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

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

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

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

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

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

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

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

But the biggest changes are yet to appear.

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

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

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

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

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

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

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

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

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

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

– Andreas
you should follow me on twitter: @andreascon

The many faces of Android fragmentation

[Android fragmentation is only getting started. Research Director Andreas Constantinou breaks down the 3 dimensions of Android fragmentation and argues how Android will become a victim of its own success]
The article is also available in Chinese.

There’s been plenty of talk of Android fragmentation, but little analysis of its meaning and impacts.

As far as definitions go, the best way to look at fragmentation is not from an API viewpoint, but from an application viewpoint; if you take the top-10,000  (free and paid) apps on Android, how many of these run on all the Android-powered phones?

For Google’s Android team, fragmentation is what keeps them up at night. Fragmentation reduces the addressable market of applications, increases the cost of development and could ultimately break the developer story around Android as we ‘ll see.

Google’s CTS (compatibility test spec) is predicated on ensuring that Market apps run on every Android phone. Android handsets have to pass CTS in order to get access to private codelines, the Market or the Android trademark as we covered in our earlier analysis of Google’s 8 control points – and yes, Google controls what partners do with Android, contrary to the Engadget story.

The 3 dimensions of Android fragmentation
Many observers would point to fragmentation arising as a result of the open source (APL2) license attached to the Android public source code. Reality however is much more complex. There are 3 dimensions of Android fragmentation:

1. Codebase fragmentation. Very few companies have taken the approach of forking the public Android codebase, as permitted under the APL2 license; Google innovates so fast (5 major versions in 12 months) that once you fork, the costs of keeping up-to-date with Google’s tip-of-tree are increasing prohibitively over time (Nokia found out the hard way by forking WebKit and then regretting it).

The main fork of the Android codebase is by China Mobile (the world’s biggest operator with over 500M subscribers) who has outsourced Android development to software company Borqs. China Mobile cares less about keeping up-to-date with the latest Android features as the China market operates as an island where cheap, fake (Shanzai) handsets are predominant. Mediatek, a leading vendor of chipsets shipping in 200-300 million handsets per year plans to make Android available, which could mean another major fork. Cyanogen and GeeksPhone also fork the Android public codeline, but they are designed for a niche of tech-savvy Android fans.

2. Release fragmentation. Google has released 5 major updates to Android in 12 months (1.5, 1.6, 2.0, 2.1 and recently 2.2), all of which introduce major features and often API breaks. You may notice how accessing the Android Market from a 1.6 versus a 2.1 handset gives you a different set of apps. So much for forward compatibility. AndroidFragmentation.com (a community project) has documented several cases of release fragmentation arising from releases which break APIs (e.g. 2.0 SDK breaks older contact apps) or from inconsistent OEM implementations (e.g. receiving multicast messages over WiFi is disabled for most HTC devices).

Release fragmentation is the victim of Google’s own speed of innovation – and Andy Rubin has hinted there’s more major releases coming out in the next 6 months. It’s clearly a sign of how young, agile Internet companies know how to develop software much better that companies with a mobile legacy; major Symbian versions take 12-18 months to release.

Release fragmentation is particularly acute due to the lack limited availability of an automatic update mechanism much like that found on the iPhone. We call the phenomenon ‘runtime aging’ and it is directly responsible for increasing the cost of developing applications. Tier-1 network operators see handsets in their installed base with browsers which are 1-6 years old – that’s how hairy it can get for mobile content (and software) development companies. [update: we understand that certain Android handsets come with a firmware update (FOTA) solution available from Google and other FOTA vendors, but it is installed reactively (i.e. to avoid handset recalls) rather than proactively (i.e. to update all handsets to the latest OS flavour)].

Google itself reports that the Android installed base is split between devices running 1.5, 1.6 and 2.1 versions (or at least for those devices accessing the Android Market). The detailed breakdown as of mid May 2010 is as follows:

Release fragmentation is also arises out of Google’s elitist treatment of its OEM partners. Google will pick and choose which private codeline is available to which OEM based on commercial criteria (contrary to Michael Gartenberg’s story). Take for example how Sony Ericsson’s X10 (running on Android 1.6) came to market after the Nexus One (running on Android 2.1). Ironically, both handsets were made by HTC. [correction: the X10 was developed by Sony Ericsson Japan]

3. Profile fragmentation. Android was designed for volume smartphones. But it arrived at an opportune time – just after the iPhone launch and just as consumer electronics manufacturers were looking at how to develop connected devices. This resulted in two effects that Google hadn’t planned for:

– Android was taken up by all tier-1 (and many tier-2) operators/carriers hoping to develop iPhone-like devices at cheaper prices (i.e. lower subsidies) and greater differentiation. That meant that while operators funded Android’s adolescent years (2008-2010), they niched Android handsets to high-end features and smartphone price points.

– Android is now being taken up by 10s of consumer electronics manufacturers, from car displays and set-top boxes to tablets, DECT phones and picture frames. The Archos internet tablet was just the beginning. Each of these devices has very different requirements and therefore results in different platform profiles.

The timing of Android’s entry into the market has therefore resulted in two implications related to fragmentation.

Firstly, Android’s official codebase isn’t suited for mass-market handsets (think ARM9 or ARM11, 200-500MHz). To get to really large volumes (100M+ annually), Google will need to sanction a second Android profile for mass-market devices. This is a Catch-22, as a second profile is needed to hit large volumes, but it would also break the Android developer story.

Secondly, every new platform profile designed for different form factors (in-car, set-top box, tablet, etc) will create API variations that will be hard to manage. That’s one of the key reasons behind the Google TV initiative and the Open Embedded Software Foundation. However even Google can’t move fast enough to coordinate (manage?) the 10s of use cases and form factors emerging for Android.

All in all, Android fragmentation is going to get far worse, as Android becomes a victim of its own success.But hey, would you expect to have a single app (and a single codebase) that runs on your TV, phone and car?

And there the opportunity lies for tools vendors to provide app porting tools, compatibility test tools and SDKs to help bridge the gap across the eventual jungle of Android fragmentation. And for those looking to better understand the Android commercials we offer a half-day training course on the commercial dynamics behind Android.

What do readers think? Do you have any fragmentation stories to share?

– Andreas
you should follow me on twitter: @andreascon

Is Android Evil?

[Is Android really open? Research Director Andreas Constantinou uncovers the many control points behind Android and explains why Android might be the most closed system in the history of open source].
The article is also available in Chinese and
Greek.

You thought Android was open? The Android governance model consists of an elaborate set of control points that allows Google to bundle its own services and control the exact software and hardware make-up on every handset. All this while touting the openness rhetoric that is founded on the Apache permissive license used in the Android SDK.

[updated in response to reader comments]: Whereas Android is completely open for the software developer ecosystem, it’s completely closed for the handset OEM (pre-load) ecosystem. There is no other platform which is so asymmetrical in terms of its governance structures.

Indeed, Google’s mobile platform is the smartest implementation of open source designed for driving commercial agendas. But before we dig into why, it’s worth discussing why Android’s success has very little to do with open source.

What makes Android tick
Despite early skepticism, Google’s Android operating system has been unequivocally supported by the mobile industry, including more network operators and handset manufacturers than one can count – with the stubborn exception of Nokia. Android managed to ramp from 1 handset model in 2008 to 50+ models announced for 2010 launch, leaving most industry observers in awe.

The Android success has nothing to do with open source; it’s owed to three key factors:

Apple. As strange as it might seem, Android owes much of its success to one of its arch-rivals. Let me explain. With the unprecedented success of the iPhone and the take-it-or-leave-it terms dictated by Apple to network operators, the carriers have been eagerly looking for cheaper alternatives; as such the tier-1 operators have been embarking on Android projects to produce iPhones for people who can’t afford the iPhone and more importantly, without forking out the 300EUR+ subsidy needed to remain competitive in an iPhone market.

Network operators/carriers around the world are eager to differentiate. Android provides the allure of a unified software platform supporting operator differentiation at a low cost (3 months instead of 12+ months offered by SavaJe, which was also aimed at the MNO customisation market). For larger operators with a software strategy, Android also presents a safe investment, as the mainstream option for bringing down the cost of smartphones. That’s why most Android handset projects are backed by a commercial bipoles of operator + OEM deals, with purchase commitments and NRE fees coming from the operator.

Qualcomm. The $10B chipset vendor has been paramount to Android’s ramp up; manufacturers can take Qualcomm’s hardware reference design which is pre-integrated with Android and can go to market within an estimated 9-12 months (down from 16 months for the Motorola Cliq handset and 24+ months for the HTC G1). Besides Qualcomm we should also mention TI’s OMAP3 platform (on which Moto Droid is based) and ST Ericsson and Broadcom who are ramping up to offer chipsets with out-of-the-box support for Android.

In other words, in an Android handset, most of the OEM budget goes into differentiation; compare that to Symbian where most of the OEM budget goes into baseporting (radio and functional integration of hardware) due to historical choices made by Symbian in 2001. All-in-all, Android allows OEMs to reduce their R&D budgets and invest in differentiation, which is mana from heaven to manufacturers.

We should also not forget the ‘free factor’ (technically zero per-unit royalties for the public SDK) which stirred the emotional hype around Android handsets.

All in all, the ‘open source’ marketing moniker has been very successful at triggering major industry disruption – incl. Nokia ‘s acquisition of Symbian and the derailment of Windows Mobile. Perhaps more importantly, the openness rhetoric and the Google aura has attracted thousands of developers on the platform, at a time when the money equation is sub-par; consider that – compared to the Apple devices – Android handsets are around 9x less in volume and paid-for apps are available in 6x fewer countries.

Behind the Open Source facade
What’s even more fascinating is how closed Android is, despite Google’s old do-no-evil don’t be evil mantra and the permissive Apache 2 license which Android SDK source code is under. Paraphrasing a famous line from Henry Ford’s book on the Model-T, anyone can have Android in their own colour as long as it’s black. Android is the best example of how a company can use open source to build up interest and community participation, while running a very tight commercial model. [updated in response to reader comments:] Again I ‘ll emphasize that the closed aspects of Android apply to the handset OEM (pre-load) ecosystem, not the software developer (post-load) ecosystem (see the comments section for a deep dive into pre-load vs post-load].

How does Google control what services, software and hardware ships in Android handsets? The search giant has built an elaborate system of control points around Android handsets.

To dig deeper we spent two months talking to industry sources close to Android commercials – and the reality has been startling. From a high level, Google uses 8 control points to manage the make-up of Android handsets:

1. Private branches. There are multiple, private codelines available to selected partners (typically the OEM working on an Android project) on a need-to-know basis only. The private codelines are an estimated 6+ months ahead of the public SDK and therefore essential for an OEM to stay competitive. The main motivation for the public SDK and source code is to introduce the latest features (those stemming from private branches) into third party apps.

2.  Closed review process. All code reviewers work for Google, meaning that Google is the only authority that can accept or reject a code submission from the community. There is also a rampant NIH (not invented here) culture inside Google that assumes code written by Googlers is second to none. Ask anyone who’s tried to contribute a patch to Android and you hear the same story: very few contributions get in and often no reason is offered on rejection.

3. Speed of evolution. Google innovates the Android platform at a speed that’s unprecedented for the mobile industry, releasing 4 major updates (1.6  to 2.1) in 18 months. OEMs wanting to build on Android have no choice but to stay close to Google so as not to lose on new features/bug fixes released. The Nexus One, Motorola Droid, HTC G1 and other Experience handsets serve the purpose of innovation testbeds for Google.

4. Incomplete software. The public SDK source code is by no means sufficient to build a handset. Key building blocks missing are radio integration, international language packs, operator packs – and of course Google’s closed source apps like Market, Gmail and GTalk. There are a few custom ROM builders with a full Android stack like the Cyanogen distribution, but these use binaries that are not licensed for distribution in commercial handsets.

5. Gated developer community. Android Market is the exclusive distribution and discovery channel for the 40,000+ apps created by developers; and is available to phone manufacturers on separate agreement. This is one of the strongest control points as no OEM would dare produce a handset that doesn’t tap into the Android Market (perhaps with the exception of DECT phones, picture frames, in-car terminals or other exotic uses of Android). However, one should acknowledge that Android’s acceptance process for Market apps is liberal as it gets – and the complete antithesis of the Apple vetting process for apps.

6. Anti-fragmentation agreement. Little is known about the anti-fragmentation agreement signed by OHA members but we understand it’s a commitment to not release handsets which are not CTS compliant (more on CTS later).

7. Private roadmap. The visibility offered into Android’s roadmap is pathetic. At the time of writing, the roadmap published publicly is a year out of date (Q1 2009). To get a sneak peak into the private roadmap you need Google’s blessing.

8. Android trademark. Google holds the trademark to the Android name; as a manufacturer you can only leverage on the Android branding with approval from Google, much like how you need Sun’s approval to claim your handset is Java-powered.

In short, it’s either the Google way or the highway. If you want to branch off Android you ‘re completely on your own and you need resources of the size of China Mobile (see their OMS effort) to make it viable (hint: China Mobile is the biggest network operator bar none).

The Open Handset Alliance is another myth; since Google managed to attract sufficient industry interest in 2008, the OHA is simply a set of signatures with membership serving only as a VIP Club badge.

Another big chapter in the Android saga is the CTS (compatibility test suite) which is the formal testing process by which a handset passes Google requirements. According to our sources, CTS extends significantly beyond API compliance, and into performance testing, hardware features, device design, UI specs and bundled services. CTS is based on the principle of ensuring baseline compliance, so it’s ok to add features, but it’s not ok to detract; compare this with Apple’s no-Flash policy. Note that beyond CTS compliance, there are additional commercial licensing agreements that OEMs have to sign for Google services and private line access.

CTS hampers Android’s progress as well, as it precludes OEMs from creating stripped-down versions of Android that would fit on mass-market phones – those shipping in the 10s of millions. CTS – and forward compatibility to the pool of 40,000+ apps – is Google’s main challenge for hitting a 2-digit market share in the smartphone market. These restrictions – and frienemy relationship between Google and its OEM partners – have stirred up discussions of an ‘Android foundation‘ within OEM circles

The Google Endgame
With Android, Google aims to deliver a consistent platform to its own revenue-generating services. For now, this is the ad business. But in the future, Google is aiming at voice (reaching the billions who don’t have a data connection) and Checkout (i.e. becoming the Visa of mobile).

Yet whatever the endgame, it’s worth realising that [from the manufacturer perspective] Android is no more open – and no less closed – than [licensable operating systems like] Windows Mobile, Apple OSX or PalmOS, Symbian and BREW; it’s the smartest implementation of open source aimed at driving commercial agendas. Android is much less about the do-no-evil rhetoric that the PR spinners in Mountain View would like us to think.

[Updated in response to readers’ comments:] so, is Android evil? No, it isn’t. It has done no harm – quite the contrary, Android has boosted the level of innovation on mobile software. The point of the article is not to vilify Google or concoct visions of Darth Vader; but to balance the level of openness hysteria with a reality check on the commercial dynamics of mobile open source.

– Andreas
you should follow me on twitter: @andreascon

[we are running on-site business workshops for companies who want to understand the commercials behind Android and OHA. Contact us if you ‘re interested. Or, if you are a mobile developer, voice out your views on Android and other mobile platforms in the biggest mobile developer survey to date. Join in at visionmobile.com/developers]

2010 in review: Under-the-radar trends at Mobile World Congress

[Following a week of frantic announcements and marketing hype at MWC 2010, VisionMobile’s Research Director, Andreas Constantinou looks at what really matters – the under-the-radar trends that will make the biggest impact in the next two years]


The annual Mobile World Congress, besides a circus frenzy of 49,000 people has also traditionally been a barometer of mobile industry trends. This year we look at the under-the-radar trends that may have gone unnoticed, but will make a major impact during 2010-11.

1. Building developer bridges
If there was a theme to this year’s Mobile World Congress it was Developers. This year’s App Planet show-in-a-show gathered 20,000 visitors, making the stands of LTE vendors and the CBoss showgirls look pale in comparison.

Imagine that. After years and years of efforts in ‘pushing’ the next-gen killer technology (on-device portals, Mobile TV, widgets, ..), the mobile industry is finally seeking inspiration beyond its own confines; at the software developers that will generate even more ‘apps for that’ and drive innovation that will actually pay for the bandwidth investments.

The race is on to grab the best mobile developers – and the mobile industry is spending big money on it. This year’s sponsors of mobile developer contests and events are not just platform providers or handset OEMs. Just look at the some of the sponsors of the WIP Jam developer event at MWC: Qualcomm, Alcatel Lucent, Ericsson, NAVTEQ, O2 Litmus, Oracle.

Developer mindshare is expensive as developers have to be attracted away from other platforms which they have invested in; and as such we would argue that the average DAC (developer acquisition cost) is much higher than the average SAC (subscriber acquisition cost). Thankfully there are plenty of marketing budgets to throw into the challenge. Palm is spending $1 million to build its own developer community in a dire effort to win back its once-thriving community of mobile developers.

It’s ironic given that it only took the mobile industry 20 years to learn what the software industry understood since the early 1990s; that the smartest people work for someone else, but they will gladly work for your platform if you give them the right tools and audience. And it’s most appropriate that this realisation is happening right now, as the two industries are coming together in the post-iPhone era.

One of the big announcements at this year’s MWC was the Wholesale Application Community (WAC), the new operator collaborative effort at connecting to developers. WAC is born out of the merge of two initiatives: OMTP’s BONDI (device API specs for securely accessing user information on the device) and the Joint Innovation Lab, JIL (which besides the hype has had delivered only a widget spec). WAC is an intent of operator collaboration, but one which yet needs to decide what it will be delivering.

The GSMA App Planet, WIP Jam, WAC and many other initiatives are trying to capitalise on one of the hottest, yet perhaps understated trends of 2010: building commercial bridges or matchmaking platforms between software developers and the mobile industry. Next question: what’s your platform’s DAC (developer acquisition cost)?

[shameless plug: at VisionMobile, we ‘re running the biggest mobile developer survey to date, spanning 400+ developers, 8 platforms and 35+ data points across the entire developer journey. Best of all, the results will be freely published thanks to the sponsorship by O2 Litmus]

2. Quantum leap in mobile devices
Industry pundits have been overoptimistic about the dominance of smartphones, time and time again.; but contrary to predictions, the smartphone market share has remained at circa 15-17% of sales as phone manufacturers have remained risk averse; Instead of porting high-cost, high-risk operating systems like Symbian and Windows Mobile on mass market phones, OEMs have preferred to patch their legacy low-risk RTOS platforms with high-end features (read touchscreen, widgets and the like) – see earlier analysis here.

Yet the mobile software map is about to change rather abruptly; not because of Android, but as chipset vendors make the leap to sub-40nm manufacturing. Chip cost plays a major role in handset BOM (bill of materials) and that cost is directly proportional to the surface area of the silicon (excluding royalty payments). With the move to sub-40 nm manufacturing processes, you can fit a GPU (graphical processing unit) and even ARM Cortex architectures within the same die size. This means that the smartphone BOM will reduce from $200 to $100 in only 2 years, based on our sources at chipset vendors – and implies that MeeGo, Symbian, Windows Mobile and Android can penetrate into a far large addressable market than was possible before.

Adobe is banking on this very trend, planning (hoping?) that Flash penetration will reach 50% of smartphones by 2010, or circa 150M devices sold per year. Similarly, Nokia sees revenue contributions from S40 handsets dwindle from around 55% in 2009 to 35% in 2011, replaced by MeeGo (circa 10%) and Symbian (circa 55%) – see slide from Nokia’s Industry Analyst event. This also goes to show Nokia’s continuing investment in Symbian, at a time when the future of the Symbian Foundation is shady.

Virtualisation technology is further accelerating the BOM reduction, by allowing the likes of Android and Symbian OSes to sit on the same CPU as the modem stack. OK Labs introduced off-the-shelf reference designs for virtualised Android and Symbian earler in 2009, while at MWC 2010 Virtualogix announced similar deals with ST Ericsson and Infineon. The third (and last!) virtualisation vendor, VMWare (who acquired Trango), is yet to make a similar move.

Last but not least, we are seeing new attempts at re-architecting low-cost smartphone software. Qualcomm is making a comeback with its BREW MP software positioning this as a feature-phone operating system and getting major commitments by AT&T. Kvaleberg (a little-known Norwegian engineering company) has productised its 10-years of feature phone integration know-how into Mimiria, a feature phone OS with a clean-room UI architecture that makes variant creation a swift job requiring only 2-3 engineers to customise. Myriad has announced an accelerated Dalvik implementation to speed up Android apps up to 3x, allowing those to run more comfortably in mass market designs.

3. Analytics everywhere
Another under-the-radar trend at MWC 2010 was analytics, which was making inroads into the feature set of products across the spectrum – from SIM cards and devices to network infrastructure solutions.

Application analytics is the only visible tip of of the iceberg for now, with analytics services available from Adobe, Apprupt, Bango, Distimo, Flurry (merged with PinchMedia), Localytics, Medialets, Mobclix and Motally. There is also plenty of innovation to be had here, with a startup (still in stealth mode) delivering design-time analytics on the type of applications and their use cases. Or another startup which is delivering personal TV program management, and monetising (among others) on the analytics on what TV programs users are watching, searching and sharing.

Moreover, analytics is slowly penetrating into operator networks for delivering smarter campaign management, subscriber analysis or network performance. There is a long list of vendor solutions here from Agilent, Airsage, Aito, CarrierIQ, Rewss, Umber Systems, Velocentm Wadaro and xTract among others. One related under-the-radar announcement was that from SIM manufacturer Giesecke & Devrient (G&D) who is launching a product for measuring network quality on the handset.

Taking analytic to the next level, the GSMA and comScore recently launched the Mobile Media Metrics product. This is the first census-level analytics product for measuring ad consumption and performance, starting with the UK market, which follows the lucrative business model of TV metrics.

Analytics is indeed the most underhyped trend, whose magnitude the industry will only realise in 5-10 years from now.

4. Mobile identity in the cloud
Cloud storage for personal data is ubiquitous on the Internet; Google Buzz, Facebook and Dropbox are perhaps the epitomy of this trend. The mobile industry has traditionally fallen behind, but is rapidly catching up in 2009-10 with the cloud-stored Windows Mobile UI, the social networking connectivity layer on the idle screen as seen in Microsoft’s One App, the socially-connected handsets from INQ Mobile, HTC and Motorola (Motoblur), and the 10+ solution vendors who offer addressbook syncing solutions (Colibria, Critical Path, Funambol, FusionOne, Gemalto, Miyowa, Newbay and many more).

We used to think of user data as migrating from the SIM card (the operator stronghold) to the handset (the OEM territory). Now the data is once again migrating away from the handset to the cloud, the home-turf of Internet players.

This is the next battlefield, in the landgrab to define the interfaces that determine access to our mobile identity. There are two camps competing here; the Internet players who have defined user data access standards (Google, Facebook and Twitter), versus the players who have defined mobile data access standards to date (network operators – see Vodafone 360 and handset OEMs – see Nokia Ovi).

This is one of the important battles that will determine who can reap the most profits out of user information by controlling the interfaces that connect them to the outside world (for background see Clayton Christensen’s thesis on the relationship between interfaces and profits). And it’s also what network operators should be rushing to standardise right now, in one of the last battles that will determine their smart-pipe vs bit-pipe future.

Comments welcome as always,

– Andreas

Low cost Android: crossing the $100 barrier

[Where’s Google’s Android going? Guest blogger Ben Hookway uncovers the race for low cost Android taking place behind the scenes of the mobile industry, and how this may change the face of Android as we know it]

Low cost Android devices have been forming a large part of R&D activity for some time now. Behind the scenes of the mobile industry all major players – including semiconductor vendors, software vendors, software services companies, ODMs, OEMs, and network operators – are putting considerable resources into rolling out low cost Android phones. It’s a silent revolution in the making that, once set in motion, should see Android shipments lift off from the single-digit millions.

So how low is ‘low cost’? Reports of $75-$110 reference designs are emerging from Asia; these are fully featured touchscreen devices, albeit with an EDGE (2.75G), rather than a 3G baseband chipset.

Why the interest in low cost Android? Low cost means volume which in turn means market share, and a consistent platform for the provision of services. There are multiple parties with a compelling interest in having a low cost Android device.

Semiconductor companies are under pressure to better address the market for  Android platforms. Qualcomm is the overwhelming leader in 3G chipsets for Android phones in Western markets. Their competition such as ST Ericsson, Broadcom and Infineon are responding and a low cost Android niche may be a way for them to break into the current Qualcomm dominance.

The majority of handset manufacturers are investing heavily in Android. With so much effort going into a single platform, there is an inevitable pressure to be able to scale that platform on as wide a range of phones as possible. While the lion’s share of press coverage is on ‘smartphones’, the mass volume still is in lower end devices.

Network operators are already developing and deploying ‘operator packs’ comprising of specific operator applications and service enablers, designed to run on Android devices. Longer term, Android may end up affording operators the standardised  platform for devices they have been craving for years; a standard platform they can consistently deploy their own ‘pack’ on. That’s assuming operators can gain access to low cost, mid-range Android devices on which they can deploy standard operator packs on and therefore extend the operator experience to the mainstream consumers.  Moreover, with subsidies widely practiced in the mobile industry, it is in the best interest of the operators to reduce the cost of Android phones.

Continue reading Low cost Android: crossing the $100 barrier

[Survey] Calling all developers: Making sense of a fragmented world

[Calling all developers: VisionMobile launches the most ambitious developer research to date. We also take the opportunity to look back at our past developer research to present some of the most interesting findings]

We ‘ve recently launched what is probably the most ambitious mobile developer research to date – benchmarking the developer experience across 400+ developers, all 8 major platforms (iPhone, Android, Symbian, Java ME, RIM, Windows Mobile, Flash Lite and mobile web) and the entire developer journey.

The project has been sponsored by Telefonica so that the research findings can be made freely available and widely publicized.

The most ambitious mobile developer research to date
Our research will take a closer look at developer needs and expectations by examining all aspects of the development life cycle, from design to delivery. More specifically, we’ll be looking at platform selection, platform features & application design, code development, tools &debugging, developer support, go-to-market and application marketing – as well as covering hot topics like open source and the future of network operators.

We ‘ve spent a long time in planning, peer reviewing and logistics of the research. Our methodology includes 200 one-on-one developer interviews over the phone in addition to an online survey and an in-depth hands-on platform benchmarks; we ‘ve designed this three-pronged methodology to combine quality, consistency and depth of analysis in what is the most ambitious mobile developer research to date.

Calling all developers
Are you a mobile developer? Register at visionmobile.com/developers to participate in our research via 30 minute one-on-one interviews.

We ‘re giving away a free MWC pass, a 500 EUR Amazon voucher and 20 wallcharts of the Mobile Industry Atlas which will be drawn out to participants. But do hurry, as the free MWC pass is only valid until Friday 5 February.

We have been excited in launching this project, as we believe this research will become a seminal point of reference for developer research, and provide new insights into every aspect of mobile application development. Plus – thanks to the generous sponsorship of Telefonica, the results will be freely available and widely disseminated in Q2 as part of the report Developer Economics 2010 and Beyond.

Cross-platform insights from our earlier survey
In view of our latest research, we’d like to share some noteworthy findings from our earlier developer research project.

Our research carried out during the first 8 months of 2008 included an online survey; we polled over 350 mobile developers across 60 countries and 5 platforms: S60, Android, Java, Windows and Linux.

We ‘ll share a small subset of 6 questions out of 40+ we polled during that survey – in what will probably be a small appetizer prior to the main course, i.e. our Developer Economics 2010 report coming in Q2 2010.

One of the most important questions we asked was also one of the most naive ones: What is your favourite mobile OS or platform?

Quite understandably, the S60 users and professionals went for S60 or Symbian in general, Android fans went for Android and so on. However, this is only half of the story.The Java group was the least ‘faithful’ to its platform, with only 62% of respondents citing Java as their favourite platform. The highest percentage of ‘faithful’ developers were those working with Linux, with 92%.  Linux was also the most popular platform, stealing away 3% of S60 and Java users and 7% of Android and Windows users. The next graph shows preferences for platforms, based on platform selected for survey. Note that all graphs are normalized to a total of 100 developers.

What is your favourite platform?

The next logical question after the ‘what’ is the ‘why’. Why is this your favourite OS or platform?

The answer on most people’s lips was ‘ease of use’, followed by ‘rich APIs’. ‘Faster to program with’ and ‘better dev tools’ were also popular answers, while financial and self-promotion reasons were almost non-existent.

How the world has changed in just under two years; post iPhone App Store, monetization and addressable market are much higher up in the agenda of mobile application developers.

Why do you prefer this platform or OS?

The most important factor in selecting an OS or platform was ‘feature-rich APIs’, while the least important was ‘responsive and accessible technical support’. It’s worth noting that Android developers seem to go for rich APIs, having the highest percentage, but complain about the lack of documentation (esp. in those early days of Android).

Most important factors in an OS or platform

In terms of the IDE, the vast majority of respondents believed theirs was lacking in terms of the UI editor for apps – which was particularly painful for Android and Java at that time. A well-integrated toolchain was another major pain point in the IDE for most developers.

What does the IDE lack?

It’s love or hate time! We’ll start with what developers love in their platforms. ‘Easy to use the APIs’ was the most popular answer, followed closely by ‘access to all APIs’. Linux and Android users were particularly impressed with access to all APIs, a sentiment not at all shared by their S60 colleagues. Windows users mostly went for ‘productivity due to the tools and environment’, while Java users preferred the ease of use of the APIs.

What do developers love about their platform?

What do developers hate about their platform? Well, most of them seemed peeved with the difficulties they faced in reaching the market; a reason that is mostly relevant to the way the market is set up (or was setup – in the pre- iPhone App Store era), rather than a fault in the platform. The main inherent fault most people found was the disparity between emulator and device performance, a view shared by all platform users except Android. Android users were also pleased with the production cost of the apps, as well as the support their platform offered. Unsurprisingly, less than half of the developers found something bad to say about their platform.

What do developers hate about their platform?

Of course the world of mobile development has gone through a sea of changes in the last two years. Apple introduced a single platform to target 50+ million handsets. GetJar, Apple and others paved the developer-to-consumer route to market. Google led the open source wave with the majority of the device platform published under a non-copyleft license. Adobe went back to square one introducing the Flash and Air runtimes to replace its fragmented Flash Lite installed base. And Palm left a thriving Palm OS developer community die a slow death. Mobile application development has gone through a roller-coaster history, with even more twists and turns behind the next corner.

So – stay tuned. The Developer Economics 2010 will tread new ground in understanding mobile developers, across platforms, regions and across the entire developer journey – and thanks to Telefonica’s sponsorship – we ‘ll be publishing the insights from the research far and wide.

Join in or spread the word!

– Matos

Behind the Smartphone Craze: redrawing the map of mobile platforms

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

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

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

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

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

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

The Mobile App Store Landscape 5 years Ai (After the iPhone)*

[Where is the app store frenzy heading after all?  Guest blogger Francisco Kattan discusses why it’s a winner-take-all game]

2009 was the year of the app store wannabes.  Following the remarkable success of the Apple App Store, OEMs, mobile platform vendors, mobile operators, and traditional aggregators either created new app stores or repositioned their existing offerings as app stores.  There are now between 24 to 32 app stores depending on who is counting (see Distimo’s app store report and the WIP App Store Wiki for reference), and more stores are surely to follow.  However, key questions remain about how the app store landscape will emerge after the current period of hysteria subsides and the dust settles.

– Are we going to see many app stores on each handset?
– Will app malls emerge to host multiple app stores within?
– Will operator stores gain critical mass?

Andreas Constantinou wrote an excellent article that defines the app store building blocks and predicts a “dime-a-dozen” app store future.  I will build on this post, but will offer an alternative view of how the landscape will evolve.

It’s a Winner-Take-All Contest
If we were to extrapolate the current trend, we could expect a future where each handset will host many app stores.   An LG Android device on the Orange network would have the LG App Store, the Android Market, and the Orange App Shop.  The Verizon version would have the V CAST store in place of the Orange App Shop.  On top of this, you could add the Getjar multiplatform store and several specialty stores for say, games, health, and productivity apps to name just a few.  Can you imagine the mess this would create for the user experience?  Which app store do I launch? Which apps do I find on which store? Are apps duplicated on multiple stores?  Are the prices the same across stores or do I need to shop around?  Are the versions of the apps consistent across stores?

Fortunately when the dust settles consolidation will occur and one app store will command nearly all the market share on each device.  Sure there may be a couple “also rans” with a small share, but as history has shown us, these two-sided platform battles tend to result in winner-take-all contests (see definition of two-sided markets here).   We’ve seen similar battles already play out on the web with Amazon winning e-commerce, eBay winning auctions, and Google winning search.

Why winner-take-all markets happen has already been well documented.  Economists Frank and Cook documented this phenomenon with their Winner Take All Society book and Rich Skrenta wrote a nice post on the battle for search supremacy that led to Google’s reign. In two-sided markets there are two sets of users (consumers and developers in the case of app stores) and once both sets of users pick a winner, it is very hard for competitors to gain much share. To cut to the chase, the app store battle in mobile will also result in a winner-take-all contest for the following reasons:

  • Low switching costs.  Given how easy it is for a consumer to switch from one app store to another, any advantage of one store, even if small, will cause more consumers to visit the better store. Why buy at the world’s second best store when the best store is only a click away?  This initial advantage could be in terms of time-to-market, quality or quantity of applications, user experience, or pricing.
  • The word spreads.  Word of mouth, accelerated by social networks, will cause a snowball effect attracting more and more users to the store with the initial advantage.
  • Developers vote.  As more consumers visit the winning store, more and more developers will prioritize that store for their applications offering that store an even greater advantage.
  • Economies of scale.  As one store gets significantly larger, it will enjoy greater economies of scale and therefore a cost advantage over competing stores.

A positive feedback loop cements the ultimate winner.  The more consumers that visit one store, the more developers will create apps for that store, and the greater the economies of scale the winner will enjoy. This battle will play out on a device by device basis with the Apple App Store already the winner on Apple devices (to be accurate, there was no real battle in this case as Apple’s policy does not allow competing stores).  A battle will play out for say RIM devices on the Verizon network (V CAST versus App World), another one for Android devices on the Orange network, etc.  So while we are initially headed for a “dime-a-dozen” app store landscape as Andreas predicted, over time we will see significant consolidation.  And as the number handset platforms themselves consolidate (surely to happen, but this is outside the scope of this post), we’ll have even fewer stores.

The Two Exceptions that Prove the Rule

  • Adult Content.  Niche stores will exist to satisfy needs that, by policy, are not met by the winning store.  Adult content stores such as MiKandi are a clear example.  Another example is Cydia, an app store for jail broken iPhones.
  • Enterprise App Stores.  App stores designed for IT organizations to manage application distribution and provisioning within an enterprise have unique requirements that the consumer stores will not meet.  In addition, the low switching costs described above do not apply to enterprise stores.  Examples of Enterprise stores include Mobile Iron and Ondeego.

Think Department Store, not App Mall
Rather than app malls that host multiple stores, the winning app stores will be like department stores with applications organized by category.  Games, health, productivity, entertainment, etc. will be departments within a big store, not specialty stores within a mall.

For clarification I’m defining a “mall” from the point of view of the customer experience, as in the real world.  Customers walk into a mall and discover multiple branded stores, each with its own checkout process.  An example of an app mall is the now defunct Nokia Download. You may recall that Nokia Download (formerly called Nokia Content Discoverer) touted its “advanced shopping mall experience” when it was announced, hosting multiple stores such as Handango and Jamster (called aggregators at the time).

The mall concept does not work because it hurts the user experience for no extra value:  users end up clicking on unknown store brands adding an extra layer of user interface that gets in the way of the app discovery process.  Moreover, if each store in the mall requires users to enter a form of payment the user experience suffers even more.  Although there are more reasons why Nokia Download failed, the user experience of its mall concept was an important factor and as a result Nokia is now busy copying the more successful department store model with the Ovi Store.

This does not mean that there won’t be aggregators behind the scenes.  In fact, the ingestion process could include a publisher like Symbian Horizon or a syndication service like Getjar’s.  However from a user experience point of view, it’s a department store, not a mall.  Amazon is a good model for the winning app stores.  There may be many sellers behind the scenes, but it looks much more like a department store than a mall.  There is one prominent store brand with many departments, a single shopping cart, and a single checkout process.

Will operator stores gain critical mass?
Once upon a time operators had a virtual monopoly for the distribution of mobile applications (depending on the region). Apple changed all that, of course, and the tables are now turned resulting in a developer exodus away from operators (for more on this see My Number One Wish for Operators).   To regain developer mindshare many operators are launching their own “app store style” stores, implementing many of the lessons learned from Apple, including the 70% rev share, developer set pricing, and click-through agreements.  Verizon announced V CAST, Orange has App Shop, O2 is testing Litmus, AT&T has App Center, Vodafone has 360, etc.  But will these operator stores succeed?  I think it depends on the type of device (feature phone vs. smartphone) and on the size of the operator.

Operators lose the app store battle on smartphones, but win on feature phones
Operators have a natural disadvantage to attract developers compared to the smartphone platforms because they are more fragmented.  There are dozens of operators compared to only a handful of smartphone platforms.  Developers are better off working with the small number of smartphone platforms to get worldwide distribution across all operators instead of targeting each operator separately (each with their own SDK, certification requirements, business terms, and fragmented device line-up).  To compensate for this disadvantage operators would have to add much more value with their own stores.  Carrier billing and access to network APIs are areas where operators can add value, but these capabilities are likely to also become available on the native handset stores.  Operators can also differentiate by tapping into their huge advertising budgets to market their apps, enticing developers whose apps are difficult to discover given the unlimited shelf space in the stores.

Another option for operators is to increase store switching costs for their customers by not preloading competing stores on devices they sell.  This would require customers who want to shop elsewhere to find, download, and install other stores on their own.   Verizon Wireless is a good example of an operator trying this strategy.  Verizon does not preload RIM’s App World in favor of its own (upcoming) V CAST store.  However, as operator influence over smartphone providers continues to erode (a trend surely to be accelerated as devices such as Google’s Nexus One are sold directly to consumers), this option will go away forcing operators to truly differentiate their stores, or else. We’ll see how this plays out, but operators will likely lose the app store battle on smartphones unless they find a way to significantly differentiate and do it fast before the native stores consolidate their advantage.

The battle for app stores on feature phones is quite different for two reasons:

  • This category of devices is much more fragmented and operators can gain an advantage by providing a common platform across them to attract developers. This approach neutralizes the fragmentation advantage that OEMs enjoy in the smartphone category, as discussed above, and is precisely the strategy that AT&T just announced at CES: AT&T will launch Qualcomm’s BREW Mobile Platform across its mid-tier devices to attract developers for its AppCenter store
  • Operators enjoy much more influence over feature phone specs and content than on smartphones.  This will enable many operators to exclusively preload their own stores on these devices essentially blocking alternative stores.

Although the smartphone category is where the growth is, there is still a very large and mostly underserved market at the high end of the feature phone category.  These devices have large displays and often full QWERTY keyboards (touch or physical), representing a large untapped market for mobile applications that operators can serve.

However only tier 1 operators are large enough to attract developers to their own stores.  Even tier 1 operators are better off getting together to form a much larger market to attract developers as we have seen with the JIL alliance or the collaboration between AT&T, Orange and America Móvil (just announced at CES).  Smaller operators will have to rely on third party stores that can aggregate applications and syndicate them across multiple operators.  A good example of an operator pursuing this strategy in North America is Sprint.  Sprint has announced that it will remove its own application offerings from its smartphone line-up and will partner with an external aggregator to launch a white label store for its feature phone line-up.  Other operators will have to follow the same approach.

What are your thoughts?  Do you buy into the winner-take-all argument?  Are we going to see app malls or department stores?  What role do you believe operator stores will play?

– Francisco

[Francisco Kattan has worked in the mobile industry for 10 years and has deep expertise across the entire ecosystem, including devices, operators, developers, and content providers.  Francisco has held leadership roles at Edify, Openwave, Adobe, and currently Alcatel Lucent where he is Senior Director, Developer Ecosystem.  You can follow Francisco via his blog, on Twitter and he can be reached at franciscok [/at/] stanfordalumni.org. This post reflects the author’s personal opinion and not necessarily that of his employer.]

* As an aside, the launch of the iPhone changed the ecosystem so dramatically that we need a new way to measure time in mobile.  Any discussion about how the mobile ecosystem works must specify Ai or Bi (After or Before the iPhone) in the same way historians use BC and AD to date events.