Flip of fortunes: making devices compatible with apps

There used to be a time when developers worked hard to make their apps compatible with devices. [tweetable]Nowadays, device makers are working hard to make handsets and tablets compatible with apps.[/tweetable]

VMMonopoly_2

  • Amazon built the Kindle Fire on the Android Open Source Platform in order to leverage Android’s developer ecosystem and adding value only in the missing parts of Android.

  • BlackBerry built a “runtime for Android” into its BB10 platform in an attempt to close the app gap with its main mobile OS competitors. Jolla used a similar tactic in its Sailfish OS.

  • And now Nokia has produced an Android phone, the Nokia X, against all expectations considering their focus on Windows Phone over the last years and the acquisition by Microsoft. The Nokia X is positioned as a low-end “stepping stone” device relative to the Windows Phone based Lumia range.

How did this flip of fortunes come about?

Why supporting Android apps is becoming a must

Apps used to be bite-sized additions to the functionality of the mobile device; individually unimportant except for a very small number of key apps. [tweetable]The bargaining power of app makers is clear from the financial results of developers – that’s to say: near zero.[/tweetable] Six years into modern smartphone platforms, a full 60% of developers are still below the “app poverty line”, i.e. earn less than $500 per app per month, according to our latest Developer Economics survey (download the full Q1 2014 edition for free).

However, apps in aggregate have now become a must-have and a big driver of competitive positions. It’s no longer enough to build your own app ecosystem, or even feasible for that matter. iOS and Android form a de-facto duopoly that is impossible to compete against. [tweetable]To survive as a mobile device maker you need to tap into Android’s app base[/tweetable] (as iOS is closed for other device makers).

To convince consumers to buy your device, you need apps. Not just any apps, mind you. The hot apps of the moment (they usually are found on iOS first, Android second), as well as a long tail of apps catering to every imaginable use case. They need to look good and be fully featured too – lowest common denominator apps won’t do if you want to put a device in the market.

To convince developers, you need to deliver many users at low development effort. The best way to do that is to produce an Android-compatible device. The second best way is to bet on HTML5 with many good cross-platform tools and advanced APIs – something that both Blackberry and Windows Phone have struggled with as well.

A good long-term strategy?

Both on the user and on the developer side of the ecosystem, device makers will fight a serious uphill battle if they don’t support Android. But is supporting Android a good strategy for Amazon, BlackBerry or Nokia in the long term?

For players like Amazon and possibly Nokia who add value on top of Android, the move is in principle sustainable. As we explained in an earlier article: you don’t need to make an OS to win in mobile. Amazon and Nokia are basically replacing Google’s cloud services with their own (and in Nokia’s case: Microsoft’s), and use the Android OS for all the rest. This enables them to add value where it really matters, i.e. where Android and Google are weak. In Amazon’s case it’s crystal clear: the e-commerce giant leverages its promotion prowess and credit cards on file to help app developers monetize better.

Device makers who try the Android compatibility approach can still lose out to fragmentation however. We argued in the Naked Android article that only a few companies in the world have the clout with developers to convince them to spend the effort on replacing cloud service APIs. GlassBoard developer Justin Williams illustrated that perfectly in his recent post, where he muses on whether or not to adapt his app to the Nokia X. (Short answer: he won’t.)

[tweetable]For Blackberry and Nokia-X-as-a-stepping-stone-to-Windows-Phone, there is little hope that supporting Android will get them out of the slump.[/tweetable] They might attract opportunistic developers looking for a few extra users, but those developers are not likely to add to the momentum of the Blackberry and Windows Phone ecosystems. “Moving up” to the native ecosystem on those devices means that developers need to rewrite their apps. This idea clashes with the opportunistic motivation that attracted them in the first place.

That’s my take. I’d love to hear your opinion. What do you think that device makers should do?

— Stijn

Microsoft + Nokia: the marriage of two broken business models

Microsoft’s acquisition of Nokia’s Devices division is the new beginning for both Microsoft and Nokia. But how does it make sense when both Nokia’s legacy OEM and Microsoft’s mobile software licensing business models are broken? VisionMobile Strategy Director Michael Vakulenko takes a long-term perspective of the acquisition through a business model lens.

Nokia and Microsoft

Most of the analysis on the Microsoft acquisition of Nokia comments on the reasons for the acquisition, whether it’s a good or a bad strategy or attempts to predict how Microsoft products will evolve. The key question however is what is the likely future for the new Microsoft? Continue reading Microsoft + Nokia: the marriage of two broken business models

Microsoft-Nokia: A Tale of Two Broken Business Models

[The launch of the Lumia line marks the pivotal point in the Microsoft-Nokia partnership. But how successful will it be? VisionMobile Strategy Director Michael Vakulenko voices his concerns about the partnership between Nokia and Microsoft.]

VisionMobile: Nokia + Microsoft: A tale of two broken business models

[updated] Nokia and Microsoft are fighting two very different battles: Microsoft is trying to protect its aging PC software licensing business. Nokia, on the other hand, fights to survive as a as a handset manufacturer, hoping to see profits of the smartphone business. There is one thing in common, though: Both were disrupted by fundamental shifts in the mobile industry.

The basis for competition in software and mobile has changed – the once-successful business models of Microsoft and Nokia can no longer ensure profitable growth. The partnership between the two companies cannot change that. Vic Gundotra of Google once cynically said that two turkeys don’t make an eagle. Or do they?

Microsoft: A PC company in the mobile age

Reports about “Microsoft making more money on Android than on Windows Phone”, make for a catchy headline, but miss the point. Microsoft’s mobile strategy is about reducing ecosystem churn, i.e. protecting revenues from Windows and Office licensing. Every iPhone or iPad sold, represents a user who might choose to move away from a PC or Office license. Every iPhone developer represents a developer who adds value to Apple ecosystem and not Microsoft’s.

As of January of 2012, Microsoft Windows & Windows Live, Server & Tools and Business divisions were responsible for over 75% of the revenues, but, more importantly, practically all of the operating income. The company reported weaker than-expected PC demand in the last quarter of 2011. Revenue of Windows & Windows Live Division fell 6 percent year over year (and this is during the lucrative holiday quarter!), and yet worse – operating income declined by 11 percent.

The company’s core business is challenged at multiple levels. iPhone and iPad users are increasingly choosing Mac as their next computer – Mac success means less Windows licensing revenues. Moreover, tablets are displacing netbooks and laptops, which were the hope of the PC industry until recently. Google and a slew of Internet startups are opening cracks in Microsoft Office defenses by pushing migration of productivity tools into the cloud.  The end result is ecosystem churn, which means less and less Windows and Office licenses sold.

Microsoft badly needs to renew its growth. See this excellent analysis by Adam Hartung, Forbes. But, Windows Phone is a “loss leader”, not a growth engine. It’s daydreaming to expect that Windows Phone license revenues will be able to pay back all the investment that was made and is being made into the platform. Even at a $20 license fee. As reported in March 2010, the Windows Mobile R&D team headcount back in FY 2009 was 2,000 staff with a total OPEX of $900 Million. The numbers could only have grown since then.

Partnering with a fast-declining Nokia buys Microsoft neither market share nor new revenue engines. First and foremost, Microsoft needs to establish significant market share for Windows Phone in North America — the hotbed of mobile innovation.

However, Nokia is traditionally weak in North America in both market share and brand awareness. Plus the European reception of Lumia was lukewarm with slight above one million devices sold during the Christmas launch season. Instead of placing so much faith in the partnership with Nokia, Microsoft could have focused their efforts on a close alliance with the faster-moving Samsung as the key OEM for the Windows Phone platform.

Microsoft will be challenged to find new growth engines. Up until now, Microsoft has been losing money in Internet and mobile. In the last quarter of 2011 alone, the company’s Online Services Division lost $458 Million adding to mounting multi-billion loses in the last six years (see this revealing Business Insider chart).

Throwing boat-loads of money at mobile and Internet without a winning business model can only work for limited time for Microsoft. Mounting costs will inevitably raise the concerns of impatient investors over the viability of its mobile strategy.

 

Nokia: a handset maker in the software age

Apple has outpaced Nokia not only because of better products, but because it changed the basis of competition. The competition has changed from a competition of devices to a competition of software ecosystems. Nokia understood the challenge back in 2007, but in a classic case of Christensen’s Innovator’s Dilemma, was late to respond.

Today, the mobile handset market is driven by owners of software ecosystems, companies like Apple, Google and Microsoft. The role of handset OEMs has been reduced to that of a foot solder in the broader battle between ecosystems. OEM business has become a commodity business, where OEMs have little room for differentiation, besides price.

Since Nokia was slow in fostering its own software ecosystem, the company had little choice but to join Motorola, Sony-Ericsson, Samsung, LG, ZTE, Huawei and a host of smaller OEMs in the fierce “competition to the best”. Michael Porter calls competition to the best “the granddaddy of all strategy mistakes”.

The partnership with Microsoft might not be able to save Nokia from the perils of commoditisation. Windows Phone is a very attractive product, but it arrived to the market two years late. Apple and Google had enough time to establish strong network effects for their iOS and Android platforms. These network effects between users and app developers ensure explosive growth, user lock-in and multi-billion dollar investments by developers (see our recent post on how platforms are not created equal). In these hyper competitive conditions, Windows Phone devices will be challenged to command premium prices – like it it not, Nokia will have to compete on price with Android devices.

In retrospect, Nokia associated itself with a fledgling software ecosystem that is yet to build strong network effects. With both profitability and volumes in question, Nokia finds itself in a one-way street, depending on Microsoft to help support its smartphone business (see how Microsoft paid $250 Million to Nokia in Q4 2011).

Given the new market conditions, Nokia’s real competition is not iPhone or Android, but Samsung.  Samsung is not only the largest, but also the most profitable Android OEM. Its true competitive advantage lies in its vertical integration across the most expensive smartphone hardware components: the display, application and baseband processors and memory. Samsung even owns the fabs that manufacture many of these components. Samsung’s superior business model has launched the company to the second place of the industry in terms of profit share, second only to Apple.

Nokia’s business model of high-margin, branded OEM is in question and its dependency on Windows Phone alone is a weakness.  Nokia would be much better off if the company manufactured both Android and Windows Phone devices. Nokia, with its economies of scale and strong brand name, could auction placement of either OS to the highest bidder on its devices.

Nokia is running out of time and Samsung is gaining market share eagerly. How soon will Microsoft need to knock on Samsung’s door offering to pay billions for promoting Windows Phone on millions of Samsung devices?

 

Insisting on sailing upwind

In this partnership, Nokia and Microsoft insist on sailing upwind with their sails flapping (those of you who’ve had any experience sailing will know how boring this can be). Combining two business models of the 1990’s won’t help the two companies regain their positions in the new world order, dominated by companies with Internet-age business models, like Apple, Google, Amazon and Facebook.

As it seems, the only way out for Nokia and Microsoft would be the acquisition of Nokia’s smartphone business by Microsoft, as Andreas Constantinou predicted a year ago on this blog.

— Michael
[Michael Vakulenko is a Strategy Director at VisionMobile, where he focuses on mobile platform research and mobile ecosystem economics. Michael 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]

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

From MeeGo to Tizen: the making of another software bubble

[Just a short 1.5 years from MeeGo’s birth, Intel dumps it to shift focus to a new platform, Tizen, in partnership with Samsung. Guest author Dave Neary discusses the underpinnings of Tizen and why both MeeGo and Tizen are software bubbles].

VisionMobile - From MeeGo to Tizen: A software bubble in the making

Eight months after Nokia embarrassed Intel by withdrawing support for the MeeGo project, Intel has followed suit. On 27th September, Intel and Samsung announced the birth of a new mobile platform called Tizen. After only 19 months, MeeGo has been left parentless, and appears to be on life support. Tizen is, in fact, a successor of the Samsung Linux Platform, a reference platform of the LiMo operator consortium, with some components taken from the MeeGo stack.

Given that LiMo and MeeGo have both failed to set the mobile computing world alight, and Android has a four year head start, can we expect better things from their offspring? What has changed with this announcement? Is this Intel’s last chance to have a stake in a credible smartphone platform? And what  should Samsung, Intel and the Linux Foundation do to give their new platform a fighting chance at success?

The Birth of Tizen

Last year, when reviewing the progress which MeeGo had made in its first few months, we reserved judgement on the project, on the grounds that it was “too early to be able to tell how the final product will compare to iOS or Android”, but we noted that there had been some growing pains between Nokia and Intel.

Those growing pains stretched to breaking point earlier this year, when Nokia finally gave up on MeeGo and turned to Windows Phone to revitalise its smartphone products. Intel was left looking for a heavyweight consumer device partner to come in and lend credibility to their claim that MeeGo was no longer a one-man show. Rumours that LG would be joining the project failed to materialise. Finally, Intel ran out of patience, and partnered with Samsung on a new platform, Tizen, to be based on SLP (Samsung Linux Platform), a platform which Samsung have previously provided to the LiMo Foundation to be used as a reference plaform for its members.

While the move has obviously been in the planning for months, Samsung were perhaps encouraged to partner with Intel on the back of the news that Google has acquired Motorola Mobility in August – a view supported by their recent settlement of an Android-related patent dispute with Microsoft. In addition, as LiMo members, most notably Vodafone also ran out of patience, SLP was left as a platform without a home.

MeeGo on Life Support

How does MeeGo fit into the big picture now? High profile participants like GENIVI, China Mobile, Asus and Acer have committed to shipping MeeGo devices. Will they be based on the unreleased MeeGo 1.3, or the previous 1.2 release? Or will these companies move en mass to Tizen?

Given the lack of reaction from partners like GENIVI, we suspect that the Tizen announcement caught these vendors unawares. Jerermiah Foster, a community manager working for one GENIVI member, informed me that his company would reuse MeeGo 1.2 in the short term, and while Tizen looked interesting, there were no current plans to move development to the platform. He also confirmed that he found out about Tizen through the project announcement, and not before.

In spite of vendors withdrawing their support, part of the community is banding together to salvage their work. After Nokia pulled out of MeeGo, community developers working on the MeeGo Handset UX banded together to continue work (with several Nokia engineers) in the MeeGo Handset Community Edition, aiming to provide MeeGo support for the Nokia N900, N950 and N9 devices. In spite of the Intel announcement of Tizen, these developers have vowed to continue the development of MeeGo on ARM, and released the MeeGo Handset Community Edition 1.3 at the end of September. The current plan proposed by these developers is to create a lightweight core distribution based on Qt, under the brandname “Mer” (“MeeGo Rebooted”), on which vendors can build custom user interfaces. The MeeGo Handset Community Edition will be the first consumer of Mer’s core operating system.

The MeeGo community mailing lists are full of developers wondering where they stand now. The announcement suggests that no software will be released from the Tizen project for another 6 months. According to Joel Clark, MeeGo IVI Program Manager, the MeeGo 1.3 release has been shelved, and only incremental updates to the previous 1.2 release can be expected until then. While the MeeGo community certainly has some enthusiastic community supporters, it is unlikely that any major vendors will adopt the community-supported Mer.

Ironically, the move away from MeeGo comes at a time of potential wins for the project. Nokia’s MeeGo-based N9 is finally shipping, and getting rave reviews. And continued demand for netbooks has fueled the launch of several MeeGo based netbook and tablet products, including the Asus EeePC X101, the Acer Iconia M500 and other devices from Samsung, Lenovo and Fujitsu.

Perhaps Intel ran out of patience just as the project was about to take off.

Tizen = SLP, with a pinch of MeeGo

Technically, Tizen is a successor of the Samsung Linux Platform, a reference platform of the LiMo operator consortium, with some components taken from the MeeGo stack. The project governance and infrastructure, however, will look a lot like MeeGo. According to Imad Sousou, the director of Intel’s Open Source Technology Center, and head of the MeeGo project: “in the new project, a lot of things will be the same as they were in the MeeGo project”.

We also know is that the primary APIs for 3rd party developers are targeting HTML5 and WAC environments. WAC stands for Wholesale Applications Community, a set of APIs for building and delivering rich HTML5 applications, based on APIs from JIL (Joint Innovation Labs) and BONDI (a platform specified by the now-defunct Open Mobile Terminal Platform, OMTP). The Enlightenment Foundation Libraries (EFL), are also set to be a key part of the platform. We can infer two things from this: Qt will be taking a back seat in Tizen, if it is part of the platform at all, and it appears that SLP will be the basis of the Tizen platform.

One thing which has not changed from MeeGo is the wide range of participants being targeted by the project. At the moment, the target audience can best be summarised as “everyone”. Tizen is aimed at platform developers, integrators, vendors, application developers, and mobile enthusiasts. That’s a very wide range of target audiences, each with different needs and expectations. Not knowing your target customer is a surefire way to throw money down the drain.

Challenges, challenges, challenges

Tizen’s main difficulties at this point can be broken into three groups.

First, there will inevitably be teething problems between the project founders. The fact that Samsung have not yet mentioned Tizen in any press releases or announcements, and the lack of new information coming from Intel representatives since the launch announcement, suggests that there may be some communication issues to be worked out in the relationship. In fact, at this point it looks like the active partners have not yet agreed on what will and will not go into the platform. Intel and Samsung will have to work hard to overcome the cultural dissonance which is inevitable given the very different corporate DNA.

On top of this, unless something changes soon, there could be a major mismatch between the reality of working with Tizen and the public positioning of the project. The project isn’t yet open for business, and when it is, it will only be useful for a small subset of its target market. If it were a new project, they might get away with it. But with the legacy of MeeGo, Moblin and Maemo, disappointing early adopters could be a very dangerous thing to do for Intel and Samsung. Getting the project governance and community dynamics right from the start is vital to learning from the mistakes of MeeGo and Moblin.

Beyond the community, there are question-marks over Tizen’s potential to make an impact in the industry. Google’s purchase of Motorola Mobility, not just a patent portfolio play, has created a disturbance in the force around the Android universe. Samsung does not want to find itself competing with Google at the same as they are dependent on them for their smartphone platform. This creates an opportunity for Tizen which it is too immature to exploit. For third party developers, concentrating on HTML5 is great. But will there be a demand for a native API also? And if so, will Tizen be capable of providing the kind of unified developer experience you get on iOS or Android?

It will be interesting to see if Intel and Samsung manage to get substantial support from other ARM vendors. As long as Intel are seen as the main custodians of the project, that seems unlikely. It will also be interesting to see the effect which Nokia’s first Windows Phone based devices, due to be announced at the end of October, will have on the project.

The main challenge for the Tizen partners will be getting devices to market. The key constituency for the change, vendors who were committed to MeeGo before, appear to have been neglected during the announcement. Intel and Samsung need vendors to adapt the platform to sell more chips, to give breadth to the ecosystem around the project, and to give credibility in the industry that this is not a party of two.

The Long Road Ahead

To succeed and make a space for itself in the mobile ecosystem, execution will need to be flawless on Tizen. If the internal bickering which dogged MeeGo rears its head again, if the initial release of the platform does not meet vendor and community expectations in terms of functionality and quality, or if there is an 18 month wait for well integrated finished products running Tizen, then the project may not have a second chance to make good.

Tizen seems set to be another victim of misaligned incentives across several industry partners. Samsung is bringing SLP to the “standards” table simply to find a new home for it, now that LiMo is winding down. Intel is seeking another marriage of convenience, trying to tempt a major OEM to ship significant x86 chip volumes.

– Dave

[Dave Neary is a regular columnist at VisionMobile writing on how companies can work more effectively with open source community projects. Dave is the founder of Neary Consulting and  has also been an active member of the GIMP, GNOME, OpenWengo, Maemo and MeeGo communities, with over 10 years of experience in open source community issues. He can be contacted at dave (at) neary-consulting (dot) com]

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]

Is Microsoft buying Nokia? An analysis of the acquisition endgame

In a surprising move, Nokia and Microsoft decided to enter a strategic relationship for the OEM’s smartphone business. While the marriage appears promising at the outset, Research Director Andreas Constantinou argues that the only way for that marriage to succeed is for Microsoft to acquire Nokia’s smartphone business.

VisionMobile - Nokia & Microsoft deal_pic

The Elop and Ballmer duo on stage on February 11th was the main topic of discussion at this year’s Mobile World Congress. The reverberations of the Microsoft-Nokia announcement were felt even by the huge green robot tucked away at Google’s stand in Hall 8.

Following the news of the Nokia and Microsoft tie-up, Stephen Elop’s appointment to the helm of Nokia seems like an arranged marriage – and one whose best men were the carriers who wanted to avoid an all-out Android coup. It was also a marriage of desperation, which Elop memorably described in his memo as ‘jumping into the unknown’ from the ‘burning platform’ that is Symbian.

A marriage of desperation
Microsoft has been desperate to see its mobile business succeed. After a decade of lacklustre efforts at mobile device sales and severe product delays, Microsoft was getting desperate; it needed to stop the churn of Microsoft users to the Apple ecosystem and plug its $1 billion-a-year operational costs for its mobile phone business. Even having spent most of its $500M marketing budget for WP7 it had only got breadcrumbs in terms of sales, with Microsoft reporting 2 million shipments but no comment on sell-throughs (which leads us to suspect this was not more than 1 million of actual end-user sales).

VisionMobile_Smartphone_Sales_2010_pic

Nokia has been desperate seeing its platform play fail spectacularly in comparison to its newfound competitors; Apple who had amassed a developer ecosystem and operator demand which was second to none, and Android who in 2 short years matched Nokia’s smartphone sales in Q4 2010. MeeGo was trumpeted as the big guns in Nokia’s arsenal in February 2010, but once again Nokia’s software R&D failed to deliver on the promise. More importantly, despite the 10+ acquisitions during 2007-2010, Nokia failed to amass a strong-enough developer and services ecosystem on Symbian, Java or Qt that could compete with Apple or Google. Like Elop said in his now-famous burning platform memo, “our competitors aren’t taking our market share with devices; they are taking our market share with an entire ecosystem”.

It was in an act of desperation that led Nokia to befriend the lesser of two evils in the shape of Microsoft. It is ironic how in mobile the least enemy is a friend, much like how carriers backed Android in 2008-9 to fend off Apple, and backed Microsoft in 2003-5 to fend off Nokia.

The courtship
Despite the surface-level coverage of the Microsoft and Nokia news, not much has been said about the two giants’ courtship and even less on the prenuptial agreement. According to our sources, Nokia asked both Microsoft and Google to bid for its smartphone business, with the help of a small army of McKinsey suits. Following a long negotiation cycle with both parties, Nokia came to a straightforward conclusion; it would back Microsoft who’s total bid equalled more than $1 billion (including patents, licensing fees, marketing support and revenue shares) and not Google who’s bid was about half that. Funny how cash-rich platform vendors are buying their way into the market these days.

Nokia announced its decision to Microsoft and Google on February 9th , only 2 short days before the Ballmer/Elop press conference – which prompted Vic Gundotra to pen the tongue-in-cheek tweet “#feb11 “Two turkeys do not make an Eagle”, scornful of both Nokia and Microsoft.

The last-minute decision meant that Intel heard the news at the very last minute, and in turn had to ask its MeeGo partners on Friday night (Feb 11th) to remove the mention of Nokia from the MeeGo PR quotes going out on the following week at MWC. This is the stuff industry disruptions are made of.

 

A chemistry mismatch
What Nokia announced was not just a marriage; it was a radical change in its business model, from a vertical powerhouse to an assembler – which is what prompted us to question the motivations and the end goal for Elop.

We already knew that Symbian had been demoted to an internal-only OS (see earlier analysis – Symbian is dead, long live Symbian). However we were expecting to see Nokia take a more measured stance; for example using Windows Phone 7 in certain markets (especially in North America where carrier handset subsidies are OS-led) or taking a classic dual-supplier strategy by inking deals with both Microsoft and Google.

Instead Elop presented a terminal picture for Symbian which would be destined to ship on only another 150 million devices until being completely replaced by WP7.  Elop knew that an all-out replacement of Symbian with WP7 would mean haemorrhaging valuable brainpower as the 7,000+ Symbian staff had spent 15 years on the anti-Microsoft camp. These are the decisions made by boards with long-term strategy agendas, who see organisations made up of ‘assets’ and not ‘people’.

Besides the death blow to Symbian, Elop relegated MeeGo to an R&D project with just a single device launch in the horizon, if any at all (which carrier is going to subsidise a platform that’s dead on arrival?). Moreover Qt’s future seems uncertain as it has no place on Windows Phone (Microsoft wouldn’t allow copyleft software to be used with Windows Phone), plus it is too heavy for S40 class devices and MeeGo is too small an addressable market to justify the Qt ongoing investment. Qt (and its 400 thousand developers) need a new home.

Nokia Mobile Devices Net Sales Mix

What appears somewhat suspicious is that Nokia went not for a tactical, but a deep partnership with Microsoft, solidified by the multiple revenue streams exchanged between the two companies, a kind of revenue ‘keiretsu’ that ties the two giants in a longer commitment.

More importantly, the marriage to Nokia’s smartphone business seems like it’s lacking in chemistry. For the last decade, Nokia has operated as a vertical silo, owning and integrating all value elements, from software, UI, industrial design, services, app store and developer ecosystem. That silo has now huge holes punched through so that it can accommodate Microsoft’s horizontal software-licensing business model. This situation is somewhat like trying to fit a square peg in a round hole.

There are fundamental conflicts here, as both Microsoft and Nokia want to own the developer experience (think APIs, support, tools, developer marketplace, conferences, marketing), and the application discovery and delivery process (think Windows Marketplace vs Ovi Store). This is a chemically unstable mix that won’t survive the test of time. It would be like having Nokia owning Office while Microsoft still runs the Windows business. Yet at the same time Nokia has little value to offer other than design, development, manufacturing and sales of handsets in the picture Elop and Ballmer painted. Something’s not right.

Moreover, Microsoft faces a fundamental customer imbalance on its mobile platform. With such a strong endorsement of Nokia, Microsoft has placed too much favour and device sales expectations on a single vendor.

Microsoft did not only hurt the feelings of HTC, Samsung and LG (previously committed to launching 50! Windows Mobile handsets) with such an imbalanced endorsement. More importantly, with Nokia volumes likely to ramp up fast, Microsoft will have to deal with a single-customer monopoly and end up financing Samsung, LG or HTC towards ramping up Windows Phone production to balance it up. Windows Phone may quickly end up looking like a platform of unbalanced OEM interests – much like Symbian Ltd or Symbian Foundation were – and we know how these panned out.

There are two more troubling clues in the way this ceremony was setup. Despite fundamental changes to the handset business, Elop made no reorganization in the NSN business which is performing at marginal profit (operating margin at only 3.7% vs 11.3% for handsets). As Tomi Ahonen points out, Elop seems to be ready to get rid of NSN. Plus there was no announcement of Ovi plans or clear strategic guidance with regards to the Nokia services business.

 

The acquisition scenario
There have been earlier rumours of acquisition discussions between the two companies. We now believe that the only scenario for the Nokia and Microsoft partnership to succeed is an acquisition scenario; Microsoft buys Nokia’s smartphone business, while Nokia gets more resource to play with what it does best – that is creating mass-market phones at unbeatable levels of supply chain efficiency, unmatched supplier bargaining power and customisation to 100s of variants per handset model for distribution to diverse global regions, channels, carriers and retailers.

From a financial standpoint, Microsoft capitalisation stands at $220B, more than six times Nokia’s market cap of $33B at the time of writing. Microsoft would also acquire a high-profit margin business that would go a long way in helping the Redmond giant push its Entertainment and Devices division at high profitability levels for the first time. Despite Microsoft being a software business, it has experience in running hardware products, with the Xbox business doing well recently on strong Kinect sales.

For Nokia, a joint venture would make more sense than a pure sale of its smartphone business, given that the hardware giant is an important component of the Finnish economy. It would allow Nokia to focus on what it does best and substantially increase its S40 R&D budget (as Elop already announced it would) to rework its aging feature-phone OS. A joint venture would also allow Nokia to make a comeback when they are ready to take on the high-end phone market again.

Besides, with shares recently hitting a 13-year low and Nokia being owned by American institutional investors, the Nokia board has little they can do in the face of potential suitors. This makes Nokia a very interesting acquisition target, not just for Microsoft but for anyone with cash at hand and mobile ambitions, including Chinese, Korean and Japanese suitors.

The acquisition scenario would allow Microsoft to leverage on Nokia’s accounts with carriers across the world to woo them into moving subsidy budgets from Android into WP7. This is all too important, as the Microsoft brand enjoys little consumer awareness compared to Apple and Android, meaning that Microsoft is more dependent on carrier subsidy and marketing budgets than its nearest competitors.

Fundamentally, we believe there is no place for Nokia, an all-in-one integrated handset OEM and services company, in the new telecoms value chain. The old guard of top-5 OEMs are squeezed between leaders (Apple, RIM) who lead in terms of performance & profits, and assemblers (Huawei, ZTE, Dell, Acer) who lead in terms of me-too designs & razor-thin margins (see our earlier analysis on the evolution of the handset value pyramid). Nokia’s business needs to break-up into independent, self-sustained entities, particularly the smartphone business (within Microsoft’s new home) and the mobile phone business as an independent entity that can focus on competing with PC-borne assemblers.

The Microsoft-Nokia acquisition might not have been planned from the outset, but it is a scenario whose viability has been ensured from the outset. There are no conspiracy theories here, except that Elop (as the 7th biggest shareholder of Microsoft) would benefit greatly from trading Microsoft shares with Nokia ones, only to see them boost in value after being repatriated.

Let the debate begin!

– Andreas
you should follow me on Twitter: @andreascon

Andreas Constantinou is Research Director at VisionMobile and has been working in the mobile software industry since 2001, when he fondly recalls being a member of the team behind the very first Orange-Microsoft handsets which set the world of telecoms software in motion.

One cuckoo, two turkeys and three horses; how the mobile race has changed

[How do Nokia’s options look in a post-Microsoft and Google world? Why does Google’s strategy with Android resemble a cuckoo’s routine practice of planting its eggs on other birds’ nests? Guest author Delius Observer examines the similes and shows just how much nature has to teach us]

One cuckoo, two turkeys and three horses; how the mobile race has changed

Vic Goduntra, a vice president of engineering at Google, recently tweeted that “two turkeys don’t make an eagle”, echoing an earlier comment made several years ago by a Nokia executive about Siemens and BenQ merging their mobile units. His snipe, was a cheep, premature call as Nokia gets rescued from those icy Atlantic waters by the rich, (white) knight in shining armour. However, in chirping away, Vic would also have known that Nokia’s only other choice to escape from the burning platform would have meant succumbing to Google’s Androidian Cuckoo Strategy, and that would have been a lot worse. What just happened between Nokia and Microsoft should be a wake-up call for the mobile industry.

Google’s Androidian Cuckoo Strategy
The cuckoo, which at first glance has the appearance of a glamorous, aspiring bird of prey, is in fact a brood parasite – a cunning species that lays its egg in another bird’s nest and, in doing so, tricks the host to raise the chick as their own.

In one fell swoop, the cuckoo will turf out one of the host’s own eggs and slyly lay one of its own. Sitting cosily under the warm breast of the host, the parasitic cuckoo egg incubates and then hatches – a little earlier than the rest, naturally. With the egg’s kernel breaking through the shell, its natural reflex is then to immediately dislodge the other eggs from the nest – a well-designed, dominant, first mover advantage. In doing so, it quickly becomes the only chick left resident. Now at the exclusive beck and call of its foster parents, it has the sole monopoly on food supply and attention. The young cuckoo quickly fledges, and rapidly leaves the foster nest in record time. And so it continues, with the cuckoo returning again the next season.

This story should be a familiar one, as it is a story that is playing out across the globe where the poor unknowing parents think they are delivering their own beautiful offspring, but are instead just acting as surrogate hosts to a far grander plan. Cuckoos are, as the BBC’s ‘countryfile’ website states: “nature’s hustlers, cheats that have perfected the ultimate long con”.

This is the story of Google’s Androidian Cuckoo Strategy and the handset manufacturers who play surrogate host in order to raise Google’s young Andricks. Google started this strategy by designing an ecosystem that it cunningly called “open”. Of course, because the offspring’s eggs are delivered out in the open air, many have drunk the deceptively refreshing ‘Kool Aid’ of “open”. The real story, however, is a far subtler affair. Whilst the egg and bird may be open and free, the point of conception is still very much done on a private branch, with the DNA of the next egg always a closely guarded secret – even to those inside the fuzzy ecosystem.

“Run, run as fast as you can! You can’t catch me”, says one new Gingerbread fledgling, as the other birds look on, green with envy, wondering why their offspring have been Froyo’d.

The many handset manufacturers that have joined the Google flock are hoodwinked – and they’re all now singing the same repetitive, robot-like call. Now the birds are just the servants of the dominant master cuckoo. Of course, Androidian Cuckoos have ruthlessly quick development cycles and the Andricks are out of the door in no time, but in doing so, the process sucks most of the energy out of each foster parent. Meanwhile, danger lurks in the grasses as the mighty Oracle hisses over the heart of the cuckoo’s Harmonious virtual machine.

Whilst a few birds are today flying high, others are bewildered and disoriented, trying to work out what exactly is going on. For some it will end in pathetic, dismal fatality. But, a few will no doubt adapt their defenses to overcome the parasite in more imaginative pathways to survival. For, as Dr Nicholas Davies of the University of Cambridge states, with cuckoos “over evolutionary time, the hosts fight back so that the poor cuckoo has to work incredibly hard to be lazy, simply because it has to overcome all of these defences. What we witness is a fantastic arms race between parasite and host.”

And what of Google’s proverbial ‘don’t be evil’? Nicolas continues: “So, we know how the cuckoo pulls off its dastardly plan, but still haven’t answered the question of why. Is it a cruel or evil bird? Of course not; this is just nature at work, and perhaps one of the best examples of Darwin’s survival of the fittest. The arms race will continue with both sides evolving to protect themselves or deceive the other, but our fascination with the cuckoo will remain. After all, everyone loves a rogue.”

Indeed we do, and the rogue’s quip about turkeys was typical of its scheming behaviour. From a mountain view they look down and think one should aspire to be eagles, when what they should really be doing is taking a long, hard look in the mirror and owning up to the mobile industry that they are in fact nothing but a conniving cuckoo – albeit a successful one.

Microsoft + Nokia: running with four legs
In the past few months Nokia realised that in order to halt its slide towards irrelevance, it had to take its head out of the sand and instead take a leap of faith. The brave gamble that Nokia has now chosen is perhaps not the ideal one, but it was the only strategy available for long-term survival and is a bold rejection of the short-termism demanded by short-sighted investors in accepting the call of the cuckoo. In tying Nokia and Microsoft together they have created a rather old-fashioned type of partnership but it will be a partnership of bones not a collection of feathers.

Have no doubt about it, Nokia is “all in” with Microsoft and, yes Vic, four legs are indeed better than two to compete in this race. The trick will be to rapidly get those legs working together, and come up with a pedigree that can run the course. Can they do it?

The jury is currently out and they need to move exceptionally fast. They need to accomplish two feats rapidly; prove the financials and fix the developer message.

Step one is to actually sign the agreement and rapidly prove to both the investment community and the wider ecosystem that they can make the financials work. Indeed, it seems that perhaps one of the reasons why the Capital Markets Day felt like a damp squid, was not because Mr. Elop couldn’t sell the story to investors, but because the guy he’s negotiating the finer details with was sitting right next to him. A complex partnership like this will take time to put together with details of licensing costs, patent portfolios, split revenue shares on search, advertising and mapping as well as marketing contributions, let alone Nokia’s own complex reduction in costs associated with substantial redundancies and the reductions in OPEX that are needed.

The other thing to fix is the confused developer message. One thing that I had expected to hear on Friday was that Qt would run on Windows Phone. In hindsight, however, perhaps this doesn’t make sense. Qt is a fantastic technology but, like many others, it hasn’t reached critical mass. What is needed in this battle of ecosystems is a huge ‘network of externalities’, with a wide range of designer and developer tools. Only with Microsoft do you get that. It is all the more puzzling that Nokia didn’t go ‘all in’ from a developer perspective and instead chose to play coy. In choosing Microsoft tools for Windows Phones and Qt for Symbian and MeeGo, it has created yet another confused message for developers. Developers cannot get economies of scope by using Qt for some dying platforms and Microsoft for others. Nokia must be more courageous. Dust off the old Microsoft Silverlight agreement and get that environment up and running again on Symbian and Series 40 as a stopgap over the long harvest season. This will create the bold message developers urgently need. In this battle of ecosystems Nokia’s strategy cannot afford to be half-cocked.

What lies ahead
As we look ahead to the coming weeks and months, here are a few predictions:-

• Nokia is able to get Windows Phones out the door in record time, taking advantage of Microsoft’s Chassis Specification, a strategy which follows the tight, vertical integration of Apple’s iPhone without the overheads. Whatever the perception, it’s faster to build a Windows Phone from scratch than a cuckoo because of the chassis design.

• There will be an increase in the use of patents to fight the cuckoo club and the almighty Apple. However, Nokia’s earlier Symbian and MeeGo open source strategies may well come home to roost, as they gave away core assets which many vultures will circle around.

• Nokia competes well in the next billion market by using the lower cost base of an enhanced Series 40 platform and creating a smartphone-like experience in the sub $75 market.

• In the long-term, Nokia will realise that there is no division between smartphones and mass-market phones, and will combine those two groups together.

• Members of the cuckoo club finally realise their long-term future only lies in commoditisation and they seek to either combine with other cuckoos for short term economy of scale, or search for the assets that enable them to co-exist profitably with the parasite.

• Someone writes a loving obituary for the truly open, benevolent and well-meaning MeeGo; bless it. RIP. No doubt a resurrection under a different name will happen at a later date.

A three-horse race
Nokia emphasised during its Capital Market Day that the smartphone business is now a three horse race. As things stand, that looks like wishful thinking. But if Nokia and Microsoft can execute with incredible speed and agility in the coming months (and it’s only months they have), then they’ve a shot at getting a thoroughbred in the running.

So which horses do Google, Nokia and Apple have in the line up?

Seabiscuit – the real Trojan horse of the race, full of cuckoos. This one’s been leaving fragmented crumbs all over the place but is currently the bookies’ favourite. This is a wild one for sure! It’s been a fast sprinter but will need to be careful it doesn’t split in two or get strained on the third furlong by its supporters pulling out.

Northern Dancer – the dark horse in the race with the odds currently against it. It will use the Seattle based white knight to give it the extra feet needed and use a range of betting operators to increase its odds. With thoroughbred development tools, attached to a large existing ecosystem, it now has the combined power for survival. It will need to ensure that its more old-fashioned, deep partnership style has the staying power and agility. They have a lot of catching up to do, but don’t write this horse off just yet!

Pegasus – the last horse is not just easy on the eye but is also nothing short of magical. Not only does this white horse have a vertically integrated set of four legs, but it also has wings too and is riding high. This one can’t put a foot wrong. But the dynamics are changing, and how long it can remain so high and mighty remains to be seen.

How the mobile race plays out in the months and years to come depends upon how the various parts of each ecosystem and the punters place their bets.

But, whatever happens, just beware of the cuckoo.

– Delius

[Delius Observer is a pseudonym and can be reached at deliusobserver@gmail.com]

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

Open Source community building: a guide to getting it right

[Everyone – from carriers to OEMs – is busy building developer communities. But many have failed and more have seen disappointing results. Guest author Dave Neary looks at what lessons history can teach us on community building and the key DO’s and DON’Ts.]

Open Source community building: a guide to getting it right

Community development in open source software is not just for geeks in sandals nor for niche Linux companies any more. It’s mainstream and it’s here to stay.

The recent analysis of companies contributing code to the Linux kernel shows that large companies including Novell, IBM, Intel, Nokia and Texas Instruments are getting serious about engaging in community development. Organisations such as the LiMo Foundation are encouraging their members to work with community projects “upstream”, that is, with the community rather than in isolation,  to avoid missing out on millions of dollars worth of “unleveraged potential” (PDF link).

A diverse developer community is critically important to the long term viability of free and open source projects. And yet companies often have difficulty growing communities around their projects, or have trouble influencing the direction of the maintainers of community projects like the Linux kernel or GNOME. Sun Microsystems and AOL are prominent examples of companies which went full speed into community development, but were challenged (to say the least) in cultivating a mutually beneficial relationship with community developers. There are many more examples – but often we never even hear about companies who tentatively engage in community development, and retreat with their tail between their legs, writing off substantial investments in community development. Xara, for example, released part of their flagship software Xara Xtreme for Linux as open source in 2005, before silently dropping all investment in the community project in late 2006.

What can go wrong? What are the most common, and the most deadly errors which companies make in their community engagement strategies? And how can you avoid them? Avoiding these does not guarantee success, but failing to avoid them may be sufficient to guarantee failure.

Where to begin?
The easiest and gravest error that companies make is to sprint headlong into free/open source development with unrealistic expectations.

The history of free & open source software development is filled with stories of companies who are disappointed with their first experiences in community development. The technical director who does not understand why community projects do not accept features his team has spent months developing, or the management team that expects substantial contributions from outside the company to arrive overnight when they release software they’ve developed. Chris Grams once described the Tom Sawyer model of community engagement – companies who expect other people to do their job for them. Make sure you don’t fall into that trap.

Doing community software development well takes time, even when you get everything right. And there are a lot of things you can get wrong.

So where to begin? Before you start community development, you should have thought about what you want to get out of it. Is Open Source a way to grow the brand and broaden distribution of your product, with the goal of generating leads? Do you need to grow an ecosystem of developers building on top of your platform? Do you want to include an existing project into your product to reduce costs, but customise it to fit your needs? Each of these goals, and any of the other reasons people develop software in the open, require specific strategies and tools tailored to the situation to succeed. Indeed, how you measure success will change depending on your goals.

The two common situations company find themselves in are collaborating with an existing open source community, or growing a community around a piece of software that you are releasing.

Joining a community
When joining an existing community, building trust and reputation takes time. The first step to working productively with a community is to understand the structure of that community. Who are its leaders, what are its priorities? If the culture of a project does not align with your business objectives, that may affect your decision to engage with it in the first place.

If you find that you can work with the project, and that the general goals are aligned (or at least, not misaligned) with yours, then the hard work can start. For example, Hewlett-Packard backed Linux early, at the expense of promoting its own proprietary Unix, HPUX. Ten years on, HP now ships close to 40% of all Linux servers. In contrast, Sun Microsystems decided to create an independent community around Solaris in 2005, releasing OpenSolaris under an Open Source approved licence which is incompatible with the GPL (the licence of the Linux kernel). The Sun sponsored project failed to create a substantial independent developer community from its launch until the acquisition of Sun by Oracle and subsequent closing of the OpenSolaris project in 2010.

Once you make the decision to collaborate, and you have chosen the project you want to work with, the first and most important decision is who will work on the project. This consideration often does not get the attention it requires from top management. The engineers who will be working on the project on your behalf will be representing your company. It will be their job to build trust with project maintainers, navigate the project’s roadmap process to ensure that their work is accepted upstream, and ensure your business objectives are met.

The choice of the people who will work with the community is particularly important; as Stormy Peters, former Executive Director of the GNOME Foundation, once wrote, companies are not people. In other words, companies can never be members of a software development community, although their employees may. Companies can be valuable institutional partners for projects, but to quote the Beatles and Karl Fogel, money can’t buy you love (or community support).

So now you have some engineers working with the community. What next? Havoc Pennington wrote some excellent advice in 1999 for engineers working with community projects. The one-line summary might be: “when in Rome, do as the Romans do”.

Often communities will have documented their norms – many projects, including the Linux kernel and modules in the GNOME project, have “HACKING” files under source control documenting expectations for contributions, and mailing list policies. For most communities, these can be summarised as “go with the flow, don’t rock the boat”. Miguel de Icaza, founder of the GNOME project and vice president of developer platforms at Novell, has written an article explaining the reasoning behind these policies.

One temptation which you should avoid at all costs is to leverage the trust which one contributor has gained to channel contributions from others into the project. This will only promote Shy Developer Syndrome in your team.

By all means, have your senior community guy mentor others in the team and help them through the process, but avoid making that mentor a gatekeeper, shielding the rest of your team from the community. Attempting this will always backfire when your gatekeeper moves on or when the community finds out that he’s committing the work of others and circumventing community norms.

Growing a community
Looking at the second scenario; growing a community. If you do decide to release software under a free software OSI approved licence, your first choice will be whether to set the project up as a community project or not, and to what level.

Simon Phipps has written about the different types of communities which can grow around a free software project. He describes communities of core codevelopers, non-core developers who work on add-ons, integrators who distribute and configure the software, but don’t necessarily modify it, and finally users of the software. Each of these communities have different needs, and require different approaches.

If you want to grow a community around your project, there are a few best practices you should follow:

Control: If you opt for rules ensuring that you decide what code will be added to your product’s core, you will lose many of the benefits of community projects. Some examples of rules which come from a desire to maintain control are a requirement to assign copyright for all contributions to the core product to you, or ensuring that only employees can commit directly to the main branch of your core product. There are many good reasons to maintain ownership of the core, but this decision will severely handicap community contributions. This does not prevent you from developing other types of community, however, such as a community of add-on developers or integrators.

Barriers to entry: Barriers that contributors have to overcome can come in different shapes: using unusual tools, requiring convoluted processes for bug reporting, feature requests  or patch acceptation, or legal forms you may ask people to sign before contributing.

Tools and infrastructure: Ensure that you provide your users with the opportunity to distribute their work and connect with other users – whether this be through a forge for modules, or through the use of Gitorious of Bazaar for source control. Contributing in your project should be seen as a social experience.

Community processes: Create a just environment – no-one likes to be considered a second class citizen. Document processes for gaining access to key resources like bug moderator permissions, commit access to the master branch, or editor access for the project website.

Budget appropriately: Commit the appropriate resources – building a community takes time and effort, and that means investment – primarily of human resources.
Having one guy who is the community manager dealing with the community and a team of 10 developers behind the corporate walls isn’t going to cut it. As Josh Berkus of PostgreSQL said in his “How to Kill your community” presentation, if your nascent community feels neglected, it will just go away.

Launching a new project is like launching a new product – except that acquiring a new community developer takes much longer, and is much more difficult and costly than acquiring a new user. In the same way that companies track SAC for new product launches, tracking the Developer Acquisition Cost (DAC) for your project is a key metric in evaluating whether you are doing the right things to grow your community.

Developers have lots of projects to choose from, and they tend to gravitate towards projects where co-development is the norm. So you have to be thinking about the contributor experience, and the value proposition to external contributors, all the time.

A clear and compelling vision, with lots of opportunities to contribute, and low barriers to collaboration, can help reduce the acquisition cost of community contributors, and similarly reduce the cost of acquiring new users and paying customers.

Avoid common anti-patterns
If Best Practices are behaviours that should be adopted, community anti-patterns are best practices gone wrong. If the reasons behind a “best practice” are misunderstood, you can end up imitating behaviour without getting the desired result, much like the Pacific cargo cults, building airstrips and hoping that planes land. Like seasoning, adding too much can ruin the dish.

In general: when you see the following patterns happening, you should work to counter-act them, both in the communities you participate in, and in your corporate citizen behaviour within those projects. Each of these patterns are common and tempting, because they represent best practices applied in inappropriate circumstances. And each of them results in a net reduction of community health.

Some common anti-patterns you should avoid are:

1. Command & Control – communities are partnerships. Companies are used to controlling the products they work on. Attempting to transfer this control to a project when you want to grow a developer community will result in a lukewarm response from people who don’t want to be second class citizens. Similarly, engaging with a community project where you will have no control over decisions is challenging. Exchange control for influence.

2. Water cooler – when your team gets too much work done in private, your community will not understand your motives and priorities. By working on mailing lists or other publicly readable and archived forums, you allow people outside your company to get up to speed on how you work.

3. Bikeshed – A “bikeshed” discussion is a very long discussion to make a relatively minor decision. When you feel like the community is dragging you down, know when to move from talking to doing.

4. Black hole – It can be tempting to hire developers who have already gained reputation and skills in projects you build on. Beware when hiring developers from the community – it may be that the community will be worse off. Ensure that working in the community is part of the job description.

5. Cookie licker – Picture a child who has had enough cookies, but wants to save the last one for later. So they take it off the plate and lick it, to ensure no-one else will eat it. The same phenomenon exists for community projects – prominent community members reserve key features on the roadmap for themselves, potentially depriving others of good opportunities to contribute. Beware of over-committing, and leave space for community contributions in project roadmaps. Be clear on what you will and will not do.

Happy Community Gardening
Community software development can be a powerful accelerator of adoption and development for your products, and can be a hugely rewarding experience. Working with existing community projects can save you time and money, allowing you to get to market faster, with a better product, than is otherwise possible. The old dilemma of “build or buy” has definitively changed, to “build, buy or share”.

Whether you’re developing for Android, MeeGo , Linaro or Qt, understanding community development is important. After embracing open development practices, investing resources wisely, and growing your reputation over time, you can cultivate healthy give-and-take relationships, where everyone ends up a winner. The key to success is considering communities as partners in your product development.

By avoiding the common pitfalls, and making the appropriate investment of time and effort, you will reap the rewards. Like the gardener tending his plants, with the right raw materials, tools and resources, a thousand flowers will bloom.

– Dave

[Dave Neary is the docmaster at maemo.org and a long-standing member of the GNOME Foundation. He has worked in the IT industry for more than 10 years, leading software projects and organising open source communities. He’s passionate about technology and free software in particular.]