Why Verizon Wants You to Make its Next Phone
On Wednesday Verizon (VZ) announced a partnership with Bug Labs. It was an odd pairing. A giant profit-oriented telco and a small champion of open source hardware. But it's a match that may pay dividends for both.
To get a sense of how strange this union is just read the blog post Peter Semmelhack, Bug Labs Founder, wrote to the company's customers. "It may come as a surprise to you that a company [Verizon] that is so often vilified for being closed is teaming up with Bug Labs, a company that is defined by its openness. I was skeptical at first too. "
Semmelhack says that after talking with Verizon for several months, he feels confident it would respect a project based on open source principles. By partnering with Verizon, Bug Lab gains a large, powerful platform to advertise its product for free.
On the other side of the equation, consider that Verizon's landlines business, a reliable source of profit, is shrinking rapidly. Even in mobile, the higher margin voice plans are being overshadowed by the use of text, mobile web, video and apps.
Verizon has two options. Start charging more (a change from unlimited to tiered plans is likely) or introduce an exciting new category of device, as Apple (APPL) did with the iPod, iPhone and iPad.
The partnership with Bug will allow Verizon to pursue this second option without having to commit vast resources to production and R&D. The model will resemble the app store, with the heavy lifting done by third party developers. Except this app store will feature hardware, not software.
Bug has built a selection of modular, open source devices that allow for rapid prototyping. The plan is that independent developers will produce gadgets and Verizon will review them, producing devices where it sees potential. If the idea catches on, Verizon could become a retailer for both finished products and raw parts. It's a much better strategy than waiting to piggyback on the next big thing from Apple.
Image from Flickr user Midorysiu
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