Making Sense of Samsungs Bada

[Samsung recently perplexed the mobile world with the introduction of its “new smartphone platform” bada. Most commentators have already dismissed bada as an ill-conceived concept and moved on, but does bada actually make a lot of sense? Guest blogger Antony Edwards looks at what’s driving Samsung.]
This article is also available in Chinese.

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Yet another platform to target is the last thing most mobile developers need. So when Samsung announced its new bada platform earlier this month it was met first by confusion, and then ridicule as it was further revealed that bada applications must be written in C++, the SDK will only run on Windows, and there won’t actually be any bada devices for some time.

Most of the technical press have already dismissed bada simply as an ill-conceived concept. But the creation of bada, and what it signals about how the mobile industry will evolve over the next three years, is very significant; especially what it says about the changing attitudes towards Android.

Price pointsThe current mobile phone market of around 1 billion devices per year roughly breaks down into four price-points. At the top are the iconic devices that bring new mobile experiences to the world such as the iPhone and N95, next are the less distinctive smartphones such as the Nokia 5800 and Motorola’s Droid, then the feature phones that bring last year’s new experiences to the mass market, and at the bottom are the voice phones for people who really do just want to make a phone call and maybe send an SMS.

Samsung makes most of its profit in the smartphone segment, delivering hundreds of well-designed models for operators and regions all over the world. But these are volatile times for the smartphone segment. Android is bringing more-and-more competition into smartphones, most importantly competitors such as Acer and Dell from the PC manufacturing world who are content with gross margins far below those expected (and sorely needed!) by traditional smartphone OEMs. And at the same time as competition increases, traditional OEMs are finding it more-and-more difficult to differentiate themselves in an Android world.

The inevitable result is a decline in average sales price (ASP); Samsung’s ASP decreased 3% in Q3 2009. Similarly, HTC who focuses entirely on the smartphone segment with Android and Windows Mobile saw their ASP decrease by 4.4% between Q2 and Q3 and expect a further decrease of 5% in Q4. Motorola released their Android-based Droid device in Q3, but after the initial excitement of being the first Android 2.0 device in the market, it has now been labelled a “me too” smartphone and its price is being repeatedly reduced.

2010 has already been hailed “the year of Android” with an unprecedented line-up of Android devices coming to market from 10s of manufacturers.

So, how are manufacturers like Samsung going to stand out in this crowded landscape? Margin pressure is not only coming from consumers due to a lack of device differentiation, but also from mobile network operators who have complete visibility of Android device-creation economics and are demanding cost-based prices from the OEMs. How can OEMs retain the high margins they’ve enjoyed for so long and that their shareholders have come to expect? bada may not be the right answer, but it doesn’t seem like Android is either.

All traditional mobile phone OEMs (except Nokia) are making Android devices, and they have all increased their adoption of Android through 2009. With their bottom-lines under serious threat from the economic downturn, ever increasing operating costs, and Apple’s appropriation of 30% of the profit from the market, the low cost of device-creation promised by Google has proven very tempting.

bada is the first sign that an OEM is looking a bit further ahead and realising that while cost of device-creation may be low in an Android world, there’s also little differentiation, and that means ever lower margins. The struggle to maintain margins has always driven significant changes in the mobile phone industry from cameras, to open platforms, to integrated on-line services; and as Android puts margins under increasing threat we should expect more-and-more major changes in 2010.

Samsung are right that they had to do something. Following the footsteps of Apple, and to some extent RIM, the current answer to differentiation is “own the whole stack”, and so that’s exactly what Samsung is doing.

Will bada save Samsung’s margins? Maybe. Probably not. But the core motivation for change is correct, and from that perspective bada definitely makes sense.

– Antony

[Antony Edwards has been working in mobile since he discovered how to program his Apple Newton 12 years ago. During 7 years at Symbian in a mix of engineering and marketing roles, he worked with all the major OEMs and operators, and continues to be a keen observer of the ever-changing OEM platform strategies.]

What do you think? Can bada work? Can OEMs achieve high-margins on Android devices? Does the appearance of a Google-branded phone change your opinion of bada? Comments and feedback appreciated.