Motorola fell because it focused on hardware engineering, not consumer design.
This week's news of Motorola spinning off its handset business left me with a bit of sad nostalgia. As an electrical engineer, I've long been inspired by the company's phones, which include the first commercial cell phone and the game changing StarTAC and RAZR. I saw Motorola's corporate persona as a pioneering hero, blazing a path for a fledgling young industry. In the last few years, though, this hero has become old and confused. As the industry moved beyond the RAZR with innovative new designs like the iPhone, Motorola kept firing off RAZR variants like the KRZR and RIZR—whose overuse of the letter 'Z' was like watching the old man put on hip-hop gear to keep it fresh with the kids.
So what went wrong? Why did the RAZR's successor never arrive? Some have pointed to the untimely death of the man behind the RAZR. But more important than any one person was the fact that Moto is fundamentally an engineering company, not a consumer design company.
Motorola has always had world class electronics engineering. That was a big plus in the early days, when technological advantages let Moto deliver unique products. Twenty years ago Motorola had few competitors because building a cell phone was a huge engineering problem.
These days, cellular technology is largely commoditized. Lots of companies build phones, including many that have little knowledge of the underlying technology. Today, differentiation comes from consumer design: Does the phone look cool? How good is the user interface? And so on. "Let's face it. Any handset manufacturer has access to all the same basic underlying technology," says Frank Dickson of market research firm MultiMedia Inelligence. "Where I think you're seeing a lot of differentiation is clearly in software."
Motorola's weakness in consumer design was most apparent when it collaborated with Cingular and Apple on the ill-fated ROKR. The three companies reportedly argued over pretty much everything, from how much music the device could store, to how songs would be loaded, to the placement of the respective logos. The resulting phone was functionally broken—it could hold only 100 songs, and couldn't download songs directly from the web. It was so hard to use that Steve Jobs himself had trouble demonstrating it. It was also ugly—surely not Apple's contribution. If Motorola and Cingular had leveraged Apple's design expertise instead of fighting it, maybe Apple wouldn't be eating Moto's high-end lunch.
Indeed, a peek inside the iPhone reveals the importance of emphasizing consumer design over silicon superiority. There is nothing special about the iPhone chips—in fact, the first-generation iPhone doesn't even support 3G. The iPhone is special because of its sleek industrial design and its intuitive user interface. Or, as the title of a panel discussion at this year's Mobile World Congress bluntly put it, It's the User Experience, Stupid.
Despite Moto's struggles, it would be a mistake to write the company's obituary. Its handset unit is still huge. Although it lost $1.2 billion last year, it brought in a staggering $18.99 billion in sales. Much of this revenue came from the ultra-low-cost (ULC) space, which is the fastest growing segment of the cell phone market.
If Motorola's fleeing executives are replaced by new leadership that understands how to deliver the handset experience users want, Motorola may ride high once again. Just don't hold your breath for another RAZR. "Because all handset manufacturers have access to similar technology, you're seeing a proliferation of handset designs that are mico-nichy," Says Dickson. "Look at the iPhone. We're talking about the iPhone constantly, but in reality it has marginal market share. There just aren't that many units out there. But when you've got a market shipping in the billions, if you can notch out a percent and a half market share, you've got a pretty good company going. Moving forward, I think you'll see a proliferation of many different designs. It may not be possible to have RAZR type success with so many different usage models."
Kudos to my colleague Seth Benton, who gave me a major hand with this entry.