By, Niraj Sheth — Wall Street Journal, December 16, 2009
Glenn Lurie spends most days thinking up ways to put cellphone chips everywhere but phones. Picture frames, computers, even children’s toys. He dreams up new, untested calling-rate plans and develops strategies to put stodgy AT&T atop new and unproven markets.
Mr. Lurie is in charge of a bet AT&T Inc. is making that wireless services for new gadgets could substantially increase its $124 billion-a-year business. The secretive group—AT&T won’t disclose the group’s budget or staff size—is on a mission to entrench the nation’s largest phone company in services for new wireless devices.
A number of these devices, such as e-readers and netbooks, are already on store shelves. AT&T has jumped into the nascent market and taken an early lead by supporting more devices than competitors. Last week, it disclosed a deal to carry on its network an electronic-book reader from British start-up Interead Ltd., adding a fifth e-reader to a lineup that already includes Amazon.com Inc.’s Kindle and Barnes & Noble Inc.’s upcoming Nook.
Mr. Lurie and AT&T are thinking more broadly than e-readers and netbooks. Next year, they plan to announce wireless-network services for advanced car-entertainment systems, home appliances, such as smart refrigerators, and handheld game consoles.
Revenue projections vary, but Mr. Lurie agrees with an estimate from industry research group Rethink Wireless that cellular operators will collect $90 billion a year by 2013 from servicing these devices.
AT&T
Devices that AT&T is adding to its network include, from left: the Nokia Booklet 3G, Interead’s Cool-er e-book reader and a digital photo frame.
“It could even be the bigger piece of the pie” than traditional cellphones, said Mr. Lurie, whose official title is AT&T Mobility’s president of emerging devices, resale and partnerships. He envisions an AT&T, the oldest phone brand in the country, that is as much about everything as phones.
The idea that nonphone devices will blossom quickly—or be as big as AT&T and Mr. Lurie believe—has its critics. According to a report from Macquarie Research, the market created by these wireless devices for U.S. carriers like AT&T could be only $16 billion by 2013, a far cry from the figures AT&T points to.
“The revenue opportunity isn’t nearly what it is in the traditional customer space,” Macquarie analyst Phil Cusick said.
The difference in projections between Macquarie and others stems from how quickly some think consumers will adopt new wireless devices. Some of AT&T’s competitors have taken a more measured approach to the new devices. A spokesman for Verizon Wireless, which currently sells one e-reader and four netbooks that run on its network, said the company expects a “huge volume of connected devices” to emerge in coming years but said the revenue potential could be limited since there likely won’t be as much money in providing service for a gadget as there is for a phone.
History also casts a doubtful shadow. A decade ago, the growth in broadband connections sparked enormous hype around the “smart home,” where appliances like the dish washer and the fridge would communicate over the Internet. A smart fridge would know when it had run out of milk and automatically place an order for delivery with the local grocer. The concept never took off, in part because device makers couldn’t figure out how to charge customers for keeping their appliances connected.
The same problem looms for wireless devices. Carriers make money from netbooks by charging for a monthly service plan like a cellphone’s, and take cuts from digital-book purchases made on e-readers.
But not all devices can get customers to keep shelling out money monthly for connectivity, said Alex Brisbourne, president of KORE Telematics Inc., which provides wireless network service for mostly business-to-business devices.
Wherever it is headed, the market still has a way to go. This year, fewer than 13 million non-handset wireless devices, mostly netbooks, have been sold in the U.S., according to Strategy Analytics.
Mr. Lurie, now 44, was a star before taking his latest assignment. Two years ago, he led the negotiations that landed Apple Inc.’s iPhone in an exclusive deal. The phone’s explosive growth since would have guaranteed Mr. Lurie’s future in AT&T’s traditional phone operation. He could have continued to march up the corporate ladder, possibly to head up its wireless side one day, industry observers say.
Instead, When AT&T CEO Randall Stephenson and AT&T Mobility CEO Ralph de la Vega asked him to head up a small but powerful new unit, he made some unusual demands. He wanted his own product design lab, his own sales team, and the freedom to set his group’s pricing strategies. His bosses agreed, even though such functions are usually sprawled across AT&T’s 300,000-employee empire and rarely under one person’s control.
“We call it a start-up inside AT&T,” Mr. Lurie said. “We had to, for lack of a better term, break some rules.”
The challenge doesn’t faze Mr. Lurie, who has staked his future on AT&T’s wireless gadgets bet. In some ways, he is a throwback to the formative years of wireless communications, when characters such as Craig McCaw and William McGowan staked their fortunes on risky bets on wireless spectrum licenses.
“Normally you don’t find those types of guys in large companies, particularly in the established telecommunications industry,” says David I. Nadler, a partner at management consulting group Oliver Wyman.”The odds are usually against them, since even if they succeed, there can be resentment against them.”
Mr. Lurie, a onetime soccer player with the Major Indoor Soccer League, has a freewheeling style for an AT&T executive. Soon after forming the gadgets team, he asked its members to visit retailers including Best Buy Co. and Radioshack Corp. to catalog electronic devices that could do more if they had incorporated wireless services. He ordered them to meet the hundreds of entrepreneurs who had ideas for wireless devices such as GPS pet trackers.
“He’s a bit of a maverick,” said Mr. Brisbourne. “And that’s part of his success. Telecom is not a hotbed of mavericks.”
“It’s a big dice they (AT&T) are rolling on this, but they’re saying, ‘Hey, let’s give this a shot,” he adds.
When Isabella Products Inc., of Concord, Mass., approached AT&T about a wireless photo frame, the carrier had never thought about how to charge someone just to send pictures.
“They were open with how inflexible the prior AT&T rate plans were for something custom,” says Isabella founder and Chief Executive Matthew I. Growney.
Mr. Lurie encouraged his team to write a completely new rate plan—and got it approved despite the company’s usual aversion to risky pricing.
The frame, which will be out in early 2010, will require a monthly subscription plan of $5.99, out of which AT&T will take its cut.
Verizon Wireless, a joint venture between Verizon Communications Inc. and Vodafone group PLC, has partnered with mobile chip maker Qualcomm Inc. to develop more devices with wireless chips. The venture, dubbed nPhase, hasn’t yet announced any products. Verizon currently sells four netbooks and one e-reader.
Sprint Nextel Corp. had been the sole network provider for the Kindle, until Amazon signed a deal with AT&T earlier this year. Unlike Verizon’s and Sprint’s, AT&T’s wireless network in the U.S. runs on a technology known as GSM that is the de facto standard in much of the rest of the world. That’s a major draw for device makers that want to sell abroad but don’t want to switch technologies.
