I’ve always been fascinated by industry structure, and how companies position themselves along a vertical.  I think the mobile (cellular) industry structure is by far the most interesting and volatile.  It is a vertical where connectivity, hardware, OS, application/services, and content represent distinct personalities all wrestling for domination.

Why is mobile so unique? It is an industry where every major player along the vertical is both consumer-facing and consumer-monetizing.

Contrast this with the auto industry: Someone makes the screws, who sells to the guy who makes widgets, who sells to the guy who makes some larger subassembly, who then sells to the guy who makes cars.  Each point along the verticle interacts with, and monetizes only the player downstream, until the final player who faces the consumer.  The auto industry is a sequential vertical whereas mobile and content are parallel verticals.

Why are parallel verticals trickier?

Because consumers show discriminating tastes along the vertical.  Think about this: can you identify the brand of brakes in your car?  Or the make of the windshield?  Would you ever make decisions based on this information, or simply ask “which brand of cars is the safest?”  Discrimination happens at one level only: the brand of the car.  But for mobile, I know that I’m using T-Mobile service on a Motorola phone running Windows Mobile with maps from Google and pokes from Facebook.  Each of these could become a point of differentiation, a top-of-mind feature for consumers, and thus shift profits earned across the vertical.

Another source of contention is that players tend to overlap and cross typical horizontal boundaries, and thus cannibalize revenue.  A carrier provides not only connectivity (”dumb pipe”) but the voice and SMS services on top of that.  This means they are also competing with some of the application/services that could run on your phone, most notably VOIP and IM.  You could also imagine OS players overlapping with applications also, e.g., the bundling of Explorer into Windows Mobile.

Even location-aware/status services cannibalize SMS, as people often use SMS to locate each other.

Lucky for now…

Today, carriers have the greatest power along their vertical.  Handset makers are asked to build exclusive for carriers, fragmenting their product line.  A rejection can be devastating as they will be effectively shut out from their customers.  Applications and services cannot live without the implicit approval of carriers.  Verizon wouldn’t allow AIM to run on my Blackberry, and AT&T doesn’t permit VOIP on the iPhone (unless over WiFI).  Carriers are in a very priviledged position today as the gatekeeper of which products can and cannot reach the consumer.  But with a killer product, a shift in power can happen.  With the 1st generation iPhones, Apple was able to score recurring revenue from the carriers—such an arrangement is relatively unheard of before, but reflects a shift in power that will prompt heated struggle in the applications/services space.