Motorola split shows how fluid, brutal the handset business is

News that Motorola is going to split its struggling mobile phone unit off from its hardware and networking business is a reminder of how tough and fast-changing the handset market can be.

It was less than three years ago that former Motorola CEO Ed Zander was flying high on the success of the Razr, which was the sleekest device by far when it launched. Zander, a former Sun Microsystems hauncho, was lauded as a marketing visionary, but his time at the top was short-lived.

The company had no follow-up to ignite interest among fickle consumers, and when Research in Motion, Nokia and others came out with their own jazzy, multi-function products, Motorola's star started fading fast.

And that was before Apple released the iPhone and changed the game completely.

I was at the San Francisco Apple event in September, 2005, when Apple's Steve Jobs showed off the first cell phone that could play music downloaded from iTunes. It was the Rokr, made by Motorola, but its meager memory meant that any serious music lover wasn't going to defect from the iPod.

And they didn't. Rather than helping Motorola crack the mp3 player market, the Rokr merely served as a trial run for Apple's own iPhone.

Since its launch, the handset business has morphed again, with GPS systems and other functionality making the phone even more of an all-in-one device. 

The functionality mix is only one part of the challenge for handset makers. Getting the pricing right and making sure their carrier partners don't flub the roll out are the others.

Nokia, RIM and Apple have shown that you can charge a premium if you have the right mix of features. The next big feature is likely to be video cameras that can capture and upload larger files directly to the Web.

On the other hand, most of the world's phones -- especially in emerging markets -- are cheap models bought through the carriers.

In other words, it's a bifurcated market, and one that changes fast enough to allow startups an opportunity to break in. Modu, which just raised a huge funding round, is trying to do just that with its credit-card-sized, multi-function module.

The lesson from the Motorola split is that the ability to constantly innovate and get ahead of consumer tastes, more so than brand name or even market momentum, is necessary for success in the handset market.

Once its spun off from the rest of Motorola, its handset unit will have another shot at that mission.