and anonymity

The report also predicted that online fraud may be the biggest issue in 2008 – and establishing and proving identity behind transactions would be a critical technology enabler.

However, researchers also observe that users are increasingly willing to lose their anonymity if they could get something for it. Sacca said this is especially apparent among young social network users.

For instance Facebook features real names, e-mail addresses and photos.

Small solutions for big problems

Nanotechnology was forecast to grow to more than $10 billion in annual revenues. But by 2007 the industry was under attack and nanotechnology was viewed as an over-hyped technology.

However, there has been some recent “stealth explosion in nanotech usage in the clean technology arena,” said the Deloitte report.

The biggest user of nanotechnology today is for environmental applications. The technology is driving innovation in power production, transmission and storage, lighting and LEDs, filtering and desalination of water, cleaning polluted soils and controlling automotive emissions.

Getting value out of virtualization

Better cost savings, security, disaster recovery and lower power consumption are among the promises of virtualization, according to the Deloitte report.

By the end of 2007, it noted, every Fortune 100 company and 80 per cent of the Fortune 100 companies implemented virtualization in some part of their business.

While 2007 was characterized by the rush to evaluate and deploy virtualization products, companies will be more cautious in their approach to the technology this year, said Stewart.

Some organizations are beginning to see that virtualization isn’t a one size-fits-all solution and might not even suit their operations. Companies will ask more probing questions about the technology’s limits and potential.

Most organizations will be concerned about the strength of intrinsic security features and s may look closer at the cost of ownership.

When it comes to virtualization, energy savings will probably be the big driver of adoption, said Stewart.

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