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Fierce Competition Adds Verve to Growing Smart Phone Market

November 20, 2007 at 6:25 PM EDT
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Powerful cell phones with Web and multimedia capabilities - dubbed "smart phones" - are part of a new generation of mobile phones earning a loyal following. Spencer Michels reports on smart phones and how top industry contenders plan to offer the technology.

SPENCER MICHELS, NewsHour Correspondent: Benjamin Bethurum is a composer. What he sets to music are original ringtones for cell phones, one tactic his employer, Microsoft, is using to try to appeal to the billions of cell phone users in the world.

BENJAMIN BETHURUM, Microsoft: So when you’re in a meeting, you’re not embarrassed by your cheesy, you know, synthetic ringtone.

SPENCER MICHELS: Eighty percent of Americans own cell phones. And worldwide, three billion phones exist, a huge market that keeps growing and changing as new phones become more like computers.

Microsoft is one of many companies hoping to cash in on the cell phone phenomenon. Bethurum’s specialty: making sounds that will allow phone buyers, especially younger people, to differentiate themselves from the crowd.

BENJAMIN BETHURUM: It shows who you are. It says, “Hey, I like hip-hop,” or, “Hey, you know what, I like classical music, and I’m going to show it off.”

SPENCER MICHELS: While the hits just keep on coming, a variety of companies involved in the cell phone industry are innovating on other fronts, as well. And Microsoft and its competitors, including just recently Google, are in the chase.

Apple's iPhone leads the way

Steve Ballmer
CEO, Microsoft
That stimulated interest, whether it comes from us and from competition, it's really helping us drive sales.

What they are chasing is Apple's iPhone, a device sometimes called a "smart phone" that Steve Jobs introduced in January.

STEVE JOBS, CEO, Apple: What we want to do is make a leapfrog product that is way smarter than any mobile device has ever been and super-easy to use.

SPENCER MICHELS: The iPhone, with a colorful touch screen display, allows users on the go to connect to the Internet, get e-mail, listen to music, play games, take and store photos, get directions, and make phone calls and send text messages. It sold 1.4 million units in its first 90 days amid intense publicity and advertising.

KEVEN GUILLORY, Radio Producer: It's not a picture, dude. That's a movie.

SPENCER MICHELS: Oh, that's the movie?

San Francisco radio producer Keven Guillory, an Apple enthusiast, was among the early iPhone buyers.

KEVEN GUILLORY: Idiots can do it. I can do it. I mean, seriously, my 6-year-old kid picked it up and started playing with it, and it's incredible what she did. And she's not a geek.

SPENCER MICHELS: Guillory says the iPhone, which Apple originally priced at $600, but then reduced to $400, can do nearly everything his computer can do.

KEVEN GUILLORY: It's faster and better. The only downside is the screen is not as big as my laptop.

SPENCER MICHELS: The quick success of the iPhone was contagious. One hundred and forty cell phone models run Microsoft's Windows Mobile, and Steve Ballmer, the CEO, says he's happy to take advantage of Apple's assist.

STEVE BALLMER, CEO, Microsoft: That stimulated interest, whether it comes from us and from competition, it's really helping us drive sales.

The cell phone as computer

SPENCER MICHELS: There's no agreement in the industry on what actually constitutes a smart phone. Even that term isn't used by everybody. But unlike my regular cell phone, most so-called smart phones, like this Samsung BlackJack II, have a computer-like operating system -- in this case, Microsoft's Mobile 6 -- which can accommodate a lot of programs or applications made by a variety of companies.

The software that makes cell phone screens look like computer screens also allows advertisers to put Internet ads directly in front of the user. Microsoft wants in on that action and is today heavily promoting new features, including real-time traffic reports, to lure buyers.

CONVENTION HOST: Please welcome the CEO of Microsoft Corporation, Steve Ballmer.

SPENCER MICHELS: Ballmer recently spoke at a wireless communications meeting, where he hailed smart phones as the most popular device around.

STEVE BALLMER: Consumers will want phones that span all of their life personas, my work life, my personal life.

SPENCER MICHELS: Ballmer's vision makes sense to Andrew Seybold, an industry analyst and educator.

ANDREW SEYBOLD, Wireless Industry Analyst: I get a chance to see a lot of things in backrooms that I can't really talk about, but there are a huge number of things coming that are going to make life easier for everybody with our wireless phone.

CELL PHONE DEVELOPER: We have some prototype software that is not yet released.

SPENCER MICHELS: But some people have trouble operating a multifunction phone. Microsoft has set up this lab, where subjects try to use new smart phones, and company researchers observe them and then try to make the phones easier to use.

CELL PHONE DEVELOPER: OK, I'm going to give you a little hint.


CELL PHONE DEVELOPER: Now that you're there, you see the button where it says "All Programs"?


CELL PHONE DEVELOPER: Go ahead and hit that.

CELL PHONE TESTER: OK. There's "Contacts."

SPENCER MICHELS: Smart phones today comprise 10 percent of all cell phone sales in the U.S. They've been largely targeted toward business users, but the numbers keep increasing. And companies, including Microsoft, are now going after the consumer market.

STEVE BALLMER: If somebody wants to, you know, tell me, "Hey, look, the Rockies just won the World Series, here, take a look at the clip from the eighth inning when they scored the go-ahead run," boom, I'll be...

SPENCER MICHELS: Is that why you went into business? Is that why you went to college, to help people get the Rockies score?

STEVE BALLMER: I went to try to enable people to do things that they want to do, that make them more productive, that make their lives more fun, more connected.

After 34 years, "still incomplete"

Martin Cooper
Cell Phone Inventor
Somehow the phones are getting more and more complicated. There are more and more stuff being plowed into them. But don't you remember the whole idea was to let you make a phone call with freedom, the freedom to be anywhere?

SPENCER MICHELS: Connecting people was what was Martin Cooper had in mind when he invented the cell phone 34 years ago at Motorola.

MARTIN COOPER, Cell Phone Inventor: This phone had a battery life of 20 minutes and, of course, you couldn't hold it up for much longer than that.

SPENCER MICHELS: It took 15 years for Motorola to finally market the cell phone, and Cooper says it's still incomplete.

MARTIN COOPER: It's incomplete because cellular is not as reliable as it ought to be, because I'm sure you've had a dropped call. Somehow the phones are getting more and more complicated. There are more and more stuff being plowed into them. But don't you remember the whole idea was to let you make a phone call with freedom, the freedom to be anywhere?

SPENCER MICHELS: While there are some phones that still just make phone calls, the emphasis today is on how much the phones can do.

Enter Google. Rumors that it was working on cell phones proved to be true. The Silicon Valley company, with a stellar reputation for search and advertising, rolled out a software operating system for smart mobile phones that its CEO, Eric Schmidt, and its mobile platform director, Andy Rubin, say will make it much easier for cell phone users to surf the Internet.

ERIC SCHMIDT, CEO, Google: We think that the problem with most people's mobile phones is they're not powerful enough. You can't get all the rich aspects of the Web on your phone. And so we built, with Andy's help, an operating system that runs inside your phone, that makes it do everything a personal computer can do on your phone.

SPENCER MICHELS: The company has been working on its mobile system in secret for two years. It's formed alliances with 34 companies that will allow software developers to add any application they want -- say, a map service or a game -- to cell phones using the system.

And Google announced $10 million in prizes for those who build great applications. All that's a big change since, until now, says Schmidt, phone carriers like Verizon, Sprint and AT&T have tightly controlled what goes on cell phones.

ERIC SCHMIDT: We have been concerned for some time with the concentration in the wireless space around a small number of carriers who don't give people enough choices. What we want to make sure is that you can go to a store, and take any phone, and connect it to any wireless network.

SPENCER MICHELS: Google's Andy Rubin gave us a preview look at the Android platform on a not-yet-released phone, first with live traffic information.

ANDY RUBIN, Google Mobile: As you see, I'm sliding my finger over this, and I'm getting real-time updates to traffic information as I go down 101. You can get information like you've never gotten before.

SPENCER MICHELS: And high-resolution pictures of city intersections.

ANDY RUBIN: This has never been done on a cell phone before.

SPENCER MICHELS: Google expects to have this technology on phones in late 2008. Rubin explained that faster, more powerful chips running computers make the smart phones possible.

ANDY RUBIN: The cost of processing technology has gone down and down over time, so today our cell phones are about as powerful as your personal computer was six years ago, but you're carrying them around with you every day, you spend eight to ten hours with them, run on batteries, and, of course, they're connected to the broadband network.

Debating the future of the industry

Eric Schmidt
CEO, Google
I completely disagree with the characterization that somehow the wireless network is going to be any different than the wired network, because there's enormous spectrum becoming available.

SPENCER MICHELS: But Andrew Seybold thinks there's a flaw in Google's approach.

ANDREW SEYBOLD: As much as I respect Google, the wireless industry can't be an extension of the Internet because wireless bandwidth is finite. It's a fixed resource, and it is shared bandwidth. The more people who use it in a given area, the less data speed they have.

ERIC SCHMIDT: I completely disagree with the characterization that somehow the wireless network is going to be any different than the wired network, because there's enormous spectrum becoming available through licensing programs, better radio design, faster computers, and so forth.

SPENCER MICHELS: The battle over cell phones, now intensified by Google's entry, is a familiar battle to PC magazine writer Sascha Segan.

SASCHA SEGAN, PC Magazine: You're seeing some of the wars in the PC world now starting to be played out in the cell phone world, with Apple joining the game. Nobody's winning. It's still very much in play.

SPENCER MICHELS: And as usual, the stakes are high. Estimates are that smart phones will comprise 35 percent to 45 percent of the cell phone market by 2015, a market that continues to grow, along with the potential uses of these powerful, high-tech devices.

JIM LEHRER: You can read more from Spencer's interviews with Google and Microsoft executives on our Web site at