Heed the Schumpeterian power of the mobile phone

January 4, 2010

By Robert Cyran and Rob Cox

What will the mobile phone devour next? It permanently crushed the gadget that defined the beginning of the last decade – the personal digital assistant – and is eating through the landline telephone, digital camera, iPod and even the watch. The creative destruction has just begun.

Investors should heed the mobile phone’s Schumpeterian powers. When the century began, bankers ‘beamed’ each other information via the now-quaint infrared technology of the Palm Pilot, whose maker boasted a $92 billion market value. Palm shifted into mobile phones but lost 97 percent of its value along the way. This should provide a cautionary tale to other industries standing in the cell phone’s path.

The most obvious target is the traditional telephone. Almost a quarter of all American households, and counting, no longer have a fixed-line phone. That’s a drag for operators like AT&T and Verizon who must continue to run their expensive copper-based infrastructure despite running the biggest wireless networks, but terrifying for providers without wireless operations, like Qwest and Frontier.

Even the iPod faces obsolescence. Unit sales are in decline. Although that’s not a problem for Apple as long as its customers listen to music on their pricier iPhones instead.

And pity the poor watchmaker. Most teenagers now use their cell phones to tell time. Watchmakers, from Seiko to Tag Heuer, must pitch themselves as fashion designers to succeed. That’s not a trick that the manufacturers of GPS devices, cameras and radar detectors can easily turn. They must compete with smart-phone applications that do their job. To wit, Google’s introduction of a free navigation application not long ago wiped 16 percent and 23 percent off the valuations of Garmin and TomTom.

There will certainly be winners from the cell phone’s creative destructive properties. New companies will spring up to innovate. Each wave of technological innovation creates more market cap than the one it replaces, Morgan Stanley notes.

Where the mobile herd stampedes next is harder to predict. A good way to guess would be to rummage through pockets and handbags. Credit cards, cash, keys, ID cards, books, newspapers and tickets all look replaceable with something electronic. That will mean opportunity for some enterprising inventors – destruction for others.

Comments

All my life and with greater and greater frequency this sort of technological displacement has occurred. So why do Newspapers think they deserve a reprieve? I haven’t subscribed to a Newspaper in decades. And those kids that forgo wearing a watch for an iPhone are even less interested in reading them. Yet our Government is supposed to step in and save them (using our tax dollars) from the same ravages of technology that displaced thousands of other businesses. It makes no sense.

Posted by GLK | Report as abusive
 

Great column! Last summer I joined the 21st century and signed up for the new-generation iPhone, and from that point I haven’t looked back. Got rid of the land line, too. However, Mark Twain did remark that ‘What we call progress is just the replacement of one nuisance by another nuisance’ and the above story seems, well, just too smooth. Mobile phones will meet something that will ruin this pretty story, but who knows what it is?

Posted by Gotthardbahn | Report as abusive
 

@Gotthhardbahn…
What about implant technology replacing mobile phones?

It’s not such a stretch when one thinks about it. Technology has shrunk significantly enough where implants can be inserted into the body without causing bulky masses under that skin. GPS and radio signals pass through our body every day already so creating a receiver to be able to pick up the signals internally is not impossible. Brain mapping has advanced to the point where paralyzed people are able to move a cursor across a computer monitor by just thinking of doing it.

I do not believe the idea of being able to “think” of making a call completely confined within the human body via implants connected to our brains and auditory systems is such a radical idea. Implementing a sort of “heads up display” within our eyes to allow us to search the web or recieve navigational aide might be a bit more of a stretch buy who knows what the future holds.

Posted by iflydaplanes | Report as abusive
 

“All my life and with greater and greater frequency this sort of technological displacement has occurred. So why do Newspapers think they deserve a reprieve? I haven’t subscribed to a Newspaper in decades. And those kids that forgo wearing a watch for an iPhone are even less interested in reading them. Yet our Government is supposed to step in and save them (using our tax dollars) from the same ravages of technology that displaced thousands of other businesses. It makes no sense. Posted by GLK”

Dear GLK –

I continue to subscribe to my local daily paper and I love it. I agree that the government should not be propping up the old print business model – if it dies, it dies.

However, what the government is stepping in to save is the REPORTING. A free and active press is essential for a working democracy.

If it can’t be done with print publications any longer they have to make it profitable on the internet somehow. Government assistance in this transition might be necessary in the short term.

Posted by Jayhawk80 | Report as abusive
 

I have a package deal with a local cable provider for Internet, Cable TV and phone service. I recently re-worked that arrangement and eliminated the phone portion (we no longer have a land line phone in our house). The reason was that I was paying about $50 a month to make our family accessible to telemarketers as that was essentially the only calls we received on that line.

Posted by justanotherjoe | Report as abusive
 

The problem though is that mobile phones do a crappy job of replacing those other things.

The camera isn’t as good as most digital cameras. The GPS is based on cell towers and not as good. The sound typically isn’t as good as an iPod. And the voice quality and coverage suck compared to a land line phone.

Posted by randersontt | Report as abusive
 

This is just about the one solitary example of how reality has exceeded our circa 1970 visions of the future.

In the science fiction of yesterday we dreamed of wireless pocket communicators, but we didn’t foresee that so much additional function would be packed into them. Yes the cell-phone does a poor job compared to dedicated devices, but convenience will continue to triumph. Nobody likes having stuff strapped to or hanging off their bodies, especially fat people, and who isn’t fat in America now?

Posted by fwupow | Report as abusive
 

I want everything implanted under my skin so all I have to do is think about making a call or sending an email or listening to a song………

Posted by Middler | Report as abusive
 

The problem with cell phones is emergencies.
For example, If electric power goes, as in Katrina, the cell phone is dead — there are no backup power sources in the towers, though there are in the telephone exchanges.
Also, if there is an emergency, the 911 operators cannot locate you if you are using a cell phone, though they know exactly where you are if you are using a landline.
The cell phones may, eventually, be able to handle these problems, but, so far, the companies do not seem interested in doing anything about them.
So, unless you are indestructible, hang onto your landline!

Posted by Revvie | Report as abusive
 

If only battery capacity were increasing as fast as all the other capabilities. A battery the size of a MicroSD card would power an iPhone for a month, no matter how heavily you were using the device.

Posted by edhorch | Report as abusive
 

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