Even if it doesn’t end up being the disruptive innovation that these articles suggest, Verizon’s MiFI personal wifi hotspot device makes my little Schumpeterian heart go pitter-pat. Released yesterday, the Verizon MiFi (device by Novatel) is a credit-card sized 3G wireless router that can provide wireless Internet connection for up to 5 devices. Battery powered, 4 hours of service when not plugged in, reviews suggest that it’s interoperable and easy to set up. Good reviews of the product are at Engadget Mobile and the New York Times.
There are two aspects to the potential commercial success of this product: the technical features of the device, and the service contract under which Verizon is willing to offer it. For now Verizon is offering it at two different capacity levels (250 MB and 5GB per month), and pricing it at somewhat more than contracts for other air card wireless services.
But for my part Derek Thompson at the Atlantic made what is the most intellectually interesting point in this new development:
It could signal the end of cell phones.
That’s a big statement, so let’s back up a second. Three weeks ago, I cited an argument that VoIP (“voice over internet protocol”) could replace cell phones because dialing over the internet is much cheaper than dialing through a national cell phone network. The problem was, if you need the Internet to make calls, you’re going rely on Cosi shops and other hotspots for service. Three weeks ago, you couldn’t live in a permanent wifi cloud. Two weeks from now, you can.
That means that you won’t need a cell phone — or at least a cell phone plan. As long as you have a device with a speaker and audio that can connect to the Internet, like an iPod Touch, you can use Skype to make all your calls because the service provider (the Internet) is always in your pocket. Verizon plans to charge $40 a month for basic service. Not a bad deal for all-you-can-eat browsing and calling over the Internet.
It’s interesting to think about whether or not Verizon’s got a long-run strategy here relating to whether or not this kind of device will make their mobile phone business obsolete. I don’t have a particular answer, but raising the question is important. One potential future path involves the growth of their MiFi contracts while their phone contracts fall, implying that the MiFi and the phone are substitutes. Another potential future path would be if their MiFi contracts grow while they sell devices for browsing and calling over the Internet; in this case their phone business could morph into a device business. And I’m sure there are other options beyond my imagination.
But here’s why I think that Verizon possibly sowing the seeds of their own creative destruction is interesting — the convergence of all different communication platforms to the Internet. Over the past 25 years we’ve been moving from an analog telephony platform based on copper wires to a combination of wires/wireless digital telephony separate from the Internet, and now we may be seeing the beginning of the convergence of our formerly separate communication platforms into an Internet-based digital platform. Verizon has been installing fiber optic cable for digital backbone and for consumer applications (such as their FIOS offerings in the mid-Atlantic). Thus I see Verizon’s long-term strategy as one based on their investment in fiber optic to create a single digital communication platform using Internet protocol, on which voice becomes just another application.
So if they are sowing the seeds of the creative destruction of their mobile phone business, I think it’s because they’ve already got another business model in their sights, in which their phone business transitions over to being another application on their fiber optic platform.