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.]

VisionMobile - The mobile services landscape

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 ‘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 ‘native’ services of the platforms.

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

VisionMobile - handset manufacturer services

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 ‘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 ‘native’ services leverage Microsoft’s Bing, Live, Zune and Xbox assets having millions of active users.

These ‘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 speechmadebackin 2007, by then NokiaCEO,OlliPekkaKallasvuo. 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

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[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]

Location 101: breaking down the market for location-based apps

[People have got location all wrong, argues guest blogger Jane Sales, co-creator of flook. Rather than treating the market for location-based applications as a single monolithic entity, Jane breaks it down into use-case-driven segments and makes it concrete by showing the key iPhone applications in each segment.]

As the author of a location-based application, I get into many discussions with fellow technologists about the future of the consumer location-based application space. Which app is going to win – MyTown, Foursquare, Urbanspoon, Yelp or perhaps flook? Many of my conversation partners believe that there will be one single winning application – one, and only one, location-based application that people install on their iPhone, iPad or Symbian device.

This is a technology-based argument – applications are described as competitive if they use the device’s GPS silicon to determine location. And the argument is unrealistic, to say the least. Do we really believe that Grindr (used by gay people to find nearby partners) co-exists on a device with LocalPicks (used by people of all sexual orientations to find dinner). This is almost as incredible as the claim that UrbanSpoon (also used to find dinner) is a competitor of Bump (used to exchange contact details) because both make use of the iPhone’s accelerometer.

Joking aside, the point I am making is ‘it’s not about the GPS, stupid!’. I wonder why analysts are so prone to put a plethora of different applications in the same bucket and say that they are “competing for the location-based mobile application space” – which is like talking about an app “owning the mobile accelerometer application space”. Presumably this is because the location industry is only now coming of age, and understanding of this market is still immature and to some extent ill-formed.

There are more than 100,000 applications in the iPhone App Store today. Analysts predict that there will be 300,000 by the end of November 2010. It’s safe to bet that thousands if not tens of thousands of those applications are location-based.  Not only that, but new portable computing platforms such as the Nokia Netbook and the iPad now include GPS silicon in addition to LAN and WAN radios. I expect this trend to push down into lower-end netbooks and laptops. Furthermore, we are already seeing the direct creation of geotagged photos by Nikon’s P6000, and I expect more digital cameras to include GPS silicon over time.

Location is becoming a standard computing resource, but that doesn’t mean that all location-based applications are competitors with each other.

Continue reading Location 101: breaking down the market for location-based apps