Making a mobile handset is no small task, but in light of Apple's success, some nontraditional hardware and software vendors are contemplating taking the leap themselves

In the future, Sony PlayStation Portable fanatics may be able to make phone calls from their beloved gaming console. Although Sony Ericsson, parent company to the PSP, has yet to confirm the mounting rumors, a 2006 patent leaked last month revealed the company's plans for a branded mobile phone. The two-sided device's design featured one side devoted to telephony and the other optimized for gaming on the go.

Sony's confidence in the willingness of its fan base to follow the company into the mobile market has other hardware and software vendors questioning if they too have a strong enough name and service — not to mention the money, time and expertise — to make the leap to mobility.

More so than any company, Apple, with the launch of its iPhone, has led the crusade for nontraditional hardware manufacturers to come out with their own handsets. The successful launch of the software and consumer electronics giant's first phone almost one year ago has left many wanting in on the action. Google shortly followed Apple, saying it too could produce a viable platform for mobility with its Android open operating system (OS), middleware and user interface. Somewhat lost in the noise, Skype, which offers a voice-over-IP (VoIP) service for the PC, also has proved the business case as its 3 Skypephone continues to grow in popularity in the U.K.

“People are placing their bets at different places in the stacks,” said John Puterbaugh, founder and chief strategist of Nellymoser, which works with network operators and mobile content owners such as MTV and Warner Music Group to bring content to mobile devices. “One is to create your own phone. Two is to create your own operating system for the phone — what Microsoft did for the PC, try to do for the mobile world. And then there is a bunch of other places you can be either providing the services to the phone or providing the middleware, like Adobe and Flash — the tools people use to write stuff for the phone.”

PlayStation is testing the waters with its PSP applications, said Jeff Martin, senior analyst for the Yankee Group. VoIP and Wi-Fi functionality are already built in, so consumers are accustomed to using the PSP in unexpected ways. The same applies to Microsoft, maker of PlayStation rival Xbox. While the operating behemoth has put its focus on on-demand movie capabilities in the Xbox 360, the company's software side has stated intentions to port relevant Xbox games to Windows Mobile phones. So far, Microsoft has stayed away from feeding the flames of an Xbox phone rumor — but that hasn't stopped bloggers and gamers from doing it for them.

“If they are just going to add another small application with a [session initiation protocol] client with its Wi-Fi capabilities, it becomes a communication device,” said James Colby, vice president and chief marketing officer for mobile software provider Comverse Americas. “It is not even far-fetched. It is something I would logically expect to happen.”

WHAT DO APPLE, Microsoft and Sony have in common? Outside of a strong name and following, all three are combined hardware and software companies. As such, they have a fighting chance at making a mobile handset. Historically, the best experiences in mobility have undeniably come from companies that work on both the hardware and software sides of the business, ultimately leading to a deeply integrated service and customer experience. Puterbaugh pointed to Nokia, which through its media services platform, Ovi, is getting into the services business by encouraging consumers to share photos and videos from their mobile handset and PC. Nokia makes up approximately 1 billion of the 3 billion phones on the U.S. market, so providing a service is a logical step, Puterbaugh said.

“I think companies like Nokia that are able to integrate design and user interface with fully integrated service offerings are going to be the ones that will win,” Puterbaugh said. “You not only have a great device, but you also have an ongoing relationship with the consumer. People who keep going back to Apple's iTunes provide a continual dialogue after they sell the device. People who buy a Motorola RAZR buy it once and don't communicate with Motorola until they buy their next device.”

But it may be more realistic to go from a well-known device to a service rather than from a service or application to the hardware itself. Application powerhouses such as Facebook and MySpace know their sweet spot is the software. For them, for now, that is enough. Both social-networking sites already have applications for multimedia phones. MySpace started with an exclusive agreement on Helio handsets and plans to extend to all carriers' decks by year's end. Facebook, too, has been optimized for any smartphone with Web accessibility. Even YouTube this year announced full mobile capabilities on essentially any Web-enabled handset. Amazon, Cartoon Network and eBay — among others — join the ranks of thriving mobile apps located on the phone.

Such companies may have chosen to avoid the handset market based on the experiences of two nontraditional companies that were forerunners in the mobile marketplace. Both Disney and ESPN tested the waters by operating as mobile virtual network operators (MVNOs), and both introduced handsets spun off their core focuses — children and sports, respectively. Disney ultimately abandoned both the MVNO and handset businesses, which the company called a “test” of the market, and ESPN has not had much success with its handset.

“Why should those companies necessarily go through all that hassle with opening their own product line and bringing it to market and navigating that whole market when they can simply release an application and get the feature sets and benefits of mobile applications or mobile connectivity?” Martin asked.

NAVIGATING THE MOBILE market requires carving a path fraught with high costs and complexity, and making the move from application to handset may not be as easy as some observers believe, as the experience of mobile VoIP provider iSkoot demonstrated. iSkoot developed the software platform for the first carrier-sanctioned instance of VoIP over the wide area wireless network. That handset, used by the U.K. operator that employs the number 3 as its moniker, uses iSkoot's circuit-switch technology to optimize the voice channel instead of the data channel of the mobile network to make free calls over the Internet. Such services are typically associated with the PC — using a mobile phone platform is a substantially different undertaking, said Mark Jacobstein, CEO of iSkoot.

“I think the funny thing people sometimes say is, ‘That is really clever, but there is not much to it — you just take an IP PBX and stick it in between an ordinary phone call and the Internet, right?’” Jacobstein said, answering the question with an emphatic “No.” He added, “We've had 45-plus engineers in Israel banging on this for two years. So there are a couple of pieces that are really interesting and challenging.”

Although PC-like functions are increasingly popular on the mobile phone, it is not a “pocket PC,” Jacobstein said. Issues concerning software creation are radically different on a mobile handset, where battery consumption must be minimized and memory is constrained. The best method, Jacobstein said, is to follow the BlackBerry's example and do all the “heavy lifting” on the server side to ensure light client work and a simple user interface. “As a result of the heavy lifting on the back end, they can have a very simple experience for the consumer on the front end,” he said.

“Even before you write the software, the most important thing is an architectural understanding that offloading as much of the CPU work and heavy memory usage and open socket and multiplexing to the back end as opposed to having the device do it, is really, really important,” Jacobstein said. “It is one of the reasons why frankly the number of successful transitions from consumer Internet services to mobile is actually very limited if you think about it. Guys who are used to working in a PC environment on the Web or with desktop clients don't understand some of the limitations and, as a result, some of the architecture choices that have to be made.”

Perhaps even more daunting than the technical obstacles are the marketing challenges. Martin argued that the only way a new entrant could make it in the mobile device market is to create a formula no one else can use — and that's a challenging concept. Exclusive form factors are expensive, and carrier relationships can be difficult to build.

His advice for software companies is to recognize that their strength is in software. He pointed to eBay and the possibilities it may be weighing. Rather than making a phone with eBay-specific software, he would advise such a company to develop agreements to make eBay a function on phones from established handset manufacturers.

“I think it is important to recognize where there is legitimate opportunity and where there is perceived opportunity,” Martin said. “A lot of the times, we perceive an opportunity because something is successful online or has a strong brand in the case of Skype or ESPN, but that doesn't necessarily translate into a legitimate business model in the hardware world.”

STANDARDS ARE ANOTHER significant barrier to entry. A vendor writing cell phone applications ultimately will struggle with achieving interoperability across a variety of different devices and operating systems, said David Chamberlain, principal analyst for InStat. He believes that Symbian is the best example of a company successfully going mainstream. The software licensing company supplies an advanced, open-standard operating system — Symbian OS — for data-enabled mobile phones. “They did that extremely well, and now they are the insiders; they are the establishment,” he said.

But Symbian is an exception, Chamberlain said, who noted that service providers typically prefer to deal with companies that already supply them. Their attitude, he said, is, “We know Nokia, we know Motorola, and we are getting to know Samsung and LG. Let's stay there.”

As Nellymoser's Puterbaugh pointed out, consumers are loyal not only to their tried-and-trusted handset manufacturers, but to their service providers as well. He believes branded phones will have a place only in one-off marketing campaigns, such as a high-end car dealer offering a branded phone as part of a promotional package when a vehicle is purchased. Otherwise, it won't be a trend that catches on for new entrants.

He advised a different strategy for software and consumer electronics developers. “People that provide consumer products will move, one, to make them have better network capabilities to talk and get out to the Internet and, two, create add-on services to create market value around the products,” Puterbaugh said. “Because with software models, you can get not only the success we've seen with advertising, but also the people that use software on a regular basis. You have a recurring revenue model that is sustainable. Whereas in mobile phones, you sell it once, and then you have to sell them another one in 18 months.”

As the wireless market reconnoiters in the wake of the iPhone's success, the companies best-positioned to respond may be traditional handset manufacturers — and these players, more than the new market entrants, are likely to punctuate the fight going forward. As Puterbaugh said, “Your LGs and Samsungs and those folks are trying to address the user experience and provide compelling devices that are not only personal communication devices, but also smart media players [with] a whole new user experience around the touch screen and mobile Internet.” That, he said, adds enough craziness to the market without having to worry about the likes of Facebook, MySpace and YouTube joining the fray.