handset manufacturers Archives

Apple & Samsung's "Profit Share" Trap

[Are the smartphone wars about profit share or market share? Guest author Sameer Singh argues that the case for profit is fundamentally misunderstood.]

Over the past few days, there has been a lot of noise in the tech media about the supremacy of “profit share” over “market share”, specifically related to Apple’s performance in the smartphone market (but it can be extended to Samsung as well). Most proponents of this argument seem to fundamentally misunderstand the long-term relevance of the “profit share” metric. Let’s make a more educated comparison between the two metrics to understand how each can be used to analyze the smartphone industry.
Continue reading Apple & Samsung's "Profit Share" Trap

The Xiaomi Tribe: New hope for handset makers?

[Chinese handset maker entrant Xiaomi is putting itself in the spotlight with impressive first year sales and innovation across hardware, services, brand and business model. Is this a promising attempt to create a new profitable handset business, following the Apple & Samsung profit recipe? VisionMobile analyst Stijn Schuermans investigates in this retelling of our relevant report.]

Xiaomi (pronounced “chow me”), the upstart Chinese handset maker, has put itself in the spotlight with impressive early sales figures in its first year of existence.

This article is based on an issue of Mobile Insider, a monthly publication by VisionMobile. that examines under-the-radar and forward-looking trends in mobile. Each issue focuses on a specific topic distilling the insights in an easy-to-digest 5-page format. Mobile Insider is part of Telco Economics, a range of strategy reports and workshops that deliver a 360° view on the new economics of the mobile industry and changing role of telcos in the era of digital ecosystems. Continue reading The Xiaomi Tribe: New hope for handset makers?

The Mobile Industry in Numbers

Presenting our latest infographic – The Mobile Industry in Numbers – the H1 2012 edition of the 100 Million Club, the watchlist of the top mobile platforms and handset manufacturers. This infographic will give you some insights into the mobile market and help put things into perspective.

Here are some of the insights from the infographic:
– Smartphone sales penetration continues to accelerate, growing from nearly 30% in Q3 2011 to nearly 40% in Q2 2012
– Nearly 2 out of every 3 smartphones shipped in H1 2012 were Android devices
– Despite low device sales, the Windows platform already has over 100K available apps in Windows Marketplace
– Although Symbian is obsolete, it still has a sizable installed base – larger than bada and Windows Phone combined
– In the handset market, Apple and Samsung account for 63% of revenues and over 98% of the profits, depriving other vendors of oxygen and therefore the ability to invest in handset differentiation and marketing
– In the smartphone market, Apple and Samsung claim more than half of total shipments. Nokia is shipping more Symbian handsets than WP handsets and their smartphone share has fallen to 7%, down from 16% in H2 2011

[Report] HTML5 and what it means for the mobile industry

[HTML5 has been tipped to be a game-changer, with some predictiving it will take over most mobile platforms. But what is its real impact to the mobile industry? VisionMobile Research Director Andreas Constantinou evaluates HTML5 vs apps and what it means for the mobile industry as part of our newly released report – free copy here]

Background: Web vs. apps

In today’s world of apps, the web seems to have taken a seat in the back row. But many industry observers are predicting a comeback with HTML5 advancements, the proliferation of smartphones and ubiquitous backing by both telcos and Internet players. Is the web as we know it about to change?

First things first: what is the web?

Firstly, the web is a language for creating interactive, navigable content, which consists of three main parts: HTML (the language used to define the static text and images), CSS (the language defining styling and presentational elements) and JavaScript (the language describing the interactions and animations).

Secondly, the web is a paradigm for open, unfettered access to content that is not controlled by any single entity. In the era where apps distribution is controlled by single vendors like Apple and Google, the web seems to challenge the status quo.

There are many ways in which web pages differ from mobile apps today, as shown in the next table.

From web 1.0 to the mobile web

The web has gone through two major phases: Web 1.0 and Web 2.0.

Web 1.0 was the era of the dumb terminals and static web pages. The first generation of the web assumed all intelligence was in the network; the device had to issue a simple request to fetch a page and then present it on the screen.

Web 2.0 was is the era of smarter terminals and interactive pages. This second generation was designed around the â€˜read-write web’ where the user is not just a consumer but also an editor, curator and producer of content. Web 2.0 helped create today’s phenomena of Wikipedia, Facebook, Twitter, blogs and nano-publishing.

Despite starting off as an outsider to the web, the mobile industry has been rapidly catching up since the early WAP days. WebKit, the Apple-born browser engine is now the common â€˜circuitry’ behind more than 500 million devices shipped to Q1 2011, by all major smartphone vendors. Opera, the mobile browser vendor, counts over 100 million monthly active users on its Mobile and Mini browsers.

In the manufacturer camp, smartphones are expected to reach well into sub-$100 retail price points in 2011. In the operator camp, content delivery optimization solutions from the likes of ByteMobile, Openwave, and Ortiva Wireless are being deployed across tier-1 operators, facilitating efficient use of the network while browsing the web.

Mobile industry initiatives such as the Wholesale Applications Community (WAC) are pushing the envelope for web applications (also known as widgets) while EU-funded initiatives like webinos aim to use the web as a medium for deploying applications across mobile, PC, TV and automotive screens.

HTML5 as a technology change

The hype surrounding HTML5 has peaked in 2011. HTML5 promises to push the capabilities of web applications to the point of making web apps as engaging as Flash applications and as integrated with the device as mobile applications. HTML5 introduces several technology improvements in these domains by adding off-line storage, 2D graphics capabilities, video/audio streaming, geo-location, access to the phone’s camera and sensors, as well as user interface tools.

This next generation of web languages in the form of HTML5 is being standardized by the W3C and the WHAT working group who are driving forward web apps as equal citizens to mobile applications. The W3C consists of 51 member organizations, over 440 participants with strong backing from Google, Apple, Opera, IBM, Microsoft, and Mozilla. In parallel the WHAT working group is working closely with Mozilla, Opera and WebKit who are implementing and testing the latest browser features.

Yet HTML5 is still work in progress and even standards bodies show fragmented approaches to HTML5 completion. The W3C expects official completion of the HTML5 set of standards in 2014. In parallel, WHAT has taken a different approach to completion and is now working on â€˜HTML’ as a continually evolving set of specifications.

Despite the adoption of the WebKit engine as a de-facto standard, HTML5 implementation on mobile devices is both fragmented and incomplete.

Independent studies by quirksmode.org and NetBiscuits have shown that every mobile WebKit implementation is slightly different. In addition, the leading smartphone platforms show inadequate HTML5 support; iOS, BlackBerry OS and Android devices show partial HTML5 support (at best 2 our of 3 HTML5 features supported), while Symbian and Windows Phone devices are lagging further behind.

Much like history has shown with the PC browser wars of the 1990’s and the Java ME fragmentation of the 2000’s, mobile browser fragmentation in 2010’s will be driven by the need to differentiate (’embrace and extend’), and the varying speeds among vendors in implementing the latest WebKit engine.

What about HTML5 app stores? Already a number of start-ups such as OpenAppMkt, Openspace and Zeewe have proposed app stores focused on web apps. The key advantages of HTML5 app stores are cross-device portability and a buy-once-use- everywhere application model.

Unfortunately, supply does not always imply demand; HTML5 app stores can’t deliver a business model change if demand is not there, for three reasons. Firstly, users care about availability of popular content (see Angry Birds, Skype and Facebook) most of which are not available as web apps often due to HTML technology limitations. Secondly, users care about choosing among hundreds of thousands of apps, which is currently a 2-horse race (Apple and Google) with the web lagging far behind in terms of number of apps. Thirdly, users are becoming loyal to their smartphone platform (Android, iOS or BlackBerry) where the native app store dominates.

How to compete in a software world

HTML5 introduces several technology innovations. However HTML5 remains a technology change that is not designed to solve discovery, distribution or monetisation problems – in other words it is not designed to change the business model.

What *will* be changing the business model of the web are the innovations introduced in the apps economy – where content is created with semantic tagging (description, category, user ratings, etc), discovered via web stores (much like app stores), distributed within walled gardens (much like Facebook), and monetised through micro-payments (much like apps). We call this web 3.0 – and we expand on its implications in the full research paper.

The question is: how can the mobile industry leverage on the web, and the native platforms that dominate the apps world? The trick here is not to compete, but to leverage on the network effects of the Apple, Google and Microsoft platforms where handset OEMs or network operators can position themselves as a new generation of over-the-top players.

For example, operators can act as the matchmakers between developers and end-users by helping developers get the right apps in front of the right users through techniques such as featured placements, social- graph-based recommendations and segment targeting. Similarly, handset OEMs can act as on-device retailers, connecting the developers to the right audience, in the right region, through white space across the handset real-estate.

This is also where we believe WAC has the best chances of success but helping operators reposition as over-the-top players on top of the Android and Apple app stores – that is by helping developers reach out to users with ubiquitous billing, quality assurance, content curation, local content deals, privacy and security assurance, and help extend app stores away from the virtual and into the physical retail space.

In parallel, network operators and handset OEMs can help push the web into a viable alternative for native platforms in many ways. They can push the development of WebKit towards better bandwidth management, and closer integration with hardware multimedia acceleration. Moreover, the mobile industry can sponsor the development of better cross-platform developer tools that allow HTML and JavaScript developers to target multiple native platforms and mass-market browsers.

No matter how telecoms players decide to compete in the software world, they need to adopt â€˜agile’ development methods and move at software speeds to catch-up the platform players in controlling the last mile to the consumer.

One thing is certain; the future of connected web and devices is going to surprise us – much like how applications turned telecoms economics upside down. Like Bill Gates once famously said “we always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten”.

Web is going to be a game changer, but not in the way we expect it.

Read our full report for more.

– Andreas
you should follow me on Twitter: @andreascon

The mobile services landscape: Can OEMs compete with platform vendors?

[Growing competition and price pressures push handset makers to seek new ways to differentiate. This increasingly means services. VisionMobile Research Partner Michael Vakulenko compares service offerings of leading handset makers, explaining why OEMs will struggle to create meaningful differentiation through services.]

Remember the Motorola RAZR or the Nokia N95? Long gone are the days when handset hardware was fertile ground for innovation and differentiation. Convergence of device form-factors and equal access to advanced chipset technology pushes the handset market to the brink of deep commoditization.

Focus on smartphones can only provide short-term life support for deteriorating margins. Android opened the floodgates to low-cost assemblers to compete in the smartphone market. Aggressive new-comers, like ZTE, Huawei, Acer and Dell, along with a growing list of previously unknown handset manufacturers, push incumbents deeper and deeper into the commoditisation corner. Differentiation based on services increasingly looks like an attractive solution for many handset OEMs.

Services, services, services
Let’s look at how service offerings of leading handset OEMs stack up against each other. Nokia, Samsung, Apple, RIM, HTC, Motorola and Sony Ericsson (in no particular order) all have service ambitions and will be the subjects of the comparison.

State-of-the-art service offerings go far beyond much-hyped application stores. We â€˜ll dig into the following service categories:

– Content retailing services: App stores, music, premium video and billing.
– Cloud services: Cloud-based contact book, cloud synchronization/backup, and device management (i.e. location tracking and remote lock).
– Communication services: Email services (e.g. gmail.com, me.com or nokia.com), instant messaging and video conferencing services
– Location-based services: Maps and navigation
– Advertising: Ownership of an ad network, display ads, multimedia ads and location-based ads.

Since many of the OEMs use Google Android and Windows Phone 7 platforms, we ‘ll also compare OEM service offerings with the â€˜native’ services of the platforms.

The table below compares service offerings of different OEMs, as well as smartphone platforms across the above service categories.

The Leader: Apple
Apple, as usual, is in a league of its own. Apple has an extensive set of services anchored in the well-oiled iTunes content machine and MobileMe cloud services. One glaring omission is location-based services. For now, Apple has to rely on an uncomfortable partnership with Google Maps. There are persistent rumors that Apple develops its own location and mapping services (here and here). We can expect that sooner or later Apple will find its way out of its dependency on Google Maps, launching its own location-based services.

Challengers: Nokia, RIM
The next group of companies are the challengers – Nokia and RIM. Both use integrated models similar to Apple’s, combining proprietary software platforms with proprietary hardware (for now I will ignore the big unknowns of the partnership between Nokia and Microsoft).

Nokia has a comprehensive service portfolio, even compared to Apple. It ranges from the quintessential app store and music service all the way to location-based services and its own ad network. However, Nokia’s execution was weak and the future of Nokia’s services is up in the air following announced the partnership with Microsoft.

In contrast, RIM has a sketchy service portfolio, focused on its best-in-class messaging services. These include push-email, the BlackBerry Enterprise Server (BES) and the BlackBerry Messenger (BBM), in addition to the mandatory app store. It looks like RIM continues to focus on hardware and its new QNX operating system. For now, service-based innovation outside messaging takes a back seat for the BlackBerry platform.

Wannabes: Samsung, HTC, Sony-Ericsson and Motorola
Finally, Samsung, HTC, Sony-Ericsson and Motorola are OEMs building smartphones based on the Android and, in some cases, Windows Phone software platforms (Samsung also owns the bada software platform).

While Motorola is strong in cloud services with its MOTOBLUR service, Samsung leads the way in content. The Samsung offer includes music downloads and movie services, bundled with the popular line of Galaxy smartphones and tablets. Due to the licensing terms of content owners, content services have a limited geographical footprint, being available only in North America and Europe.

Overall, the services offering is very mixed for these vendors with piecemeal solutions mostly focused on content and cloud sync services.

Platforms: Android and Windows Phone
Unsurprisingly, Android and Windows Phone offer a comprehensive set of â€˜native’ services across all service categories. Google Android is weak in content services compared to Apple and even Windows Phone, but compensates with leading-edge location-based services and a comprehensive ad offering. Windows Phone â€˜native’ services leverage Microsoft’s Bing, Live, Zune and Xbox assets having millions of active users.

These â€˜native’ services form the basis for platform differentiation and user value proposition for both platforms.

OEMs will struggle to make impact with services
Out of these handset OEMs, only Apple and Nokia come close to the breadth and scale of service offerings provided by platform vendors. It’s really difficult to see how Samsung, HTC, Sony Ericsson and Motorola can create highly differentiating services on the Android or Windows Phone platforms. For them, services will not become a solution for the upcoming wave of commoditization.

Dependency on 3rd party software platforms, lack of scale for making meaningful content deals, conflict of interests with operators and incompatible company DNA will make it extremely difficult for handset OEMs to make an impact with services.

In the words of Nokia’s CEO “Devices are not enough anymore”. No, this quote was not one of Stephen Elop’s, taken from the recent “burning platform” memo – it comes from a speech made back in 2007, by then Nokia CEO,Olli –Pekka Kallasvuo. Nokia realized early that services will play a critical role in handset value proposition. The Finnish OEM has tried hard to reinvent itself and become a hardware+services company.

The rest is history. Nokia found it nearly impossible to reconcile the DNA of a hardware company, which “lives” by device release cycles, with the DNA of a service company that “lives” by developing long term relationships with users, developers and partner ecosystems. If Nokia failed to do so with their vast resources and enviable volume leadership, what are the chances that Samsung, HTC, Sony Ericsson or Motorola will manage it?

– Michael

Connect with us on Twitter for more updates

[Michael Vakulenko is a Research Partner at VisionMobile. He has been working in the mobile industry for over 16 years, starting his career in wireless in Qualcomm. Michael has a broad experience across many aspects of the mobile industry, including smartphone ecosystems, mobile services, handset software, wireless chipsets and network infrastructure. He can be reached at michael [/at/] visionmobile.com]

100 Million Club: Winners and losers in the OS Arena

[2010 was a year of upsets in the mobile industry, as the league of top 5 handset manufacturers saw the inclusion of pure smartphone vendors (Apple and RIM) for the first time. As the rate of smartphone penetration accelerates, Marketing Manager Matos Kapetanakis takes a closer look at the winners and losers of 2010 as part of the latest 100 Million Club].

Welcome to the H2 2010 edition of the 100 Million Club, our semi-annual watchlist tracking mobile software embedded on more than 100 million devices. Click here to download the full watchlist.

Key Highlights
– WebKit continues to grow, fueled by the accelerated rate of smartphone penetration. Up to the end of 2010, WebKit-based browsers had been shipped in more than half a billion handsets

– While smartphone penetration has increased to more than 20% in 2010 globally, featurephones continue to dominate the industry. Indicatively, S40 shipments were almost equal to total smartphone shipments.

– In 2010, Android raced past iPhone’s iOS and BlackBerry, almost reaching Symbian’s shipments despite Nokia’s smartphone woes. While Nokia will undoubtedly push up Microsoft’s mobile market share in the future, we’ll continue seeing Symbian in the smartphone OS top-5 for another year.

– Total handset shipments for the second half of 2010 were 780 million, a 25% increase over the first half. A handful of software products, like vRapid Mobile by Red Bend and CAPS by Scalado, managed to tap a sizable portion of this figure, having more than 500 million shipments in H2 2010 alone.

– Myriad Group is now the only company to have 3 products with more than 100 million shipments, after Nuance merged two products into one, with T9/XT9/T9Trace. With the products combined, cumulative shipments have reached a staggering 10.5B shipments.

Winners and losers: changes in the OEM landscape
Who were the winners and losers in 2010? In terms of handset OEMs, we have two clear losers – Sony Ericsson and Motorola have been seeing declining market share for some time now, but 2010 marks the first time that these two traditionally dominant players were toppled from the top 5 leaderboard by pure-smartphone players RIM and Apple (see our latest infographic for more details). At the same time, LG just managed to stave off competition, but without achieving a growth in shipments. Samsung, on the other hand, has effortlessly held its position as the number two handset OEM, having been the most aggressive incumbent OEM in ramping up smartphone shipments.

ZTE is the one piece of the OEM puzzle that doesn’t fit. Some estimates place the Chinese company near the bottom of the barrel, while others feature ZTE in a prominent position in the top 5 OEM leaderboard.

These upsets in the OEM landscape form the foundation for the OS race in 2011 in both feature phones and smartphones.

Feature phones made up nearly 80% of all mobile shipments during 2010. While it’s true that smartphone penetration has accelerated this past year, the days where every phone will be a smartphone are still far.

The next chart clearly shows that feature phones are still the driving force for the mobile industry in terms of shipments. However, revenues and profits are an altogether different matter (see slides 8-9 in our Mobile Megatrends 2011 report).

If combined, media-favorites iOS and Android barely account for 10% of the total shipments for 2010, which are roughly half the shipments of the lowly S40 OS. Samsung’s strong sales through 2010 have helped the company maintain a sizable piece of both the handset and OS pie.

The OS Arena – Smartphones
But what about smartphones? Which were the dominant OEMs and OSs in 2010? As always, Nokia has the lion’s share. As a smartphone vendor Nokia claimed more than 34% of shipments for 2010, while RIM and Apple, managed to get around 16% each.

The above diagram also shows how Samsung has maintained its lead over immediate competitors, with their smartphone shipments equaling those of Motorola, Sony Ericsson and LG combined. Samsung’s lead in this race of the â€˜old OEM generation’ is thanks to reacting very fast to ramping market demand and delivering a highly sought after product; Samsung sold more than 10 million Galaxy S smartphones in 2010 in just 7 months, a figure that exceeds the total smartphone shipments of some of Samsung’s competitors.

So, what does it all mean for our favourite smartphone OSs?

Symbian. Dead, you say? That might be the case in terms of developer interest and Nokia’s R&D expenditure, but the current smartphone leader has yet a lot of shipments left in it. Perhaps not 150M shipments, as stated by Nokia CEO Stephen Elop, but a committed handset roadmap can’t change overnight which means that Nokia will continue shipping Symbian smartphones well into 2012, well after their much-discussed WP7 devices start coming out.

While the Verizon deal has not boosted iPhone sales as much as expected, the operator has the potential to tip the balance of the smartphone scales in the US. The question remains whether the Verizon handsets will cannibalise iPhone sales from AT&T, rather than generating new ones, but that should be little cause for concern. Apple has enjoyed a steady growth in shipments over the past couple of years and that, coupled with an accelerated smartphone penetration rate, should ensure that iPhone sales continue to enjoy a healthy increase. Furthermore, there are indications that the iPhone is starting to replace BlackBerry phones as the â€˜executive handset’ and could start growing in that segment as well. This is Apple’s â€˜blitzkrieg’ tactics at work, advancing on a market segment not just with a platform, but a thriving ecosystem of app developers and content publishers. The realization of this might be one of the driving factors behind RIM’s sudden adoption of Java and Android apps for its admittedly hurried Playbook release.

The biggest smartphone OS surprise has of course been Android. Growing by 100% QoQ for the first three quarters of 2010, the Google operating system shows no signs of slowing down. The biggest contributors to Android’s success have been HTC and Samsung, with Sony Ericsson, Motorola and, to a lesser extent, completing the top 5 contributors. HTC has enjoyed steady growth in smartphone shipments, mainly concentrating on their Android vs. the Windows line. With 60M smartphone shipments forecasted in 2011, HTC seems poised to drive Android sales once again. Samsung will also continue to grow in terms of smartphone shipments, capitalizing on their Galaxy series success. But what of Sony Ericsson, Motorola and LG? These vendors are losing market share, with the latter two having already lost their prestigious position in the top 5 leaderboard. With more OEMs adopting Android (ZTE announced 3 new Android phones at MWC), the Android map still has a lot of surprises in store.

The battle of ecosystems and BOMs
The demand for smartphones continues to rise, driven by mobile operators and handset manufacturers both of which need to remain competitive and differentiate. In 2011 the share of smartphones and the OEM competitive landscape will be determined by 3 fundamental factors: ecosystems, services and price points.

– Price points. Firstly, hardware BOM (bill of material, including screen, chipsets and memory) is the key factor limiting how low smartphones can go in terms of price points and therefore how quickly they will be replacing feature phone projects within OEM roadmaps. Qualcomm has confirmed fears of a price war that is going to be taking place amongst chipsets in 2011 which will should allow Samsung or LG to deliver unsubsidized $100 retail price smartphones this year.

– Ecosystems. Secondly, as Stephen Elop eloquently said in his burning platform memo, “our competitors aren’t taking our market share with devices; they are taking our market share with an entire ecosystem”. The three horse race of iOS, Android and Windows Phone is a race of developer adoption. Any new horses (including Qt, MeeGo, BREW and SmarterPhone) will have to show sizeable ecosystem support in terms of 10,000s of applications and 10s of millions of downloads in order to join the race as worthy contenders.

– Services. Thirdly, smartphone growth is driven by western markets where mobile operators are dominant. With subsidies and marketing boost for smartphones coming from operators, a key determinant of device sales will be how well OEMs can drive operator services revenues; both in terms of supporting â€˜hero’ operator services across regions on day 1 of launch and in terms of offering out-of-the-box white label services with a revenue contribution going towards the operator. This third services battlefront is heating up, too, with HTC buying up service companies, Samsung growing its global services deployments (more about OEM services landscape in a next article).

How do you see the future of smartphones in 2011?

-Matos

[Infographic] Top 5 Handset OEMs 2001-2010

In the past 10 years, the handset OEMs landscape has changed dramatically.

Companies that seemed unshakable have lost ground and are gradually being replaced by new and agile contenders, borne from the PC industry. The ‘old OEM guard’ is still being driven by momentum, but as one-by-one these giants fall and smartphone adoption continues to accelerate, the battle for a spot in the top 5 leaderboard is getting more and more heated.

How has the landscape changed, you ask? Well, just take a look at our latest infographic:

Feel free to copy the infographic and embed it in your website.

600 pixels wide version

760 pixels wide version

1000 pixels wide version

[sociable_code]

The Android Monopoly and how to harness it

[Behind Android’s stellar success is a love and hate relationship with handset vendors. Android is a critical launchpad for PC-borne OEMs like Dell and Acer, but a short-term life support for mobile vendor incumbents like Sony Ericsson and Motorola. Research Director Andreas Constantinou looks at how OEMs can leverage on virtualisation to get the best of both worlds with Android; the burgeoning app ecosystem, but without Google’s lock down of experience differentiation]

From an underdog to ubiquitous manufacturer support, the Android platform has come a long way since its introduction in 2008. Almost every single device vendor (except for Apple and Nokia) has launched Android devices, while Sony Ericsson and Motorola are betting their margins and future on it. The phenomenal rally behind Android is – in a nutshell – due to 4 factors: the operator demand for a cheaper iPhone, the burgeoning Android developer community, Android’s market readiness (3 months to launch a new handset) and the ability to differentiate on top of the platform.

A monopolist on the rise?
Year after year, Android keeps on surprising industry pundits. Google’s software platform saw 100% quarter-on-quarter increase in the first 3 quarters of 2010. The last quarter of 2010 saw Android go chest-to-chest with Nokia in terms of smartphone shipments, in what CEO Stephen Elop called â€˜unbelievable’. With such meteoric rise, analysts are beginning to talk about a potential Android monopoly in the future market of smartphones, contested only by the Nokia-backed Windows Phone.

The Google commoditization endgame
Is Google the biggest benefactor the industry has seen? Not by a long way.

Google runs a hugely successful advertising business and needs to bring as many eyeballs as it can onto its ad network. To this end, Google’s agenda is to commoditise handsets by forcing smartphone prices down (see our analysis on the $100 Android phone) and having its ad network deployed on the broadest possible number of smartphones (via closed apps like GMaps and Gmail).
Moreover, Google’s agenda is to commoditise mobile networks by flattening the mobile termination barriers and removing volume-based price plans that telcos have traditionally built.
At a 10,000 ft level, Google’s strategy is based on deceptively simple microeconomics principle; to drive up the value of its core business (ad network) it needs to commoditise the complements (devices, networks and browsers).

Naturally Google is hermetically closed in all aspects of its core business. The Android Market, GMaps, Gmail, GTalk are â€˜closed source’ and the Android trademark is commercially licensed. This means that while Android is open source, Google uses the Android Market and trademark to enforce strict compliance of Android handsets to Google’s CDD and CTS specifications. See our earlier analysis on Android’s hidden control points for how Google runs the show.

So Google is by no means a benevolent benefactor. Like any other company out there, it’s in it for the money; a rationally-driven business of the platform era, out to commoditise the mobile handset business with a free-for-all carrot.

Winners and losers of the Android game
For handset manufacturers, Android is both a blessing and a curse. A blessing because it offers OEMs a low-cost-base, rapid time-to-market platform from which to build differentiated designs. This is manna from heaven for PC-borne assemblers who use Android as the pier from where they can gain firstly a foothold in mobile and secondly global reach.

At the same time it’s a curse; Google’s control of Android compliance means that it deprives OEMs of all points of differentiation: user interface, hardware features and industrial design – except for (you guessed it!) price. Which means that with Google defining the Android experience, there’s little differentiating a Sony Ericsson handset from an Acer handset. With Acer happily operating at 3% profit margins, Android is to Motorola and Sony Ericsson just a short-term life support.

Nokia too evaluated Android before hoping on an strategic partnership with Microsoft on Windows Phone 7. As Stephen Elop said during the press conference with Steve Ballmer, “we assessed Android […] but the commoditisation risk is very high”. In sight a potential Android monopoly threat operators, too and getting wary of over-supporting Android.

Best of both worlds
Confronted with Android’s two-faced agenda, major handset vendors have been apparently plotting how can they get the best of both worlds; the burgeoning apps ecosystem but without the Google’s control of the user experience. Three approaches have emerged.

1. The Do-it-yourself approach: By virtue of the open source (APL2) license, any handset vendor can take the public Android codebase, branch it, tweak it and deploy it on handsets. China Mobile has commissioned Borqs to develop the oPhone spin-off while Sharp has released handsets based on the Tapas spin-off also for the Chinese market. However, branching Android means that you miss out on the 130,000+ Android apps as Google won’t give you access to their app distribution system – which is ok if you â€˜re targeting China, but unacceptable if you â€˜re targeting any other region. Moreover, the Google Android codebase moves faster than any other platform (5 new versions within the space of 12 months) meaning that it’s near impossible to maintain feature parity in Android spin-offs – the same reason why Nokia publically regretted forking WebKit in the past. Lack of feature parity means that an Android spin-off would breaks the developer story and stays behind the competition of Android Experience and Partner phones.

2. The virtual machine approach: Myriad announced Alien Dalvik , a solution it claims can run Android apps on non-Android handsets, including on Maemo. Alien Dalvik is a Java SE virtual machine designed in Zurich and China by the same ex-Esmertec guys who started off the OHA consortium. Myriad has released a demo of Alien which however hides the real issues behind a pure virtual machine approach: the lack of 100% API compatibility and most importantly access to the distribution of 130,000 apps available through Google’s Android Market.

3. The Virtualisation approach: the third and most promising approach is to run a complete replica of the Android platform within an isolated, â€˜virtual’ container using mobile virtualisation technology (from Red Bend, OK Labs or VMWare – see our earlier analysis of virtualisation technologies). The virtualisation approach offers a sandboxed, complete version of Android (including the apps ecosystem) which co-habits the same handset as the OEM-specific core UI and applications. Virtualisation technology is mainstream in cloud and enterprise, but applied only in a limited context in mobile to reduce hardware costs or run enterprise micro-environments (the type Barack Obama enjoys in his virtualized BlackBerry cellphone).

The real opportunity with virtualisation is to deliver the best of both worlds for handset OEMs who want to leverage the 130,000+ apps ecosystem, but maintain their own apps experience and signature user interface. A virtualized Android co-inhabiting with the native app experience (think S40, Symbian, QNX, BlackBerry OS 6, Web OS, or Bada) would allow OEMs to resist commoditization while having ample degrees of freedom to differentiate.

The question is: will Google allow OEMs access to the Android Market and the Android trademark when the platform is run within a virtualized shell?

Such an approach would allow Sony Ericsson, Motorola, RIM, HP and the others not to compete against Android and neither to surrender to Android – but to leverage Google’s network effects and harness the Android innovation wave.

Comments welcome as always,

– Andreas
you should follow me on Twitter: @andreascon

Mobile Megatrends 2011

[We â€˜re excited to release our fourth annual Mobile Megatrends 2011 – themed around what else? how software is fundamentally changing the telecoms value chain. In this fourth annual research presentation we take a deep dive into the many facets of change in the mobile industry; the DELL-ification of mobile, the battle for experience ecosystems, apps as web 3.0, the use of open + closed strategies to commodise + protect and how telcos can compete in the age of software.]

After many months in the making, we ‘ve released our annual Mobile Megatrends 2011. It’s our fourth and biggest Megatrends research we ‘ve published to date featuring 68 juicy slides with detailed analysis on the future of mobile.

[slideshare id=6863232&doc=mobilemegatrends2011visionmobile-110209095522-phpapp01]

(want more? Contact us to schedule an on-site Megatrends workshop)

We take a deep dive into how software economics is fundamentally changing the telecoms value chain setting new rules for innovation. We ‘ve broken down the 2011 Megatrends into 8 core themes:

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1. The DELL-ification of mobile: The world of handset OEMs has been irreversibly changed by software and Internet players. All traditional top-5 OEMs (from Nokia to Motorola) that used to enjoy a combined 80% market share in 2008 are now reduced to below 60%, while Internet players are reaping the majority of industry profits and market growth. The OEM market now seems destined to match the shape of the PC manufacturer market, made up of price-led assemblers (Dell, Asus) and performance-led leaders (Apple). For the old guard of top-5 OEMs, the race is on to innovate or die.

2. Software: the new era for telecoms: Besides Android and iOS headline grabbers, more than 30 software platforms have risen and (mostly) fallen in the last decade; Lesson learned: big bucks and software DNA are critical success ingredients for software platforms. The 10 or so remaining software platforms are battling for mass-market smartphone reach below the $100 retail price barrier. At the same time, every major industry player – from telcos to facebook – are striving to grow their own ecosystem, spanning from UI to social networks. However, in the software era of telecoms, not everyone is born equal. Speed of innovation, addressable consumer income and access to a partner ecosystem are all home turf for Internet players, while telecoms incumbents (from Nokia to Vodafone) are taking small, naÃ¯ve steps. The new rules are: if you can’t innovate in software, you will be replaced sooner than later.

3. The battle for Experience Ecosystems. Convergence between telecoms, PC and Internet has long been talked about. But it’s not about the all-in-one all-powerful smartphone. Convergence is proving to be not about technology, but about experience convergence; how the user experience can â€˜roam’ from one screen to the next (phone, PC, TV, mp3 player, etc). Apple is the poster child of experience roaming by consistently integrating the key experience ingredients – from UI and industrial design to an apps ecosystem – across multiple screens. The next battle in mobile is to build experience ecosystems which create user lock-in and cross-sales – and therefore present a sustainable strategy for both handset vendors and telcos to survive commoditisation pressures.

4. Apps are the new web. Everyone wants to compete with their own app store these days, but only a handful of app stores are above the developer radar. Why is creating an app store so hard? Because a successful app store needs 5 unique â€˜genes’ from 5 different â€˜species’ across the value chain. And thanks to app stores, apps succeed where the web failed; in discovery, personalization and monetization. Apps are in fact a new information paradigm, which the web is adopting. Supported by web benefactors and technology commoditization, web is becoming mainstream application development platform, in what could be could termed the web 3.0.

5. Open + closed: two sides of the same coin. Android took the mobile world by surprise when it launched a free-for-all software platform. But like Qt, MeeGo, WebKit and many other open source projects, â€˜open’ is only the tip of the iceberg, since Google et al are using closed governance models to control the direction of the product. Besides open source, â€˜openness’ is used as a business strategy to commoditise product complements while closing off other products to protect core assets; in Google’s case commoditizing handset and networks while protecting its own ad network.

6. Developers, the engine behind telecoms innovation. Mobile software developers have come a long way, from back office engineers to front row success stories. However the mobile developer market is still in its infancy. We present a novel way of looking at the developer journey and reveal how most commercial products cater to just a narrow section of that journey, with opportunities abound for catering to the needs and wants of telecom’s innovation engine.

7. Communities: the new currency. Communities are the new frontier for differentiation in the mobile industry. Everyone has tried creating their own communities – from Nokia to Vodafone – but only companies with social DNA have succeeded. Why is that? while you can buy an audience (eyeballs or subscribers), you can’t buy a community (the user interactions). Building a community is a form of art where tools and techniques are being explored, from game mechanics to religion engineering. One thing is certain; that communities are now a core asset in customer attraction and are expanding into communication networks and handsets, with Facebook leading the way.

8. Telcos: stuck in the telecoms age. Telcos are in the midst of an identity crisis and losing control point after control point – location, discovery, billing and authentication – while having no innovation to show in their core voice and messaging business. Yet the real value of telcos is still untapped with micro-billing, customer insights and retailing channels gone largely unexplored. We present 8 novel strategies for telcos and argue why WAC (the telcos’ answer to competing in the software age) is repeating history mistakes and is ultimately misguided.

Want to dive deeper into how software is fundamentally changing the mobile value chain? Contact us to schedule an on-site Megatrends workshop.

Want to reuse the slides within your presentation? Feel free to remix, but please provide attribution to VisionMobile.

Comments welcome!

– Andreas
follow me on twitter: @andreascon

Haptics and Sensors: The new toolset for handset differentiation?

[Haptics, sensors, gesture tracking, intelligent texting and pico projectors; a taste of the technology soup headed our way. Guest author Peter Crocker discusses how sensor technologies offer handset differentiation, and the challenges ahead for OEMs.]

Innovation is the name of the game for handset manufacturers. Not just for Apple who keeps expanding the envelope of hardware and UI capabilities, but all major OEMs who are looking to differentiate beyond software. Android and Windows Phone are now providing an end-to-end device recipe for device makers, from hardware to a developer ecosystem. As such, handset OEMs (Nokia, Samsung, LG, Motorola and Sony Ericsson) are finding themselves on the same playing field as PC assemblers (Acer, Dell, plus the likes of Huawei, ZTE and Visio). In the post-Android era, not only is the playing field leveling, but it’s also becoming more crowded. More importantly, unless handset OEMs can find ways to differentiate they’ll have to default to competing on price, which is exactly what they want to avoid; the OEM cost structure is not designed to withstand razor-thin margins.

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One way to differentiate is with phone features – not GHz figures, but the type that would have a major impact to the user experience. Many OEMs would crave to break into the market with innovations such as what the Palm Graffiti handwriting recognition was at its time.

Feature innovation comes today in many forms, as manufacturers try to evolve smartphones into smarter phones; haptics, predictive texting, gesture recognition technology, inertia sensors, digital compasses, and the emergence of pico projectors to name a few.

A taste of feature innovation
– Next Generation Haptics: Haptics, or the process of using motion or vibrations to create tactile feedback on a users hand or finger, has been around for quite a while, with solutions available from Immersion and Synaptics. As an alternative to using touch-sensitive screens, companies like eyeSight and GestureTek are using the built-in phone camera to analyse hand motions and recognize gestures.

– Inertia and direction sensors: handset makers are following Apple’s lead with the integration of accelerometers, digital compasses and gyroscopes into the phone. These sensors can be leveraged to support for example improved location through dead reckoning and gesture recognition. Gyroscopes and compasses are also providing precise data on the location of a device in the three dimensional plane opening the door to augmented reality applications. Companies such as Layar and Wikitude are helping developers walk through that door with AR software platforms.

– Predictive Text & Gesture Tracking: Predictive texting has seen limited innovation beyond plain-old T9; as such a range of vendors have emerged to provide significant improvements in prediction and correction accuracy, namely Keypoint, EXB, TouchType, Cootek, Keisense (now Nuance) and BlindType (acquired by Google). New forms of predictive texting combined with gesture recognition technology such as as Swype and ShapeWriter (acquired by Nuance) is enabling quicker text input on a touchscreen – for example tracking the movement of a finger on a touch screen, a phone moving in space with inertia sensors, or tracking hand movements with infrared technology hand gestures.

– Pico Projectors: While the integration of pico projectors, or mini video projectors, into mainstream phones is still a ways off, the technology from the likes of TI and Micorvision claims to overcome one of the biggest UI challenges of mobile device, small screens.

What’s more, combining such features can yield more than the sum of the parts. For example, gesture recognition technology combined with haptics could allow users to effectively navigate applications. Similarly, the combination of pico projectors, gesture recognition and image tracking technology could eventually enable interfaces that will resemble Sci-Fi movies.

Integration challenges
As easy as it may sound, innovative features are not just about shopping components off the shelf. Cost is an important consideration, especially for technologies that require specialized components that do not enjoy economies of scale. For example, the green laser required in a pico projector represents one third of the cost of the entire system due to the fact that the part has no use beyond a pico projector.

Integrating new technologies into handsets is a further challenge for handset designers. Digital compasses are sensitive to electronic interference and need to be carefully positioned within the phone to avoid interacting with neighboring electronics. The design of haptics mechanisms also presents many problems. In a typical haptics system design, touch screens float in their frames and are held in place by flexible materials that allow the screen to vibrate creating haptics effects. These designs can fail letting dust inside the device or the screen can separate from the frame if the device is dropped. OEM’s are still learning how to effectively incorporate such features into their designs.

A number of start-ups are working on overcoming these barriers in addition to creating new capabilities. Senseg in Helsinki is eliminating the need for moving parts in haptics systems and has created a system that it claims can pinpoint tactile feedback. InvenSense has brought to market a motions sensing MEMS chip that integrates a gyroscope and accelerometer in one chip, making it easier for OEMs to integrate and reduce cost. Light Blue Optics has developed a pico projector that creates a holographic image and infrared sensors to turn any surface into a virtual touch screen. The company also just raised $13 million to shrink the technology.

Innovation of course requires risk-taking. OEMs are finding themselves in a chicken and egg scenario; design cutting edge features first, or wait for the apps to leverage the features? Samsung and HTC seem to be comfortable taking such risks. Samsung was the first to introduce a phone with an integrated pico projector in 2009 and the Galaxy S sports a gyroscope, Swipe technology and an Augmented Reality browser. HTC is also pushing the envelope having developed and launched devices with home grown haptics.

Undoubtedly users will be the biggest winners as OEMs battle to wow new customers. A close second will be application developers who will stretch their imagination to build new applications and businesses around emerging features. While these opportunities are compelling, progress will not happen overnight. Gyroscopes are still only available in high end smartphones and next generation haptics will only appear in niche devices next year. If you’re interested in building an app for a pico projector, you may be waiting a few more years.

The question is: is this new roster of sensor technologies going to allow OEMs for once to out innovate Apple?

-Peter

[Peter Crocker is the founder and principal analyst at Smith’s Point Analytics (www.smithspointanalytics.com), a full service market research company helping innovators in the mobile and wireless market better understand emerging opportunities. Peter has been in the mobile and wireless industry since 2003 and holds an MBA from the College of William and Mary. Peter can be reached at peter@smithspointanalytics.com]