The hunt for the next RAZR

After a long period of resurgence, Motorola has fallen out of favor in the last year. It has seen its seemingly unstoppable climb back to the top of the global handset food chain not only stop but reverse itself, sending its phone market share — as well as its stock — plummeting back to earth.

The cause of Motorola's fast rise and decline are often attributed to a single handset: the RAZR. Just as Motorola's gains for two years were driven by more than 50 million RAZR sales, its failure to produce a successor to the RAZR as it fell in popularity — and competitors copied it — led to the company's current problems.

Continuing that same chain of logic, Motorola must use its considerable power to innovate design and technology to come up with the new RAZR or the new StarTac so it can again right its course. But that may not be the case, said Bob Egan, chief analyst for the TowerGroup. Handsets are rapidly becoming commoditized, with margins being squeezed, and the competition quickly able to duplicate the latest fashions and technology, no matter how ahead of the curve a company like Motorola might be, Egan said.

Innovation in wireless is now at the application and solutions level, Egan said, an approach Motorola claims to have adopted in its “seamless mobility” motto. Its purchase of Symbol Technologies is a prime example. Hardly icons of fashion, Symbol devices are valuable because of the business and industrial solutions they power, Egan said. “Motorola's future growth is not about handsets,” Egan said. “The next ‘wow’ around Motorola should be in services and networks.”

In fact, the handset industry is shifting as the old global business model of producing a phone for every person and for every need may no longer pass muster, said Reuben Chaudhury, wireless analyst and a director of Mercer Management Consulting. Chaudhury said Mercer believes pressure from lower-priced competitors emerging in China, movement of the market toward lower-priced handsets and new market entrants will eventually force all the existing vendors into new specialized business models.

There will be room for only one all-purpose global provider, which can compete in all markets and on all price points because of sheer scale, Chaudhury said. The rest will have to focus on specific points of the market. There will be room for low-cost, white-label handset makers, but those slots will likely go to emerging Asian vendors such as Huawei and UTStarcom. There will be room for niche players that focus on specific types of devices, just as Sony Ericsson has built a business for itself on making high-end cameras and music phones using the Sony cache.

But even in the niche markets, vendors will face steep competition with new entrants like Apple coming into the market, which brings its considerable brand power to bear. And finally, Chaudhury said, there will be solution providers — vendors that aren't just selling commoditized phones but rather an end-to-end platform powering services and applications between networks and devices.

These vendors will not only be expected to provide a more complete solution, but they'll have to share some of the risk with carriers investing their own capital into the networks, Chaudhury said. Eventually, though, he added, they can expect to share in the revenues, also.

“It's not that fashion is going to go away,” Chaudhury said. “It's just that the giant handset vendors won't be the best ones positioned to deliver it.”