Openmoko hits the wall

Recently, Openmoko CEO Sean Moss-Pultz announced at OpenExpo in Bern that the company was reducing staff and postponing the development of the GTA03, its first consumer-oriented phone, in favor of an undefined Project B. Available as a YouTube video, the announcement was a confirmation of recent rumors that the company was in trouble. In fact, many concluded that the announcement meant the end of the company, or at least the beginning of the end.

Either conclusion is premature, but the announcement does highlight the problems Openmoko faces as a business, as well as its uncertain future. These problems are evident not only in the company's history, but in Moss-Pultz's announcement and the company's web site as well.

Openmoko began in 2006 as a project within First International Computer (FIC), a Taiwanese computer manufacturer. Soon spun off into a separate company, Openmoko became the center of a small but active community, due largely to its intention of using only free software and free hardware. Its popularity was helped by the fact that, prior to the announcement of Android in November 2007, it was the first effort to introduce free software into the mobile phone market.

The company and community began work on Openmoko Linux and the hardware to run it on. As a development community, Openmoko has had some success, with GNU/Linux, FreeBSD, and L4 kernels ported to its devices, as well as versions of the Google Android operating system and a number of utilities and games.

However, as a commercial manufacturer, Openmoko has struggled continuously to coordinate its software and hardware in all its products, up to and including the GTA03. As Moss-Pultz explained in February 2007, "each hardware revision takes at least one month of time. Each month without stable hardware means serious delays for software. One time we received the wrong memory from our vendors and we failed to catch this before production. Another time some key components ran out of supply."

Despite such difficulties, in July 2007, the company produced the Neo 1973, a development phone, following it with the Neo FreeRunner in June 2008. According to Moss-Pultz in his announcement last week, the Neo sold 3,000 units, and the FreeRunner 10,000 units. These are modest numbers that, more than anything else, indicate just how small a player Openmoko is.

Openmoko's progress has not been helped by the countless complaints and problems about the FreeRunner, all of which also affect the development of its successor, the GTA03. For one thing, the phone does not support 3G standards for telecommunication hardware. In his announcement, Moss-Pultz explains this lack as being due partly to the difficulty of implementing 3G without using proprietary software and hardware, and partly due to the fact that doing so would increase the cost by at least two-thirds. But, although these are sound reasons, without 3G support, Openmoko's products are inevitably going to be seen by customers as inferior to other mobile devices.

Moreover, if you look through the Openmoko community mailing list over the last few months, very few aspects of the FreeRunner have escaped being mentioned in bug reports.

Many of these bugs have been collected on the Neo FreeRunner Hardware Issues page on the community wiki. Active bugs include poor audio quality, the inability to boot without a charger, the corruption of the SD card's partition table when using the suspend function, incompatibility with SIM cards, problems with the GPS feature, unreliable reporting of the battery charge, and short battery life — and this is far from a complete list. Workarounds exist for some of these problems, but the disheartening cumulative effect is suggested by the desperate-sounding plea near the top of the page: "Please DON'T PANIC when reading this page. Please give Openmoko employees time to investigate these issues and to develop a solution." Even making allowances for the fact that the FreeRunner is not intended for general consumers, such problems give it the appearance of having been released before it was ready.

With such a history, nobody should be surprised that the company has recently seen an exodus of many of its employees. To what extent these departures were voluntary or layoffs is uncertain.

But, either way, they increase the difficulties for the company. Harald Welte, the former Lead System Architect at OpenMoko, wrote in his blog, "There used to be really great engineers at Openmoko some time ago, but at least a number of good, senior folks are no longer working there at this point in time, or are working on a much smaller scope for Openmoko Inc." In addition, Welte suggested that, by not making any public statements about the departure of key staff, Openmoko is contributing to the rumors and uncertainties that already surround it. Increasingly, the impression of a struggling company is becoming impossible to avoid.

The business environment and decisions

In the video, Moss-Pultz talks candidly about the challenges that Openmoko faces and the mistakes it has made.

Some of the challenges are ones that no company can do much about. For example, Moss-Pultz began by explaining that, while small companies or individuals can disrupt software markets, the expense of developing new computer chips and the difficulty of finding a place to manufacture them means that existing companies have a practical monopoly on hardware.

Later in the video, he revealed that, although Openmoko had enough monthly sales to break even by the end of 2008, the recession has caused a serious decline in sales in 2009. Having not anticipated this downturn, the company is left with a large inventory of unused hardware components, a depreciating investment that can only be recouped by sales. Meanwhile, extra inventory may incur storage costs if the company is like many high-tech startups and lacks its own warehouses.

At the same time, Moss-Pultz acknowledged that the company has made tactical errors. He suggested that the company has been slow to realize that "you can't compile hardware" — by which he apparently meant that fixing errors in hardware is much more expensive and time-consuming than debugging software. In addition, Moss-Pultz said that the company had tried to develop too many markets at the same time. It has also attempted to manage direct world sales by itself, rather than going through an established distributor, an effort that has caused it endless time and effort in dealing with custom duties and varying regulations.

More specifically, Moss-Pultz pointed to two direct mistakes. First, Openmoko could have sold more than 3000 Neos if it had not been overly conservative in ordering components (a situation that might lead observers to wonder whether the overstocking of the FreeRunner was over-compensation for this earlier error). Second, in wishing to honor its commitments, the company spent months directing what Moss-Pultz estimates as 90% of its resources to an unspecified single contract. This situation was a particular drain on resources because it occurred after Openmoko became a separate company and could no longer draw upon the resources of FIC.

All these events, both external and internal, have taken place against a background of both too little and too much publicity, according to Moss-Pultz. On the one hand, outside of the free software community, Openmoko remains little known among mobile manufacturers and distributors. This admission suggests that the company has been doing little or no advertising in its market niche. On the other hand, within the free software community, Openmoko was widely hailed as "the iPhone-killer," even after the company tried to explain that it was not trying to compete against Apple's popular device. Such a view created inflated expectations that a company of less than sixty employees could have no hope of matching, even if it made no mis-steps. It may also have pressured Openmoko executives into making hasty decisions, although Moss-Pultz did not mention such a possibility.

The web site evidence

Listening to Moss-Pultz, what seems clear is that, for all the surrounding buzz, Openmoko has suffered largely from an inexperienced team that was learning as it staggered towards market. This impression is confirmed by the company web site, which is surprisingly sparse and unprofessional for a tech company shipping products.

Even by the sometimes eccentric standards of free software, the site seems strangely incomplete. The site's front page has no explanation of what the company does. Even the About page contains only the translation of a Chinese poem and a few flowery generalities, and no mention whatsoever of the management team.

Nor can you buy directly from the company. Instead, clicking on the Store link in the menu takes you to the distribution page, where you find that Openmoko has only six distributors in the United States and Canada, fifteen in Europe, and one in Asia. Many of these distributors are obviously minor. That brings up another problem for Openmoko: As countless other startups have found, you cannot get major distributors to carry your products unless you have a track record, but you can hardly hope to get a track record unless the major distributors carry your products.

The point is, the company web site creates an impression of a company that is not ready to do business. By comparison, the Openmoko community page is far more detailed, which suggests that Openmoko executives are far more comfortable in a community of developers than in a board-room. In this light, the company's problems and mistakes seem completely understandable.

Next, Plan B

The necessity for Moss-Pultz's announcement was spelled out by an email to the Openmoko community by vice-president of marketing Steve Mosher. The company can only make money through completing development on either the GTA03 or the mysterious Project B, but cannot afford to complete both just now. Given that completing the GTA03 would cost three times as much, the sensible choice is to focus first on Project B.

This logic seems clear enough. Yet it would be clearer still if anyone gave an indication of what Project B actually was. All Moss-Pultz said on the subject in his video is that "I always have a backup plan, no matter what I do" and that this focus is a "short-term adjustment." Observers have suggested that Project B is a "non-mobile / non-smartphone" or, alternatively, that it will involve using Android to reduce development costs. But the truth is that no one has any concrete information.

No matter what Project B turns out to be, whether it can turn Openmoko around remains to be seen. Welte commented that, "Over time, I have started to have severe doubts whether Openmoko Inc. is really the most productive and/or best environment to do this kind of development. Priorities and directions changed a lot." But at least with this announcement, he added, "I no longer have to hope that Openmoko Inc. gets their act together to actually get an (to my standards) acceptable product out into the market." Possibly, Welte can be dismissed as a disgruntled former employee, but, by the time that a company makes the sorts of cuts that Openmoko has made, the chances of reversing the slide into bankruptcy seem small.

Certainly, the attempts by Openmoko executives to reassure everyone have not convinced most observers. Many, such as Nilay Patel at engadget, wondered whether news indicate the lack of a market for free hardware devices in the mobile market.

However, such speculations are based on too little evidence. At least two-thirds of all startups fail within ten years, and the rate is generally assumed to be even higher in technology companies. Openmoko is only a single company in the mobile space, and, if you look at Openmoko's past record, nothing indicates that the company's problems are due specifically to its business plan. A simpler explanation is that the problems are due simply to inexperience and poor decisions. In the end, Openmoko's future depends far more on its executives' ability to learn from past mistakes than on their choice of ideals.