Tag: lg

The elusive long-tail of mobile shipments

[The era of smartphones is upon us, as penetration increases from 11% in 2008 to over 25% in 2011. But what of the remaining three quarters of the market? Marketing Manager Matos Kapetanakis talks smartphone numbers and takes a look at the elusive long-tail of feature phone shipments]

100 Million Club - H1 2011 - Handset OEMs vs. Platforms

Dawn of the smartphone era

Smartphone penetration continues to accelerate, growing from a paltry 11% in 2008 to 20% in 2010 and climbing to 27% in H1 2011. Feature phones continue to make up the bulk of mobile shipments globally, but the revenue potential of each segment is a different matter altogether. As an example, the average selling price for Nokia’s feature phones was 39 Euros versus 144.5 Euros for their converged devices.

Another parameter, namely profitability is much in favour of smartphone vendors. HTC has comparable revenues to Nokia’s successful feature phone segment, with two times the profits and profit margin, despite having six times fewer shipments. The gap is even larger in the case of Apple, whose profits are nearly 20 times those of Nokia’s feature phone segment, despite having less than a third of Nokia’s shipments.

Smartphone platforms: Google vs. Apple

First, let’s take a look at the two leading players, Android and iOS. The vacuum left behind by Symbian’s timely demise has been filled primarily by Android and, to a lesser extend, Apple’s iOS. In H1 2011, Android gobbled up nearly 45% of the smartphone pie, leaving approximately 20% for Apple’s iOS and 12% for RIM’s BlackBerry OS.

Apple has enjoyed a healthy increase of iPhone shipments in 2011, already reaching past the 50M full-year figure for 2010 in the first three quarters of 2011. Despite the initial disappointment of not being a brand-new iPhone, the iPhone 4S managed to get 4 million sales in just one weekend – that’s more than Windows Phone manages in an entire quarter. However, in an increasingly price sensitive smartphone market, there is a limit to how many iPhones can be sold.

Despite being the number one smartphone platform, Android is not guaranteed a smooth sailing. Apple’s lawsuit barrage on Samsung, the biggest Android vendor in terms of sales, has exposed the platform’s Achilles’ heel, namely patents. The large arena of this high-stake drama will not be set in Germany or Australia, but the large smartphone markets, like the U.S. Google’s acquisition of Motorola (don’t miss our full analysis) has indeed armed Google with fresh patent ammunition, but might alienate the big Android vendors.

Smartphone platforms: The best of the rest

But what of the other platforms? Windows Phone continues to fail to impress users, with sales being disappointing, as Ballmer himself recently admitted. Nearly eight months after the much-vaunted Microsoft-Nokia deal, Windows Phone is faced with lukewarm results, being outsold even by Samsung’s bada platform. In H1 2011, Windows Phone barely reached 4M shipments, while bada shipments climbed to nearly 8M. WP7’s growth, after it replaces the zombified Symbian as Nokia’s main smartphone platform, is still uncertain, but the longer it takes for Nokia WP devices to hit the shelves, the more market share will Nokia lose. In H1, even if Nokia were to magically replace all Symbian handsets with Windows Phone handsets, Microsoft’s platform would still be far behind Android, with just half of Android’s shipments.

Windows Phone, however, should not be summarily disregarded, as Microsoft has managed to create a substantial ecosystem around the platform, which is the main ingredient to the success of Apple and Google. Windows Marketplace reached the 30 thousand apps milestone in just 10 months, while the platform has received positive reviews by developers. The platform is widely acknowledged as having the best developer tools in terms of features, based on our Developer Economics 2011 report (www.DeveloperEconomics.com).

Even though Stephen Elop described the smartphone market as a three-horse race, there is another important player to be considered, namely RIM. During the past year, RIM has suffered a number of blows, from declining market share and repeated drops in their share price to a total service blackout that lasted four days. RIM is starting to lag behind its competitors and their leaking market share is up for grabs. Despite a vibrant developer community, problems such as fragmentation issues and an aging platform have cost RIM the creation of a healthy ecosystem. A telling sign is how BlackBerry App World is lagging behind not only Apple and Google’s app stores in terms of available apps and downloads, but also Nokia’s Ovi Store. Now, the BlackBerry blackout fiasco has cost RIM the confidence of 70M subscribers. RIM is on the verge of relinquishing their last remaining competitive advantage, namely reliability. Even though RIM is trying to turn the situation around, with the introduction of the BBX platform, plus the carrot of Android apps compatibility in the second version of Playbook, it’s the RIM brand that has taken a beating, more than the BlackBerry brand. It remains to be seen whether users will flock to the notoriously unsafe Android platform or will opt to follow the safer, iPhone route. The iPhone route seems more suitable to RIM’s enterprise segment, as the segment’s disposable income is enough to carry the weight of expensive iPhones.

Smartphone vendor arena

In H1 2011, Apple and Samsung toppled Nokia as the undisputed king of smartphones. The top-5 smartphone vendor rankings also include RIM and HTC. It’s no surprise that 3 out of the top 5 players are purely smartphone vendors; but the old guard is catching up.

VisionMobile - 100 MC - H1 2011 - Mobile market share by OEM

Although lagging behind, LG is finally on board the smartphone express, while Sony Ericsson has disowned their feature phone heritage and plan to become a smartphone-only vendor in 2012. As smartphone prices are dropping, ZTE and Huawei are also firmly in the game, extending well past their native home market.

It’s interesting to note that in a market of 208 million smartphones in H1 2011, there are very few dark horses. The top 10 players accounted for nearly all smartphone shipments in the first half of 2011, leaving just 3% of shipments in the ‘other’ category.

 

The elusive long-tail of mobile shipments

While Nokia has lost the pole position in the smartphone market, it continues to firmly hold the feature phone market in its grasp. Nokia accounted for over 27% of total feature phone shipments in H1 2011, followed by Samsung with 20% and LG with 7%.

However, the feature phone market is extremely fragmented, with the top 7 players accounting for just 64% of shipments. The remaining x% belongs to the generic ‘other’ category. But what is this dark, elusive gap in the market? The answer lies in the plethora of primarily Asian phone manufacturers out there (see a slightly out-of-date list here), taking off-the-shelf MediaTek hardware designs to create Shanzai handsets for the Chinese market or brand name handsets for India.

VisionMobile - 100 Million Club - Feature phone market share H1 2011

The long tail of feature phone manufacturers largely caters to local markets, in partnerships with local telcos. India and China are the obvious examples of low-volume feature phone manufacturers, with each country playing host to over 15 such companies. With tens of companies shipping low-end devices to local markets, it’s small wonder that the biggest bulk of feature phone shipments comes from the long-tail of handset OEMs.

The end of feature phones

While smartphone penetration continues to increase, just over 1 in 4 mobile phones are smartphones. The tipping point will come when handset OEMs manage to release low-cost smartphones into the market, in high volumes. Google is already attempting to sell cheap smartphones in the range of $100 unsubsidized, pre-tax. The rate of acceleration will increase even further if there is any truth to the rumors of cheaper iPhones, as consumers are still hesitant of the prices that Apple demands for its products.

Furthermore, most major handset OEMs are keen to lower the volume of feature phone offers in favor of smartphones, as the latter have a much higher profit margin and the market is slowly getting accustomed to the use of touch screens.

Questions or comments? Drop us a line on Twitter.

Download the full 100 Million Club watchlist.

– Matos

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]

VisionMobile blog - The Android Monopoly and how to harness it

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 ‘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).

Android as the centre of a 5-sided network

Naturally Google is hermetically closed in all aspects of its core business. The Android Market, GMaps, Gmail, GTalk are ‘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.

OEM + Android - Winners & Losers

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 ‘re targeting China, but unacceptable if you ‘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, ‘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

Symbian is dead. Long live Symbian

[Is Symbian coming to the end of its shelf life? Research Director Andreas Constantinou dissects the motivations behind Nokia’s strategy and why Symbian is getting a new lease of life]

Only two short years and four months since it was announced, the Symbian Foundation is shutting down. With it dies Nokia’s second effort at creating a licensable application platform for mobile phones (the first one was S60) and to compete against Android. While Nokia is shunning to make the closure official, the last OEM supporters – Samsung and Sony Ericsson – have officially killed plans for Symbian products (see here and here) and Symbian staff are being given redundancy notices and making career moves on LinkedIn. [update: On November 8, it was announced that Nokia will regain control of the Symbian governance process and that the Symbian Foundation will be reduced to a licensing team]

The writing has been on the wall since early 2010, when Nokia took out a €500 million loan to (among other things) help sustain funding into the Symbian Foundation, whose membership fees were due to be renewed in April 2010. Symbian Foundation relied on OEMs shipping handsets to take on the operational costs at the tune of 5 million GBP per OEM. The final blow came with the departure of SyFo’s CEO and co-architect, Lee Williams.

The death of Symbian
Symbian Ltd., the OEM-backed consortium that funded Symbian development between 1999-2008 had long been suffering from an imbalance of power and poor strategic decision-making. There were three things wrong with Symbian Ltd.

Firstly, with Nokia owning 48% of Symbian Ltd. shares, the Finnish OEM had been driving the agenda at Symbian to the detriment of its OEM partners, Secondly, since the UI was severed from the base OS in 2001, Nokia had been squeezing the value out of the Symbian operating system and into its own S60 UI, middleware and applications suite platform. This meant that other OEMs had to spend considerable effort integrating Symbian with their own UIQ or MOAP layers and filling the gaps that Nokia left – effectively leading to handsets which were expensive to build.

Thirdly, with the decision to have Symbian baseporting owned by the OEM and not Symbian Ltd, each manufacturer had to spend millions to get Symbian ported onto the hardware platform, in essence reinventing the wheel. While this naturally gave Nokia the edge in producing more Symbian models more often, it meant that for other OEMs most of the budget was spent in baseporting (i.e. getting the phone to work), rather than in differentiation. In 2007 Symbian Ltd. was desperately in need of a major governance re-engineering operation.

The coup de grace arrived with the launch of Google’s OHA in November 2007, signaling two major changes in the phone industry: firstly, that open-source development (inspired by mobile Linux) was now supported by a major cash-rich backer, and not an operator consortium (LiMo) or a loose congregation of Linux system integrators and design houses (Azingo, Purple Labs, WindRiver and Montavista). Secondly, that zero royalties were now the norm and operating system development was turning from a revenue generator to a loss leader. With Android changing the rules of the game, Nokia knew that for Symbian to compete in this new world, it had to be both open source and zero royalty.

Seven months on from the Android disclosure, Nokia announced that it would be buying the remaining Symbian shares outright, paying up the equivalent of 2.5 years of royalties or 2x the revenues of Symbian Ltd – a paltry evaluation for the top smartphone OS. For Nokia it was a financial and strategic move; it made financial sense because Nokia would slash its Symbian maintenance costs (from 100 million GBP of annual license fees to 5 million GBP of annual membership fees) by sharing the SyFo costs with other OEMs on the board. It made strategic sense because with the ownership change, Nokia convinced Sony Ericsson and DoCoMo to abandon UIQ and MOAP respectively and marginalised Windows Mobile which was still royalty-based. Meanwhile, Nokia could still exert the majority influence into the Symbian roadmap by employing most engineers and most package owners (effectively well into 2010).

In retrospect, Nokia failed with both S60 and Symbian Foundation by insisting on a winner-takes-all mentality, i.e. taking roadmap control away from its OEM development partners which long-term destroyed the value in the partnerships. This winner-takes-all-mentality is nothing new; it was already harming Symbian as we had argued back in 2005. The full open sourcing of the Symbian platform in February 2010 or the cute playful new brand did not succeed in stopping neither the developer defection (see our Developed Economics report) or the OEM defection from Symbian.

With Nokia shares performing miserably over the last four years, the Finn-led board took the bold decision to oust Olli-Pekka Kallasvuo and bring in a Canadian, Stephen Elop to turn the boat around. 41 days into the job, Elop announced the cutting of 1,800 jobs at Nokia and the adoption of Qt as the main development environment on top of Symbian handsets.

For Nokia, Qt presents both an opportunity and a challenge. On one hand it’s the most capable cross-platform application environment today boasting reach across mobile, PC and STB – plus depth with Qt providing a complete API wrapper on top of the native OS (and much wider API coverage than GTK to which it’s often unfairly compared). On the other hand Nokia has notoriously mismanaged the Trolltech acquisition of January 2008, with the troll CEO, CTO and key engineers abandoning ship. Meanwhile, Nokia has created a Qt break across Symbian and MeeGo UIs and not managed to fully deploy Qt on Symbian 2.5 years after the acquisition (note how Qt Mobility APIs are still way incomplete).

Long live Symbian
With Symbian Foundation soon to be diagnosed dead, the rumours about Nokia replacing Symbian are rampant. Many industry pundits are prognosticating that Nokia will adopt Android – which in 2010 is going stronger than ever – or Windows Phone 7, which comes with the freshest UI since the widget based paradigm popularised by the Jesus phone. Despite the prophecies, Symbian will live on for many years to come. As the French expression goes, Le Roi est mort. Vive le Roi.

There are two reasons why Nokia won’t be abandoning Symbian anytime soon.

Firstly, Symbian is tightly integrated with Nokia’s variant management process. Nokia is the only OEM that has mastered variant management, i.e. being able to generate 100s of variants (SKUs) at the press of a button. That’s how Nokia can deliver 100s of customised smartphones to operators and retailers around the world. This variant management process is ‘hardcoded’ to Symbian, which means that replacing Symbian would seriously compromise Nokia’s ability to cater to operator requirements around the world and it would seriously hurt its market share.

Secondly, Nokia’s economies of scale rely on in-house control of core components, and the operating systems is one of them. If Nokia were to license Windows Phone it would reduce its differentiation to industrial design and Ovi alone. In the case of Android, Nokia would have to branch Android (and to sustain the cost of Android development), port Qt on Android which means another 12+ months for a stable implementation. While this remains a long-term possibility, it is still a gamble when Nokia’s priority should be to focus on killer devices and not a killer OS. Qualcomm’s BREW MP is another candidate but only when Qualcomm has a good developer platform story and that means waiting for BREW MP to launch a web-based platform akin to RIM’s WebWorks.

Symbian may no longer be a symbiotic system, but will live within Nokia for many years to come as the workhorse under the hood of Nokia smartphones.

The King is dead, long live the King.

– Andreas
You should follow me on twitter: @andreascon

Smart < feature phones = the unbalanced equation (100 Million Club series)

[Smartphones get all the media attention, but it’s feature phones that are still driving the mobile industry. Marketing Manager Matos Kapetanakis examines this unbalanced equation and makes sense of the numbers published in the latest 100 Million Club]

100 Million Club - Smart < feature phones: the unbalanced equation

Welcome back to the 100 Million Club. This 6th edition of our watchlist tracking successful mobile software companies debunks the smartphone myth and paints a detailed picture behind the 34 software products – from BREW to Webkit  – which have shipped in more than 100 million handsets as of the end of H1 2010. Click here to download the watchlist.

Key insights
– Despite the hype, smartphone platforms account for less than 20 percent of the 620+ million handsets shipped globally in Q1 and Q2 of 2010. More than 80 percent of total shipments are driven by feature phones, the majority of which use proprietary software platforms.

– BlackBerry is now the second smartphone platform, after Symbian, to break the 100M handset barrier. As of the end of June 2010, RIM has sold more than 100 million BlackBerry devices.

– A total of 350M handsets have shipped with a WebKit-powered mobile browser up to the end of 2Q10. The biggest contributors to shipments of the open source browser engine are the Series 40 and Symbian OSs, while the steep rise of Android will play a bigger role in WebKit going forward.

– Only a handful of mobile software products were shipped in more than 100 million devices during the first half of 2010. Among them are the T9/XT9 text input engines by Nuance, the vRapid Mobile software update engine by Red Bend and the Nucleus real-time OS by Mentor Graphics.

– Symbian alone has more shipments in H1 2010 than iOS and Android combined. Moreover, when combined, the Google and Apple mobile operating systems make up less than 20% of Series 40 shipments in Q1 and Q2 2010.

What’s new in the Club?
In this 6th edition of the 100 Million Club we ‘ve introduced a dedicated watchlist tracking mobile platform shipments.

The watchlist comprises of 10 application environment software products, OSs and RTOSs with more than 100 million installations. Our latest members in these categories are the BlackBerry OS by Research in Motion and ThreadX by Express Logic. We have also added media favourites Android, iOS and Windows Phone 7, for comparative purposes, since they are well below the 100 million mark.

The Embedded Software Shipments watchlist features 24 products that have been pre-installed in more than 100 million handsets. This latestedition of the club sees the addition of the Media EXP, an audio/video codec and frameworks suite by Aricent and MSIP, a mobile analytics software agent, by Carrier IQ.

100 Million Club - 1H10 - Mobile Platform Shipments
Click on the image to download the full pdf

The smart vs. ‘dumb’ phone equation
The impact of smartphones to the industry is way overrated. It’s a little-told secret that smartphones account for only 20% of worldwide handset shipments, a fact we tend to forget in the face of the one-sided media storm that surrounds smartphones. A key observation from the 100 Million Club is that the ‘proprietary’ Nokia’s Series 40 and Qualcomm BREW are shipped in many times more handsets than Android, iOS, BlackBerry even the older Windows Mobile and Symbian OSs. In fact, with 638 million cumulative shipments by the end of Q2 2010, BREW is the most widely deployed licensable mobile operating system. If one considers real-time OSes for application and baseband processors, then the shipments scale to the billions of phones.

OS, RTOS shipments H1 2010
Click on the image to download the full watchlist

So, is Nokia’s Series 40 the most successful OS ever? Not exactly; the handset market is very much dependent on internal OEM platforms, which power more than 45% of total handset shipments for H1 2010. Samsung and LG, ranking 2nd and 3rd in the top-five handset OEM leaderboard, are largely responsible for proprietary platform shipments. Samsung has heavily ramped up smartphone shipments starting in Q2 2010 (which should become visible in H2 results) and is investing in its home-grown Bada platform, a C++ layer on top of its proprietary SHP operating system. LG also hopes to get a larger piece of the smartphone pie, by releasing 20 new smartphone models in 2H10.

The 20% share of smartphone shipments is set to grow rapidly driven by two phenomena; firstly the growth of Internet-borne platforms, namely iOS and Android. Secondly, the carrier drive to commission and subsidise smartphone handsets as a differentiating strategy, which is driving the carrier-happy tier-1 OEMs (Motorola, Sony Ericsson, Samsung and LG) to bend over backwards and ramp-up smartphone production. This is unprecedented growth in share of smartphone sales, which was neighbouring at 10 percent back in 2007.

The shift of attention of traditional handset OEMs towards smartphones, coupled with the rise of smartphone-only vendors, seems to indicate a balance shift in the smartphone vs. feature phone balance. It might seem a foregone conclusion that that pretty soon we’ll have a majority of smartphones flooding the global market. However, that is not going to happen overnight, i.e. not in the next 3-4 years. Smartphone shipments of traditional OEMs are but a fraction of their overall shipments, while Apple, RIM, HTC and ZTE cannot yet hope to meet the demand of huge, feature phone-dependant, price-sensitive markets, like India and China.

Clash of the platform titans
In the clash between the more familiar platforms, Symbian and BlackBerry rule over newcomers Android and iPhone’s iOS, in terms of cumulative shipments. But the picture is quite different in terms of growth, where Android has been the clear winner, growing by leaps and bounds (from 100K activations a day in May 2010, to 160K a month later and 200K in August – activations are not the same as sales, but the growth is still impressive). RIM and Apple have seen a healthy increase in their handset sales, while Symbian has suffered a small (~3-4%) decrease in market share between H2 2009 and H1 2010, despite Nokia’s growth in the handset market. However, Symbian’s market share is bound to drop even more, considering the recent decision by Samsung and Sony Ericsson to drop Symbian altogether, as well as Nokia’s choice of MeeGo over Symbian^3 for their latest N-series. Symbian is fast becoming a Nokia-only OS so we should expect the end of the line for the Symbian Foundation within the next few months as well.

Where are MeeGo, Chrome OS and webOS in this picture? The short answer is that they are nowhere to be found in mobile devices in the first half of 2010. MeeGo is rumoured to be appearing in Q2 2010 in the market, with Nokia targeting to make first impressions last while facing delays in Qt integration and the departure of key personnel. Chrome OS will most likely be shipped solely in tablets and netbooks, while HP aims at delivering new webOS devices in early 2011.

Last but certainly not least, we should not ignore Microsoft’s latest bid for dominance in the mobile industry: Windows Phone 7. The newly released OS has been completely redesigned to offer iPhone-style margins with an Android-style business model, while targeting untapped pockets of Xbox and PC developers instead of making up with Windows Mobile developers who were left with a bitter aftertaste (see our Developer Economics research). Windows Phone 7 already seems to be building momentum, with 9 new models coming to the market in Q4, $500 million in marketing budgets and a tightly integrated hardware and software platform (see our earlier article on Windows Phone for a detailed strategic analysis).

Not museum material…yet
In summary, smartphones captivate our minds, but it’s still ‘dumb’ phones that we carry around with us. Someday in the foreseeable future, non-touch screen phones will take their place in a telecoms museum (right next to the old, ‘brick’ mobile phones), but that day is not as close as mainstream media have us think.

– Matos

30 Tablets in Q4 2010: packed train arriving at empty station

[There are 30 tablets coming by Q4 2010, but who is going to buy them? Guest author Jonathan Goldberg, Research Analyst at Deutsche Bank breaks down the supply and demand equation behind the emerging tablet market, and discusses why the impending tablet wave might be a full train arriving at an empty station]
This article is also available in Chinese.

30 Tablets in Q4 2010

The key issues

The tablet market is opening up, with at least 30 tablets coming by Q4. Here are a few key issues:

  • There are indications of at least 30 tablets coming to market by Q4. And there are reports of at least 80 to be launched in the next six months.
  • There is no hard data available about consumer usage of tablets. This might mean that most of the tablets will be undifferentiated and it is unclear who, if anyone, will buy them.
  • The leading brands in the space this Q4 are Apple, Dell and Samsung. Other major brands are expected to enter the market in 1Q11, including HP Palm, Motorola and RIM
  • Most of the tablets are using Android, but we hear that Google has been trying to discourage many of these projects. They do not support Android for use in tablets with the current Froyo V2.2 of the OS. This means some of the tablets coming this year may lack access to the Android marketplace, Google maps, etc.
  • All of the tablets we have seen run on ARM-based processors. Major suppliers will be Qualcomm for the 3G baseband and integrated applications processors. We have seen tablets using applications processors from Marvell, Nvidia, Samsung and Texas Instruments. There are also a number of designs using silicon from Atheros, Broadcom, Skyworks and Triquint. In theory, this could be good for these vendors, but the looming glut of product may dampen enthusiasm for the category.
  • Pricing will be a key determinant. Most reports peg low-end models at $300 or less. However, there are reports of prices ranging as high as $900. I believe there will be few takers for tablets priced above the iPad.

Overall, everyone likes the idea of a tablet, but I think it will take a year or two before the market shapes up. There are just too many devices coming online amid very initial interest from consumers. Eventually, the tablet may become a preferred media consumption device for consumers, filling the gap left by underpowered netbooks. There is likely room for both netbooks and tablets in the market, but it is too early to gauge the size of the tablet market.

What’s a tablet?

Any discussion on tablets needs to start with a definition. For our purposes, we will define them broadly to include anything that is not a smartphone or a laptop. These devices have no hinge as laptops do, but cannot easily fit in a pocket. This covers considerable ground from e-readers to true tablet computers.

Most of the tablets coming to the market today are less mobile than smartphones, but have essentially the same computing power. The iPad is the best example of this. The electronics of an iPad are identical to an iPhone – same processor, same memory. It does have longer battery life, but no one would argue that it is less portable than a phone, since it does not fit in a pocket.

These facts seem somewhat incongruous, leading to several interpretations. The first is that with time tablets will see an increase in computing power. In fact, there might be a few of these more powerful tablets in the works for next year. Another interpretation is that Apple has just confused the market, which they can get away with because of the power of their brand. They positioned the iPad to fit into their own product line-up, not to meet industry expectations. It will be interesting to see if any of the tablets coming out later this year have noticeable performance deficiencies, in the form of hang time and slow app loading. A more gloomy interpretation is that this is a dead-end form factor. While I’m more optimistic than that, I believe the OEMs should seriously question what ‘need’ a tablet addresses for consumers.

 

What is the Tablet Market?

To better assess the potential for the market, we need to deconstruct it a little. First, it is worth considering who has bought a tablet so far. Then we should consider what they are doing with those devices, and finally compare that to what the devices are capable of. As with all such new products, there is very little hard data available, but here’s what we know so far.

Who is buying tablets? So far, there are really two products that fit into this category – the Kindle and the iPad. Amazon has not released any data on Kindle sales, but they continue to roll out new models, so it must be doing well by some internal metric, and most reports indicate Kindle is helping to expand overall book sales by Amazon. Apple has sold over 3 million iPads since its launch last quarter, and Deutsche Bank estimates are at 12 million unit sales for this year. That’s an impressive number for a new product, but a small number relative to everyone else’s expectations for the category. It is still unclear who is buying these. By some estimates, a very large percentage of iPad buyers are already iPhone owners. There is a lot of synergy between the two with easy syncing of content and Apps via iTunes.

There is also a lot of anecdotal evidence to suggest that the iPad has broadened the demographic group of iPhone buyers. For instance, some people have bought the device for parents and grandparents, reaching a group who is uninterested in the Apple brand but like the ease of use of the device.

What are people doing with tablets?

While waiting for further hard data on iPad usage, we can look at iPad developer activity and app downloads as a decent proxy.

Developers, for their part, seem very interested in the iPad. In the graph below you can see iPad apps versus iPhone apps, in terms of available apps in iTunes plotted against days since the release of each of the two products. iPad apps have outpaced iPhone apps in growth, although we should take into account that writing an iPad app today is much easier than writing an iPhone app when iOS first got a start, three years ago.

According to Distimo, developers for the iPad also seem to be taking advantage of a wider variety of iOS features such as in-app purchases. The Distimo data also shows that as a percentage of apps, games are more prevalent on the iPad than the iPhone. Prices for iPad apps also tend to be higher than comparable (sometimes identical) iPhone apps. From this, we infer that developers see this as a worthwhile market, and possibly one with a superior demographic for paying for software.

iPod&iPad apps vs days after launch

What it all boils down to is a lack of actual data. While there have been some consumer surveys done on the space by tablet vendors, this is really a virgin market. No one knows what consumers want from a tablet or whether they even want one at all.

I am actually somewhat optimistic about the tablet as a concept, but I think the excitement will outpace demand in the near term. There is also a gap between laptops and smartphones, that gap will find interest from some consumers, as was the case with initial excitement for netbooks. Consumers want low-priced computing devices that have larger screens than a phone. This market was artificially capped by Intel and Microsoft who sought to stave off cannibalization of their laptop business. The end result was that consumers lost interest in underpowered netbooks, which struggled to multi-task or play high quality video.

The first devices available run iOS and Android, but they will by no means be the only offerings. Google is likely to enter the fray soon with Chrome, an OS originally built for netbooks, but equally applicable for tablets. Google has even made comments that Chrome is the preferred OS for tablets. Beyond this, however, there will be other options. HP will likely have a Palm webOS tablet out soon. Blackberry has announced a new OS for their PlayBook device available early next year. And even MeeGo has to be considered a potential entrant. Although I’m skeptical about this OS’s prospects, many reports indicate that MeeGo is actually very well suited for a larger form factor like a netbook or tablet. Perhaps the only entrant I would not add to the list is Windows 7 (Big windows not Windows Phone), since conventional widom is that this OS is just not suitable to the touch-screen form factors that are quickly becoming standard for this class of device. There is a video making the rounds on the blogosphere that shows how clunky the Windows 7 interface is with touch-screen input.

In this year’s race to launch tablets, it seems like few companies have given much thought to the software experience. Most of the companies launching tablets appear to be using Android. This is despite that company’s weak support for Android on this form factor. It appears that many of the Android tablets launching this year will NOT have links to the Android marketplace as the FroYo (2.2) release is not really designed for tablets starting from the screen resolution. I believe Google is encouraging hardware makers to hold of on Android tablets until the Honeycomb release due out next year. This implies that many of the Android-based tablets coming out this year will have very few apps and limited ability to download them. Effectively, these tablets will be large, expensive browsers.

Competition

The tablet field is expected to be very crowded, from as early as 4Q10. Below is a table compiled from a range of sources, including news reports and blogs. There might be some discrepancies, especially on pricing, but many of these devices have been officially announced.

List of tablets planned for 4Q10

And this list is by no means complete. There is also this user-generated list of Android tablets coming for Christmas. At the time of writing there were 22 models listed. As if that were not enough, here is another list of all 73 tablets rumored or announced so far.

In terms of official developments, Samsung has officially launched its Galaxy Tab, RIM has announced its tablet and, most recently, reports emerged on the web that Amazon was preparing its own Android tablet and Android marketplace.

A key question will be pricing. There is no seen official word on this, but some press reports indicate the Galaxy Tab device will cost $900+ without a carrier subsidy. As PC World points out many of the tablets coming to the market are charging a premium to the iPad. Maybe Samsung can pull that off, but few other tablets will be able to command a premium to an Apple product.

Conclusion: Who benefits from tablets?

The answer to that is that there are too many tablets coming to market too soon. With no hard data about consumer usage, it’s likely that most of the products will have a hard time differentiating themselves. This will probably lead to a glut that will mean pricing pressure for most of these vendors.

From the component level, the biggest beneficiaries are the screen vendors. Capacitive touch screens are not cheap, and are probably the most expensive component in the bill of materials. So far we have seen few tear-downs of any of these tablets. The iPad BOM is very similar to the iPhone and iPod touch, running an Infineon 3G baseband, Skyworks and Triquint’s front-end modules, and the internally developed Apple A4 processor. It is likely many of the Android tablets are using Qualcomm’s Snapdragon or other MSMs for 3G connectivity. Also, there are reports that tablets makers are trying out Nvidia’s Tegra, TI’s OMAP and Marvell’s Armada for applications processors.

Finally, investors will have a hard time tapping into this. On the one hand, price competition from a multitude of Android tablets would imply lots of volume. On the other hand, design wins are not free; they cost upfront engineering resources. A glut of product could lead to inventory back-ups and order declines in Q1. For the time being, my view is that tablet volumes (other than the iPad) are likely to remain small relative to PCs and handsets. Nonetheless, we should expect a shake-up next year as suppliers pick their battles carefully.

– Jonathan

[Jonathan has been a Research Analyst at Deutsche Bank for 8 years and focuses on wireless technologies and the Mobile Internet. He can be contacted at “jonathan.goldberg (at) db (dot) com”]

Remapping the handset OEM landscape: squeezed in between a rock and a hard place

[In a race for profits, the mobile industry finds itself squeezed between vertically integrated players like Apple and horizontal players like Google. What is the fate of handset manufacturers? Guest author Vinay Kapoor takes a peek into the future landscape of the mobile industry]

The top 5 mobile OEM list was recently shaken and stirred by the entry of RIM into the list of top 5 OEMs and the subsequent exit of Motorola. Previously, the top-5 OEM leaderboard had been stable for half a decade and so the most excitement you could get would be a change in the relative position of the incumbents.

Looking today at the comparative handset sales of RIM, Apple and Motorola, it is clear that the exit of Motorola from this list of top 5 OEMs has been a long time coming. While Motorola’s decline in sales may be reversed, it is unclear if Android can help propel Motorola back into the top-5 list.

So what does the future hold? If we look at the top 5 OEMs, Nokia, Samsung and LG are fairly spaced out to not expect a major change in their relative positions, assuming an absence of disruptive events. Yet, Apple and Sony Ericsson are much closer, just 1.5 million units apart.

Sony Ericsson’s President, Bert Nordberg recently stated that Sony Ericsson is seeking to not be a volume player, but rather a value player and as such will focus on smart phones. Such high value products and the higher profit that they bring would clearly take preference over market share. This is not a bad thing at all; for example Apple and RIM command a meagre 3% of the mobile device volumes, but 55% of the profits according to a Deutsche Bank analysis. Left unchecked, an un-necessary race for volumes and growth can have disastrous consequences.

Quality and profits are certainly more important than a blind race for meaningless volumes. This is a reason why the top 5 OEM list, is only part of the big picture. The strategic positioning of the manufacturers on and off that list is equally important and can often signal a rapid change in fortunes.

What’ clear is that in early 2011 we should see Apple displace Sony Ericsson from 5th position, making the top-5 list the territory of a Finnish mass-producer, two South Korean workhorses and two North America challengers.

Learning from the industry’s mistakes

Taking inspiration from a certain eruption from a volcano in Iceland (whose name I cannot pronounce!), the industry is undergoing a change in landscape. Much like the results of a volcanic eruption, this landscape and the map we draw-off of it, will change for the foreseeable future. The two “eruptions” in our case have been the surge in emergence of new, vertically integrated product experiences, as a result of Apple and RIM’s success, and the open source phenomena, triggered by Google’s Android platform.


The Evolution

From the perspective of mobile software, we are in a new phase of evolution of this landscape.

Up until the beginning of the century, OEMs built devices around vertically integrated systems. This included in-house ownership of the complete solution from hardware all the way up to the applications. The applications themselves were little more than enablers of the underlying technology; in other words software-enabled hardware.

During 2002-2008, there was an emergence of several “horizontal” value players. A lot of the underlying technology was sourced from organizations who specialized in componentised software layers, selling middleware, browsers, application frameworks and operating systems. This has been especially prevalent in smartphones powered by the likes of windows mobile and Symbian.

Since around 2009, OEMs have been building systems around open source software and open interfaces. This is not only true for software (Android, Symbian, LiMo, MeeGo), but also the hardware pieces are becoming more off–the-shelf and commoditized

The success of Apple and RIM, both of which have vertically integrated offerings (to varying degrees) has polarized the industry; manufacturers are now stuck between a rock (vertically integrated offerings from Apple and RIM) and a hard place (open source software platforms).

So, on one end are the players who are embracing and driving open source and commoditizing suppliers (Nokia, Motorola, LG) while on the other end are the players who believe in control and in-house vertical integration (Apple, RIM). Samsung, with its Bada programming layer is clearly looking to replicate Apple and RIM’s vertically integrated model. Sony Ericsson is leaning to the Open end with Android and Symbian (5 of 8 products in the core portfolio)

So is the Apple and RIM vertical model a one-way street for everyone to embrace? Apple and RIM are essentially able to afford the luxury of a complete in-house solution because of the relative lack of variation required in their software, due to fairly narrow deviations in their products (it’s not just a case of affording.. they are also buying companies to effect this – e.g. chipset, ad networks in case of Apple, QNX and Dash in case of RIM).

This is obvious for the iPhone where Apple is essentially upgrading a single product year after year. Even in the case of RIM, with seemingly several different variations on the Blackberry hardware, they deal with one main Blackberry vanilla design. Note that in that sense both Apple and RIM are both playing a fairly risky game, akin to putting your eggs in one basket. This risk is manageable as both Apple and RIM still sport unique selling points; best-in-class product design, services and user interface in case of Apple and proprietary messaging solution in case of RIM.

In case of Apple, the iPhone’s hardware and software is designed to wow the user. A combination of Apple’s brand value, shrewd marketing and design-centred approach has resulted in a desirable product that goes to the extent to sacrificing seemingly important features to keep things simple for the user. However, the iPhone would not be this ‘desirable’ were it not for the massive amount of applications, both good and bad, available to the user. That much content means that users tend to not get bored with the limitations of the few built in applications on the device.

Blackberry on the other hand has taken the approach of creating a messaging solution that is extremely simple to use and needs no complicated “setup”. The device is of course valuable to enterprises with it’s built in security mechanisms and fully integrated enterprise solutions. Once again, superior consumer experience and focus on the core group (enterprise users) has been achieved through vertical integration of the complete value chain.

For the incumbent handset OEMs who need to reduce the total cost of ownership for software, going back to the days of 100% in-house software, does not sound appealing at all. The sheer amount of work required to adapt software to 10s of hardware SKUs is not very appetizing. For these OEMs open source is a real blessing that helps tap into innovation while at the same time cutting costs on the core software R&D. This is one reason, why Samsung’s Bada move is very bold indeed. It will be interesting to see how Samsung manages to competitively maintain Bada, without the R&D cost of managing that platform having an impact on the Korean manufacturer’s bottomline.

So, it seems that a polarized universe is the only way forward with some players betting on open source and commoditized hardware, and others on vertical systems.

The struggle for differentiation

Once Sony Ericsson and Samsung have finally placed their bets with Bada and Android the ecosystem will settle down into this polarized state.

The vertically integrated players will have the privilege of keeping a high barrier to entry for any new entrant. This assumed new entrant will have to replicate what Apple did with the iPhone, which is not something you see very often.

The players in the open ecosystem will, however, have to guard against the king of cost Shanzai (fake phone) brands that have the possibility to challenge established OEMs. The assumption here is that a drive to open systems will lower the barrier to entry. When any tom-dick-and-harry can slap one of several open source software stacks on top of one of several chipsets readily support such software stacks, the need to differentiate will extend beyond hardware and software design. It is too risky to assume that the consumer will remain committed to a brand solely on the basis of these easy-to-replicate characteristics.

So what is it that the OEMs can use to differentiate their offerings? One must remember that a consumers experience of product and a brand is an amalgamation of several points of contact with the brand and the product. The look and feel of the hardware, and the usability of the device are just two such contact points. A consumer interacts with both the device and the brand in many other ways, like using a cloud service provided with the device, or calling a call-centre for support. A differentiated offering will evolve, based on not just user interface but complete user experience (hardware, software, UI, cloud services, customer service). These will be necessary defences and barriers, which the incumbents will need, in order to protect against being reduced to commodities fighting on price. We may see OEMs positioning their products based on this complete package rather than simply advertising stunning hardware and user interface design.

Those that build a robust defence (the Gorillas) will command the landscape through their sheer size and position. The super efficient king-of-cost players will present a challenge with their sheer agility and cunning (the foxes). Rest assured, anyone stuck in the middle (the jungle) will be stuck in a constant struggle for survival. What a great ending to the fairy tale!

– Vinay

[Vinay Kapoor is a Business development director at Tieto where he helps build new revenue streams and helps shape Tieto’s mobile devices strategy. Vinay has been a mobile industry insider for over a decade and has an avid interest in the events that shape this ever changing industry. You can follow him on Twitter (www.twitter.com/vinaykap) or on his blog (http://wirelessmantra.blogspot.com)]

Lead, innovate or assemble: three choices for handset OEMs as mobile starts to look like the PC industry

[Android has triggered more changes to the mobile industry than anyone had imagined. Research Director, Andreas Constantinou looks at the profound changes taking place and how the handset OEM market is shaping up].

Mobile industry connoisseurs used to smirk at the notion that the mobile industry was any similar to the PC world. How can the two industries be any similar when the software, services, channels to market, operator control, regional economics, and range of experiences were all so different.

This is so last decade. The march of software has irreversibly changed the economics of value in the mobile industry. Google’s Android and Apple’s iPhone have caused disruptions that threw all analyst predictions off the chart. Industry pundits used to project a linear growth for ‘open’ operating systems (Symbian, Windows Mobile et al) that saw them take over an increasingly large share of mobile handsets sold.

But the evolution of software has been anything but linear in the last two years; Google’s Android, an operating system that was greeted with skepticism in 2008 become a launchpad for just about everyone working within the mobile industry.

Network operators/carriers saw Android as an opportunity to reduce their dependency on two players, Apple and RIM whose stellar sales were depriving operators from any negotiating power. Operators have always tried to divide and conquer amongst their suppliers, for example working in 2002 with HTC and Windows Mobile to reduce their dependency on Nokia, or in 2007 using a three-pronged OS strategy (WinMo, Symbian, Linux) to reduce their dependency on Microsoft. Android allows operators to deliver iPhone or BlackBerry –like devices at much higher levels of customisation and at much lower subsidies.

Handset OEMs saw in Android the opportunity to develop iPhone clones at less-than-iPhone prices for operator customers. In 2008-9 most Android projects were kicked off by operators, while in 2010 OEMs are investing in Android big-time. LG and Samsung, who used legacy real-time OSes for 90% of their high-end phones in 2009 have now 10s of Android projects in the pipeline for 2010-11.

Software developers saw the opportunity to enter the mobile ecosystem of downloadable apps – in the role model set by Apple’s App Store – in the most approachable and developer-friendly platform ever created for mobile.

But the biggest changes are yet to appear.

Android has triggered a mass arrival of 10s of ODMs from China and Taiwan eager to create me-too touch-screen handsets. Qualcomm and Mediatek, the chipset vendors powering the majority of feature phones today have launched or preparing to introduce out-of-the-box Android designs that reduce the time to market for Android handsets to 6-9 months (or circa 3 months once Mediatek’s design hits the market). Platform development for Android has dropped to the $300 per engineer-day mark, while big outsourced development centers are being set up in Asia dedicated to Android handset development. All these developments will allow Android touch-screen handsets to hit the €150 mark retail price.

The new world order: Lead, innovate or assemble.
The developments triggered by Android have made it possible to replicate the economics of the PC industry, leaving mobile industry insiders dumbfounded. Last decade’s rules and role models no longer apply. Instead there are three role models emerging for handset manufacturers in the world of commoditised software: leaders, innovators and assemblers.

Assemblers. Dozens of contract manufacturers can now take Android and deliver fully-featured, high-end handsets at made-to-measure requirements, but at price points and wow-factors only enjoyed previously by top-5 manufacturers. Think iPhone me-too experience at €150 retail price.

Innovators. The price pressure from assemblers will force the top-5 OEMs to innovate-or-die. With the innovation moving out of the pure user interface domain, widgets or touch innovations or no longer the ‘wow’ factor. To claim higher prices at €300 (and a respectable margin above the BOM) the top-10 OEMs will have to innovate.

Handset innovation lies in three elements: firstly, novel industrial design (think Nokia’s ‘listick’ or sports handsets of 2006) that will break the boring mould of today’s form factors and plastics. Secondly, novel use of sensors that will enable user interactions only imagined so far. Thirdly, use of shelf space within the commonly used applications (idle screen, menus, browser chrome, app store) to promote and monetise from third party content. Yet innovation will have to be balanced with application compatibility. Already we ‘ve seen how Android implementations have created fragmentation headaches for developers.

Leaders. To reach the top-tier of handset pricing (circa €500) handset manufacturers have to deliver new product experiences. This is the privilege enjoyed by Apple, RIM (and Amazon Kindle to an extent) who have integrated hardware, software and services under the same roof. You can buy Mediatek-powered iPhone clones in China (Shanzai in local speak) for $75, but the experience is laughable to an iPhone user. Only by controlling and integrating hardware, software and services under the same roof can a manufacturer deliver new product experiences that can command top-tier retail prices.

Mass producers. Naturally, emerging markets where retail prices are at circa €50 make up the majority of the mobile handset market – at least revenue wise. And while assemblers can produce low-cost devices, they won’t have the economies of scale to make a profit at €50 retail price. Mass producers, i.e. companies with the supply chain sophistication and negotiating power of Nokia and Mediatek can do that.

The picture that emerges for the mobile handset market in 2015 (the predictable future) is surprising in many ways. We estimate that the top 5% of the market will command as much revenue as the bottom 50%, but with a higher profit – for example Apple and RIM today bring in around 55% of the industry’s profits. The middle two segments (what some observers call mass-market smartphones) will generate much higher revenues.

The mobile industry is starting to look scarily close to the PC industry, both in terms of business models and profit vs revenue patterns.

What do readers think? Is the PC future for mobile inescapable?

– Andreas
you should follow me on twitter: @andreascon

Wholesale Applications Community: The Operator Love Affair with Developers

[The Wholesale Application Community has made big headlines in the last two months. But beyond the affectionate operator feelings and investments this signals towards developers, will the initiative succeed where JIL has failed? Guest author Simone Cicero digs behind the hype to see what lies behind the WAC buzz]

Despite its impressive line up of network operators, the Wholesale Applications Community initiative has been greeted with skepticism across both industry-insider and developer audiences.

Founded in February 2010, WAC is an initiative backed by 24 operators with the incredibly audacious vision of unifying apps distribution, packaging and execution. WAC’s mission is about realising “write once deploy everywhere” for mobile applications and enabling developers to “create applications for the long tail” (a concept that dates back to 2004)

So how does WAC plan to achieve such ambitions? The operator-backed initiative has indicated it will provide:
– a reference implementation for a web runtime environment as well as Network Operator APIs
– tools for development including an SDK and an emulator
– billing enablers and specifications for WAC compliant application stores (as mentioned in the FAQ)

WAC = BONDI + JIL
Like a phoenix, WAC seems to be born out of the BONDI and JIL initiatives and has committed to evolving BONDI and JIL into a common specification within the next 12 months.

OMTP’s BONDI has been the most-successful operator-backed initiative aimed at developers. BONDI is in essence a specification of Device APIs for securely accessing device functionality (incl. status, sensors, telephony and SIM APIs) and user data (incl. phonebook, location and gallery). BONDI APIs are accessible from widget runtimes and should (theoretically) also become available via browsers.

The BONDI project has attracted the interest of a few thousand developers and provided an official Windows Mobile reference implementation (with more unofficial implementation projects in the pipeline). We should also see deployment on commercial handsets by the end of 2010  with the first BONDI-compliant widget SDK already appearing from LG.

The JIL (Joint Innovation Labs) project was created by four mega network operators (Vodafone, Softbank, China Mobile and Verizon) to hook operators within the App Store game, and control the app submission, billing and distribution process. JIL  is a realisation that the standards route (read: OMA or GSMA) is a turtle-speed approach in a rabbit-speed market. As such, JIL embraced and extended the existing W3C widget specs, adding its own APIs and security model.  However, despite the operator investments and ambitions, to date JIL has not delivered much beyond a widget spec and SDK.

A third operator initiative that is part of the WAC scope is Network APIs, i.e. APIs allowing resources from the network (e.g. location, presence, user info) to be exposed programmatically to developers: in this area WAC will build on early achievements of GSMA OneAPI Initiative.

In essence WAC is an attempt to wrap BONDI, JIL and Network API specs and tools into a single operator-led initiative.

In parallel to the technical objectives, WAC aims to define a simplified distribution and deployment model for mobile apps. Rather than build its own Market WAC will probably seek to certify “associated WAC application stores” as well with third party markets offering WAC compliant applications.

WAC challenges ahead
To pragmatically assess WAC’s potential, we need to consider how it differs to what’s come before, the environment in which it plays in, and its stated ambitions and roadmap.

Some industry observers compare the Wholesale Applications Community with the JCP (Java Community process) and Java ME in terms of the challenges of standardising app development and distribution. Despite being still the most used and, for sure, the runtime with the largest installed base, the story of Java ME as a platform has been undoubtedly fraught with strategic and execution flaws.

Sun failed to see the opportunity of an app store; Java store is both a half-baked effort and a latecomer to the App Store market considering that Java ME was launched in 2001. Neither did Sun succeed at its main goal – promulgating a consistent runtime (open source or closed source) within the 1B-a-year device market by choosing to over-protect its traditional revenue streams coming from licensing and TCK testing. Sun also chose to license its reference implementation rather than impose a Sun-brewed, mobile Java runtime with consistency and compatibility as the first priority.

In parallel, the design of JCP proved too slow and bureaucratic. The JCP members spent too long entangled in preferred ballots, drafts, reviews, public vs private releases, resulting in specs that were just too late to market. The best testament to that was probably the MIDP3 saga, which arrived at the era of Android and iPhone development that doesn’t need Java ME any more. With 24 operator members behind the WAC initiative, it’s going to prove hard to reach consensus amongst competitors.

It’s also worth realizing that whereas Java ME has been loosely governed by Sun Microsystems (an entity external to the mobile value chain) the WAC consortium is led by operators who play a critical role in the mobile value chain and can, at least in the developed mobile markets, drive the product customization phase – and as such WAC is better positioned at – for example – mandating WAC runtime specs to be preloaded on an Android handset. At the same time, operator specs are seen by handset OEMs as long wishlists with the device compliance index being on continual decline for European operators.

The timing of WAC is another challenge. Given that it will take (at least) 12 months to merge BONDI and JIL, the first WAC-compliant device won’t hit the market before mid-2011. Where will iPhone, Android, Windows Mobile and the other competing platforms be in the next 12 months? What features should a developer expect from a runtime hitting the market in 18 months’ time? Not to mention that developer choices are already being set in stone as the major platforms lock-in developer mindsets (just look at how fast iPhone/iPad apps are ramping up now that that OSX is the number one choice for many mobile developers).

Is there a future for WAC?
The apps market is showing worrying signs for operators: mobile app stores are depriving operators from new revenue streams and pushing them further away from the customer front – only leaving operators with the cost burden of supporting customers in the post-sales phase and building out bigger, fatter bit pipes to carry the app-induced traffic.

Once upon a time, operators were responsible for most technology innovation like voicemail, the 2-line-in-1-SIM, premium SMS and Multimedia MMS and high speed networks.

Operators are still in the driver seat with 70% of the mobile trillion-pie flowing through the networks. In Europe, North America and the Far East, network operators still play the dominant role whilst in control of product ranging, subsidy, distribution and retailing decisions.

Yet during the last few years, the ownership of innovation in mobile services and handset products is migrating from the operator hands to Internet/PC players, with operators left to play the role of bureaucrats, support providers and handset subsidization agents.  The latest operator innovation like RCS, JIL and network-exposed location seems only to reinvent the wheel. All this, while players from the PC/internet industry like Apple exploit the rivalry between operators by soliciting major subsidies.

At the end of the day, the Wholesale Applications Community initiative is a knee-jerk reaction on the part of operators – an effort towards embracing developers and seizing the community of value-adding actors away from the likes of Nokia, Apple and Google. Now the question is how well and how quickly can WAC execute on the ambitious declaration of intents that WAC is today.

WAC should exploit its stronghold to add value where gaps exist at present, rather than reinventing the wheel. As such, instead of specifying runtimes or gating (and chocking!) the application submission process, WAC should focus on mandating an affordable and consistent revenue sharing policy across operators. By facilitating micro-payments WAC could enable new service charging models such as pay per (single) use, giving developers important alternatives to the free, ad-supported or paid app options.

Another key focus for WAC should be to empower developers with unique network-based APIs like user demographics and targeting and provide decent usage analytics (as mentioned by O2’s James Parton) and a recommendation engine to allow developers to better target the user audience and their application features based on the vast amount of demographics and usage information the operators/carriers hold in their network.

Finally, rather than specifying a web runtime spec based on a lowest-common-denominator approach, WAC should embrace existing runtime specs as much as possible, and consider embracing HTML5 which seems to be unanimously adopted by the major players of the industry, including Nokia, Apple and Google.

[Update: On May 5, WAC held an analyst webinar outlining a few important points. Specifically, Tim Raby, CEO of OMTP is acting as the interim CEO of WAC, while a formal Board for the non-profit organisation will be elected in July 2010. Secondly, WAC indicated it’s planning to standardise the commercial model (perhaps extending to the revenue share formula) for developers and ‘compliant’ app store owners. Developer documentation, developer events and further details on the mission and deliverables of WAC are planned for the second half of 2010.]

What are your thoughts on WAC and the role of operators in mobile apps?

– Simone

[Simone is an mobile strategist, innovation specialist, technology addict and open source enthusiast, having followed the disruptive changes of the mobile industry over the last few years. Simone has served at Three’s Global Device and Application group and at as a consultant at Altran. You can also follow Simone on his personal blog at meedabyte.wordpress.com]

Demolition Derby in Devices: The roller-coaster ride is on

[The economic realities will lead to a roller-coaster ride that will shake up the mobile industry. Guest blogger Richard Kramer talks about the impending price war, the implications for industry growth, and how this will alter the landscape of device vendors in the next decade]

With all the discussion of technology trends on the blogosphere, there are some harsh economic realities creeping up on the handset space. The collective efforts of vendors to deliver great products will lead to an all-out smash-up for market share, bringing steep declines in pricing.

In November 2009 I wrote a note about what Arete saw as the impending dynamics of the mobile device market. I called it Demolition Derby. This followed on from a piece called Clash of the Titans, about how the PC and Handset worlds were colliding, brought together by common software platforms and adopting common chipset architectures. As handsets morphed into connected devices, it opened the door for computing industry players, now flooding in.

New categories of non-phone devices
A USB modem/datacard market of 70m units in 2009 should counted as an extra third of the smartphone market, as it connected a range of computing devices. By the end of 2010, I believe there will be many new categories of non-phone mobile devices to track (datacards, embedded PCs, tablets, etc.), and they may be equal to high-end smartphone market in units in 2011.  Having looked at the roadmaps of nearly every established and wannabe vendor in the mobile device space, I cannot recall a period in the past 15 years of covering the device market with so many credible vendors, most with their best product portfolios ever, tossing their hats in the ring.  I see three things happening because of this:

 

1. First, a brutal price war is coming. This will affect nearly every segment of the mobile device market. Anyone who thinks they are insulated from this price war is simply deluded. I have lost count of the number of vendors planning to offer a touch-screen slim mono-bloc Android device for H2 2010. The only thing that will set all these devices apart will be brand, and in the end, price.  Chipmakers – the canaries in the handset coal mine – are already talking about slim HSPA modems at $10 price points, and $20 combined application processors and RF. Both Huawei and ZTE now targeting Top Three positions in devices, with deep engagements developing operator brands. They are already #1 and #2 in USB modems.  Just look at the pricing trends ZTE and Huawei brought to the infrastructure market; this will come to mobile devices.

2. Second, growth will rebound with a vengeance. I expect 15% volume growth in 2010, well ahead of the cautious consensus of 8%.  I first noted this failure of vision in forecasting in a 2005 note entitled “A Billion Handsets in 2007” when the consensus was looking for 6% growth whereas we got 20%+ growth for three years, thanks to the onset of $25 BoM devices. Consumers will not care about software platform debates or feature creep packing devices with GHz processors in 2010. Ask your friends who don’t read mobile blogs and aren’t hung up about AppStores or tear-downs:  they will simply respond to an impossibly wide choice of impossibly great devices, offered to them at impossibly cheap prices.

3. Third, the detente is over. The long-term stability that alllowed the top five vendors to command 80% market share for most of this decade is breaking down.  This is not simply a question of “Motorola fades, Samsung steps in” or “LG replaces SonyEricsson in the featurephone space”.  Within a year, there could be dangerously steep market share declines among the former market leaders (i.e. Nokia) to accompany their decline in value share. Operators are grasping control of the handset value chain; many intend to follow the lead of Vodafone 360 to develop their own range of mid-tier and low-end devices. Whether or not this delivers better user experiences, operators are determined to target their subsidy spend to their favourite ODM partners. In developed markets, long-established vendors are getting eclipsed: in 2010, RIM or Apple could pass traditional vendors like SonyEricsson or Motorola in units. RIM and Apple already handily out-paced older rivals in sales value, and with $41bn of estimated sales in 2010, are on par with Nokia.

Hyper competition
So where does this lead us? Even with far greater volumes than anyone dares to imagine, there is no way to satisfy everyone’s hopes of share gains, or profits. With Apple driving to $25bn in 2010 sales and Mediatek-based customers seeking share in emerging markets, the mobile device market is entering a phase of hyper-competition. It is all too easy for industry pundits to forget that Motorola and Sony Ericsson collectively lost over $5bn in the past 2.5 years. More such losses are to come.

Never before have we seen so many vendors acting individually rationally, but collectively insane. Albert Einstein once famously said that “the defintiion of insanity was doing the same thing over and over but expecting a different result”.

The men in the white coats will have a field day with the mobile device market in 2010.

– Richard

[After four years as the #1 rated technology analyst in Europe, Richard Kramer left Goldman Sachs in 2000 to form an independent global technology research group. Arete has 10 years experience dissecting the financials and industry trends in  semis, software, devices and telecom operators, out of offices in London, Boston, New York and Hong Kong. Richard can be reached at richard [dot] kramer [at] arete.net]

Behind the Smartphone Craze: redrawing the map of mobile platforms

[Thought Android and iPhone are taking over the world? Think again. The device platforms map is more fragmented than ever, while the media hype distorts the commercial reality. Guest blogger, Guy Agin goes behind the Smartphone craze to redraw the landscape of mobile platforms]

The Smartphone Craze
The other day I was reading some of the usual hype-induced reports on the Smartphone revolution. Wanting to put things into perspective I pulled out some old Smartphone forecasts from 2004-2005 by the likes of IDC, Informa and Ovum.

In those pre-historic days the main Smartphone contenders were Symbian and Windows. Blackberry was still an insignificant niche, and touch screen devices were still clunky stylus based UIQ phones and iPAQs. Yet surprisingly, the average Smartphone share of shipments that was forecast for 2010 was …about 30%. So even without the Apple & Google revolution fanning the flames, many analysts believed in the mass migration to Smartphones.

Reality check: by looking at the numbers for the first three quarters of 2009, it appears that last year there have shipped no more than 170-180 million devices considered to be Open OS Smartphones. Indeed Symbian, Windows, iPhone, Blackberry, Android, WebOS, LiMO and Maemo taken all together still only constitute about 15-17% of shipments. This percentage is in fact much lower than the 2009 Smartphone share predicted a few years ago by many research companies.

Why is this interesting?  It shows that hype can cause people to overlook the simple facts.  Despite the hype, Smartphone penetration seems to be following a gradual path which will eventually, in the long run, see Smartphones dominate shipments, revenues and installed base, but Smartphones are far from being an overnight revolution. In this light, mobile operators and software providers planning device platform strategies need to look at the opportunities going forward in a balanced, realistic way and not base it on hype.

Continue reading Behind the Smartphone Craze: redrawing the map of mobile platforms